TALLINN, 22 September 2009 - An audit of the organisation of public procurements for defence resources conducted by the National Audit Office has revealed that between 2005 and 2008 the Ministry of Defence applied for and received more funding from the state budget for the acquisition of defence resources than it actually managed to spend and partly even planned.

It is the view of the National Audit Office that this is one of the circumstances which makes it difficult to unequivocally determine the proportion of defence expenditure in gross domestic product (GDP) in one year or another, taking into account the background objective of bringing defence expenditure into line with two percent of GDP as quickly as possible.
The audit revealed that there were problems in the development of procurement plans and in the implementation of these plans by the Ministry of Defence in association with the defence forces, as a result of which hundreds of millions of kroons allocated for the purchase of defence resources went unused from one year to the next and was regularly carried over into the next year.
It is the view of the National Audit Office that the Ministry of Defence has used the funds allocated for the purchase of defence resources for their intended purpose and that procurements proceedings have mostly been performed in accordance with requirements.
The explanation provided by the Minister of Defence stated that the extensive end-of-year surpluses were primarily the result of insufficient administrative capabilities, not the lack of a need for national defence.
In the view of the Minister of Defence, the causes of the shortcomings identified in the audit have since been eliminated.
The audit also draws attention to the fact that there is no one agreed method for the calculation of defence expenditure as a percentage of GDP, as a result of which wildly varying data has been published with regard to this ratio.
Based on the Annual Report 2008 of the Ministry of Defence, the ratio between actual defence expenditure and GDP in 2007 was 1.64%; in an address to the Riigikogu (the Estonian parliament) in spring 2009 the Minister of Defence claimed a figure for 2007 of 1.78%; the budgetary section of the ministry’s website places the figure at 1.77%; and official NATO data on the Internet indicates defence spending in Estonia in 2007 as 1.9% of GDP.
Even more varying data in terms of the ratio between national defence expenditure and GDP is held by the Statistical Office, according to whose method of calculation the figure for 2007 was just 1.3%.
According to the explanation provided by the Ministry of Defence, in the presentation of data the ministry is guided by the economic forecast issued by the Ministry of Finance. The ministry claims that the figure for Estonia of 1.9% in NATO data indicates the ratio between funds allocated for defence expenditure and the amount and GDP forecast reported to NATO by the Ministry of Defence as given for Estonia by international organisations. (The ministry does not appear to be aware which forecast provided by which organisation at which particular time NATO uses in its calculations.)
The National Audit Office would like to point out that in accordance with NATO guidelines, actual payments made during the period must be indicated in reports, not planned payments. It is the view of the National Audit Office that Estonia should strive to ensure that the same data is presented in all information channels with regard to the proportion of national defence expenditure of GDP. The Minister of Defence does not view this as a problem: he claims that the ministry is guided by the NATO method in its calculations, and that NATO is responsible for the data it publishes.
The Estonian Defence Forces Development Plan 2009–2018 sets the objective of increasing defence expenditure to 2% of GDP, as a result of which the National Audit Office feels it is important to be entirely clear as to which method forms the basis of its calculation, since every tenth of a percent in the calculation of the proportion of defence expenditure of GDP represents several hundred million kroons.

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The objective of the audit was to provide an assessment of the funding and of the general organisation of the procurement of defence resources. Assessed were the way in which applications are made for funding; the way in which the funding is used; and the existence and observance of the guidelines required for the organisation of procurements, including the selection of contractual partners and the fulfilment of these contracts.
In 2008 the state spent more than 1.5 billion kroons on defence resources, representing almost one-third of the cash-based spending of the Ministry of Defence. According to the current Estonian Defence Forces Development Plan, during the next 10 years approximately 60 billion kroons is planned to be spent on national defence, 40% of which (i.e. 24 billion kroons) for defence procurements and construction.
The Ministry of Defence and the Logistics Centre of the Defence Forces were audited. The audit took place in 2008. The focus of the audit was on the decisions and procurements made in 2006 and 2007.

Toomas Mattson
Communication Manager of National Audit Office
Telephone: 6400 777
Mob: 51 34900
E-mail: [email protected]
 

• Posted: 9/22/2009 1:35 PM
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