Audit office: Finance ministry made serious errors calculating state budget

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Revenue, expenditure, investments, financing transactions in the State Budget 2020 are incorrect because the Ministry of Finance made accounting and calculation errors totaling hundreds of millions euros, a report by the National Audit Office shows. The difference between expenditure and revenue is approximately €365 million.

Amounts that should not be counted as revenue have also been registered as revenue, and some amounts have been left out when calculating the amounts of expenditure, investments, and financing transactions.

The audit report "Accuracy of the annual accounts of 2020 and regularity of the transactions of the state" of the National Audit Office published today shows that the Ministry of Finance has presented the revenue of the budget higher and expenditures, investments, and financing transactions lower than it actually is.

As a result, the difference between revenue and expenditure in the state budget has been presented as more favorable by €365 million. According to the State Budget Act 2020, revenue exceeds expenditure by €109 million, but the audit revealed that the planned expenditure was higher than revenue by €256 million.

The revenue budget has been presented as €115.87 million higher, expenditure as €249.58 million lower, investments as €5.56 million lower and financing transactions budget as €43.04 million lower in the consolidated section.

"I regret to say that the Ministry of Finance has erred in calculating the difference between expenditure and revenue by an average of €1 million per each day of the year," Auditor General Janar Holm said about the results of the audit report.

"This means that the process of preparing annual state budget by the Ministry of Finance does not ensure the accuracy of the amounts in the consolidated section of the act to be submitted to and passed by the Riigikogu."

The National Audit Office drew attention to the same issue last year because some of the consolidated amounts of the State Budget Act 2019 passed by the Riigikogu were also incorrect. Back then, amounts from the State Budget Act 2018 that had not been corrected had also been left in the State Budget Act 2019 in a copy-and-paste method.

As of 2020, the state budget is activity-based, and a detailed budget breakdown has been abandoned. As such, the explanatory memorandum to the draft State Budget Act is the main document from which the Riigikogu can obtain information necessary for decision-making.

"Unfortunately, when reading the explanatory memorandums, it is not clear on what and how much money is spent," Holm said. "They describe activities necessary for achieving a goal, but not the amount required for implementing them. In addition, the explanatory memorandum provides no information on which projects depend on foreign funding."

The audit revealed that the general principles of comprehensibility, consistency and comparability, relevance and optimality have not been complied with when preparing the draft State Budget Act 2020 and its explanatory memorandum. 

For example, the draft legislation and explanatory memorandum consider investments as three different amounts - €407 million, €838 and €866 million. The content and reasons for the differences have not been explained. As such, the total amount of investments presented in the State Budget Act 2020 does not match the total amount of investments presented in the explanatory memorandum. The data on the total amount of expenditure also differed in the Act and its explanatory memorandum, varying by €1 billion. Amounts of expenditure range from €10.7 billion to €11.7 billion.

The amounts of budgets for revenue, expenditure, investments and financing transactions of constitutional institutions, the Government Office and the areas of government of ministries are correct in the State Budget Act 2020. As the Act is very general, the National Audit Office inspected whether the authorities have based their transactions on the budgets allocated to them by law.

On a positive note, it was revealed that the report on the implementation of the state budget 2020 provides reliable information on the revenue accumulated, expenditure incurred, investments and financing transactions carried out by the state. The National Audit Office finds that the transactions of the state have substantially been carried out in accordance with the State Budget Act, the State Budget Act 2020, the Supplementary State Budget Act 2020, and the Act Amending the State Budget Act 2020.

In addition, the accuracy of the state's annual accounts was also inspected as part of the audit. In the opinion of the National Audit Office, the state's annual accounts 2020 are accurate and present the state's financial status, financial performance and cash flows of the concluded accounting period fairly in all material aspects, apart from the remark on the balance of property, plant and equipment.

Ministry admits state budget mistakes

The Ministry of Finance agrees with the audit of the National Audit Office and promises to draw up a draft state budget with more substance for the coming year.

"Errors identified by the National Audit Office in the consolidated part of the state budget prepared in fall 2019 were identified by the Ministry of Finance last year and it notified both the government and the financial affairs committee of the Riigikogu. Errors occurred in consolidation entries, which are not easily verifiable, but all government budgets and budgetary position calculations are still correct," deputy secretary general for fiscal policy at the Ministry of Finance Sven Kirsipuu said in a statement.

Kirsipuu noted that the errors are unfortunate. At the same time, he noted that in 2019, the ministry prepared an activity-based budget for the first time and that the time between final budget decisions and the preparation of the document was minimal and the technical capacity for automatic error detection was low.

"In recent years, we have changed our work processes, automatized error detection and are moving towards increasing the functional capacity of information systems to minimize the number of possible errors," the deputy secretary general said.

"We agree with the results of the audit and confirm that a correct draft State Budget Act, an understandable explanatory memorandum to the draft State Budget Act, the substantive introduction of activity-based budgeting and clarity and compliance with the principles of state budget planning and execution are important to us," he added.

Kirsipuu also pointed out that the Ministry of Finance has developed a new draft State Budget Act to increase the readability, transparency and detail of the budget, which will enable a draft state budget with more substance to be prepared for 2022 already.

Editor's note: This article was updated to add the Ministry of Finance's response.

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Editor: Helen Wright

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