An official assessment of Ukraine's progress in European integration will be given soon. Unfortunately, according to specific components of the process, we are still in binaries - we are talking about the unfinished multi-year reform of the Accounting Chamber and the implementation of the standards of the International Organization of Supreme Audit Institutions (INTOSAI). Since 2019, we have implemented the approved change strategy by as much as 15%. It seems that there are a lot of incentives - Ukraine is more interested than anyone in the development of effective control bodies, especially now, when the State Budget is critically dependent on international aid, and every penny must be spent as rationally as possible, but the reform has stalled. ZN.UA spoke with Remi Duflot, Deputy Head of the EU Delegation to Ukraine, about these problems and ways to solve them. It is significant that we met on the day when parliamentarians failed to appoint three new members of the Сhamber, which has been without a leader since April of this year.
− Remi, You and I are talking at the moment when the fate of the members of the Chamber of Accounts is being determined. And it seems to me that it is very important to talk about the reform that, unfortunately, has failed. Therefore, our first question is how important it is to reform the controlling bodies in Ukraine, and what is the weight of the changes in the Accounting Chamber in this process?
− That's a very relevant question. The Accounting Chamber is what we call a Supreme audit institution, and Supreme audit institutions are essential building blocks of the accountability chain in any democratic country, in any system, including in Ukraine. Perhaps particularly in Ukraine, because as we know, the accountability chain is still in the process of being built. We know it still has weaknesses. As a cornerstone of the accountability chain, the Accounting Chamber (ACU) should play a very important role - we hope, a more important role, than it plays today in democratic oversight.
This is possible if it starts following international best practices, meaning not only dealing with the financial audits or compliance audits that they are doing or trying to do today. But also evolving towards taking a broader view of the reliability, effectiveness, and efficiency of policies, with the objective, of course, of playing a role in improving policies over time. And this is an aspect that is not regarded enough today, and this is an aspect that should be part and parcel of any reform of the ACU as it is going.
− So, when should the Accounting Chamber implement international standards, and why, in your opinion, hasn't it happened yet?
Well, the issue is that the law of 2015 allows the use of international standards, INTOSAI, EUROSAI, and others, which are the relevant standards for such institutions as the ACU. But at the same time, the law opens or even paves the way towards a lot of exceptions and backward steps by requiring these standards to be aligned with the Ukrainian constitution or legal framework. Therefore, it's putting the ACU in an untenable position, where it has to respect international standards, but at the same time, the result of its work, when it is done in line with those international standards, can be challenged in court, as it often happens. That's to my understanding, the only country where the Accounting Chamber's conclusions can be challenged in an administrative court. This is very strange.
Usually, an audit is something that has to be seen as positive. It is looking at inefficiencies, and the idea is not to blame the institution or the body that has inefficient policies, but to help it to improve them its policies. This shift requires a serious mental shift from the previous practice of control and revision at the state level. This is certainly one of the reasons why this reform is difficult and time-taking.
The fundamental point is that international standards should be allowed to function without limits.
But again, for them to function fully, there needs to be a stronger link with how audit recommendations are being implemented, followed up on, and monitored. This monitoring and follow-up should also involve the Parliament, as the authority that has the ultimate responsibility for authorizing and then supervising state expenditure and revenues. This is important.
I want to stress that our project EU4ACU (EU for the Accounting Chamber of Ukraine), which we launched three years ago, has successfully worked with the current board members to put in place procedures that would allow international standards to be fully implemented in financial, compliance and performance audits. But again, for this to work, the legal framework has to be adapted. We are now in a situation where practice could be so much better, that it puts pressure on the legislator to change the law to align it with international standards. I think this is the right way to go.
− When the AC started changes, it focused on the experience of Poland and actively cooperated with Polish colleagues, took better practices, but in the end, we did not get a Polish result. Is this a problem with the Polish experience or a problem with our vision of the Polish experience?
− I think one of the main issues is the independence of the ACU, and I think that's the main difference between the example that you give and the actual situation of the ACU today. The ACU is not financially or even administratively independent, since it for example continues to report to the Ministry of Finance.
This is not a sound situation: just imagine an auditing company coming to a bank, belonging to the bank, and reporting to the bank about its own functioning. This is not a normal situation, and we would never see this happen in the private sector. Why should it be accepted in the public sector? That's one thing.
The second thing is the fact that the mandate of the ACU is too limited, meaning the body cannot fully audit local budgets. It cannot approach the state-owned enterprises, and it cannot audit off-budget spending such as pension funds. That's a difference with Poland where the public auditor can audit all public funds including the consolidated financial position of the state, the only one that give the actual financial position of the state. This has of course importance also when it comes to fighting corruption.
If we look at corruption, let's take this example of why audit is important and why strengthening the mandate of the ACU is important. In the past, and perhaps still, corruption schemes often involved companies owned by the state. That was a way of letting money go out of the system, right into private possession. This would have been more visible had the supreme audit institution been allowed to look into the situation of state-owned enterprises. Just an example of why having a full auditing mandate for the Supreme Audit Institution is important. I think these are two examples only, but important ones, of how the Polish system, or for that matter, the audit system of any EU country, including the audit system of the EU institutions themselves, differs from the Ukrainian one.
As you see, the reform was started, but without giving the Chamber all the tools, the mandate, and sometimes the means it needed. Without tools and mandate the reform of the Accounting Chamber is doomed to be slow at best, unsuccessful at worst.
− Remi, last year when the attempts to change the Head of the AC, we noticed a significant attempt by the state authorities to control the next head. We understand that such a controlling institution should be independent, but there will be an attempt to get control over it from any government. Are there any barriers that may prevent this?
− First, thank you for confirming the political importance, the political significance of public accounting and audit. It is a very powerful means of a healthy system of checks and balances in the state. This is why, again, the accounting chamber should be fully independent.
If it were fully independent, with a selection process based on independence, professional competence, and integrity, what you are describing, could not happen. But the first element of the answer is that the independence of the Accounting Chamber should be established in law. Ideally, in the constitution, if Ukraine changes its constitution, which maybe could become possible after the war. Until then, it would be a good idea to ensure the independence is clearly stated in the law on the ACU and other relevant laws.
But the second aspect is the selection process itself: as said, it should be made in a way that allows only candidates with proven integrity, proven political independence and proven professional adequacy to be allowed to be selected to the ACU Board
One way to do this at this point is what Ukraine has done with success, in similar circumstances, in the judicial system. The level of public trust in the system was very low, partly as a consequence of the selection process of judicial bodies being opaque. Ukraine tried to remedy this by instituting mixed selection commissions, not to appoint, but to nominate adequate candidates. So, we could imagine that a similar system could be put in place in this situation. We're facing the same issue where public trust in the institution is low precisely because there is suspicion that these institutions are not politically independent.
In reality, an independent audit chamber would be allowed to choose its audit subjects itself in terms of who is to be audited, what has to be audited – using international standards for risk assessment to support these choices, and of course monitoring and following up on recommendations, instead of spending time and budget in courts to fight the challenges posed by those who have been audited -- by and large an amazing situation.
− We have also repeatedly observed a very strange distribution of audits among the members of the AC. That is, certain members of the AC wanted to do some specific audits, and others did not want to. This is also a sign of prejudice and, possibly, corruption. Maybe in this case it is possible to apply some kind of automatic division or some kind of hidden division of affairs so that the member of the accounting chamber cannot choose what he wants to do. Or are qualifications and skills more important?
− It's a good question, a little bit technical, but I will try to answer to the best of my knowledge. Foremost, in any system like this, as I understand it is a collegial model, it is sound practice, and I think it's a good practice of the current board and its president, to distribute tasks depending on professional qualification. So, this task distribution system, as you described it, makes sense.
Now, what counts afterward is the transparency of the audit procedure including the methodology behind the choices of audit subjects, which should be based on international standards that should ensure transparency of the procedure. And then, of course, the publicity given to the reports and the monitoring of their recommendations. In all this, if the work is done professionally, one individual member of the board could not change the game.
When you have a transparent system, as required by international standards, the possibility for one single person to influence the process is very limited, and therefore it makes sense to have a distribution relevant to professional qualifications.
− One of the complaints against the ACU is the lack of high-profile investigations. There are no stories about billions, you are doing some boring job. Are these loud investigations, like journalistic investigations, really a priority for such an organization?
− You know, the essence of auditing work is to be boring (everyone is laughing – Y.S.). I mean, there is a methodology that is established, and it is based on solid risk analysis. This is the building block of the approach that should be followed.
If you follow the risk analysis methodology, you identify where the risks are bigger, and you define accordingly where and what should be audited. So, there is no room for what you said.
− But there is another side of the coin - the reports published by the AC are very boring and often incomprehensible. And their news, on the contrary, is also confusing and incomprehensible to no one. Is it necessary for such an organization to work on communications and reporting on the results of its work to society?
− That will be part of this reform. I think one of the issues of the ACU and state audit in general in this country is the lack of interest in society towards it, despite its importance.
As you say, it's not necessarily in its essence a fascinating subject for the public at large, but civil society organizations, specialized ones, should have an interest in what's happening there. Again, it's not as exciting, for instance, as the fight against corruption. But it is exciting in the sense that it can explain where taxpayers' money goes and based on that, follow-up actions can be taken to identify potential problems such as corruption, and propose solutions for how to strengthen internal controls, systems, procedures and policies to avoid this going forward.
It would be good policy of course to communicate more and better, maybe not on the results of the audits themselves, because this is really for specialized people. The public does not have to understand every line of those reports. But they have to understand what the Accounting Chamber does and why, and how, and why it is good for the country. This is something that deserves strategic communication.
− Another problem of the AC is reports on their work. Currently, the number of conducted audits is the main indicator of their effectiveness. Do such KPIs are needed for such organizations? I mean, you have to conduct 60 reports per year, and they check 63 per year.
The ACU is also a bureaucracy, and like any bureaucracy, it responds to stimuli. If you give the wrong stimulus, it will respond by not going in the right direction.
The number of audits has its importance, so let's not disregard it, because if there is no audit, there is no impact. What is important is the impact of the audit and that's why I insisted in the beginning of our discussion on the recommendations, the monitoring, and the follow-up given to them, and on the importance for the Parliament to have oversight of how the audit recommendations are implemented. The legislator should be interested in that because it explains how efficient policies are and how they can be improved. Normally, the legislator should be interested in efficient policymaking.
− Remi, the strategy for the development of the AC was approved in 2019 and is currently being implemented at 15%. Do we need to implement this strategy, to accelerate, make an effort, or does it already make sense to simply make a new strategy?
− What I know of it is still very relevant. It's about strengthening the role and the influence of the ACU in the political oversight, in the chain of accountability. It was about strengthening the organizational and professional capacity of the ACU. It is about strengthening society recognition and trust, we discussed communication that should contribute to that goal, and integration into the international audit system, which will be very difficult, unless the mandate is in line with international standards and best practices.
We see all four points are still relevant today, so I don't have any advice specifically on whether the strategy should be rewritten, updated, or revised entirely. But certainly, those foundations, those four defining features, they have to remain in any strategy that will be adopted by the ACU for the coming years.
− Given that we've only completed 15% of our tasks since 2019, can we go faster?
− First, you need to adopt the right legislative framework. It's important to make the ACU independent, including by removing reporting to the Ministry of Finance, ensuring budget independence and methodological independence. The ACU work should be based on international standards, so that we all recognize what is being done and how in the ACU.
− But it's also a long process.
− It's the second part of my answer to your previous question. The way of accelerating the reform is starting implementation through working-level instructions, and this is a very time-consuming process. It's not only about writing instructions but also properly implementing them, and sometimes this a cultural disruption compared to previous practice. Any cultural change requires time. But reforming a state requires time in general, many reforms are underway; it's not too late to start.
− The AC is not the only institution that does not cope well with the tasks and does not work very well. Now there are such thoughts about other institutions, well, if it didn't work, maybe we'll just disband them. So, is it possible to live without the AC?
− Of course not.
It makes no sense to deprive the state of essential instruments of policy monitoring. Let's be honest, there are not so many people or institutions to do policy monitoring. This one is an essential part of the accountability triangle between the Government, the Parliament and the Supreme Audit Institution, we cannot just remove one cornerstone!
The Chamber is an institution with a very strong reform potential, so let that reform potential be unleashed, and then we will come back to that question. But first, give it a chance. And this is, I think, the approach that we have on the EU side, we have this project working with the ACU for three years now. They have been very instrumental in developing the internal instructions on how to use and implement international standards, so now let's use and implement those standards. But for that, again, the law must change.
− It is typical for Ukraine, when implementing the best practices, to get a completely different result in practice. If it suddenly happens, will we still have a chance to restart the reform?
− I think many preventive measures have to be taken to avoid this to happen, to start with.
Then, a lot is about the human factor. And the right thing to do, of course, is to select the right people for the right function. That's how good management can happen.
− We have certain problems with the selection of the right people, and that is why we are worried, objectively.
− I know, but the example of other institutions (NABU, SAPO) shows that there are ways of tackling this issue. There is a need for this reform, which is instrumental for accession to the EU, and perhaps this will also help speed it up, because it has links to so many other important reforms.
Read this article by Yuliya Samayeva in russian and Ukrainian.