Independence and Accountability: The Goal of Reforming the Accounting Chamber

Ensuring transparency and accountability is demanded both by Ukrainian society and our allies, the United States and the European Union. This issue becomes particularly relevant in the context of post-war recovery and reconstruction in Ukraine. According to various estimates, Ukraine will need from $411 billion to $1.1 trillion for full recovery, possibly even more. Significant funds for reconstruction can only be expected if a system for monitoring the efficiency of expenditure is established. Part of such a system is the Accounting Chamber, which both the US and the EU mention as needing strengthening. Do the existing legislative initiatives align with this goal?

What does the Accounting Chamber of Ukraine (ACU) do?

Everyone has heard about the state budget, but not everyone realizes that through budget funds, the government aims to achieve specific policy objectives (for example, if the government believes that medical services should be paid for by the state and not by citizens from their own pockets, it allocates the corresponding expenses in the budget). However, government bodies do not always spend funds efficiently and honestly. Continuing with the example of healthcare, constructing a large hospital in an area with very few patients is an inefficient use of funds, and procuring medicines at inflated prices is dishonest. The Accounting Chamber monitors to ensure that such cases are minimized. It conducts financial and performance audits of both individual government agencies and the overall budget execution. Based on the audit results, the Accounting Chamber prepares a report that assesses spending efficiency, describes any mistakes, and provides recommendations on improving the situation. In case signs of criminal or administrative violations are detected, the Accounting Chamber informs law enforcement agencies about them.

For example, in 2022, the Accounting Chamber examined 355 objects, and the volume of audited funds from the State Budget of Ukraine amounted to UAH 351.3 billion (11.6% of expenses or 22.6% of budget revenues). As a result of these audits, the Accounting Chamber published 39 reports. These reports are related to budget programs rather than specific entities. For instance, in the ACU report on the efficiency of budget funds allocated for providing assistance to internally displaced persons for accommodation, the results of the examination of 15 objects are presented. These objects include the Ministry of Social Policy, Departments of Social Policy and Social Protection, as well as state employment centers in certain regions and cities.

Auditors from the Accounting Chamber provide recommendations for implementing transparent expenditure procedures, more efficient use of funds, and more. However, these recommendations often remain on paper because government authorities are not obliged to follow them.

That’s why international partners of Ukraine propose strengthening the Accounting Chamber. Implementing measures to prevent inefficient spending of funds is much more effective than trying to “catch” dishonest actors after the fact. 

Recommendations from international partners

According to the US Special Representative for Ukraine’s Economic Recovery, Penny Pritzker, American companies have shown interest in various sectors of the Ukrainian economy, including energy, housing, infrastructure, agriculture, transportation, and mining. However, they expect Ukraine to undertake reforms related to accountability and transparency to ensure the safety of their investments.

The United States recommends making changes to the legislation that will strengthen control over the state budget expenditures, including by the Accounting Chamber. It is necessary to increase the independence and professionalism of this body by selecting independent, competent, and honest members through a transparent and competitive process. Additionally, it is worth expanding the powers of the Accounting Chamber to audit local self-government bodies, state-owned enterprises, and activities related to public procurement. The United States will assist the Accounting Chamber of Ukraine in improving its auditing and related activities, including tracking direct budget support received from the United States.

The EU has provided similar recommendations for reforming the Accounting Chamber of Ukraine. According to Europeans, the lack of independence of the Accounting Chamber presents a problem. Additionally, the results of the Accounting Chamber’s activities have little impact: there are no official parliamentary procedures for reviewing reports or monitoring the implementation of recommendations following audits. The effectiveness of the Accounting Chamber’s work is measured based on the number of audits conducted rather than the impact of recommendations provided as a result. The European Commission also notes that the Accounting Chamber should engage in proactive communication with the media and the public rather than simply publishing reports on its website.

Therefore, the recommendations from the United States and the EU are quite similar: increasing the independence of the Accounting Chamber, expanding its authority over the funds of local budgets, budgets of state enterprises, and international assistance, as well as enhancing professionalism and the quality of its work. Let’s take a closer look at these recommendations.

Firstly, the Accounting Chamber should be politically and economically independent. This could be facilitated by conducting transparent competitions for the positions of the Chair and members of the Accounting Chamber, involving representatives from the civil sector and international experts. The current competitive selection procedure for members of the Accounting Chamber (outlined in the Law on the Accounting Chamber and the Regulations of the Verkhovna Rada) lacks transparency. Specifically: 

1. Candidates submit a specified list of documents and information about themselves to the Budget Committee of the Verkhovna Rada. The committee compiles information about all candidates;
2. non-public interviews and discussions of these candidates take place within the committee. Afterward, the committee recommends the selected candidates for consideration by Parliament;
3. the Verkhovna Rada then conducts an open rating vote for each candidate. Based on the results of the rating vote, Parliament appoints members of the Accounting Chamber in a list;
4. the Chair of the Verkhovna Rada, at their discretion, submits a proposal to Parliament for appointing the Chair of the Accounting Chamber from among the selected members. The appointment of the Chair is also made through an open vote by a majority of votes.

The Chair of the Verkhovna Rada can dismiss the Chair and members of the Accounting Chamber by a simple majority vote (226 votes). The fact that the Chair of the Accounting Chamber cannot dismiss its members is an important element of their independence. 

However, independence should go hand in hand with accountability. Transparency is an essential component of accountability. For instance, today, an external observer cannot understand how exactly the Accounting Chamber of Ukraine selects the audit objects. According to the ACU Regulations, it “forms plans of its work taking into account the risks identified by the members of the Chamber in the areas assigned to them.” However, no public documents of the Chamber specify what is considered a risk.

The implementation and publication of medium-term audit plans (currently, only plans for the next year are published), transparent justification of the selection of audit objects, and the publication of criteria for assessing the effectiveness of budgetary programs, among other things, would make the work of the Accounting Chamber more understandable to the public. It could also increase public support for the activities of the Accounting Chamber and, consequently, its impact on state policy.

Secondly, enhancing the professionalism of ACU staff could be facilitated by implementing an internship system or exchange programs with similar agencies in other countries. This would enable them to gain practical experience in the field of auditing and control, taking into account the need to harmonize Ukrainian legislation with international standards. Additionally, the Accounting Chamber should continually improve its employees’ qualifications, considering the specific nature of their work, as it does not entirely align with the work of ordinary auditors or accountants. These measures are also crucial in the context of expanding the powers of the Accounting Chamber to audit international aid and local self-government bodies. Increasing the professionalism of the Accounting Chamber’s work could be supported by removing it from the state service system. This would allow the ACU leadership to establish higher salaries to attract experts from the market.

Thirdly, currently, the ACU audits only cover funds from the state budget and do not extend to the funds of local budgets (unless they are budget transfers) and international aid funds. Therefore, there is a need to expand the authority of the Accounting Chamber.

Additionally, international recommendations have highlighted the issue of overlapping responsibilities between the Accounting Chamber as a parliamentary control body and the State Audit Service (SAS), which is an executive authority. This sometimes leads to conflicts between these agencies.

Initiatives for reforming the ACU

At the legislative level, the plans of the Verkhovna Rada of Ukraine for 2021-2023 did not include the reform of the Accounting Chamber. However, to implement EU requirements, MPs registered bill No. 10044 on the Accounting Chamber of Ukraine and its ancillary bill No. 10045 on amendments to the Budget Code of Ukraine.

They envision expanding the mandate of the Accounting Chamber to cover all public funds. This means that the Chamber will be able to conduct audits not only of state budget funds but also of local budgets, state and municipal enterprises, as well as international aid. Of course, to achieve this, the institutional capacity of the Accounting Chamber will need to be significantly strengthened. It is clear that even with a substantial increase in resources, the Chamber will not be able to audit thousands of state and local budgets within a year. Therefore, it will be necessary to introduce and publish a clear methodology for determining audit objects in legislation or ACU regulatory acts. Additionally, the bill obligates government authorities to implement the recommendations issued by the Accounting Chamber. If the proposals are not implemented, the Accounting Chamber will inform the relevant bodies (the Verkhovna Rada, the Cabinet of Ministers, or the relevant ministries) and the public. Such a practice exists currently, but the Chamber’s recommendations often remain on paper. Therefore, during the refinement of the bill, it is important to include more effective mechanisms and serious sanctions for non-compliance with the Accounting Chamber’s recommendations.

The procedure for appointing the ACU Chair and appointing and dismissing its members is somewhat complicated. It is proposed that the nomination for the position of ACU Chair should be made not by the Speaker of Parliament, as is currently the case, but by parliamentary factions and groups (each can nominate their candidate or submit a joint nomination) after the Budget Committee provides its recommendations on the candidates. A two-thirds majority vote of MPs will be required to dismiss the ACU Chair and members. These changes are intended to enhance the Accounting Chamber’s independence.

Additionally, the project suggests introducing the institution of state auditors within the Accounting Chamber and removing them from the scope of the law on the civil service (employees of non-auditorial departments will remain civil servants). Such an initiative has its advantages and disadvantages (see Table 1). 

Advantages	Disadvantages
Enhancing the independence of ACU audits from political influence.	The wage gap between the employees of the Accounting Chamber who are civil servants and those who are removed from civil service can create risks of tension and poor cooperation during work.
Reduction of bureaucracy associated with appointment, career advancement, and dismissal of employees in audit departments.	The employees removed from civil service will not be subject to the requirements of the law on corruption prevention, including the declaration of their financial assets.
Increasing employee motivation through greater freedom of action and career development opportunities.

The additional bill, No. 10045, envisages that the Accounting Chamber will examine the draft state budget submitted to Parliament and analyze the execution of the state budget until the Budget Office of the Verkhovna Rada of Ukraine begins its operation. The need for creating such an institution was first discussed by the current leadership of the Verkhovna Rada two years ago, but this idea has not yet been implemented at the legislative level. The bill proposes to assign the following functions to the Budget Office: analyzing and examining the budget declaration, drafting state budget bills and tax legislation, monitoring revenues and expenditures of the state budget, assessing budgetary policies and risks within the budgetary system, as well as preparing proposals to minimize these risks. In other words, this body will provide expert opinions to the Budget Committee of the Verkhovna Rada and work with the government to enhance the efficiency of state programs during their development and policy formulation stages.

Conclusion

To control the effectiveness of budgetary funds and foreign aid utilization, our international partners propose strengthening the Accounting Chamber by enhancing its independence and professionalism and granting it more authority.

Bill No. 10044 suggests expanding the powers of the Accounting Chamber to include local budgets and state enterprises. This is crucial as all public funds should be spent efficiently. Therefore, it is necessary to establish legal accountability for government bodies that fail to comply with the ACU recommendations. 

The bill also increases the independence of the Accounting Chamber by making the procedure for dismissing its members more complex. However, the process of appointing them remains insufficiently transparent and does not involve public or international expert participation. In order to enhance professionalism, the bill proposes introducing the institution of state auditors who will not be civil servants. This new feature is generally positive, but it also carries risks. It would be advisable to subject these auditors to the provisions of the “Law on Corruption Prevention.” 

Furthermore, increasing the transparency of the ACU’s work is essential. Specifically, at the legislative level, there should be an obligation to disclose the criteria for selecting audit objects and the criteria used to assess the effectiveness of public expenditure.

P.S. In addition to the bills discussed above, No. 10044 and No. 10045, alternative bills No. 10044-1, No. 10044-2, and No. 10045-1 have also been registered in the Verkhovna Rada. The discussion on reforming the Accounting Chamber is ongoing, and we will continue to monitor it.