A Collegium meeting entitled “Monitoring of government expenditures, including funds allocated for the implementation of Russia's national projects. Problematic issues, solutions and opportunities for improvement" was held at the Federal Financial Monitoring Service on 24 July 2020.
The meeting was attended by Deputy Chairman of the Federation Council of the Russian Federation N. Zhuravlev, Head of the Federal Treasury R. Artyukhin, Deputy Head of the Federal Tax Service K. Chekmyshev, State Secretary – Deputy Head of the Federal Antimonopoly Service A. Tsarikovsky, as well as representatives of the Presidential Executive Office, the General Prosecutor's Office, the Ministry of Interior, the Federal Security Service and the Bank of Russia.
In his welcoming remarks to the participants, Director of Rosfinmonitoring, Yu. Chikhanchin, noted that although attempts to build a system of state financial control over public spending in Russia had been made for almost 20 years, it was not until 2016, when the President of Russia signed amendments to the Law "On State Defence Procurement," putting in place a system for monitoring public spending, that the situation began to change for the better.
"The National Risk Assessment and the National AML/CFT System Development Concept identify budgetary relations as one of the most vulnerable risk areas," said Yu. Chikhanchin. "The main elements of the system are legislative, preventive and suppressive measures. As for rulemaking, we work closely with the Federation Council and the State Duma to introduce well-established mechanisms for budget monitoring. Meanwhile, the integrated application of preventive and suppressive measures allows us today to implement the "end-to-end" oversight of government expenditures while at the same time reducing the administrative burden on contractors. The role played by the Risk Assessment Centre and personal accounts in these efforts is invaluable."
The head of the Russian financial intelligence unit reminded participants of the largely successful efforts to decriminalize the defence procurement sector and improve its fiscal transparency.
"We identified and shut down numerous shadowy schemes used for carrying out pass-through and cash-out transactions. In addition we managed to prevent large losses of public funds," said the director of Rosfinmonitoring. "As instructed by the President of Russia, the main strategic focus of oversight efforts in public sector should be, besides defence procurement, on national projects."
Enhanced support for projects throughout their entire life cycle (all the way to control of deliverables) is key to effective oversight of government expenditures, with the choice of monitoring tools dependent on the existing risk indicators and the entity's vulnerabilities.
Considerable amount of funding allocated for national projects is channelled through regional administrations, which are tasked with addressing the majority of objectives related to the implementation of national projects set by the President of Russia. Rosfinmonitoring's experience in implementing pilot projects to identify shady contracts at the regional level has been recognized by the Government of the Russian Federation as successful.
According to Deputy Director of Rosfinmonitoring O. Krylov, issues concerning monitoring of government expenditures have been the focus of Rosfinmonitoring's efforts right from the outset. "The analytical report "Budget" – the first automatically compiled selection of suspicious financial transactions related to public funds – came out 10 years ago," said Krylov. "Approximately 500 transactions requiring manual processing were added to the report every day. Already back then, the Ministry of Interior and the Federal Security Service were making use, often quite successfully, of our spontaneous disseminations."
O. Krylov noted that preventive and suppressive measures in the budget monitoring sector were among the focus areas of the FATF mutual evaluation, successfully completed by Russia in 2019. The system was highly rated by the FATF and played an important role in achieving this outcome, despite the unconventional and novel approach, which was used in AML/CFT practice.
In his speech, Deputy Chairman of the Federation Council of the Russian Federation N. Zhuravlev said that Rosfinmonitoring had acquired the reputation of an agency capable of solving any problems professionally: "The Federation Council places great emphasis on the implementation of national projects, especially at the regional level. Meanwhile, Rosfinmonitoring keeps detecting new financial schemes used by unscrupulous entities, some of which can only be dismantled with the help of legislative amendments. For its part, the Federation Council promptly reacts to legislative initiatives coming from Rosfinmonitoring."
According to the Head of the Federal Treasury R. Artyukhin, "Rosfinmonitoring takes the lead in establishing law and order in the public sector," as evidenced by joint results achieved in monitoring the implementation of national projects. "This work can be used as a model for the overall government spending monitoring system," said R. Artyukhin. "After all, it was Rosfinmonitoring who first placed the focus on traceability, i.e. use of codes, classifications and the ongoing monitoring of milestones along the entire cash flow. Following the results of H1 2020, we can all see that out of 95,500 contracts related to national projects, 28,000 are at risk. So what can be done here? It means that the interagency cooperation mechanism must be expanded to cover the administrators of national projects."
State Secretary – Deputy Head of Federal Antimonopoly Service A. Tsarikovsky admitted, "All that has been said today means that all our agencies share common objectives. Recently, the Federal Antimonopoly Service, working jointly with Rosfinmonitoring and the Federal Security Service, has uncovered a price-fixing scheme used by construction companies totalling RUR 5.6 billion. This is only one such case, but I have a feeling that it is just the beginning. Although much is being done now to combat COVID-19, I have a bad feeling that in one year from now supervisors will have much work to do in this area."
Deputy Head of the Federal Tax Service K. Chekmyshev: “We consider Rosfinmonitoring our permanent strategic partner and ally in all challenges facing us. It is important that today we view the situation in a similar light; we see the entire scheme, rather than its separate components – from the beginning till the end."
Among other issues discussed at the Collegium meeting were:
• The need for additional regulation of government expenditures;
• The development of a monitoring system;
• Mitigation of corruption risks in the public sector, etc.
Participants also witnessed the signing of a supplementary agreement with the Russian Treasury, which expanded information sharing between the agencies: from now on, Rosfinmonitoring will notify the Treasury of any risk of failure or ineffective implementation of national projects identified by it.