TALLINN, 31 August 2021 – A report by the National Audit Office shows that all consolidated amounts – revenue, expenditure, investments, financing transactions – in the State Budget 2020 passed as law by the Riigikogu are incorrect because the Ministry of Finance who prepared the draft legislation has made accounting and calculation errors in hundreds of millions euros. Amounts that should not be counted as revenue have also been registered as revenue, and some amounts have been left out when calculating the amounts of expenditure, investments, and financing transactions.

The audit report “Accuracy of the annual accounts of 2020 and regularity of the transactions of the state” of the National Audit Office published today shows that the Ministry of Finance has presented the revenue of the budget higher and expenditures, investments, and financing transactions lower than it actually is. As a result, the difference between revenue and expenditure in the state budget has been presented as more favourable by 365 million euros. According to the State Budget Act 2020, revenue exceed expenditure by 109 million euros, but the audit revealed that the planned expenditure was higher than revenue by 256 million euros.

The revenue budget has been presented as 115.87 million euros higher, expenditure as 249.58 million euros lower, investments as 5.56 million euros lower and financing transactions budget as 43.04 million euros lower in the consolidated section.

“I regret to say that the Ministry of Finance has erred in calculating the difference between expenditure and revenue by an average of one million euros per each day of the year,” the Auditor General Janar Holm commented on the results of the audit report. “This means that the process of preparing annual state budget by the Ministry of Finance does not ensure the accuracy of the amounts in the consolidated section of the act to be submitted to and passed by the Riigikogu.”

The National Audit Office drew attention to the same issue already a year ago because some of the consolidated amounts of the State Budget Act 2019 passed by the Riigikogu were also incorrect. Back then, amounts from the State Budget Act 2018 that had not been corrected had also been left in the State Budget Act 2019 in a cut-and-paste method.

As of 2020, the state budget is activity-based, and a detailed budget breakdown has been abandoned. As such, the explanatory memorandum to the draft State Budget Act is the main document from which the Riigikogu can obtain information necessary for decision-making. “Unfortunately, when reading the explanatory memorandums, it is not clear on what and how much money is spent,” the Auditor General Janar Holm pointed out. “They describe activities necessary for achieving a goal, but not the amount required for implementing them. In addition, the explanatory memorandum provides no information on which projects depend on foreign funding.”

The audit revealed that the general principles of comprehensibility, consistency and comparability, relevance and optimality have not been complied with when preparing the draft State Budget Act 2020 and its explanatory memorandum. For example, the draft legislation and explanatory memorandum consider investments as three different amounts – 407 million euros, 838 and 866 million euros. The content and reasons for the differences have not been explained. As such, the total amount of investments presented in the State Budget Act 2020 does not match the total amount of investments presented in the explanatory memorandum. The data on the total amount of expenditure also differed in the Act and its explanatory memorandum, varying by one billion euros. Amounts of expenditure range from 10.7 billion euros to 11.7 billion euros.

The amounts of budgets for revenue, expenditure, investments and financing transactions of constitutional institutions, the Government Office and the areas of government of ministries are correct in the State Budget Act 2020. Because the Act is very general, the National Audit Office inspected whether the authorities have based their transactions on the budgets allocated to them by law. On a positive note, it was revealed that the report on the implementation of the state budget 2020 provides reliable information on the revenue accumulated, expenditure incurred, investments and financing transactions carried out by the state. The National Audit Office finds that the transactions of the state have substantially been carried out in accordance with the State Budget Act, the State Budget Act 2020, the Supplementary State Budget Act 2020, and the Act Amending the State Budget Act 2020.

In addition, the accuracy of the state’s annual accounts was also inspected as part of the audit. In the opinion of the National Audit Office, the state’s annual accounts 2020 are accurate and present the state’s financial status, financial performance and cash flows of the concluded accounting period fairly in all material aspects, apart from the remark on the balance of property, plant and equipment.

The National Audit Office makes a remark on the fixeed assets of the Defence Forces as presented under the entry “Tangible fixed assets” in the consolidated and unconsolidated balance sheet in the amount of 317.5 million euros as at 31 December 2020 and in the amount of 251.8 million euros as at 31 December 2019. In the consolidated and unconsolidated balance sheet of the state’s annual accounts, tangible fixed assets have been presented in the respective amounts of 9.9 billion and 3.1 billion euros (9.7 and 2.9 billion euros as at 31 December 2019), including the fixed assets of the Defence Forces in the amount of 317.5 million euros (251.8 million euros as at 31 December 2019).

Background:

The state’s consolidated annual report, including the report on the implementation of the state budget, 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 2020, the state’s revenue in 2020 was 10.77 billion euros. The state’s expenditure and investments totalled 12.19 billion euros, with expenditure making up 11.68 billion euros and investments 508.0 million euros. In 2020, expenditure and investments exceeded revenue by 1.42 billion euros (this is not a surplus or deficit of the general government sector, which is derived through other methods). According to the state’s consolidated annual accounts, as at 31 December 2020, the financial volume of state assets amounts to 17.9 billion euros and most of the assets are made up of fixed assets (forests, roads, buildings, machinery). In comparison with the previous period, the financial volume of assets has increased by 1.59 billion euros.

As at 31 December 2020, the state has liabilities in the total amount of 12.5 billion euros, which have increased by 2.9 billion euros compared to the previous period. The majority of liabilities are made up of long-term liabilities in the amount of 8.3 billion euros. The state has debt obligations totalling 5.7 billion euros, which have increased by 2.3 billion euros compared to the previous period. The state’s pension liabilities amount to approximately 3.2 billion euros.

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

Contact:

Priit Simson
Head of Communications of the National Audit Office of Estonia
+372 640 0102
+372 5615 0280
[email protected]
[email protected]
http://www.riigikontroll.ee/

• Posted: 8/31/2021 11:00 AM
• Last Update: 8/31/2021 11:01 AM
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