National Audit Office: Reforming state budgeting has failed

The 2020 state budget bill (picture is illustrative).
The 2020 state budget bill (picture is illustrative). Source: ERR

Chief Auditor Ines Metsalu-Nurminen says that reforms of public sector budgeting have failed in recent years and guidance from the finance ministry has been weak.

"The mistake in calculating the difference between costs and expenses in the state budget, totaling €365 million, is just a symptom of the problem. Another symptom is the Ministry of Finance failing to observe principles it has itself laid down in putting together the explanatory memo. Activity-based budgeting has resulted in double budgeting and relevant time cost in ministries," Metsalu-Nurminen writes in the audit office's blog.

The chief auditor finds that ministries are unable to convert their expenses into an activities-based form due to poor information systems and frequent rule changes. Guidance from the finance ministry and supervision of the budget process are also lacking.

"As I see it, things started going downhill when the switch to activity-based budgeting was tested in a few ministries. The Ministry of Education and Research and the Ministry of Social Affairs were leading the pack. However, the pros and cons of such experiments were never measured nor the question of whether an activities-based budget at least creates premise for better decisions answered."

The National Audit Office warned several years ago that ministries' pilot projects failed, which is why the chief auditor believes taking activities-based budgeting forward should have been weighed back then.

Metsalu-Nurminen writes that basic aggregation mistakes such as the ones in the 2020 budget already existed in the 2019 state budget that did not use activity-based budgeting.

"I remain skeptical in terms of the finance ministry's aim of rendering the budget more detailed over the coming years improving matters. On the contrary – it is looking like even more futile work and confusion are in store. The auditor general delivered the same warning in a letter to the finance minister three weeks ago where he comments on the bill and finds that the entire process needs a new approach and that fine-tuning a broken model cannot yield results," Metsalu-Nurminen writes.

She adds that the errors do not mean the money has been embezzled. "We can count unnecessary or non-priority expenses here that are either not necessary in the given volume or at all and the existence of which cannot even be determined due to vague phrasing."

Metsalu-Nurminen also warns that ministries are exhibiting weariness with budget reforms, meaning that the information reaching the finance ministry is of increasingly modest quality, with in-house double planning and accounting on the rise. "The latter hikes the risk of fraud – or money being embezzled," she adds.


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Editor: Marcus Turovski

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