UAH 600,000,000 misappropriated
Every fifth hryvnia of government investment in the construction sector is misappropriated, reads the conclusion of an inquiry into the efficacy of budget investments conducted by the Central Monitoring and Auditing Board. Out of UAH 3.1 billion earmarked for construction in 2001, UAH 600,000,000 was misspent.
One of the most common violations was selecting contractors by local state administrations without holding an open tender. In other words, officials handed out budget funds to their favored companies. According to Natalia Ruban, deputy chief of the board, 103 similar cases have been filed with the prosecutor’s office. However, she refused to say in which region such violations by officials were most common. “It’s possible that our officers did a better job in these regions than in the others,” Ms. Ruban explained her discretion. Handouts distributed among representatives of the print media included only figures for Dnipropetrovsk oblast, where in six cases out of twenty building contractors were selected by local authorities by way of “targeted appointment,” that is without holding an open tender. Consequently, the budget lost UAH 20,000,000.
In the course of the inquiry, the board encountered a paradox. Namely, there is no state agency in Ukraine to control the spending of budget funds on capital investment. Theoretically, this type of control should be exercised by the State Committee on Construction. In practice, however, it simply has no means of doing so. “The thing is that regional capital investment departments are subordinated to the regional administrations, while the State Committee on Construction has no regional offices whatsoever, as it has been created only recently,” said Ms. Ruban. As she put it, the Central Monitoring and Auditing Board has not revealed a single case of misappropriation of budget funds earmarked for investment, when construction work was monitored by the regional state department for capital investment. However, it turns out that such departments control far from every case of spending budget funds on construction. Each time a special decision to this effect is taken by the oblast or district authorities. And, clearly, they know better where stringent control is required and where it is undesirable, to put it mildly. As a result, last year alone some UAH 4,400,000 was allocated to firms, which took over a month to begin construction work. In all probability, they were morally preparing themselves for the job. Incidentally, not once did it occur to local administrations to apply sanctions against these contractors.
It follows from the materials released by the board that there is total confusion when it comes to estimating the costs of the construction work for which budget funds are earmarked. The analysis of accounting documents of local administrations revealed overpricing of services by UAH 9,000,000. The real figure must be a couple of times this amount. The monitoring and revision board has attributed such “inaccuracies” to “the lack of expertise of accountants” who, because of their pathologic forgetfulness, often altogether fail to indicate in accounting documents the expenses of companies funded out of the budget.
Construction managers have perpetuated a stereotype that in order to secure a big order from a state agency they must pay a kickback to the official responsible for making the desired decision. Such “premiums” usually amount to 10% of the contract amount. Lately, many local officials have become informal owners of the construction firms, and in such cases there is no need for kickbacks. However, if a state-funded construction is not controlled by the state department for capital investments, this is a sure sign of dubious practices. The stunning amount of misappropriated funds in 2002 is indicative of a developed industry of money laundering via construction companies. It remains to be seen what will be the outcome of investigations concerning 103 cases of alleged malfeasance filed with the prosecutor’s office.
