Recently, the Accounting Chamber of Ukraine has published a report based on the audit of state-owned enterprise Prozorro.Sale. After analyzing it, I have doubts concerning its objectivity. I feel that certain conclusions and statements can undermine the credibility of Prozorro.Sale as a system and as an enterprise. Let’s take a look at some provisions of the report.
Before getting into it, let me say that any audits in general aim at identifying shortcomings in the work of enterprises and a lot of state enterprises do need that. Most Ukrainian state-owned enterprises are inefficient and need funding from the national budget. This is where the Accounting Chamber steps in.
Yet, certain things in this audit report came as a surprise.
About “inefficient use of property” by Prozorro.Sale
The electronic trade system Prozorro.Sale was created at the initiative of the Ministry of Economic Development and Trade of Ukraine, CSO Transparency International Ukraine, the Deposit Guarantee Fund, the National Bank of Ukraine and operators of Ukrainian trading e-platforms. The system is based on values and principles similar to those of the Prozorro procurement system.
It should be noted that not a single cent of public money was spent on the development and maintenance of the system. Instead, international partners and business representatives gave the project charitable donations and international technical assistance. TI Ukraine became the platform which administered the creation and development of the system. After that, TI Ukraine ensured that all components of the electronic trade system were fully transferred to the government.
While the system was administered by TI Ukraine, free license and all the necessary rights for the use of the software were transferred to state-owned enterprise Prozorro.Sale. The transfer of both central databases took place pursuant to the effective legislation and with approval of the governing agency of Prozorro.Sale, which was the Ministry of Economic Development.
The Accounting Chamber points out that Prozorro.Sale regularly commissions development and upgrade services for the ETS. Is that supposed to be bad? Any electronic system needs regular maintenance and upgrade. These expenses are fully reasonable and necessary to hold different auction procedures in the system. It seems strange to accuse the enterprise of inefficient spending of this money when these expenses are fully compliant with the enterprise’s Charter.
On “inefficient sale of lots at the Dutch auction in the system”
The report alleges that this type of auction is inefficient.
Modified Dutch auction was introduced in the system in October 2017 to reduce the number of unsuccessful auctions for problematic loans. The research by Kyiv School of Economics shows that this type of auction leads to greater revenue from the sale of problematic loans and fosters competition.
The Dutch auction became a saving grace for unattractive assets. Bidding organizers can always sell property rights or property if this lot could never be sold before.
Evidently, the Accounting Chamber should look at sales efficiency of various assets critically and realize that not all property can be sold for a higher price than the initial one. That includes problematic loans, property that cannot be operated anymore, etc.
I believe the Accounting Chamber should take into account facts which truly illustrate the system’s efficiency.
During the time of its operation, the revenue of the national budget and local budgets it has generated constitutes UAH 23.6 billion. The use of the system has enabled citizens, businesses and authorities of various levels to access data on property to be sold and on the sales process itself: the conditions, the participants, the sales agreements. This means that the market has become accessible for a higher number of bidding participants.
Just a few more words.
Prozorro.Sale is recognized as one of the best systems in the world. In 2017, the project was celebrated as one of the best anti-corruption startups in the world at Citi T4I Challenge. In 2014, it was awarded by C5 Accelerate and USA Institute of Peace as part of The Shield in the Cloud Innovation Challenge. In 2019, the team of Prozorro.Sale won Doing More for Less Global nomination at Public Service Team of the Year 2019.
I hope the system will keep developing and will show even better results in the future.