I can once again confirm that the state's annual financial report for the previous year is materially accurate. That means that, with one exception, the report fairly and correctly reflects the state's financial position, operating results and cash flows. The government's accounting is generally well managed.

The Ministry of Defense's housekeeping is not in order

The troubling news is that the Ministry of Defense's housekeeping remains in poor order. Unfortunately, this is not new. Significant problems with military assets have accumulated over a long period.

Four years ago, in 2022, I told the Riigikogu that the accounting of Defense Forces assets was inadequate and would likely require renewed attention in the near future. That is exactly what has happened. Society has made a considerable effort to provide more money for national defense. Large quantities of fixed assets and supplies have been purchased, but persistent problems in work organization and attitudes have only deepened the confusion.

I want to emphasize that proper accounting for expenditures and inventories is not needed for the peace of mind of Estonian accountants or auditors. It is also misleading to downplay the problem by suggesting that the National Audit Office expects every cartridge and pair of boots to be counted individually. We have not even reached that level of detail.

We are talking about weapons and weapons systems, components of weapons systems, expensive ammunition, camouflage equipment, and fire-control and communications systems.

What should concern defense officials is the possibility that they do not have a sufficiently clear overview of the assets and funds under their responsibility. Accurate knowledge of existing stocks, their locations and whether they are usable is part of military readiness.

The public must have confidence that money allocated for national defense is being used wisely. The slogan "more defense capability for every euro" rings hollow if it takes years to establish how millions and millions of euros were actually used.

I have been asked whether speaking publicly about problems in the defense sector constitutes a security threat to Estonia. It certainly does not.

Estonia's strength lies in the fact that even problems in the defense sector can be openly discussed and solutions demanded. That is precisely how civilian oversight should function in a democratic state.

A major step forward would be ensuring that at least all supplies delivered to warehouses this year are properly recorded. Defense Minister Martin Herem and I have discussed this repeatedly since he took office.

Today I will not spend much time discussing contracts for defense assistance procurement and related financial matters. Following our audit, the media has continued investigating artillery shell procurement deals, and law enforcement authorities are also examining the background of those transactions.

However, I do want to address how the Estonian Center for Defense Investments monitors its contracts and their implementation.

Last year we spoke about problems with advance payments. We found such problems again this year, including advance payments that had not been properly reconciled. But the issues extended beyond that.

Contract terms were not followed, or contracts had not even been signed. Due to errors in documentation, it was impossible to determine under which contract goods had been received or whether they had actually arrived. In some cases, authorities did not verify whether the goods purchased and received matched what had been agreed upon.

This may sound surprising, but auditors are human and understand that mistakes happen. However, these were not isolated errors.

We reviewed only 64 contracts, yet even within that sample we found systemic problems. In such an environment, the state may make incorrect payments, equipment may never arrive and supplier breaches may go unnoticed. The state may lose money, and the defense forces may be left without equipment they expected to have.

According to the head of the Estonian Center for Defense Investments, efforts to improve contract management have been underway since the beginning of the year. Hopefully next year's report will reflect the results of that work.

The goal should be straightforward: at any moment it should be known what was ordered, what was paid for, what has been delivered and whether it is usable.

The Ministry of Defense must ensure that both asset accounting and contract management have clearly assigned responsibilities and deadlines.

Budget approval has become an exercise in retroactive validation

The audit of the state's annual report also identified other issues affecting all ministries to varying degrees.

I have repeatedly spoken over the years about the quality and transparency of the state budget. I will not dwell further on the budget passed by the Riigikogu. Instead, I want to address the internal budgets approved by ministers for their ministries.

Those budgets are supposed to define how much money may be spent and for what purposes. At least that is the common understanding.

In reality, this basic principle has increasingly been abandoned.

In two-thirds of ministries, ministers approved the final allocation of their 2025 operating budgets only months after the budget year had already ended. The minister's signature authorizing spending merely confirmed that the money had already been spent. Budget approval has become an exercise in retroactive validation.

As a result, budget approval has become a formality rather than a meaningful decision-making process. If reality does not match the budget, the budget is simply adjusted afterward.

But a signature given after a budget year has ended does not legalize spending that lacked proper authorization when it occurred.

Naturally, budgets are easier to prepare after the fact because by then it is known exactly how much was spent. But we should take the operation of our state more seriously.

If we expect government agencies and civil servants to take budgets seriously, ministers must do so first. Otherwise, the message is clear: spend as you see fit and we will complete the paperwork later.

Compounding the issue, we still lack a clear overview of how much future budget funding has already been committed through contracts and other obligations. This comes at a time when the state's budget strategy projects deficits of up to four percent of GDP.

The Ministry of Finance does not monitor whether ministries comply with limits on long-term commitments. About half of the ministries claimed they do so, but none could provide supporting calculations. The rest openly admitted they do not monitor such commitments at all.

As a result, when future budgets are discussed, it is impossible to know precisely how much room remains for new decisions. Some choices may already have been made on behalf of future governments and future compositions of the Riigikogu.

Future policymakers may be left with little freedom beyond deciding how to pay for promises made by their predecessors.

When making future budget decisions, the government and parliament must know how much money is already tied up in contracts and how much remains available for new decisions. The Ministry of Finance and other ministries must create that overview.

Just as we do not know how much future funding has already been committed, we also fail to see how much money paid from the state budget is simply sitting unused.

An audit completed this summer of SmartCap's venture capital funds illustrated how little attention is paid to the use of state funds as a whole.

At the end of last year, those funds held more than €250 million in uncommitted cash for future investments and expenses. Much of that money sat in fixed-term deposits. At the same time, the state was borrowing money to cover day-to-day expenses and even paying SmartCap management fees on funds that remained unused.

With one hand, we set money aside; with the other, we borrow more.

This is ultimately a question of financial management. When discussing shortages of public money, we must also know where state funds are currently sitting. Better stewardship could prevent such situations.

The SmartCap example

But how can someone act as a good steward when they are simultaneously responsible for several competing interests?

In audits, the National Audit Office has often pointed to overlapping roles and potential conflicts of interest. The SmartCap case shows how overlapping responsibilities can affect decisions with direct financial consequences for the state.

These are not merely abstract or theoretical risks.

A representative of the Ministry of Economic Affairs and Communications simultaneously held three different roles.

As a member of SmartCap's supervisory board, that person was expected to safeguard the company's interests and oversee management.

As a member of the supervisory board of EIS, SmartCap's parent organization, the same individual was responsible for directing and overseeing the parent entity.

Within the ministry, the same person was also responsible for shaping and implementing Estonia's economic and innovation policy.

From SmartCap's perspective, receiving funding in advance provides certainty for future investments. From the state's perspective, however, the question should have been whether such advance funding was truly necessary.

Which interest prevails?

Too often, the interests of the state as a whole disappear between multiple responsibilities. Who was responsible for ensuring that the solution made sense for the state overall?

This is not merely a question about SmartCap.

When appointing representatives to supervisory boards, ministers must carefully consider which responsibilities can realistically be carried out by one person and when combining roles begins to weaken oversight.

When directing and supervising the use of public money, it must always be clear who is responsible for what.

From the annual health care report

There has already been considerable discussion in recent days about this year's National Audit Office report on health care. For that reason, I will not repeat all of its conclusions.

As it did four years ago, our annual report focuses on long-term trends in Estonia's health care system. At that time, the minister of health and labor said we had reached a point where decisions could no longer be postponed. Last year, standing here, I promised that when preparing this year's report we would examine whether those supposedly urgent decisions had actually been made.

Unfortunately, the fundamental questions surrounding the long-term financing of health care remain unresolved, even though successive government programs have repeatedly promised to address them. At the same time, the system's capacity is not growing at the same pace as people's need for care. The government and the Riigikogu must decide what level of access to medical care people will be guaranteed and how it will be financed on a sustainable basis. Those decisions have been postponed again and again.

If one opens an issue of Meditsiiniuudised from October 30, 2009, the headline reads: "Pevkur: Decisions must be made on how to move forward." The article covered a speech by the minister of social affairs at the North Estonia Medical Centre's fall conference and quoted him as saying: "We must decide how to move forward. Difficult choices lie ahead. We need to determine how Estonia's health care system will be financed in the coming decades, whether it will continue as before or whether something must change."

Now, 17 years later, I would add that making, or rather avoiding, these fundamental decisions cannot forever be replaced by annual cost-cutting measures by the Health Insurance Fund.

This does not mean nothing has improved during the past four years. Some things have. More children, significantly more children, are receiving health checkups, and more people are participating in cancer screening programs. Family physicians are increasingly able to consult specialists without requiring patients to attend separate appointments. The system for ensuring quality of care has been updated, and new ways of working have been tested. The supervisory board of the Health Insurance Fund has implemented various cost-saving measures to contain expenditure growth. These are necessary steps made possible by the work of many people.

But overall, access to health care has not improved. The shortage of family physicians is worsening, and obtaining a specialist appointment remains difficult despite additional funding. When people cannot receive timely care from family physicians, home nurses or social workers, their problems eventually end up in emergency departments or hospitals. There, attempts are made to solve problems that should have been addressed earlier and elsewhere.

Against this backdrop, more reforms are being pursued simultaneously than the health care system is capable of implementing. The goals may be correct, but they all require the same personnel, funding and functioning data systems. There simply are not enough of these resources to do everything at once.

Four years ago, development plans were presented as solutions to many of the system's problems. The plans have now been completed, yet most of the problems remain.

As of September this year, alongside the Population Health Development Plan and its programs, there were 16 additional strategy documents and seven more in preparation or planning. Patients can now choose from a fairly wide range of strategic documents. The selection of available appointment times is much more limited.

The problem is not merely the number of documents. Often, their contents fail to clearly identify who is responsible for implementation, what funding will be used and by what deadline.

The "Pharmaceutical Policy 2030" strategy took three years to prepare and was completed in 2023, yet its implementation plan has still not been approved. The three years spent drafting the strategy have now been followed by another three years waiting for the implementation plan.

One year ago, while discussing transportation policy before the Riigikogu, I pointed out that one of the main weaknesses of our strategies is the avoidance of difficult choices and the separation of promises from actual capabilities.

This year's health care report confirms the same pattern: intentions accumulate faster than the capacity to carry them out. Estonia has no shortage of people capable of drafting development plans. What is lacking is the ability to act on them.

The Ministry of Social Affairs should decide which changes can realistically be implemented first with the people, money and IT systems already available, and which previously promised reforms must therefore be postponed.

We saw the same pattern in this year's audit of development policy in southeastern Estonia. Special attention promised for the region appeared in action plans, but had little influence on actual decisions made by ministries. The special attention existed more on paper than in reality.

Rather than identifying solutions suited to the region's problems, the plan largely collected activities the state would have undertaken anyway. The special attention consisted mainly of producing a document rather than changing policy. At the same time, the ministry had already begun searching for new strategic approaches for the region, creating a situation where one low-impact plan could be followed by another before any decision has been made about what should actually be done differently.

Preparing a development plan has increasingly become a convenient way to demonstrate that work is being done without making difficult decisions. Attention shifts from unresolved problems to a document under preparation. Questions about what can realistically be achieved with existing resources and what must be abandoned are postponed. The development plan no longer helps decision-making; instead, it provides an excuse to delay decisions. Development planning has become development parking.

Are promises actually being kept?

The National Audit Office is currently completing an audit on the use of funding allocated for the civilian components of comprehensive national defense. We will discuss the results in the near future.

However, we have also audited civil protection and crisis preparedness during the past year and in previous years.

Based on the National Audit Office's experience, I have reason to agree with Meelis Oidsalu's description of Estonia's crisis management pattern: a shock, media attention and an emergency procurement process. Unfortunately, it also happens that the air begins leaking out before the emergency procurement even begins. Attention shifts elsewhere and momentum fades until the next crisis.

The gap between ambitious plans and actual implementation was also evident in an audit examining how government information systems are hosted and whether they can continue functioning during a crisis.

In response to the security situation, the government set a goal in its action program requiring critical databases and information systems to remain operational outside Estonia by the first quarter of 2027.

The audit found that this goal will not be achieved on time. By June of this year, only 13 of the 122 systems on the list had achieved the required level of readiness, about 11 percent.

The Ministry of Justice explained that the government had already revised the target in February. By the deadline, only those systems for which existing capabilities permit such readiness are expected to be completed. An updated timetable and additional funding requirements are to be submitted to the government in the first quarter of 2027, the very quarter in which the original goal should have been achieved.

The readiness deadline has become a deadline for submitting another plan.

We observed a similar discrepancy between targets and actual activity in this year's food reserve audit. In 2022, the government set a goal of maintaining food reserves sufficient for the entire population for 14 days. Four years later, the goal remained unmet because the Stockpiling Agency had been operating according to a much smaller target. One objective existed on paper, another guided day-to-day work.

This pattern of generating momentum amid public attention and then quietly lowering expectations wastes both time and money while leaving important preparedness goals unfulfilled. When the next crisis arrives, shortcomings will need to be addressed in haste and at greater cost, if there is still time to do so.

The government must decide what level of readiness Estonia will ensure and by when, and then secure the money and personnel necessary to achieve it. If targets are lowered, that should be clearly stated. Otherwise, a misleading impression may emerge regarding the state's actual preparedness.

It should not be the case that setting a target becomes a major public event while abandoning it happens quietly, without explaining what the country is no longer prepared for and what risks are being accepted as a result.

Across all the issues discussed today, the same question remains: are we doing what we promised, and can those promises be trusted?

We will carry that question into the coming year.

Next year will mark 10 years since Estonia's administrative reform, and our annual report will focus on regional development. We will examine how government decisions and public spending affect the viability of life across Estonia's different regions and whether promises are reflected in real choices and actions.

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