Federal Treasury Control Powers Development: Auditing in State Financial Control

1. Prospects for Development of the Federal Treasury Control Powers Federal Treasury Deputy Head A. Demidov

2. PRESENTATION OUTLINE STATE FINANCIAL CONTROL (AUDIT) POWERS OF THE FEDERAL TREASURY TREASURY SUPPORT AS A RELEVANT FORM OF STATE FINANCIAL CONTROL (AUDIT) CONTINUOUS STATE FINANCIAL CONTROL (AUDIT) AS A VIABLE FORMAT FOR EXERCISING CONTROL POWERS GLOSSARY A spending unit: a public/municipal body or a state institution entitled to make and/or meet expenditure commitments on behalf of a public law entity using funds from the respective budget A budget user: a legal entity, a sole proprietor or an individual engaged in the production of goods/performance of works/ provision of services that receives funds from the budget on the basis of legislation (decision)

3. STATE FINANCIAL CONTROL (AUDIT) POWERS OF THE FEDERAL TREASURY

4. PUBLIC/MUNICIPAL FINANCIAL CONTROL (AUDIT) SYSTEM IN THE RUSSIAN FEDERATION Federal Accounts Chamber: The supreme state financial control authority Russian Federation Federal Treasury delegation of authority Federal Service for Financial and Budget Oversight Regional control and accounts authority Russian regions Regional Office of the Federal Treasury Regional internal state financial control authority Municipalities Municipal control and accounts authority Regional internal municipal financial control authority Regional Unit of the Regional Office of the Federal Treasury

5. FEDERAL TREASURY CONTROL POWER DEVELOPMENT FACTORS • Programmatic approach to governance • Securing the rule of law and efficiency in contractual relations • Delegation of functions of the abolished Federal Service for Financial and Budget Oversight to the Federal Treasury: • -Fiscal control and oversight • - External quality control of auditors

6. FEDERAL TREASURY CONTROL (AUDIT) IN PROCUREMENT OF GOODS, WORKS AND SERVICES

7. Prospects for federal treasury control (audit) in procurement of goods, works and services PROSPECTS

8. MAIN flows to be subject to state financial control (audit) PUBLIC CONTRACT CONTRACT/AGREEMENT CONTRACT/AGREEMENT SPENDING UNIT/ CLIENT LEAD IMPLEMENTING ENTITY Level 1 implementing entity LEVEL 2 IMPLEMENTING ENTITY Flow 1 (CLIENTS AND IMPLEMENTING ENTITIES) GWS GWS GOODS, WORKS, SERVICES (GWS) Flow 2 (FEDERAL TREASURY BODIES) FUNDS FUNDS FUNDS Account where the budget user’s transactions are recorded Account where the budget user’s transactions are recorded Account where the budget user’s transactions are recorded Individual account of the spending unit ACCEPTANCE DOCUMENTS ACCEPTANCE DOCUMENTS ACCEPTANCE DOCUMENTS FUNDS FUNDS FUNDS ACCEPTANCE DOCUMENTS ACCEPTANCE DOCUMENTS ACCEPTANCE DOCUMENTS Flow 3 (LENDING INSTITUTIONS) Settlement account Settlement account Settlement account INVOICE FOR GWS INVOICE FOR GWS INVOICE FOR GWS Flow 4 (TAX AUTHORITIES) Taxpayer account Taxpayer account Taxpayer account Taxpayer account

9. IT ENVIRONMENT OF INTER-AGENCY COOPERATION IN THE COURSE OF CONTROL (AUDIT) Federal Financial Monitoring Service • Federal Treasury • Federal Tax Service • Automated Tax Information System • Official website of the Unified Information System www.zakupki.gov.ru • Unified Information System for operations (transactions) involving money or other property • GIS E-Budget • Automated VAT Control System Lending institutions • Information on invoices; • Informationon ‘high risk’ legal entities and individuals in respect of which/whom there are data on: • - Tax evasion; • - Availability of receivables; • - Registration in the List of Mala Fide Suppliers; • - Other information (Register of Complaints, control findings); • Information submitted by regional offices; • Unified State Register of Legal Entities, Unified State Register of Sole Proprietors, Unified State Register of Taxpayers. • Application SW ‘Automated System of the Federal Treasury’ • Information on individual account transactions; • Register of Contracts (Federal Law # 44-FZ); • Register of Deeds (Federal Law # 223-FZ); • Register of Agreements ; • GWS Catalog containing information on pricing structure, including costing by cost element; • System of reference prices for goods, works and services; • Information submitted by regional offices. • Information on settlement account transactions; • Informationon ‘high risk’ legal entities and individuals in respect of which/whom there are data indicating their involvement in extremism or terrorism; • Otherinformation (inter-agency cooperation, control findings); • Information submitted by regional offices. Contract ID

10. State financial control (audit) powers of the federal treasury Forms CONTROL AUDIT MONITORING types types types Preliminary control Follow-up control Operational and financial audit Control audit Monitoring of the federal state information system Monitoring of information systems managed by the controlled (audited) entity Observation Review Observation Examination Review Accounting for items subject to control (audit, monitoring) methods certificate opinion certificate act opinion accounting records Analysis Analysis Analysis Review Analysis Documentary control (authorization) certificate permissive resolution certificate certificate act, report certificate Inspection Actual control (review) EXPENDITURES ON PROCUREMENT OF GOODS, WORKS AND SERVICES; IN 2015, BUDGET INVESTMENT, INTERGOVERNMENTAL TRANSFERS AND SUBSIDIES ACCOUNTED FOR 74% OF TOTAL FEDERAL BUDGET EXPENDITURES certificate certificate TREASURY SUPPORT

11. 2. TREASURY SUPPORT AS A RELEVANT FORM OF STATE FINANCIAL CONTROL (AUDIT)

12. TREASURY SUPPORT OF FUNDS under agreements on provision of intergovernmental transfers under agreements on provision of subsidies (earmarked funds) to legal entities under public contracts and contracts/agreements PECULIARITIES: ALLOCATION OF FUNDS FOR SPECIFIC NEEDS The Federal Treasury opens accounts for budget users, i.e. legal entities implementing public contracts and recipients of earmarked funds. The Federal Treasury authorizes transactions Submission of reporting documents IMPACT: Funds channeled to the economy Control of eligible use of funds “Coloring” of cash flows Improved liquidity of the Unified Control System

13. TREASURY SUPPORT OF PUBLIC CONTRACTS AND CONTRACTS/AGREEMENTS CONTRACT/AGREEMENT CONTRACT/AGREEMENT PUBLIC CONTRACT Level 2 implementing entity Level 1 implementing entity Public Client Lead implementing entity GWS GWS GOODS, WORKS, SERVICES (GWS) ADVANCE PAYMENT ADVANCE PAYMENT ADVANCE PAYMENT Individual account of the spending unit (03 l/sch) Account where the budget user’s transactions are recorded (41 l/sch) Account where the budget user’s transactions are recorded (41 l/sch) Account where the budget user’s transactions are recorded (41 l/sch) FEDERAL TREASURY Current transactions (final settlement) Current transactions (final settlement) Current transactions reimbursement reimbursement reimbursement settlement account settlement account settlement account LENDING INSTITUTIONS

14. treasury support of contracts/agreements on provision of subsidies (earmarked funds) to legal entities Order by the Chief Administrator of Budget Funds to delegate the spending unit’s authority to transfer subsidy to the legal entity CONTRACT/AGREEMENT Implementing legal entity Implementing (co-implementing) entity Chief Administrator of Budget Funds Regional Treasury Office to which the authority was delegated GOODS, WORKS, SERVICES (GWS) Information on the uses of earmarked funds, payment order, contract/agreement, documentary evidence of financial obligation Budget commitment limit Consolidated request for support Advance payment Individual account of the spending unit (03 l/sch) Opening of account for the purposes of delegated authority (14 l/sch) Account where the budget user’s transactions are recorded (41 l/sch) Account where the budget user’s transactions are recorded (41 l/sch) FEDERAL TREASURY Payment order reimbursement Current transactions (final settlement) LENDING INSTITUTIONS settlement account settlement account

15. treasury support of contracts/agreements on provision of interbudgetary transfers Order by the Chief Administrator of Budget Funds to delegate the spending unit’s authority to transfer subsidy to the legal entity AGREEMENT on provision of funds Legal entity Designated authority – Russian region Chief Administrator of Budget Funds Regional Treasury Office to which the authority was delegated AGREEMENT on provision of funds Consolidated request for support Individual account of the spending unit (01 l/sch) Opening of account for the purposes of delegated authority (14 l/sch) Individual account of the spending unit (03 l/sch) Account where the budget user’s transactions are recorded (41 l/sch) Budget commitment limit FEDERAL TREASURY Transfer of funds Payment order settlements settlement account LENDING INSTITUTIONS

16. 3. CONTINUOUS STATE FINANCIAL CONTROL (AUDIT) AS A VIABLE FORMAT FOR EXERCISING CONTROL POWERS

17. CONTINUOUS STATE FINANCIAL CONTROL (AUDIT) OF FUNDS ALLOCATED FROM THE BUDGETS OF THE BUDGET SYSTEM OF THE RUSSIAN FEDERATION FEDERAL TREASURY ‘Violations Not Found’ opinion visual review (if necessary) authorization review of documents 3 2 ‘Violations Found/Not Found’ opinion 1. Request for provision/transfer of funds 2. Contract 3. Supporting documents for transfer of funds reaching items under review 2.1 1 2.2 transfer of funds 4 Goods, works, services (controlling the fact of procurement ) Spending unit/Public Client Implementing (co-implementing) entity

18. Summing up: EXPECTED IMPACT OF THE NEW MODEL OF STATE FINANCIAL CONTROL (AUDIT) • Prevention of violations • Shifting emphasis to the preliminary control stage • Physical control in addition to documentary control • “Coloring” of cash flows • Assessment of the cost of goods, works and services • Modification of the result review process Results of preliminary control (a source to identify items to be subject to follow-up control)

19. Thank you! A. Demidov