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

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

STATE FINANCIAL CONTROL (AUDIT) POWERS OF THE FEDERAL TREASURY

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 Russian regions Regional control and accounts authority Regional Office of the Federal Treasury Regional internal state financial control authority Municipalities Municipal control and accounts authority Regional Unit of the Regional Office of the Federal Treasury Regional internal municipal financial control authority

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

FEDERAL TREASURY CONTROL (AUDIT) IN PROCUREMENT OF GOODS, WORKS AND SERVICES PLANNING PROCUREMENT PROCESS CONTRACT EXECUTION PROCUREMENT RESULTS Procurement plan Time plan Procurement Notice, procurement documents, supplier/provider/contractor selection (work the committee, minutes) Register of Contracts, supporting documents (bill, invoice, etc. ) Procured goods/works/services Preliminary control - Compliance with requirements to justification of budgetary allocations; - Control of procurement plan alignment with budget commitment limits Consistency of information on procurement identification code and level financial support with procurement plan data Consistency of information on procurement identification code and level financial support given in the Procurement Notice, procurement documents, minutes, and draft contract with the time plan Consistency of information on procurement identification code and level financial support given in the Register of Contracts with contract terms and conditions Follow-up control - Compliance with requirements to procurement justification; - Compliance with norm setting rules in procurement Justification of the initial contract price (price ceiling) Management of the Register of Contracts; Authorization of expenses and contract payment; Consistency of procured goods /works/services with contract terms and conditions; Use of penalties by the client in case of contract breach; -Timeliness, completeness and reliability of records on procured goods/works/services in books and accounts Consistency of procured goods/works/services with procurement objectives

Prospects for federal treasury control (audit) in procurement of goods, works and services PLANNING PROCUREMENT PROCESS CONTRACT EXECUTION PROCUREMENT RESULTS Procurement plan Time plan Procurement Notice, procurement documents, supplier/provider/contractor selection (work the committee, minutes) Register of Contracts, supporting documents (bill, invoice, etc. ) Procured goods/works/services - Catalog of goods/works/services (name of procured items, part of procurement identification code, cost structure, price); - Information on reference prices; - Establishment of an objective initial contract price (price ceiling) List of procurement committee members (name, position, length of service in the committee, and other details): - Identifying cases of affiliation with suppliers Register of cooperation of public contract implementing/co-implementing entities (information on legal entities: name, legal status, founder, other data): Identifying affiliated implementing entities; Providing for transparency of public contract implementation, including prevention of movement of budget funds to tax havens, and combating contract implementation by fly—by-night companies) Efficiency of procurement of goods/works/services PROSPECTS

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

Contract ID Federal Tax Service Federal Treasury Lending institutions IT ENVIRONMENT OF INTER-AGENCY COOPERATION IN THE COURSE OF CONTROL (AUDIT) Federal Financial Monitoring Service Federal Tax Service Federal Treasury 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 Automated VAT Control System GIS E-Budget Information on invoices; Information on ‘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. Lending institutions 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; Information on ‘high risk’ legal entities and individuals in respect of which/whom there are data indicating their involvement in extremism or terrorism; Other information (inter-agency cooperation, control findings); Information submitted by regional offices. Contract ID

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 methods Accounting for items subject to control (audit, monitoring) Examination Review Review Observation Observation accounting records act opinion opinion certificate certificate Documentary control (authorization) Review Analysis Analysis Analysis Analysis permissive resolution act, report certificate certificate certificate certificate Actual control (review) Inspection 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

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

TREASURY SUPPORT OF FUNDS ALLOCATION OF FUNDS FOR SPECIFIC NEEDS under public contracts and contracts/agreements under agreements on provision of subsidies (earmarked funds) to legal entities under agreements on provision of intergovernmental transfers 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

TREASURY SUPPORT OF PUBLIC CONTRACTS AND CONTRACTS/AGREEMENTS CONTRACT/AGREEMENT CONTRACT/AGREEMENT Public Client Lead implementing entity Level 1 implementing entity Level 2 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 Current transactions (final settlement) Current transactions (final settlement) reimbursement reimbursement reimbursement settlement account settlement account settlement account LENDING INSTITUTIONS

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 Chief Administrator of Budget Funds Regional Treasury Office to which the authority was delegated Implementing legal entity Implementing (co-implementing) entity 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

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 Chief Administrator of Budget Funds Regional Treasury Office to which the authority was delegated Designated authority – Russian region Legal entity 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 Payment order Transfer of funds settlements settlement account LENDING INSTITUTIONS

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

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 review of documents visual review (if necessary) authorization 2 3 ‘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 4 transfer of funds Spending unit/Public Client Goods, works, services (controlling the fact of procurement ) Implementing (co-implementing) entity

Results of preliminary control 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)

Thank you! A. Demidov