Enhancing Accountability: How Draft Law No. 10255 Will Change Oversight of Public Funds

This month, the Verkhovna Rada passed the final version of draft law No. 10255. As mentioned earlier, it introduces new penalties for failing to comply with the requirements for disclosing information on the use of public funds and for assisting the State Audit Service in gaining access to personal data. However, the draft law was revised and amended for consideration in the second reading. It is now awaiting the President’s signature and has not yet come into force. Let’s review the new provisions and revisit the key changes.

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Brief conclusions:

Transparency International Ukraine generally views the innovations in this draft law positively, as it strengthens accountability for violations of the requirements regarding the disclosure of information on the use of public funds.

• Courts will be able to impose fines for administrative violations in the procurement field within one year from the date the violation is detected (up from six months).
• The penalty for failing to disclose information on spending.gov.ua regarding the use of public funds will range from UAH 850 to 1,190. Publishing unreliable, inaccurate, or incomplete information, or failing to publish it on time, is also considered an offense subject to the same fine. The State Audit Service will issue reports and impose fines.
• The State Audit Service and its territorial bodies will be able to collect personal data for handling administrative violation cases, including from the Unified State Demographic Register.

We emphasize that strengthening accountability for violations in this area will not, by itself, resolve the underlying complex issues. It is crucial to continue with the reform. The next step in this area could be the establishment of a unified reporting system for public finance expenditure to minimize duplicate reporting across different systems or at least the disclosure of information already available to the state (such as work acceptance certificates).

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Extended time limit for imposing fines

Currently, courts can impose administrative penalties for procurement-related offenses within six months of their detection. Once the amendments come into force, courts will be able to impose penalties for procurement violations within one year of detection (still, as before, no later than two years from the date of a violation). This provides state auditors with more time to prepare a report under Article 164-14, Parts 3-6 of the Administrative Code and allows the court more time to consider the case.

Also, a longer period — within one year from the date of the violation — is provided for imposing fines under two articles:

• Article 188-19 of the Administrative Code of Ukraine, for failing to provide or respond timely to a request or submission from an MP of Ukraine, as well as for providing false or incomplete information in response to such a request or submission;
• new parts 12 and 13 of Article 212-3 of the Administrative Code. We are referring to the non-disclosure or untimely disclosure of information that must be made public under the Law of Ukraine on the Open Use of Public Funds (hereinafter referred to as the Transparency Law), as well as the publication of unreliable, inaccurate, or incomplete information.

New penalties for violating the transparency requirements regarding the use of public funds

When preparing the draft law for the second reading, the authors increased the fines for new administrative violations and streamlined the text to eliminate conflicts between the new and existing provisions.

As for fines, non-disclosure or late disclosure of information under the Transparency Law, as well as the disclosure of unreliable, inaccurate, or incomplete information, will incur a fine ranging from UAH 850 to 1,190. For repeat offenses within a year, if the person has already been fined for any of these violations, the fine will range from UAH 1,190 to 1,700.

Responsibility, as before for non-disclosure of information, and now for other violations, will lie with the supervisors of managers and recipients of state and local budgets, as well as enterprises, the offices of the Pension Fund, and the State Social Insurance Fund of Ukraine for Unemployment.

In addition, as planned, violations of the Transparency Law may result in inspections conducted by state auditors.

The State Audit Service will prepare reports and impose fines for violations of the Transparency Law

As originally planned, cases of offenses related to non-compliance with the Transparency Law are removed from the jurisdiction of the courts. Instead, these cases will be handled by state financial control bodies — the State Audit Service and its territorial offices.

In our initial analysis, we noted the gap in draft law No. 10255 regarding the lack of clarity on who would be responsible for drawing up reports on violations of the Transparency Law. Previously, this task was handled by authorized officials of the Secretariat of the Verkhovna Rada Commissioner for Human Rights or their representatives (excluding violations related to legislation on the bar). It seemed unusual that the draft law does not propose granting this authority to the State Audit Service under Article 255 of the Administrative Code, especially since the Office of the Commissioner can only issue reports for cases that the court will consider.

Fortunately, the authors of the draft law addressed this issue and granted the appropriate powers to the State Audit Service under Article 255 of the Administrative Code, as we had suggested.

Strengthening the powers of the State Audit Service and expanding access to personal data

As planned, the rights of state financial control bodies are being clarified and expanded, with corresponding changes to other legislation. State auditors will be able to:

•     collect and receive personal data of individuals in cases specified by law, for the purpose of conducting proceedings in administrative offense cases;
•     receive not only documents, materials, and information, but also restricted information. The final version of the draft law further emphasizes the right to access such information, while ensuring compliance with information protection requirements;
•     use information, documents, and other data in the exercise of their powers, including personal data from the Unified State Demographic Register. Additionally, as provided for in the second reading, they will have access to documents contained in or created using the tools of the said Register.

Currently, the general rule is that the procedure for third parties to access personal data held by public information managers is governed by the Law of Ukraine on Access to Public Information. As outlined in the draft law, an exception to this rule has been added: it will not apply to state financial control bodies when conducting proceedings in administrative offense cases.

Additionally, as planned, supervisors of managers, recipients of budget funds, and enterprises will be required to provide information on compliance with the requirements of the Transparency Law within five business days from the date of receiving a request from the state financial control body.

Information about public finances will not be subject to restrictions

As an additional guarantee that information about the use of public funds remains accessible, it has been included in the list of information that cannot be classified as restricted access.

In our initial analysis, we warned that narrowing the scope of information about the activities of state and municipal unitary enterprises, as well as business entities with a state/municipal share, to only include information on their use of public funds is a bad idea. This approach could result in the loss of public access to the rest of the information about their activities, as is currently provided. We noted that it would be better to list information about the public finances of these entities as a separate item, in addition to information about their activities.

Fortunately, by the second reading, the authors of the draft law addressed this concern by ensuring that information about the use of public funds by various entities cannot be classified as restricted while maintaining the existing requirements for information about the activities of enterprises.

Also, as planned, the duration for keeping information on the use of public funds from the state budget, the budget of the Autonomous Republic of Crimea, and local budgets in the public domain has been extended from three to five years.

Conclusions

In summary, the adoption of the revised draft law No. 10255 can be viewed positively, as most of our previous comments on it were taken into account. Conflicts and risks of disrupting the architecture of existing norms have been eliminated.

A key change in the second reading was the extension of the time frame for imposing fines for violations in the field of procurement. This extension should help the courts hold those responsible accountable in a timely manner.

The authority to receive personal data should strengthen the position of the State Audit Service; however, in our opinion, the legislation still lacks a clear procedure for granting state financial control bodies access to personal data.

The next step in this area could involve creating a unified system for reporting on the expenditure of public finances, or at least ensuring the disclosure of information already available to the state. As noted by TI Ukraine in the study titled Three Times Less: How to Improve Reporting Under Contracts, there is a problem with procuring entities reporting to three independent systems, while crucial information about public funds, such as work acceptance certificates, remains unpublished. Increased responsibility alone does not solve this problem; it only preserves the existing situation.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.