Path to Accounting Chamber Reform: Draft Law 10044-d Analysis

On September 19, the parliament supported draft law No. 10044-d in the first reading, which is designed to reform the Accounting Chamber. The draft law implements roughly half of the body’s capacity-building recommendations that TI Ukraine outlined this summer. It introduces a risk-oriented approach to planning audits, enhances financial security and monitoring of how the body implements recommendations provided to it, and there is also progress in improving the competitive selection of the Chamber’s members.

However, the most essential issues remain completely or partially unresolved:

• competitive selection to the positions of the Chamber’s members still lacks quality and openness;
• political independence of the body has not been ensured;
• the powers of the Accounting Chamber have not been delineated from the powers of the State Audit Service and the National Agency on Corruption Prevention.

These are priority changes that are essential to implement for the effective operation of the body.

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In December 2023, a working group on reforming the Accounting Chamber was established under the budget committee of the Verkhovna Rada. Representatives of the parliament, the government, the EU, the supreme audit institution of the United States, and experts from the public sector, including TI Ukraine experts, were engaged in it. By May 2024, the group came up with the changes that were to form the basis of the draft of a new law on the Accounting Chamber.

Improving the operation of the Chamber is also a priority for our partners; recommendations on changes were featured in an updated memorandum with the IMF in June, and the adoption of a new law is one of the requirements of the United States to provide direct budget assistance in the amount of USD 1.5 billion.

So far, the idea of creating a new law on the Accounting Chamber has been postponed. MPs plan to amend the current one. Read on to find out more about the key amendments and issues of the draft law.

Improving competitive procedure to select members of the Accounting Chamber

The current procedure is of formal nature and does not allow for a real assessment of the expertise and compliance of candidates with the requirements to members of the Accounting Chamber. The draft law proposes to change the approach to the competition, entrusting the function of selecting candidates to a commission specially established by the parliament—an advisory group of experts (AGE).

It will include 6 persons appointed by the Verkhovna Rada. During the transitional period (the first 8 years after the entry into force of the law), three experts will be delegated based on the proposals of international and foreign organizations, which during the past five years have provided assistance to Ukraine in the field of financial control (audit), corruption prevention, or reform of the Accounting Chamber. Such a period will ensure the participation of international experts in at least one competitive selection cycle of the entire composition of the Accounting Chamber.

In contrast to the current procedure, the draft law proposes to assess candidates’ compliance with the requirements of the specialized law and criteria of integrity and professional competence based on the results of tests, practical tasks, and interviews. Among those who will pass such tests and a special check, the AGE will select at least two candidates for a position of the AC member through an open vote.

The AGE will decide by a majority of votes from the total number of members. During the transitional period, international experts will have the predominant right to vote. In the case of an equal distribution of votes, the decision will be adopted if at least two such experts voted for it.

Subsequently, the list of candidates recommended for appointment will be submitted to the budget committee of the Verkhovna Rada for approval, followed by the parliament’s consideration.

Transparency International Ukraine supports the steps to improve the competitive procedure for selecting members of the Accounting Chamber.

However, the draft law does not consider certain important issues related to the formation of the advisory group of experts (AGE), the powers of its members, and the competitive selection:

• There are no requirements to members of the AGE (for example, regarding their business reputation and work experience) and no restrictions on the election of certain persons to it. There is a risk that a person who does not have sufficient qualifications or who is a representative of a potential entity under the Chamber’s control may become a member of the advisory group.
• The rights and obligations of the AGE members, as well as the grounds for early termination of their powers, are not properly defined. In the future, this may block the competitive procedure.
• The competitive selection shall last 4 months, and this is too short a period to carry out the entire procedure, including the preparatory stage (determining the rules of the group’s work, the procedure for conducting the competition, criteria and methods to evaluate candidates), all selection stages (if necessary, the AGE can conduct additional tests), voting, and formation of the final list of candidates.

Another important risk is that the draft law does not mention that the competition shall be conducted on an open basis. This applies both to general access to participation in the competition and to ensuring the transparency of the selection: publishing the methodology for evaluating candidates, streaming interviews, and posting the results of various selection stages.

Therefore, although the draft law introduces a number of steps to ensure that future competitions are truly effective and open, this transition remains incomplete. The procedure for the competitive selection of new members of the Accounting Chamber and the general approach to it need to be finalized.

Ensuring independence of the Accounting Chamber

Analyzing the work of the Accounting Chamber, TI Ukraine emphasized the need to ensure the independence of this body as a guarantee of its effective operation. The main threats include:

• potential political influence on the institution through the legally enshrined mechanisms of appointing and dismissing its members and the head;
• risks of interference of other authorities in planning the activities of the Chamber;
• financial risks associated with the limited powers of the Chamber in the budget process and the level of wages of employees, which is determined by the general legislation on public service.

The draft law eliminates a significant part of such risks.

When planning audits, the Accounting Chamber will have to apply a risk-oriented approach. Unscheduled audits can be carried out only in case the parliament adopts a relevant decision.

The financial independence of the Accounting Chamber is proposed to be enhanced through obliging the government to provide information on considering the Accounting Chamber’s proposals regarding its financial security together with the draft law on the national budget. The draft law also proposes to remove officials of the Chamber from the scope of the Law on Civil Service and to determine the amount of their official salaries and allowances in the specialized law, as it is provided for the National Anti-Corruption Bureau of Ukraine.

However, not all risks were considered in terms of ensuring the institution’s political independence.

The draft law proposes to reduce the number of members of the Accounting Chamber to 11 and does not provide for depriving previously appointed members of the body of their powers (currently there are 5 of them). This preserves the possibility of political influence on current members, and as a result, on further decisions of the Chamber because they are adopted by a majority of votes from the number of members present at the meeting. Therefore, it is important to maintain the number of members of the Accounting Chamber, which is currently provided by law so that the vast majority of them are elected under the new and open selection procedure.

Currently, the speaker of the parliament is responsible for the selection of a candidate for the position of the Chamber’s head. Thus, the risks of political influence on the potential head of the AC persist. This approach should be changed by providing the Accounting Chamber with an opportunity to elect the candidate and submit a proposal for their appointment to the Verkhovna Rada.

In addition, the draft law retains the risk of early termination of powers of AC members for reasons not provided for by the specialized law.

In May 2022, the Verkhovna Rada adopted a law that gave the parliament the power to express no confidence in officials whose appointment and dismissal is the prerogative of the Verkhovna Rada during the martial law, which results in the dismissal of such an official. At the same time, the issue of expressing no confidence is initiated according to a simplified procedure—it can be done by the speaker of the parliament or at least 113 MPs, and the issue is urgently considered at the plenary session.

As a result, the officials of the Accounting Chamber were at risk of dismissal, and it was due to this mechanism that the former AC head was dismissed. Therefore, the provision of the law, which calls into question the independence of the head and members of the Accounting Chamber, must be excluded.

So far, MPs have settled the risks of interference of other bodies in the activities of the Chamber and enhanced its financial security. However, threats of political influence on its activities persist.

Expanding the Chamber’s powers

Currently, the Accounting Chamber is focused on monitoring the receipt and use of the national budget funds. But the draft law significantly expands its powers and provides an opportunity to conduct audits of:

• local budgets;
• extrabudgetary funds;
• state and municipal enterprises;
• National Bank of Ukraine;
• international financial assistance (grants, loans) received by the national or local budgets;
• public procurement (not only at the expense of the national budget, as is the case now).

Undoubtedly, in conditions of limited use of internal revenues and the attraction of significant amounts of external financial assistance to the budgets of various levels, the role of financial control is increasing. However, such a significant expansion of powers entails risks.

Currently, the Accounting Chamber and the State Audit Service of Ukraine have similar powers in the areas of control over the management and use of public funds. Entrusting the Chamber with additional powers regarding the audit of local budget funds will only increase the number of intersection points in the functions of these bodies. In addition, the simultaneous financing of two bodies with overlapping powers is inefficient in terms of spending public funds on their activities.

Another example is control over the lawful and targeted use of funds by political parties. The NACP is responsible for it; however, the Accounting Chamber retains the same powers under the draft law.

The overlapping in the functions of control bodies needs to be eliminated. In the case of control over the use of funds by political parties, this can be now implemented by introducing relevant changes to the draft law. However, the harmonization of the activities of the Accounting Chamber and the State Audit Service requires additional consultations with the engagement of representatives of these bodies, as well as the parliament and the government. Therefore, considering the short time frame provided to prepare the draft law for the second reading, we recommend postponing the entry into force of the provisions that provide for the expansion of the Chamber’s powers to audit the funds of local budgets at least until the end of 2025.

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To conclude, draft law No. 10044-d considers most of the issues agreed upon by the working group on the reform of the Accounting Chamber under the budget committee of the Verkhovna Rada. In addition, it fulfills a number of requirements of international partners regarding the reform of the body and partially meets the steps that TI Ukraine recommends implementing for to improve its operation.

However, several proposals need to be finalized:

1. Improve the competitive selection procedure:

• establish requirements to the members of the advisory group of experts (AGE) that will conduct the competition, as well as restrictions on electing certain categories of persons to it;
• determine the rights and obligations of the AGE members, grounds for early termination of their powers;
• extend the term of the competition to determine the list of candidates whom the AGE recommends appointing;
• provide for the openness and transparency of the competitive selection, including the mandatory publication of the candidate evaluation methodology and the results of selection stages.

2. Enhance political independence of the Accounting Chamber:

• preserve the number of members of the Accounting Chamber;
• grant the Accounting Chamber the authority to elect a candidate for the position of head of the body;
• deprive the parliament of the possibility of early terminating the powers of the Chamber’s members on the grounds provided for by the Law on the Legal Regime of Martial Law.

3. Coordinate the powers of the Accounting Chamber with other bodies:

• remove the powers of the Accounting Chamber to control the lawful and targeted use of funds allocated to finance political parties, which currently duplicate the powers of the NACP;
• postpone the entry into force of the provisions that provide for the powers of the Accounting Chamber to audit local budget funds at least until the end of 2025 to harmonize the functions of the Accounting Chamber and the State Audit Service.

These changes are important to reform the body and thus increase the effectiveness of its control over public finances and international financial assistance.