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

2 PRESENTATION OUTLINE 1.STATE FINANCIAL CONTROL (AUDIT) POWERS OF THE FEDERAL TREASURY 2.TREASURY SUPPORT AS A RELEVANT FORM OF STATE FINANCIAL CONTROL (AUDIT) 3.CONTINUOUS STATE FINANCIAL CONTROL (AUDIT) AS A VIABLE FORMAT FOR EXERCISING CONTROL POWERS GLOSSARY 1.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 2.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 1.STATE FINANCIAL CONTROL (AUDIT) POWERS OF THE FEDERAL TREASURY

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

FEDERAL TREASURY CONTROL POWER DEVELOPMENT FACTORS 1.Programmatic approach to governance 2.Securing the rule of law and efficiency in contractual relations 3.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 5

FEDERAL TREASURY CONTROL (AUDIT) IN PROCUREMENT OF GOODS, WORKS AND SERVICES PLANNINGPROCUREMENT PROCESS CONTRACT EXECUTIONPROCUREMENT RESULTS Procurement planTime planProcurement 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 6

PROSPECTS FOR FEDERAL TREASURY CONTROL (AUDIT) IN PROCUREMENT OF GOODS, WORKS AND SERVICES PLANNINGPROCUREMENT PROCESS CONTRACT EXECUTIONPROCUREMENT RESULTS Procurement planTime planProcurement 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) - 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 7 PROSPECTS

8 MAIN FLOWS TO BE SUBJECT TO STATE FINANCIAL CONTROL (AUDIT) Flow 1 (CLIENTS AND IMPLEMENTING ENTITIES) Flow 2 (FEDERAL TREASURY BODIES) Flow 3 (LENDING INSTITUTIONS) SPENDING UNIT/ CLIENT LEAD IMPLEMENTING ENTITY LEVEL 1 IMPLEMENTING ENTITY LEVEL 2 IMPLEMENTING ENTITY PUBLIC CONTRACT CONTRACT/AGREEMENT GOODS, WORKS, SERVICES (GWS) GWS Individual account of the spending unit Account where the budget user’s transactions are recorded FUNDS Settlement account FUNDS Flow 4 (TAX AUTHORITIES) Taxpayer account INVOICE FOR GWS ACCEPTANCE DOCUMENTS

IT ENVIRONMENT OF INTER-AGENCY COOPERATION IN THE COURSE OF CONTROL (AUDIT) Federal Tax Service Federal Treasury Federal Financial Monitoring Service Contract ID 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. Automated Tax Information System Automated VAT Control System Official website of the Unified Information System GIS E-Budget Application SW ‘Automated System of the Federal Treasury’ Unified Information System for operations (transactions) involving money or other property 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. Lending institutions 9

certificate act act, report permissive resolution STATE FINANCIAL CONTROL (AUDIT) POWERS OF THE FEDERAL TREASURY 10 CONTROL AUDIT MONITORING Forms 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 types Accounting for items subject to control (audit, monitoring) accounting records Documentary control (authorization) фактический контроль (осмотр) certificate Examination Review обследование opinion certificate Review Analysis opinion certificate Review Analysis certificate Observation Analysis certificate Observation Analysis TREASURY SUPPORT EXPENDITURES ON PROCUREMENT OF GOODS, WORKS AND SERVICES; IN 2015, BUDGET INVESTMENT, INTERGOVERNMENTAL TRANSFERS AND SUBSIDIES ACCOUNTED FOR 74% OF TOTAL FEDERAL BUDGET EXPENDITURES

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

TREASURY SUPPORT OF FUNDS under agreements on provision of subsidies (earmarked funds) to legal entities under agreements on provision of intergovernmental transfers under public contracts and contracts/agreements 12 PECULIARITIES: ALLOCATION OF FUNDS FOR SPECIFIC NEEDS 1.The Federal Treasury opens accounts for budget users, i.e. legal entities implementing public contracts and recipients of earmarked funds. 2.The Federal Treasury authorizes transactions 3.Submission of reporting documents IMPACT: 1.Funds channeled to the economy 2.Control of eligible use of funds 3.“Coloring” of cash flows 4.Improved liquidity of the Unified Control System

Public Client FEDERAL TREASURY LENDING INSTITUTIONS Level 1 implementing entity Level 2 implementing entity 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) CONTRACT/AGREEMENT ADVANCE PAYMENT settlement account CONTRACT/AGREEMENT reimbursement TREASURY SUPPORT OF PUBLIC CONTRACTS AND CONTRACTS/AGREEMENTS Lead implementing entity PUBLIC CONTRACT Current transactions Current transactions (final settlement) 13 GOODS, WORKS, SERVICES (GWS) GWS

TREASURY SUPPORT OF CONTRACTS/AGREEMENTS ON PROVISION OF SUBSIDIES (EARMARKED FUNDS) TO LEGAL ENTITIES FEDERAL TREASURY LENDING INSTITUTIONS Regional Treasury Office to which the authority was delegated Implementing legal entity Implementing (co- implementing) entity 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) Order by the Chief Administrator of Budget Funds to delegate the spending unit’s authority to transfer subsidy to the legal entity CONTRACT/AGREEMENT Budget commitment limit АВАНС Сводная заявка на подкрепление settlement account Information on the uses of earmarked funds, payment order, contract/agreement, documentary evidence of financial obligation Платежное поручение reimbursement Current transactions (final settlement) Chief Administrator of Budget Funds 14 GOODS, WORKS, SERVICES (GWS)

КАЗНАЧЕЙСКОЕ СОПРОВОЖДЕНИЕ СОГЛАШЕНИЙ (ДОГОВОРОВ) О ПРЕДОСТАВЛЕНИИ МЕЖБЮДЖЕТНЫХ ТРАНСФЕРТОВ FEDERAL TREASURY LENDING INSTITUTIONS Regional Treasury Office to which the authority was delegated Legal entity Individual account of the spending unit (01 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) Order by the Chief Administrator of Budget Funds to delegate the spending unit’s authority to transfer subsidy to the legal entity Budget commit ment limit Consolidated request for support settlement account settlements Designated authority – Russian region Individual account of the spending unit (03 l/sch) Chief Administrator of Budget Funds Payment order Transfer of funds 15 AGREEMENT on provision of funds AGREEMENT on provision of funds

16 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 17 Goods, works, services (controlling the fact of procurement ) Spending unit/Public Client Implementing (co- implementing) entity FEDERAL TREASURY 1. Request for provision/transfer of funds 2. Contract 3. Supporting documents for transfer of funds ‘Violations Found/Not Found’ opinion reaching items under review transfer of funds review of documents visual review (if necessary) authorization ‘Violations Not Found’ opinion

SUMMING UP: EXPECTED IMPACT OF THE NEW MODEL OF STATE FINANCIAL CONTROL (AUDIT) 1.Prevention of violations 2.Shifting emphasis to the preliminary control stage 3.Physical control in addition to documentary control 4.“Coloring” of cash flows 5.Assessment of the cost of goods, works and services 6.Modification of the result review process 18 Results of preliminary control (a source to identify items to be subject to follow-up control)

Thank you! A. Demidov