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Sara Petrosyan

Community Audits – Many Inspectors but Few Results

The following is a synopsis of the state of community-wide auditing in Armenia. It appears that while there are many government bodies responsible for monitoring the financial activities of local municipalities in Armenia, most violations go unnoticed and those guilty go unpunished.

There are more than six organizations that conduct financial and administrative examinations of local self-government bodies (LSGB) – Regional Administrations, the RoA Ministry of Finance, the National Assembly Control Chamber, the State Revenue Committee and, whenever necessary, the State Control Service and the Ministry of Territorial Administration. Every year, each community “hosts” at least two of the above organizations. However, statistics show that financial and administrative violations within the LSGB’s haven’t gone down as a result. The Internal Audit and Financial Control Department of the Ministry of Finance assures us, however, that there is “a visible reduction of violations registered from examination to examination since we can conclude, on the basis yearly reviews of the monitoring results, that violations of a systematic nature are disappearing and are becoming more localized in nature.” Just one observation in this regard - at least 95% of communities do not conduct the obligations as specified in Directive 934 as adopted by the Ministries of Finance and Economy on December 30, 2002. This directive stipulates that “internal audits must be conducted in RoA state and local self-government bodies and in establishments under their control”. There is no staff envisaged to perform such audits and budget reports are drawn up without proper auditing. There are remarks on this issue in the reports of the Control Chamber and the auditing acts of the Ministry of Finance. In response to our 2009 inquiry, community leaders said that they do not conduct budget audits and don’t have the staff for the job. Obviously, this is a system-wide violation that has not been resolved since 2002. According to the letters received from the Regional Administrations (RA), various committees created within the RA’s are also tackling this issue by conducting reviews of the communities.

Former Mayor of Sisian illegally sells municipal property

The former mayor of the town of Sisian in Syunik Marz started to sell off municipal property back in 2002. The town kindergarten was sold; something which the law forbids. The former mayor, up until 2008, sold off the town’s cultural center, the poly-clinic and two rooms in the music school in quick succession. He also gave a car belonging to the town to someone as a gift. The list goes on. Of the six monitoring agencies listed above, some, naturally, were conducting reviews in Sisian at the time. However, none of the mayor’s illegal operations were ever stopped as a result. We weren’t able to learn what audits they conducted since, in the words of the current mayor of Sisian, his predecessor burnt all the relevant documents before leaving the job. The public only found out about the buying and selling of municipal property in May, 2008, when the National Assembly Control Chamber (CC) conducted monitoring in Sisian and published its findings. Interestingly enough, a few months later, on December 22, 2008, the Ministry of Finance also conducted its own set audits in Sisian and came up with the same violations. This begs the question, whether it was appropriate for to conduct an audit in the same community after the CC had already published its findings, especially since neither the CC nor the Finance Ministry followed up on the large-scale abuses by taking the matter to the Prosecutor’s Office. In response to our queries, many communities handed us copies of the Finance Ministry’s audits. However, these, were lacking the details found in the Sisian reports. The reason, we believe, is that these laws only apply to a given department or community leader, at best, the regional administrator. Inspectors only register certain violations to “cover their backs”. This is the sole aim pursued by the Ministry of Finance, the Regional Administrations and, up till two years ago, the National Assembly CC. The RoA Control Chamber noted, “During 2006 – 2007, the Sisian Municipality sold 9 properties (buildings, structures) measuring 2, 8947.5 square meters in total for 28,194,400 drams. Eight property units were sold for less than their registered value, for a total of 5,598,000 drams. Analyzing the above, it turns out that municipal property, contrary to market prices, in 2006 was sold for 3.7 times less and in 2007, for 5.4 times less. The Sisian Municipality sold the town’s Getap Cultural Center, measuring 1,696.8 square meters for 17,610,000 drams.” We should stress that after the CC audit, all that was restored was the 5 million dram debt owed by the buyer to the municipality. Regarding the fact that the former mayor sold the cultural center, valued at 36 million drams, for 15 million less than the market price was never noted. We learn from a quote taken from the town’s community council decision, that appeared in the Ministry of Finance’s audit act, that there were no bids to participate in the sale of the cultural center by auction, and “taking into account the petition of Sisian resident Ashot Ordoukhanyan, the council passed a decision to agree with the proposal of the mayor, i.e., to sell it directly to Sisian resident A. Ordoukhanyan and to set the price at 17,610,000 drams.”

New Mayor of Sisian petitions courts for redress

It would seem that the new mayor of Sisian, Aghasi Hakobjanyan, is not ready to accept these losses. He is working to return the two rooms of the music school. However, as was the case during the time of the sale, today, the community council just can’t seem to grasp the concept that their number one priority is to work for the good of the community. “I’ve brought up the matter twice at council sessions in order that it votes to take the case to the courts. They refused. Now, in my position as community leader, I petitioned the court to void the sale contract. The loss incurred by the community must be compensated,” Mayor Hakobjanyan said. He noted that the numbers of those attending the music school is growing daily especially since the state government has allocated funds for class instruction for national musical instruments. Those classes, he stressed, must serve their original purpose. According to the new mayor, as a result of financial abuses exposed by the audits, the former mayor has returned 22 million drams to the community budget and that the case has been closed. As in other cases of abuse unearthed in Syunik Marz, the violations in Syunik, were never sent to the Prosecutor’s Office by the CC. This is all the more puzzling given that the amounts “pocketed” in Syunik were much greater than in Gegharkunik Marz, for example. Armen A. Nikoghosyan - Head of the RoA Prosecutor General Office's State Interests Protection Department informed us that during the past two years he has received nine cases from the CC and that his office has sent eight for prosecution. As a result, 4 have been accepted as criminal cases. Charges include fraud, specifically, large-scale property embezzlement; embezzlement through misappropriation or misuse; abuse of official office; all which have lead to serious results. During the past year the CC, as a result of regional audits, has sent its findings regarding Gegharkunik Marz to the Prosecutor’s Office. These findings have lead to the launch of two criminal cases. One is based on charges that authorized officials in Sevan failed to subject those who independently sold town property to administrative accountability and that called for punitive measures were never enacted by the Sevan community leader. The other dealt with the sale on the town’s nursery/kindergarten. The investigation in this matter is still underway.

Control Chamber uncovers violations in Vardenis totaling 43.9 million

In the town of Vardenis, the CC revealed abuses totaling some 43.9 million drams. Mr. Nikoghosyan reported that he saw no grounds to initiate a criminal case regarding the Vardenis irregularities but that the CC has called on the community leader to take appropriate steps to correct the violations and to restore the amounts to the municipal budget. “In other words, the municipal office should have presented civil suits to have the squandered monies restored. And if the citizen maliciously fails to carry out the stipulations of the law, for example, if they continue to illegally build or seize property, than the municipality should petition the Prosecutor’s Office for appropriate follow-up,” Mr. Nikoghosyan commented. Several days ago, the Gegharkunik Regional Prosecutor informed Mr. Nikoghosyan in writing that the mayor of Vardenis hadn’t taken adequate steps to correct the violations and have the monies in question returned to the municipal budget. “Now, the regional police are preparing a case file to ascertain whether the mayor is intentionally not taking the necessary steps, whether he has, but to no avail, or what. After getting to the truth of the matter we will take appropriate legal action,” Mr. Nikoghosyan said. We called the attention of Mr. Nikoghosyan to the fact that the CC had published reports proving much larger abuses that had never been prosecuted. The reason, according to him, is that in this case it wasn’t the interests of the state that were abused but rather that of the community and that it was up to the community council and local residents to seek redress. He assured us that had state interests been at stake, his department would have taken action. Just prior to our conversation with Mr. Nikoghosyan, the CC published the latest edition of its periodic report. This time large-scale abuses were revealed within the Ministry of Culture. In just one sector alone, 57 million drams of losses to the budget were registered. In this regard, the President of the CC declared that they would not be petitioning the Prosecutor’s Office since they had been given assurances by the Ministry of Culture that the funds would be returned. “The return of monies can only serve as a basis for the courts to show more leniency, but it doesn’t indemnify an individual from criminal responsibility. Obviously, we are dealing with the carelessness of certain state officials, the abuse of office or facts of embezzlement based on prior agreement,” Mr. Nikoghosyan replied. At the same time, he noted that the provision of Article 6 of the “Law Regarding the Control Chamber” stipulating that it can “send material to the General Prosecutor” is a faulty regulation, i.e., in what case must it send, or not send, such material. “We are now examining whether the audit, published on the CC website and published by separate notice, can be considered a media publication and thus pursue the case,” Mr. Nikoghosyan said. When we asked what sort of cooperation existed between the State Interests Protection Department and the Ministry of Finance, he stated that the law does not obligate the Finance Ministry’s Department of Inspection to forward audit decrees to the Prosecutor. This is essentially carried out by operational procedure and if there is a problem with any structure they demand their audit decrees. To the same question the Ministry of Finance answered that they petition law enforcement bodies with the violations registered as a result of the department’s audits in order to receive an evaluation in terms of criminality. “In particular, information regarding 5 incidents resulting from 2007-2008 audits of violations and the misuse of budgetary resources were forwarded to law enforcement. The department collaborates closely with law enforcement; to reveal economic crimes, and numerous audits, including those in communities, are conducted at the request of law enforcement or with them jointly. During 2007-2008, at the directive of law enforcement, twelve communities were investigated by the department. In all cases, material was forwarded to law enforcement after the audits and law enforcement saw to it that the cases would be pursued.” (S.P. – Who was informed of this?)

Syunik audits merely for show

The Control Chamber, for example, revealed that in communities in Syunik, “The administrative and financial monitoring of sub-divisions of the Regional Administration were merely a formality; not one violation was registered.” This is a fact, since the abuses uncovered in the town of Sisian go back more than one or two years. The Regional Administrations cannot feign ignorance in this matter because they were informed, in due course, of the irregularities taking place and could have taken measures to prevent them, even by warning law enforcement. In the end, the decisions taken by the community council regarding the sale of municipal property are normative authorized acts, whose legality should be ascertained by the Ministry of Justice. Only after being certified can they be published and have the force of law. However, this legislative process isn’t put into practice and local authorities continue to make decisions that trample community interests. These decisions are not published. In essence, these decisions, that have not been legally validated, are carried out since there is no one link in the chain that prevents it. The efforts we have taken, to obligate the Regional Administrations to publish the conclusions of their investigations in the communities in their websites and to present them to the public at large through press conferences, etc, have not yet borne fruit. This situation gives us the right to draw certain conclusions – the results of these audits is proof positive that the manner in which Regional Administrators interact with community mayors must be corrected. The audit decrees of the Ministry of Finance are not publicized either, which was explained by the ministry thusly, “According to Article 8, Part 1, of the RoA Law “Regarding the organization and implementation of audits in the RoA”, the person (or persons) conducting he audit is obliged not to publish information regarding the findings without the written permission of an official of the commercial enterprise (a community leader is not a commercial enterprise). It’s really not worth it to reveal who’s violating the law – the Control Chamber, which publishes the audit findings, or the Regional Administration or the Finance Ministry, which provides such an explanation for its “non-transparent” working manner. After all this, is it worth it to grant the right to conduct community audits to so many organizations, when the only ones to benefit are only the auditors and the community leader, at the expense of the community’s paltry budget?

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