PROTECTING THE BUDGET

The governments of various countries have been increasingly acknowledging the inter-dependence of effective governance and socio-economic results of their activity. Transparency, i.e. openness in political intentions, the process of outlining and implementing strategies is a key element of effective governance. The budget is a separate and pivotal document laying out financial policy of the government, which harmonizes strategic objectives and envisions methods of their execution. Azerbaijan's budget is growing by the year. Accordingly, a need rises for improving state fiscal control in the country that would allow not only to purposefully and efficiently avail of state financial resources but also to track down the flow of funds from the sender to the addressee so that the funds do not disappear without a trace during the transfers.

To improve the system of control over financial flows in Azerbaijan and determine the credentials of state bodies, a draft law "On common state fiscal control" has been developed. The document is currently being reviewed by international financial institutions. The need to pass this law stems from the fact that first of all, it will allow to increase transparency in making projections and executing the state budget, as well as to tighten control over budgetary spending. Secondly, it outlines issues concerning state financial regulation and points to a distinct division of authority among official bodies with regard to the system of state fiscal control. 

Additional powers and status 

Fiscal control in Azerbaijan can be divided today into internal and external control, which is exercised by the Ministry of Finance and the Audit Chamber as an independent body dealing with state fiscal control. Their key tasks are to increase the effectiveness of efforts in state fiscal control and to avoid unnecessary duplications in fiscal control activities. 

"Azerbaijan's entry to new loan markets and the increasing bulk of money in circulation are setting forth new tasks before the Aufit Chamber. The chamber is obliged to step up work in the area of ensuring transparency of growing financial flows, improving the system of accountancy on purposeful use of budgetary funds and tackling analysis on the economic situation in the republic," its chairman Heydar Asadov said.

He added that it was also necessary to step up interaction between the chamber and local businesses. 

The chamber says the Budget Code should be developed to streamline the budgetary process. There are currently some shortfalls in the legal framework, which are preventing the chamber from fully carrying out the tasks related to the control over proper use of budgetary funds, overview budget as well as funds allocated to municipalities from the state budget. Notably, there is no mechanism of control over budgetary transfers, and the system of internal control has flaws, and some of the information is not provided in a timely manner. It is for this reason that the Audit Chamber has been granted additional authority and status of the country's supreme auditing body. According to the changes introduced to the Law on the Audit Chamber, the body was authorized to arrest bank accounts of state enterprises and organizations should they fail to comply with its instructions made based on an audit. There have been no instances of account arrests so far, but the measure has prompted the management of these enterprises to think twice before giving way to misuse of state funds, although such a grim prospect does not always prevent mismanagement or misappropriation. 

Three audits and 3m manats

In 2007, the Accountancy Chamber conducted three audits - at Aztelecom production association, State Pedagogical University and Agroleasing JSC - and carried out 34 analytical evaluations. It is worth mentioning that 18 audits and 24 evaluations were conducted in 2006 covering Aztelecom, Azerenergy JSC, local bodies, notary public's offices, Public TV, the Ministry of Transport, and the State Committee for Refugees and Displaced Persons. The number of audits decreased last year due to a renewal in the chamber's structure and introduction of up-to-date information technologies. The departments of internal and external audit control were split up as a result of the changes. But in 2008, the chamber plans to amend the situation and conduct 34 audits.

But let's go back to the outcomes of last year's check-ups. In 2007, identical problems were revealed in most government agencies and enterprises. In particular, these included poor organization of accounting reports, outstanding debit arrears, inaccurate calculation of taxes, overstated estimates of expenses on capital repair, and ineffective use of the resources available. 

"Our audit allowed to reimburse funds worth 3.523 million manats for the state budget and other entities, including 300,000 manats in VAT and 167,000 manats in the payment of dividends to the budget," Asadov said. 

The audit conducted at Agroleasing JSC revealed problems with incomplete distribution of purchased agricultural machinery among farmers and the collection of payments for mineral fertilizers provided to them. 

"These problems were discussed with the Azerbaijani prime minister. On the basis of our check-up, documents on three facts of revealed violations were forwarded to the prosecutor's office, 19 people were dismissed, and 10 others were reprimanded," Asadov said. 

The analytical activities revealed difficulties in the central executive authority bodies with the reinstatement of vacancies and forecasting of expenses on housing services. "In the sphere of defense, our analyses revealed an unfounded growth in debit arrears, which has raised our concern. These analyses continue today, but the preliminary conclusions show that the problem is the fact that ministries are spending more than they are supposed to under envisioned expenses."

Along with internal audits, the Audit Chamber is also conducting external audits. In conjunction with Kazakhstan's Committee for Control over Execution of State Budget, it has conducted an audit on the efficiency of activities on the protection of bio-diversity. The joint audit revealed a deteriorating environmental plight and depletion of Caspian bio-resources, inefficiency in enforcing the convention on the protection of maritime environment and in mastering the means of protecting bio-resources. Notably, combat against poaching, monitoring and compliance with sanitary norms leave a lot to be desired.

State programs in spotlight

The parliament is currently raising some issues before the Audit Chamber that it deems as grounds for concern. Notably, the organization of accounting at state-run enterprises has been termed unsatisfactory. The parliamentary commission on economic policy says it is necessary to analyze the situation in this sphere jointly with the chamber and to develop recommendations on ways of improving it. 

The commission chairman Ziyad Samadzada says control over growing state spending on investment and the effectiveness of social policy should lie at the core of the chamber's efforts. The chamber should also be actively involved in the process of drafting new normative documents regulating the order of designating state expenditure for various sectors of the national economy. 

According to Asadov, the Audit Chamber plans to place an emphasis in 2008 on addressing issues concerning a number of state programs which are being implemented on account of the state investment program. Notably, it intends to conduct an audit on the realization of programs in the fields of education, healthcare and to pursue activities aimed at improving social standards in the settlements outside Baku. The chamber will embark on the audits shortly. 

It also plans to audit the construction of housing for the disabled in Azerbaijani regions. However, the audits will not cover the investment projects funded on account of the State Oil Fund for the time being. If necessary, such audits will be conducted in 2009, Asadov said.

Given the mentioned results, the Azerbaijan Accountancy Chamber should certainly significantly improve its work in order to attain the level of similar entities of neighboring countries, such as that of Russia. The chamber has already mapped out a strategy of development until 2012, developed by US Helm Corporation at the expense of a $895,000 grant provided by the Japanese government. 

"According to preliminary estimates, the implementation of the strategy requires $2 million, which we plan to acquire from the World Bank as a grant," Asadov said.

The funds will be channeled into improving the logistics, expanding the potential of the chamber, developing various instructions and national standards of auditing. In other words, the grant will be spent on the activities needed to turn the chamber into an entity that budget-funded organizations would reckon with.