What did we audit?

Every year the National Audit Office audits the state’s annual accounts as well as the annual accounts of ministries, the Government Office and constitutional institutions. In addition to this the National Audit Office checks whether state agencies have performed their economic transactions in compliance with the most important legislation: the State Budget Acts, the State Assets Act and the Public Procurement Act. The National Audit Office also expresses an opinion as to whether the budget acts have been adhered to in the performance of economic transactions. The most significant observations about omissions found in transactions with state assets and public procurements are highlighted in the audit reports.

The obligation to audit the correctness of the annual accounts and the legality of the transactions of the state and the state accounting entity arises from the State Budget Act.

What was the scope of our audit?

The annual accounts of the state contain the financial indicators of public undertakings, foundations controlled by the state and profit-making state agency in addition to the indicators of state accounting entities. The National Audit Office does not audit the annual accounts of these entities, but considers the opinion of certified auditors when expressing an opinion on the state’s annual accounts.

The certified auditors who gave their opinions of the annual accounts of public undertakings, foundations and profit-making state agency did not assess the legality of transactions. The National Audit Office has not carried out any additional control procedures to assess the legality of transactions, which means that the scope of the audit is limited in this regard.

Nor did the National Audit Office carry out audit procedures to check additional information (annual accounts) about local authorities, the public sector and the government sector disclosed in the Consolidated Annual Report of the State.

Why is this important to taxpayers?

By auditing the state’s annual accounts the National Audit Office provides assurance that the accounting indicators presented to the Riigikogu and the public give true information about the state’s financial position and performance results for the year ended and that the state Budget Execution Report gives relevant information about the state’s revenue and expenditure and investments made on the account of this revenue.

The revenue collected by the state in 2012 amounted to 6.4 billion euros, which exceeded the revenue of 2011 by 501 million euros. The expenditure incurred by the state amounted to 6.5 billion euros, which exceeded the expenditure of 2011 by 306 million euros. The increase in revenue resulted mainly from the increase in taxes collected and expenditure mainly increased on the account of social benefits and the growth in payments made by the state into mandatory funded pensions. In 2012 expenditure exceeded revenue by 87.2 million euros. The deficit was mainly financed from loans.

According to the consolidated annual accounts of the state, the assets of the state as of 31 December 2012 amounted to 11.7 billion euros and the majority of the assets are fixed assets. Compared to the previous period the value of assets has increased by 1 billion euros, mainly on the account of tangible fixed assets and an increase in receivables and prepayments. As at 31 December 2012 the state’s liabilities totalled 5 billion euros – an increase of 0.9 billion euros compared to the previous period. Long-term liabilities comprise the majority of liabilities and the increase in them was caused by the growth of long-term loans payable.

What did we find and conclude based on the audit?

The 2012 Annual Accounts of the State are correct in all material respects, which means that they give a true and fair view of the state’s financial position as well as its financial performance and cash flow for the year ended.

Although the opinion of the National Audit Office about the state’s annual accounts is unqualified, we emphasise the fact that the accounting policies used to recognise the value of state forest are not suitable for state assets. According to the method established with the General Rules of State Accountancy the book value of state forest is only found via the value of the forest planned to be cut, and the actual value of the state asset and the changes occurring in the asset are not considered.

The National Audit Office believes that the state's most significant economic transactions were performed in accordance with the State Budget Act, the 2012 State Budget Act and its amendment act. This means that the National Audit Office did not find any significant errors in the implementation of the State Budget Acts. At the same time the National Audit Office found omissions in the acquisition of state assets and the organisation of their use.

The main observations of the National Audit Office are the following:

• Similar to previous years, understanding the State Budget Execution Report remains a problem. Namely, the manner of presentation of the report and the amendments made to the structure of the annual State Budget Act make it impossible to understand. However, budget planning and use in ministries has improved.
• Although the requirements of the Public Procurement Act have been adhered to in the acquisition of assets, the auditors found several omissions: some public procurements had not been carried out; public procurements were not documented as required; the required information was not always published in the Public Procurement Register or the presented information was misleading and/or given too late; and there we no procurement procedures or they were inadequate.
• The principles of the State Assets Act – to increase profit and avoid causing losses to the state – had not always been adhered to in the use of state assets. Omissions were found in contracts entered into for the use of quarries, granting use of residential premises and granting a loan to Estonian Air.
• The state has to keep in mind that transferring state assets to Riigi Kinnisvara AS will cause a considerable increase in rent expenses, which will increase the burden on the state budget. At the same time it is unclear where the funds required to cover the increase in rent prices will be found. It is also impossible for the Ministry of Finance to directly influence pricing in a public undertaking, because the goal of the public undertaking is to make profit. This is why it is difficult for the state to manage changes in rent expenses in the state budget.
• The volume of the reserves managed by the State Treasury increased in 2012. Compared to 2011 the total value of the reserves increased by 515 million euros to 1.45 billion euros by the end of 2012. The state’s cash reserve increased most, by 501 million euros, mainly resulting from the fact that the reserves of the Health Insurance Fund and the Unemployment Insurance were added to the state’s cash reserves. The stabilisation reserve increased by 14.1 million euros in 2012.
• The organisation of accounting improved in most ministries and their areas of government. This also applies to the areas of government of the ministries where the National Audit Office found significant omissions in the previous year, which were mostly associated with the centralisation of accounting. The National Audit Office finds that the centralisation of accounting and the introduction of single accounting software have evened out the level of accounting.

What did we recommend as a result of the audit?

Important recommendations of the National Audit Office to the Minister of Finance:

• Continue streamlining the principles of budgeting to guarantee transparency and clarity by eliminating the omissions pointed out in this and previous reports.
• Explain in the Explanatory Memorandum of the 2014 State Budget and in the State Budget Strategy to be submitted to the Riigikogu the length of time over which the increase in rent and lease expenses will be financed in the state budget and the activities of RKAS in agreeing on rent and lease terms with the state will be managed.
• Develop and establish new accounting policies for state forest, which proceed from the nature of state forest and the asset as a whole.
• Regularly assess the achievement of support service centralisation goals and the quality of the service, and organise an assessment of the impact of the activities of the State Shared Service Centre.