2024 European Commission Report: Three Priority Reforms for Next Year According to TI Ukraine

Two days ago, the European Commission published another 2024 EU Enlargement Report on Ukraine as a candidate country.  

In a rather big 99-page text, our partners mentioned many points important for our European integration, but I would like to dwell on the three reforms that I consider to be the key ones for us in 2025—the reforms of the Accounting Chamber, public procurement, and the Asset Recovery and Management Agency. All of them form part of the first negotiation cluster Fundamentals of the EU Accession Process, in which the negotiation chapters will be opened first and will remain so until the very end of the negotiations.

Allow me to elaborate on why these reforms should be a priority.

Enhancing the capacity of the Accounting Chamber

The report notes that Ukraine is at an early stage of preparing to implement financial control, and that we have made modest progress in the introduction of internal control and external audit.

Despite the update of audit methodologies in 2023, this year, the European Commission again pointed out the limited capacity of the Accounting Chamber (AC) in the field of financial control. One of the limitations in the way of real change is the deficiency of the regulatory framework, which is inconsistent with international standards for supreme audit institutions.

In general, the recommendations in the report have not changed significantly since last year. The key is to enhance the political, administrative, and financial independence of the Accounting Chamber and expand its mandate to include control over all public finances.

The report also drew attention to the need to introduce a risk-based approach to audit planning and establish effective cooperation between the Accounting Chamber and the parliament, as a guarantee of enhancing control over budget funds and promoting reforms in Ukraine. In addition, according to European experts, it is important to ensure the delineation of powers between the two financial control bodies—the Accounting Chamber and the State Audit Service.

Most of these recommendations coincide with the proposals to enhance the capacity of the Accounting Chamber, which TI Ukraine highlighted this summer.

Notably, on the day the European Commission published the report, the Verkhovna Rada supported draft law No. 10044-d in the second reading, designed to improve the operation of the Accounting Chamber. This document considers several recommendations of our European partners:

• expands the authority of the body to audit local budgets, state-owned enterprises, extra-budgetary foundations, and consolidated financial statements of public sector entities;
• introduces an updated procedure for the competitive selection of members of the Accounting Chamber, with the prevailing right of international experts to vote;
• eliminates the possibility of direct political influence on the Accounting Chamber through unscheduled audits initiated by other bodies;
• enshrines a risk-oriented approach to audit planning in the law;
• enhances the administrative independence of the Accounting Chamber by simplifying the procedure for determining the maximum number of employees and removing officials from the scope of the Law on Civil Service;
• enhances the financial independence of the body by enshrining the salaries and bonuses of officials at the level of the law and establishing a special procedure for considering the budget requests of the Accounting Chamber;
• consolidates the requirements for mandatory consideration of certain decisions of the Accounting Chamber by parliamentary committees based on the results of audits and information on improper implementation or non-implementation of recommendations provided by it.

However, certain risks related to ensuring the political independence of the Accounting Chamber and the overlapping of its functions with those of the State Audit Service were not eliminated in the new law. Their correction in the future will not only help to fully implement the recommendations of the European Commission, but also significantly strengthen the institution and consolidate the distribution of responsibilities of public authorities in the field of financial control.

Bringing procurement rules in line with European ones

Harmonization of our public procurement rules with European ones is another important stage of negotiations on accession to the European Union. Section 5 “Public Procurement” also forms part of the first negotiation cluster Fundamentals of the EU Accession Process, so special attention is paid to it.

The European Commission report notes progress in this area, albeit limited, in particular due to the development of a draft of a new specialized law. Experts of our DOZORRO project joined the development of proposals before the second reading, and now the interim version has just been sent to the EC. It is the adoption of the new law that should bring Ukrainian legislation closer to the European one. At the same time, it is essential not to forget that the new law should also provide effective and proper rules for the operation of the sphere as a whole, that is, take into account our realities.

The EC highlighted the issue of non-price criteria. In its opinion, the use of only the price criterion when selecting a participant to award a contract indicates that the price is a much higher priority for us than the quality. However, the fact that most Ukrainian procuring entities have almost no experience in working with non-price and do not yet know how to apply them effectively should be considered. Therefore, it is necessary to look for a compromise solution that will ensure the transition period and regulation. We propose to grant the Cabinet of Ministers the authority to approve the procedure for applying the criteria for tender bid evaluation. This will enable procuring entities to use non-price criteria more efficiently and avoid abuse and discriminatory requirements. 

Another issue that bothers the European Commission is localization. Its requirements do not apply to procurement subject to international treaties, and the report indicates the need to provide procuring entities with clear explanations about this exception. This is needed to comply with the principles of non-discrimination and equal treatment, which Ukraine previously agreed upon with the EU. We at TI Ukraine have repeatedly recommended abandoning localization altogether because it fails to function as intended. 

Separately, the report mentions the issue of enhancing control in the field, in particular, by the State Audit Service. The European Commission urges first of all to develop a clear action plan in accordance with the Ukraine Plan. Separately, the EC stresses that control is crucial for reconstruction-related procurement, and the number of potential overpayments that our analysts find in such procurement confirms this. 

The European Commission also reminds us of the need to enhance the institutional capacity of the Antimonopoly Committee commission that considers procurement appeals. In particular, a higher number of authorized persons should be selected, as the workload on the body is only growing. This recommendation was included in last year’s report. 

Overall, in this area, the recommendations of the European Commission mostly echo what we are constantly emphasizing. At the same time, I would like to emphasize that the level of digitalization of the Ukrainian public procurement system is several times higher than the European one, which gives us the opportunity to conduct a more accurate analysis and predict and test changes. So, when we think that European recommendations might lead to problems instead of progress, we should stand our ground.

Comprehensive reform of the ARMA

In the report, the Asset Recovery and Management Agency (ARMA) is considered as part of the fundamental chapter 24 “Justice, Freedom and Security.” The EC mentions this institution only once in the context that it is necessary to implement a comprehensive reform of the ARMA in accordance with the Ukraine Facility Plan. This brief mention is crucial because there have been no real legislative changes recently aimed at optimizing the Agency’s activities. 

The ARMA was established following the example of asset recovery offices in the EU member states. It should have been a compact and highly qualified body with broad powers, serious guarantees of independence, and a sufficient level of control on the part of specialists and the public. However, today’s ARMA almost fails to meet these criteria. 

Although there are no direct recommendations in the report to improve the operation of the Agency, we at TI Ukraine can provide them. Unfortunately, they have not changed in many respects over the years that we have monitored the work of the ARMA, and most of them coincide with the requirements of the Ukraine Facility Plan. 

In our opinion, for a comprehensive reform of the ARMA, it is necessary to:

• change the rules for the selection of the Agency head by reducing the number of commission members, lowering the politicization of the process, and supplementing the competition with clear rules for assessing candidates;
• increase transparency in its activities, especially in the management of seized assets. Currently, these processes are too complicated both for the owners of the seized property and for potential managers, as the ARMA often delays holding tenders;
• change the rules of external independent evaluation of the ARMA, in particular, reduce the number of members of the evaluation commission to three; they shall be appointed by the Cabinet of Ministers based on proposals from international partners;
• introduce full-fledged planning before seizure;
• prioritize the seizure of assets by criminal courts over other interim relief measures within other jurisdictions;
• unblock the possibility to manage corporate rights.

***

In many areas that are the Fundamentals for accession, Ukraine has demonstrated some progress or a moderate level of compliance with the requirements. In my opinion, this is a good result, given the fact that the process of European integration takes place in the conditions of a devastating war. Even in such circumstances, we show some progress and are constantly working on the necessary legislative changes, keeping in mind that implementing them in practice will be a key. 

Before the final accession of Ukraine to the European Union, we will all have to do a lot more. In future reports, the EC will continue to assess our progress and provide us with new recommendations to implement reforms. The main thing in this process is to make the country stronger through these changes.