Reforming the Accounting Chamber. Finally Again

The Accounting Chamber is an important body in the system of state authorities, as it is responsible for controlling the use of state budget funds. Similar agencies in developed countries are powerful and influential institutions with extremely high authority and expertise. We are striving for the same result, though mostly under the coercion of our Western partners, by reforming the Ukrainian Accounting Chamber (AC).

In fact, the Accounting Chamber should monitor the efficiency of the use of public funds by various state bodies, which, among other things, may be essential when considering the expansion/contraction of funding for these bodies, the (in)expediency of their reorganization or liquidation, etc. Given this role of the “supervisor of public finances,” both the members of the Accounting Chamber and the body itself must have a clean reputation and indisputable authority so that their audits are perceived as a professional objective assessment, and the implementation of recommendations helps to improve the state of budgetary funds administration.

The role of the Accounting Chamber has become even more important since the beginning of the full-scale war, when the Ukrainian budget is supported by a large number of foreign donors who want to confirm to their taxpayers that the aid allocated to Ukraine did not end up in the pockets of corrupt officials, but was used for its intended purpose to fight the aggressor.

However, the current legal regulation of the activities of the Accounting Chamber creates a number of problems that significantly reduce the effectiveness of this body and, in some cases, even undermine its activities in general. That is why international partners have repeatedly called for the adoption of amendments to the legislation on the Accounting Chamber to reform it in accordance with the best international practices. The draft law to that effect was recently adopted as a basis by the Parliament.

Among the most important changes called for by the international community are expanding the Chamber’s powers to cover all public finances and strengthening the independence of the Accounting Chamber.

With regard to the expansion of powers, this body currently audits the state budget revenues and expenditures (including the use of state budget funds provided to local budgets and funds of compulsory state social and pension insurance). Instead, the draft law proposes to give the Accounting Chamber the right to audit not only the revenues/expenditures to/from the state budget, but also the budgets of local governments, state-owned enterprises and extra-budgetary funds.

In times of war, the issue of the efficient spending of funds (much of which is received from external donors) is of critical importance. After all, in addition to the understandable need to purchase weapons, vehicles and other equipment for the actual conduct of the war, honest, transparent and efficient use of funds provided by foreign taxpayers is a vaccine against the accusations of populists who demand to stop further support for Ukraine, since most of the funds provided allegedly end up in the pockets of officials and Ukraine is a failed state.

In addition, it should not be forgotten that foreign funding cannot be spent on the war itself, but is an injection of funds to support the social sphere. Therefore, the separation of such funds and the ability to demonstrate the results of their spending are critically important for both international partners and the Ukrainian population. It is not necessary to list here the number of scandals that have arisen in different parts of Ukraine, where local governments spent money on roads, parks, and squares instead of purchasing drones, assisting in the production of various types of equipment, and supporting the treatment and rehabilitation of veterans.

Expanding the Chamber’s mandate to cover auditing extra-budgetary funds also seems to be a useful and justified step. For example, the issue of pensions and the functioning of the Pension Fund in Ukraine is a problematic topic even in peaceful times. Instead, the payment of pensions now and in the future, given that a large number of able-bodied Ukrainians are leaving for other countries, is a strategic challenge for the state as a whole. Therefore, the audit of the receipt and expenditure of funds by extra-budgetary institutions can be a valuable link to obtain the information necessary for making management decisions, whilst also serving as a mechanism for improving the efficiency of fund management.

Therefore, the extension of the Accounting Chamber’s powers to all public finances should, in theory, contribute to greater transparency and efficiency of the formation and use of budgets at all levels and answer the questions of both Ukrainian society and international partners. In addition, the draft law provides for certain procedures for consideration of reports and recommendations of the Accounting Chamber by the committee, so that the activities of the Accounting Chamber would not be exclusively declarative but of a more applied nature.

It is also necessary to pay attention to strengthening the independence of the Accounting Chamber because without this step the Chamber may, on the one hand, not be strengthened as a result of legislative changes, and, on the other hand, become a punitive tool in the hands of the state, which will be targeted at disloyal heads of state bodies, local governments or other officials.

Firstly, the financial independence of the Accounting Chamber is strengthened by the fact that salaries are defined in the law. To some extent, this should protect the members of the Accounting Chamber from pressure from the Cabinet of Ministers or parliamentarians when approving the state budget. It will also reduce the influence of the Ministry of Finance on the budget and salaries of all officials of the Accounting Chamber.

Secondly, it is envisaged to introduce the position of state auditors who will not be civil servants (although they will still be obliged to file declarations in accordance with anti-corruption legislation). This is necessary to reduce the influence of the National Agency of Civil Service or the Cabinet of Ministers of Ukraine on such auditors. After all, as long as such auditors are civil servants, they can be subject to various kinds of investigations, which can actually disrupt their work on auditing certain budgets. In other words, such a change should break the vicious circle when the Accounting Chamber can audit certain state bodies, and these state bodies can audit the auditors of the Accounting Chamber.

As for the appointment of the Accounting Chamber members (whose number is to reduce from 13 to 11), the draft law provides that it should be done through a transparent competition in which international experts will have the decisive vote (in this case, analogies are drawn to the competitions for the heads of anti-corruption bodies, when international experts should ensure an objective assessment of candidates, not the promotion of convenient and controlled persons by high-ranking officials).

In addition, an evaluation of the Accounting Chamber's activities is introduced once every five years. This assessment should be conducted by a member of the International Organization of Supreme Audit Institutions.

Thus, the draft law No. 10044-d is intended to qualitatively strengthen the Accounting Chamber as a truly independent body that should help Ukraine to use public finances more efficiently, increase the transparency of budget processes and meet the demands of both Ukrainian society and international partners. A pleasant bonus will come in the form of budgetary assistance from the United States in the amount of $500 million to be provided after the adoption of the draft law in the first reading and $1 billion after its adoption in general. The real challenge is to implement these changes in practice because experience shows that it is the practical implementation of the reform that causes the greatest resistance from the old system.

Read this article in Ukrainian and russian.