TALLINN, 12 June 2025 – The management of Narva City’s municipal associations suffers from frequent changes of power – in the course of them, the supervisory boards of the associations have recently been changed almost every year, notes the National Audit Office in its report published today. The National Audit Office also found that Narva City has not critically reviewed the control system of its associations after the corruption case of AS Narva Vesi in 2019 or changed its emphasis.

Frequent changes of power create instability in the associations owned by Narva City. As the people on supervisory boards are mainly members of the city council and the positions are reshuffled with almost every change of power, it takes time for new supervisory board members to settle in and get up to speed – until they are replaced again. Because of this, the members of the supervisory board are unable get a full picture of the association’s status, problems and development needs.

“In the case of associations belonging to Narva City, the focus seems to be on the composition of the supervisory board rather than the association’s performance, clear owner’s expectations or operational objectives,” said Auditor General Janar Holm. “Although the requirement for local authorities to establish the conditions and procedures for participation in associations was established by law in 2011, this has not been done in Narva in 14 years. However, it cannot be said that decisions are not made – an example comes to mind where a coalition that had been in existence for only a week or so managed to change the composition of the supervisory boards of six out of seven associations before collapsing.”

The coalition in power in Narva is already the sixth after the local elections held in 2021. In the supervisory boards of most associations, changes have been made four or five times in this period. For example, there have been five political manoeuvres in the supervisory board of SA Narva Linnaelamu. It is significant that 29 out of the 31 members of the city council, i.e. almost all of them, have managed to be on supervisory boards after the 2021 elections. Some members of the council have managed to be on the supervisory boards of as many as four associations in this time.

The National Audit Office noted that members of the supervisory boards of associations have difficulty in understanding their role and tend to do the work of the management board. Although by law, the supervisory board is supposed to supervise the management board and provide strategic direction to the company, the decisions of supervisory boards often concern the day-to-day management of the associations. For example, they have decided on the salaries and bonuses of ordinary employees, small purchases, etc. This shows that the responsibility of the supervisory board and the management board in making management decisions is off kilter.

Despite the corruption case of AS Narva Vesi in 2019, Narva City has not critically reviewed the control system of its associations or changed its emphasis. Corruption at the time was linked to procurement, but under the current council, the city has not paid further attention to mitigating the risks of corruption in the city’s associations as a result of this case. In the context of prevention of corruption, there is also a risk that the transactions of associations with related parties may not receive the necessary attention, as the associations often failed to keep proper records of them. Related parties are, for example, members of the supervisory board and the executive management and their family members. Also foundations, non-profit associations and companies over which the members of the supervisory board and the executive management have a control or significant influence.

The National Audit Office finds that the Audit Committee of Narva City Council has given little attention to the associations of Narva. Only two out of the seven associations have been audited under the current council: SA Narva Linnaelamu, SA Narva Linna Arendus. In the light of the earlier corruption case of AS Narva Vesi, such a lack of attention to associations is not justified.

The National Audit Office sees it as a risk that the members of the Audit Committee are on the supervisory boards of associations. This is not forbidden, but it does lead to a conflict of roles and may affect the objectivity of the selection of auditees by the Audit Committee, as in such a case, a person may be both auditor and auditee at the same time. For example, as at April 2025, the chairman of the Narva Audit Committee was also a member of the supervisory boards of two city associations and in one them, he was the chairman of the supervisory board.

The National Audit Office also concluded that the focus on the objectives of the activities of the Narva associations is uneven and general in the development documents of different levels. On the basis of these, it is not possible to assess the success of the association’s activities or whether participation in associations is at all necessary in the light of the tasks of the local government.

The National Audit Office recommends that Narva City establish rules for participation in associations, as provided for in the Local Government Organisation Act. Currently, Narva does not have such rules, despite the fact that they have been required by the Local Government Organisation Act since 2011. The procedure should also address the requirements for the control of associations and the organisation of the work of the managing bodies of associations, so that the supervisory board can focus more on its statutory role in the future. In order to streamline the strategic management of the associations, the National Audit Office recommended that Narva City set clear, measurable and comparable objectives for the activities of the associations.

The Narva City Government agreed with the recommendations and stated that the city’s participation in associations needs clear regulation and that the objectives of the activities of associations under the city’s control need to be properly defined.

Background

Narva controls a total of seven associations: SA Narva Haigla, SA Narva Linna Arendus, SA Narva Linnaelamu, SA Narva Sadam, AS Narva Vesi, AS Transservis-N and OÜ Narva Jäätmekäitluskeskus. All associations have a supervisory board with 3 to 7 members, who are mostly council members from the city’s governing coalition. SA Narva Haigla and SA Narva Sadam are exceptions, as they also have two non-political members on their supervisory boards.

The biggest one among the associations of Narva is SA Narva Haigla, whose operating revenue in 2024 amounted to €37.4 million. It is followed by AS Narva Vesi (€6.5 million), SA Narva Linnaelamu (€1.7 million), SA Narva Linna Arendus (€1.4 million), OÜ Narva Jäätmekäitluskeskus (€0.9 million), AS Transservis-N (€0.15 million) and SA Narva Sadam (€0.05 million).

The National Audit Office analysed compliance with the obligations and exercise of the rights arising from legislation at the level of the managing bodies of the associations under the control of the Narva City Council, Narva City Government and Narva City to ensure that information flows in the management chain, the decision-makers are well informed and the limits of decision-making powers are observed in the economic activities of the association. The work of the Audit Committee of the City Council and the auditors of the City Government with regard to the associations controlled by the city was also analysed. The period of government of the Narva City Council elected in 2021, i.e. from 19 November 2021 until the time of the audit, was under observation in most audit questions. The audit was completed in March 2025.

Priit Simson
Communication Manager of the National Audit Office
+372 640 0777
+372 5615 0280
[email protected]
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http://www.riigikontroll.ee/

• Posted: 6/12/2025 7:00 AM
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