National Audit Office: government agencies continue to do a lot of work on budgeting that is rarely used

9/9/2022 | 10:46 AM

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TALLINN, 9 September 2022 – Government agencies continue to do a lot of work on budgeting, the results of which are seldom used, according to the National Audit Office’s audit report published today. Although it is possible to create an activity-based state budget, the question is whether it is necessary and realistically applicable. The state’s annual accounts 2021 present the state’s financial position, financial performance and cash flows of the concluded accounting period fairly in all material aspects, apart from the qualification on the balance of fixed assets.

The qualification was caused by deficiencies in the organisation of the accounting of the assets of the Defence Forces and the resulting errors. The National Audit Office made a remark on the fixed assets of the Defence Forces as presented under the balance sheet item  “Tangible fixed assets” of the balance sheet in the amount of 419.05 million euros as at 31 December 2021. The National Audit Office has made the same qualification about the balance of tangible fixed assets in previous years.

One of the unavoidable operations for ensuring the accuracy of the accounting balance is the comparison of data from accounting and the analytical register of the Defence Forces’ fixed assets as at 31 December 2021, but the Defence Forces have not done it. Due to shortcomings in the organisation of asset accounting, the analytical register of the Defence Forces’ fixed assets is not correct, as it still contains assets that have been transferred to other institutions, have been written off, are unusable or are listed twice, both as defenсe assets and as non-defence assets. In 2021, the Defence Force was engaged in organising the fixed asset accounting, but by the time this audit report was prepared, the Defence Forces had not been able to verify the physical existence of some of the assets accounted for and their actual state and location. It was also not possible to reflect the 2021 asset improvements or asset write-offs in the fixed assets analytical register, but this is planned to be rectified by 31/10/2022 at the latest.

The audit confirmed that the economic transactions of the state were in all material aspects carried out in accordance with the state budget laws. According to the National Audit Office, the report on the implementation of the state budget of 2021 provides reliable information on the revenue accumulated, expenditure made, investments and financing transactions carried out by the state.

During the last year's audit, the National Audit Office pointed out accounting and calculation errors in the preparation of the State Budget Act 2020, which is why the indicators for revenue, expenditure, investment and financing transactions in the consolidated part of the budget were incorrect. The consolidated parts of the State Budget Act 2021, the State Supplementary Budget Act 2021 and the State Budget Amendment Act 2021 were correct, but, similar to last year, the National Audit Office found less important errors in the budget lines of the ministries in the State Budget Act 2021 and the State Budget Amendment Act.

The National Audit Office notes that the comprehensibility of the explanatory memorandum of the State Budget Act 2022 submitted to the Riigikogu has been improved, but still has shortcomings. The level of detail of the explanatory memorandum has increased, because from 2022 onwards, the state budget is also more detailed, as the expenditure are divided according to programme activities in the State Budget Act. In addition to the activity-based view, the budget breakdown has also been presented in more detail than before as a separate chapter in the economic content view. "Unfortunately, it became clear during the audit that the overall picture of the explanatory memorandum to the state budget remains flawed," said Auditor General Janar Holm. "It is impossible to understand what the money is spent on, the comparability of the periods is also not ensured, as well as there are arithmetic errors and misleading texts."

The problems of activity-based budgeting have remained the same compared to last year. "Ministries still consider activity-based budgeting as a project without central management, to be implemented at the request of the Ministry of Finance, but whose objectives and benefits they do not realise," stated Auditor General Janar Holm. The activity-based budget is not comprehensible to the Riigikogu or the public, as the ministries can constantly change the rules for allocating expenditure. At the same time, there has been some positive progress compared to last year, as the Ministry of Finance has improved the reliability of the cost accounting information system and introduced automated solutions that simplify the work of government departments.

The Ministry of Finance has launched a budget reform aimed at revising the principles of budgeting. The Ministry has also started to prepare an analysis in order for the introduction of a new budget information system. According to the National Audit Office, the parallel update of the budget methodology and the development of the information system increases the risk that the Ministry of Finance will not be able to contribute to both projects with the necessary thoroughness and also provide methodological and technical support. The National Audit Office draws attention to the situation associated with the development of the cost accounting information system currently in use, where the information system began to dictate the budgeting methodology and caused, among other things, the need for a new information system. Therefore, when developing a new information system, it is important to first establish the budgeting framework.

The share of reserve fund of the Government of the Republic in the total volume of the state budget has increased over the years. The National Audit Office points out that the increase in the share of the reserve leads to a situation where the role of the Riigikogu in deciding on the expenditure of the state budget decreases. The State Budget Act, which regulates the preparation of the state budget, lays down the principles for the use of the reserve of the Government of the Republic, but does not regulate on what basis or to what extent the reserve may be planned. In the years 2020-2021, the increase in government reserves was justified by the need to cover the additional costs caused by the COVID-19 pandemic but the National Audit Office recommends that the Ministry of Finance analyse how the continuing growth trend will affect the Riigikogu's role in deciding on the budget. According to the National Audit Office, there are also expenditures that are made from the reserves and can also be budgeted for in the ministries' budgets (e.g. various ICT projects, improvements to fixed assets).


The Consolidated Annual Accounts of the State, incl. the State Budget Implementation Report, provides the Riigikogu and the public with information on economic transactions that have already been carried out. However, the basis for deciding on state revenue and expenditure is the State Budget Act for the year, which is why it is necessary for the draft State Budget Act together with the explanatory memorandum to be prepared by the Ministry of Finance to contain correct and comprehensible information.

According to the report on the implementation of the state budget 2021, the state’s revenue in 2021 was 12.43 billion euros. The state’s expenditure and investments totalled 13.36 billion euros, with expenditure making up 12.78 billion and investments 584.73 million euros. According to the state’s consolidated annual accounts, as at 31 December 2021, the financial volume of state assets amounted to 19.43 billion euros, and most of the assets were non-current assets (forests, roads, buildings, machinery). In comparison with the previous period, the financial volume of assets has increased by 1.51 billion euros.

As at 31 December 2021, the state had liabilities in the total amount of 14.09 billion euros, which increased by 1.59 billion euros compared to the previous period. The majority of liabilities were long-term liabilities in the amount of 9.31 billion euros. The state had borrowings totalling 5.9 billion euros, which increased by 0.2 billion euros compared to the previous period.

The National Audit Office audits the annual accounts included in the state’s consolidated annual report and the regularity of the state’s transactions every year. Pursuant to the State Budget Act, the National Audit Office completes the audit no later than on 31 August in the year following the accounting year.

Priit Simson
Head of Communications of the National Audit Office of Estonia
+372 640 0102
+372 5615 0280
[email protected]
[email protected]

  • Posted: 9/9/2022 10:46 AM
  • Last Update: 9/9/2022 9:04 AM
  • Last Review: 9/9/2022 9:04 AM

The audit confirmed that the economic transactions of the state were in all material aspects carried out in accordance with the state budget laws.

Arno Saar / Õhtuleht / Scanpix Baltics

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