A challenge for the Accounting Chamber: What will the audit of the use of foreign funds in Ukraine look like?

The reform of the Accounting Chamber is important for Ukraine – the body will audit the use of funds invested by foreign countries in Ukraine. It must be 100% independent and competent. How can this be achieved?

Several years ago, I arrived in Kyiv with a small team of individuals who shared our vision to contribute to an intriguing project — aligning external audits in Ukraine with international standards. The Ukrainian government had committed to such endeavors by endorsing the European Union Association Agreement. Now, with discussions about Ukraine’s potential full membership in the EU at the forefront, this reform has assumed even greater significance.

I traversed a similar journey in Latvia. In three years, Latvia managed to move from state control to the application of international audit standards and the implementation of modern IT tools. This transformation extended to the improvement of public sector accounting and a shift in the principles of consolidated financial reporting. Consequently, the State Audit Office of Latvia has emerged as an exemplary institution and a catalyst for change.

At present, Ukraine is grappling with exceptionally challenging circumstances, and this serves as a source of motivation for me and my colleagues. Time is working against us, as substantial investments are pending, all while we continue to contend with the ongoing Russian aggression.

The Accounting Chamber must evolve rapidly to become an exemplar among Ukrainian institutions. The underlying logic is straightforward: for a supreme audit institution to demand accountability and provide guidance to others, it must first exemplify the highest standards in every aspect of its operations.

Being an example entails adherence to elevated ethical standards. It means having an impeccable corporate culture. It means prompt delivery coupled with the ability to make flexible decisions. The supreme audit institution focuses on continuous professional improvement, the optimization of internal processes, the incorporation of best practices, and adherence to international standards.

The standards and principles of the international organization INTOSAI establish a high-quality benchmark for all supreme audit institutions. These requirements are not limited to auditors alone. Primarily, legislative frameworks must conform to these principles. The capacity of a supreme audit institution to fulfill its responsibilities hinges on the legal landscape in which it functions. Confidence in the auditors’ judgments can only be assured if their independence is both constitutionally and legally guaranteed. Consequently, the ongoing reforms within the Accounting Chamber should not be considered separately from the concurrent legal reforms.

It is not a coincidence that the first principle of INTOSAI emphasizes the presence of an appropriate and effective constitutional, legislative, and legal framework, along with provisions for its practical application.

The second principle mandates the independence of managers and members of supreme audit institutions, encompassing job security and legal immunity during the routine discharge of their duties.

The third principle entails the grant of extensive authority and unrestricted freedom to act in the execution of the institution’s functions. The fourth principle encompasses unrestricted access to information. The fifth principle pertains to both the right and obligation to report on its work. The sixth relates to the auditor’s autonomy in deciding the content and timing of audit reports, as well as the freedom to publish them. The seventh principle involves the presence of effective mechanisms for the subsequent implementation of audit recommendations.

Finally, the eighth principle mandates financial and managerial autonomy, along with the provision of necessary resources, for the supreme audit institution.

At first glance, there is nothing inherently complex about these INTOSAI principles; they are, in fact, quite logical requirements. However, their successful implementation is not always straightforward.

Presently in Ukraine, there exists a tradition of formulating highly detailed laws that often read more like instructional manuals. This practice harkens back to a bygone era when the principle of ‘everything that is not forbidden is allowed’ held sway. This legal approach serves to curtail the independence of the Accounting Chamber, effectively impeding its ability to carry out its functions to the fullest extent. Today, it stands as a formidable obstacle that hinders the adoption of international standards within the Accounting Chamber’s operations.

Nonetheless, my colleagues and I hold a firm conviction that no problems are insurmountable, and through a step-by-step approach, we will attain our objectives. As of 2023, we have already achieved significant milestones. The successful experience in Latvia instils confidence that our mission in Ukraine will likewise prove successful.

Inguna Sudraba, EU4ACU Team Leader