Meeting with Accounts Chamber Chairman Boris Kovalchuk

President of Russia Vladimir Putin: Mr Kovalchuk, you have not been heading the Accounts Chamber for long, only two months, but I understand that your report covers the entire 2023.

The documents indicate that there have been violations totalling more than two trillion rubles, with a majority of violations, over 70 percent - 74, representing violations of budgetary accounting procedures.

Most importantly, how much did you and the Accounts Chamber contribute to the budget over the past 12 months?

Accounts Chamber Chairman Boris Kovalchuk: Thank you very much, Mr President. First of all, I would like to thank you for your trust and for nominating me for the post of the Accounts Chamber Chairman.

Now, if I may, I would like to focus on the main results of our performance in 2023.

We successfully completed all tasks assigned to us, in accordance with your instructions and the resolutions of the Federal Assembly chambers.

Our audits primarily focused on issues related to the special military operation, efforts to counter sanctions pressure, import substitution, technological security as well as social security and support for Russian citizens.

You correctly pointed out that the total violations exceeded two trillion rubles. Indeed, a considerable share of these violations is linked with violations of budgetary accounting and reporting standards. However, we always emphasise that addressing these violations in a timely manner leads to more accurate budgetary accounting procedures, which, in turn facilitates more informed and calculated managerial decisions.

I would like to highlight an issue related to the return of federal budget funding. By the end of 2023, we contributed over 26 billion rubles. The key aspects of this work involved the recovery of 12.3 billion rubles, specifically related to the unjustified application of reduced VAT rates. We also recovered 7.7 billion rubles in licence fees that were not included in the customs value of specific goods. Our audits in the sphere of purchases and product-sharing agreements resulted in an additional recovery of 2.9 billion rubles. Furthermore, we contributed 1.3 billion rubles to the federal budget following audits of the national defence and security sector.

Following our monitoring activities and expert analysis, the Russian Government and federal executive bodies have received 536 recommendations, of which 469 have been fulfilled to date. This is the primary part of our work, aimed at preventing violations rather than just recording those that have taken place. These measures help eliminate conditions for potential abuse, improve the quality of the budgeting process and achieve the targets of national programmes.

As an example of a finance intensive matter that was resolved thanks to our recommendations in the reporting year, the coefficient factored in to the initial bid for crab auctions was raised from 0.25 to 0.6. This change alone added 119 billion rubles to the budget in the reporting year.

Out of the 332 measures we took, 223 were budget audits related to analysing federal budget planning and state extra-budgetary funds and their performance reports. I can report that we have finished issuing the 2023 federal budget execution reviews and have noted a range of positive aspects.

The country's GDP has grown by 3.6 percent, fully compensating for the decline in 2022 as well as exceeding the 2021 figure by 2.4 percent. In the real economy sector, we have seen a significant growth of industrial production (3.5 percent), processing industries (7.5 percent) and the construction industry (7.9 percent). Capital investment has also grown at a record pace, by around 9.8 percent.

Overall federal budget revenues have grown significantly, exceeding 29 trillion rubles, which is 11.5 percent higher than our original forecast. To a large extent, this was due to a substantial increase in oil and gas revenues. The federal budget expenditure execution level reached its highest point in the past five years, at 98.1 percent.

However, there have been some downsides, including an increase in debt and irregular cash execution of the budget. Specifically, the expenditure in the fourth quarter…

Vladimir Putin: It always happens towards the end of the year.

Boris Kovalchuk: Absolutely. At the end of 2023, the fourth quarter accounted for almost 35 percent of the overall cash execution.

In general, we have noticed a high level of national programme execution, reaching around 98.5 percent, which exceeds the 2022 performance. This was made possible, to a certain extent, by adjusting some of the indicators throughout the year.

And now I would like to brief you on our main tasks. The six-year Development Strategy of the Accounts Chamber will end in 2024, and we have already started formulating our new strategic goals and tasks with due regard for the priorities facing the Russian Federation. The new strategy will be adopted simultaneously with the new guidelines for the operation of the Accounts Chamber. This important document will complement our three-year strategy.

We have also started working on a plan of inspections for 2025. Our operations will be focused on the following priorities.

The first priority is to achieve national goals you set out in your May executive orders, including Executive Order No. 309 of May 7, 2024, and in the Presidential Address to the Federal Assembly.

It is important to smoothly and correctly incorporate the relevant national projects into the state programmes and to set the key indicators, which must be realistic and attainable and at the same time ambitious. We always recommend the Government of the Russian Federation and executive authorities to update the relevant indicators as seldom as possible within a year and within the entire period of the given national project.

While examining regulatory legal acts submitted for ensuring the implementation of national projects, the Accounts Chamber will also carefully check them for compliance with the initial tasks you set for us.

The second priority has to do with the special military operation, including support for participants in the operation and their families, as well as issues pertaining to the provision of military equipment and various types of weapons.

Our third priority concerns technological sovereignty. Inspections in this sphere will cover the allocation of subsidies, including for R&D, the creation of new products and technologies, food security and the fulfilment of other tasks of importance for the country. We will analyse the market profitability of various subsidies and their effect.

Fourth, information technologies. The focus will be on analysing the performance of the state information systems and the cost of services to digitalise the public administration system. We will analyse the chains through which Russian software, after leaving the vendor, or the owner of a relevant product, reaches the end state customer.

And fifth, supervising state investments made as capital investments. It is important to ensure that facilities are commissioned on time - of course, with consideration given to permissible deviations and the fairness and justifiability of pricing.

In conclusion, Mr President, I will say that we will continue strengthening the Audit Chamber's digital dimension, because it is extremely labour consuming and less effective to handle huge amounts of data without developing IT systems in an appropriate manner.

We will expand the use of the risk-oriented approach and quality control methods. We will persist with our international activities as part of partner relations with international supreme audit institutions, and, as before, we will perform our direct functions as auditors.

Thank you. I have finished my report.

Vladimir Putin: Mr Kovalchuk, we talked with you before you assumed office. Yes, our budget revenues are growing, and the budget deficit is minimal, the non-oil-and-gas revenues are good, and the oil-and-gas revenues are growing, but we still have no money to spare.

Therefore, my great hope is that you will keep a watchful eye on the financial discipline and certainly will not overlook any criminal activities. There is a direct telephone line between us. In the most threatening cases, do not hesitate to pick up the receiver and call me.

Boris Kovalchuk: Thank you, Mr President. This is our priority, and my auditors and I certainly believe it is a key issue that we must address. Based on this, we will draw up a plan of inspections and our actions for the coming year.

Vladimir Putin: You have mentioned all of our priorities. You have a good, professional team. I am counting on you.

Boris Kovalchuk: Thank you.

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