Article 9.2. and 9.3.
Management of Public Finances

1.1. Legal framework for the adoption of the National Budget in Ukraine
Budget relations in the country are regulated by the Budget Code of Ukraine (hereinafter referred to as the BCU), which has been in force since 2011. In particular, the BCU establishes regulations on the budget system of Ukraine, national and local budgets, their implementation, as well as inter-budget transfers and liability for violations of budget legislation.
The budget system of Ukraine consists of: 1) the state budget; 2) local budgets: a) the budget of the Autonomous Republic of Crimea; b) regional budgets; c) district budgets; d) local self-government budgets. The budget period for all budgets that make up the budget system of Ukraine is one calendar year, which begins on January 1 of each year and ends on December 31 of the same year. Failure to adopt the law on the State Budget of Ukraine by January 1 of the respective year by the Verkhovna Rada of Ukraine shall not be a ground for establishing another budget period.
The formation of the budget for the next year begins in March of the current year. According to Art. 116 of the Constitution of Ukraine, the Cabinet of Ministers of Ukraine develops a draft law on the State Budget of Ukraine and ensures the implementation of the State Budget of Ukraine approved by the Verkhovna Rada of Ukraine, submits a report on its implementation to the Verkhovna Rada of Ukraine. It should be based on the provisions of the Budget Declaration. According to the BCU, this is a medium-term (3-year) budget planning document that defines the principles of budget policy and indicators of the state budget for the medium term and is the basis for drafting the State Budget of Ukraine and local budget forecasts.
The drafting of the State Budget of Ukraine is the first stage of the budget process, which also includes the review and approval of the budget, its implementation, and the preparation of a report on budget execution. At the stage of drafting the state budget, its foundations and a certain focus are laid, and a single, coherent prototype of the next year's budget is formed.
The draft budget, in particular, is based on budget requests from the main managers of budget funds. These requests, in addition to offers (amount of funds), must contain a justification for the need to receive these funds to perform the functions of these managers.
The adoption of the national budget is conducted by the Parliament according to a special procedure established in the Rules of Procedure of the Verkhovna Rada.
In particular, the following is attached to draft national budget:
1) an explanatory note containing justification for the provisions of the submitted draft law;
2) forecast indicators of the consolidated budget of Ukraine (including the assessment of the national budget of Ukraine and local budgets) in accordance with the budget classification;
3) a list of tax and fee benefits with the calculation of budget revenue losses from their provision.
The budget also contains secret expenditures that are included in the draft national budget without detailing. Reports on secret expenditures are considered at a closed meeting of the Verkhovna Rada. Only the total cost figure is available to the public, and any requests for its detailing are rejected with reference to state secrets, and therefore it is impossible for the public to control these funds. Reports on secret expenditures are considered by the Verkhovna Rada of Ukraine at a closed plenary session.
There is also such a concept as a budget reserve fund. It is formed to cover unforeseen expenses that are not permanent and could not have been foreseen when the budget was drafted. The State Budget of Ukraine provides for a reserve fund on a mandatory basis. The decision on the need to create a local budget reserve fund is made by the Verkhovna Rada of the Autonomous Republic of Crimea and the relevant local council. As a general rule, the budget reserve fund may not exceed 1 percent of the general fund expenditures of the respective budget. However, this provision does not apply under martial law: The Cabinet of Ministers of Ukraine may decide, in consultation with the Supreme Commander-in-Chief of the Armed Forces of Ukraine, to reduce expenditures and crediting of the state budget and to transfer them to the reserve fund of the state budget for the purpose of using them for the needs of the Armed Forces of Ukraine, etc.
After the adoption of the national budget, the main managers of budget funds must adopt passports of budget programs for the current period. This is a document that defines the directions of using funds, responsible performers, performance indicators, etc. Main managers must publish budget programs within three days from the date of their approval.
According to the BCU, for their non-disclosure, as well as for other violations of budget legislation, appropriate measures of influence are applied to participants of the budget process (Articles 116 and 117).
During the martial law, the main spending units of local budgets may

• not to publish passports of budget programs for the current budget period (including amendments to them),
• not to publish reports on the implementation of budget program passports for the reporting budget period,
• not to publicly present information on the implementation of local programs by March 15 and on the presentation of information on the implementation of the budget for the year by March 20,
• not to publish the results of the evaluation of the effectiveness of budget programs for the reporting budget period.

However, if technically available, it is usually worth doing so, as openness and transparency in the use of budget funds are key features of a democratic society.
Other exceptions related to the budgetary sphere also apply under martial law, in particular:

• protected expenditures are not in effect,
• inter-budget transfers from the state budget to local budgets of settlements on the temporarily uncontrolled territory are not transferred,
• the Ministry of Finance will not approve estimates, appropriation plans and other budget documents for the military and law enforcement agencies,
• no changes shall be made to the passports of budget programs aimed at defense, and reports on the implementation of these programs shall be submitted to the Ministry of Finance within one month after the end of martial law, etc.

1.2. Reporting and accounting of transactions with the National Budget
According to the BCU, reporting on the implementation of the National Budget (estimates of budgetary institutions) includes financial and budget reporting. Reporting is divided into operational, monthly, quarterly, and annual.
As for accounting, in Ukraine, the legal basis for regulating, organizing, maintaining and preparing financial statements is defined by the Law of Ukraine “On Accounting and Financial Reporting in Ukraine.” Among other things, there are requirements for primary and consolidated accounting documents. Accounting of all operations related to the implementation of the national budget is conducted by bodies of the State Treasury Service of Ukraine (hereinafter referred to as the STSU). The powers of the STSU include, in particular, ensuring the functioning of the multi-level information and computing and internal payment systems of the STSU and taking measures to protect information.
Despite the ongoing martial law in Ukraine, it is necessary for entrepreneurs to continue to keep records in accordance with the principles of continuity and consistency.
1.3. Internal and external control of the national budget
In Ukraine, there is internal and external control of the national budget. Budget managers independently conduct internal control and audit in accordance with approved bylaws. A separate division is created in the state authority to perform internal audit.
External control of the national budget is conducted by:
1. the Accounting Chamber, which conducts financial and performance audits.
2. the State Audit Service, which controls the targeted, efficient use and preservation of national financial resources, non-current and other assets.
It should be noted that non-governmental bodies (citizens, their associations, media) can also be subjects of external control.

2.1. Preparation and adoption of the National Budget in Ukraine
1) Preparation of the national budget for consideration in the Parliament.
The Minister of Finance of Ukraine presents the draft law on the State Budget of Ukraine for the next year to the Verkhovna Rada at the plenary session of the Verkhovna Rada of Ukraine.
One of the key parts of the budget is budget requests. The Cabinet of Ministers is responsible for the final version of all budget requests, but spending units play an important role, as they understand their own needs. Experts point out that the higher the level of government agencies, the better they are at preparing budget requests. To ensure the stability and predictability of budget expenditures, requests should be based on the provisions of the Budget Declaration.
On May 31, 2021, the Budget Declaration for 2022-2024 was approved for the first time, which should ensure transparency of fiscal policy and predictability of financing for various sectors in compliance with the planned budget deficit indicators in the medium term.
This is one of the first steps to ensure stability and predictability of budgets at all levels. The presence of three-year planning will allow establishing permanent financing for individual projects that last more than one year. According to experts, this tool should be developed to ensure the applied nature of its operation and application. Among the risks, experts call the lack of protective mechanisms against introducing changes to such a declaration, and as a result, non-compliance with the indicators laid down in it.
Given the fact that in the current situation, the budget possibilities for 2025-2027 are significantly limited, the Ministry of Finance expects the main spending units of the state budget to take a particularly responsible and balanced position in the preparation of budget proposals for 2025-2027, in compliance with the principle of strict economy and priority of expenditures. A budget proposal is a document containing proposals to the Budget Declaration with appropriate justification for the amount of budget funds required to achieve the goals of the state (regional) policy in the relevant field of activity, the formation and/or implementation of which is ensured by the proposer. The completed budget proposal for 2025-2027 must be submitted to the Ministry of Finance of Ukraine by 29.04.2024, so that the Verkhovna Rada can consider the Budget Declaration no later than June 30.
It should also be understood that as part of the work on approximation of the legislation of Ukraine as a country that has acquired the status of an EU candidate, the Ministry of Finance calls for the use of the relevant EU regulatory framework and best practices of EU countries. In particular, the main document defining the requirements for national budget planning systems in the EU countries is Directive 2011/85/EU of November 8, 2011 on the requirements for the budgetary frameworks of the Member States.
2) Consideration and adoption of the national budget in the Parliament
The budget process is public and allows the public to participate at the stage of consideration of the draft law in the Parliament. In particular, the practice of participation of specialized experts and associations in meetings of the Budget Committee is quite common. They submit their proposals and comments to the draft budget through MPs or the Cabinet of Ministers of Ukraine. Taking public positions into consideration is a fairly common practice.
All accompanying documents to the draft national budget are also open and published on the Parliament's website. In addition, they are submitted for consideration by MPs together with the draft law on the national budget. According to experts, the accompanying documents to the draft national budget are drawn up at the proper level. They contain all detailed information about the submitted draft law, in particular macroeconomic indicators, forecast analysis of budget revenues and expenditures, inter-budget transfers, etc.
The state budget must be adopted no later than November 20. However, this deadline is quite often not complied with. For example, the budget for 2022 was adopted on December 2, 2021, and for 2021 on December 15, 2020, etc. At the same time, it is noteworthy that during the full-scale invasion, the deadline was never violated. One of the reasons for the violation of deadlines is the political discussions between parliamentary factions. To find the necessary votes, the budget may change between 1 and 2 readings, and new expenses or even corruption schemes may arise in it, which in the future lead to budget losses. In general, violation of deadlines leads to the draft being reviewed in a hurry. The late adoption of the state budget law causes a delay in the budget process at the local level. Regions, districts, and cities that receive transfers from the state budget wait for the law to be published and then have two weeks to adopt their budgets. In fact, there is no responsibility for violating the budget approval procedure. That is why we have the same story every year. The legislation of some countries (for example, neighboring Poland and Estonia) allows for the dismissal of the parliament in such a case.
Another problem is the chaotic and excessive introduction of changes and amendments to the national budget during its consideration in the Parliament. For example, 1620 amendments and proposals have been submitted to the budget for 2024, and 3000 to the budget for 2022. Their analysis showed that MPs mostly propose an increase in estimated expenditures, without specifying the income at the expense of which they will be realized. In fact, many changes are submitted by MPs, for whom budget relations are not a key area of their activity.
The most popular proposal is to increase spending on regional development, social benefits, or raising social standards. Such proposals, without proper justification, make the budget process more sensitive to corruption risks. For example, when adopting the budget for 2021, between the 1st and 2nd readings, a subvention for socio-economic development was returned, which amounted to EUR 187.5 million. This subvention is intended for the development of individual regions, and MPs representing them in the Parliament are interested in receiving as much money as possible for the region. According to journalists, the subvention is an indirect attempt to bribe MPs in order to get the necessary votes in the Parliament in the future because the further distribution of these subventions after the regions receive them is opaque. However, for example, the CMU Resolution "Some Issues of Providing Subventions from the State Budget to Local Budgets to Meet the Needs of Ensuring a Safe Educational Environment" contains an obligation to report on the use of the funds provided and even contains a template of the report. This creates conditions for more transparent and responsible use of public resources.
To reduce the number of unjustified amendments to the budget, a special procedure for submitting them was previously adopted. In particular, it was proposed to provide mandatory justification for all proposed expenses. However, according to experts, this safeguard did not work in practice.
Consequently, the existing procedure for considering the national budget in the Parliament negatively affects the budget policy of the country, reducing the predictability and the planned nature of the budget process. However, recently, in the conditions of the majority of one faction in the Parliament, the influence of the Verkhovna Rada has not been so great (the text of the draft changes less during consideration). In the absence of a permanent coalition, the negative impact was greater.
3) Making changes to the budget; passports of budget programs.
Every year, the Parliament changes the national budget after its adoption. For example, in 2019 it was changed 4 times, and in 2020 — already 17 times. In 2023, the originally approved law was amended four times to increase spending on measures to improve the defense and security of the state and to overcome the negative consequences caused by Russia's large-scale armed aggression against Ukraine. Probably, only in the latter case this may mean an urgent and unforeseen need, while in the others this practice may indicate the adoption of a document that needs to be further developed.
In addition, the Cabinet of Ministers of Ukraine can also distribute funds within existing programs. Such a mechanism is necessary for rapid response to spontaneous economic changes. However, it can also be used for unjustified distribution of funds. For example, during the global COVID-19 pandemic, the Cabinet of Ministers of Ukraine redistributed UAH 2.7 billion from the Anti-COVID-19 Fund to the needs of the Ministry of Internal Affairs in 2021. At the same time, sometimes redistribution can be quite justified, for example, there are currently discussions about allocating the budget provided for financing political parties to the needs of the Armed Forces.
Let us remind you that after the adoption of the budget, specific budget programs are approved, which contain the distribution of funds for the needs of each individual body. However, according to the Ministry of Finance, not all of them follow this in practice. Currently, such bodies refer to the allegedly simplified procedure introduced during martial law. However, this is only a misinterpretation of the rules, as the authorities were not exempted from preparing passports and programs, but only from disclosing them publicly.
This practice negatively affects the use of funds in the current year in areas where budget programs have not been approved. The problem is that funds cannot be allocated at all without the approval of budget programs. This leads to incomplete implementation of the objectives declared in the budget.
It is worth noting that more than a third of the general fund revenues in 2022 were funds from the EU, international organizations, foreign governments, etc. received as loans and grants. In 2023, an important source of state budget revenues was the funds received by Ukraine in the form of international assistance (grants) - UAH 425.4 billion. Due to this dependence on foreign investment, there are discussions about putting Ukraine's economy on a "war footing." This, in turn, implies a set of measures aimed at maximizing the concentration of society and the economy to fulfill military goals, including reformatting budget expenditures.
2.2. Reporting of budget managers and information protection by the STSU
As noted above, budget managers submit reports on the use of funds in the current period. The total number of managers and recipients of budget funds at the end of 2020 amounted to 71,400 institutions and organizations, including 12,300 institutions and organizations of the national budget, and 59,100 institutions and organizations of local budgets. Reports are submitted in electronic form through the E-Reporting system specially created by the STSU. This tool is available exclusively for institutions submitting budget reports and supervisory bodies.
The submission and storage of budget reporting requires appropriate security measures. The STSU created a comprehensive information security system (hereinafter referred to as the CISS). The STSU believes that with the help of CISS, the maximum effectiveness of protection is achieved due to the simultaneous targeted use of all the necessary resources, methods, and tools that exclude unauthorized access to information. In addition, the STSU uses antivirus software tools that have passed national expertise and received a positive expert opinion from the State Service of Special Communications and Information Protection of Ukraine. After the Russian invasion, access to the SCCU website was closed for security reasons and to prevent information leakage.
2.3. Internal control and audit
Internal control and audit must be conducted in each body. What activities will be conducted as part of the audit, and what the activity of the audit divisions will be aimed at, is determined by each body independently. For example, the Ministry of Finance, the Ministry of Economic Development, Trade and Agriculture, and the Accounting Chamber post information about internal audits on their website.
The results of internal audits are hardly ever published or made available to the public. The Ministry of Finance has information on the effectiveness of their implementation. In 2023, the Ministry of Finance published an analytical material "Main Trends in the Functioning of State Internal Financial Control in 2023", which revealed that in the reporting period, the development and improvement of the quality of internal audit was observed and many state bodies continued to demonstrate positive changes and trends in the organization and implementation of relevant activities, in particular: internal audit activities were organized in all functioning state bodies, organizational and functional independence of internal audit units was strengthened. However, the same document noted a number of shortcomings that need to be overcome, for example: in some bodies, there were still cases of violation of the requirements for functional independence of internal audit units and assignment of tasks unrelated to internal audit and in terms of the completeness of the risk-based approach.
According to the submitted reports, in total, in 2023, internal audit units in the system of state bodies completed more than 1.46 thousand internal audits, which revealed shortcomings/problems and violations in almost 1.36 thousand institutions.
The total number of shortcomings and problems identified by the internal audit units amounted to more than 113.8 thousand. At the same time, most shortcomings and problems were identified in the following aspects/directions of the activities of government agencies and enterprises, institutions and organizations in their sphere of management:

• performance of control and supervisory functions and other tasks defined by legislative acts - more than 100.4 thousand;
• functioning of the internal control system - more than 6.9 thousand;
• correctness of accounting, reliability of financial and budgetary reporting - almost 2 thousand;
• planning and implementation of budget programs and results of their implementation, management of budget funds - almost 2 thousand;
• use and preservation of assets - almost 1.4 thousand; management of state property - more than 0.6 thousand.

Based on the results of the audit research conducted in the reporting year, a total of more than 12.4 thousand recommendations were made, of which more than 8.2 thousand recommendations were fully or partially implemented.

2.4. External control (including public control)
External control over the national budget is conducted by the Accounting Chamber and the State Audit Service.
The Accounting Chamber forms conclusions on the results of an analysis of how the Law on the National Budget for the current year for different periods is implemented (from a quarter to a year). It should be noted that the conclusions of the Accounting Chamber are quite informative. They contain a large amount of statistical data, reflect problems in the implementation of the national budget, cases of inefficient use of estimates, and so on.
Moreover, the Accounting Chamber conducts an audit of individual budget programs according to its Plan. Scheduled audits cover many areas of national activity. In 2023, the amount of funds verified during control measures amounted to UAH 771.1 billion, 399 facilities were inspected, and 49 reports were approved. For comparison, in 2022, the amount of funds verified during control measures amounted to more than UAH 351.3 billion, 355 facilities were inspected, and 39 reports were approved.
Based on the results of the state external financial control (audit), 72% of the Accounting Chamber's recommendations were partially implemented by the end of 2023, and full implementation is planned for 2024.
When conducting an external financial audit, the Accounting Chamber uses the Methodological Recommendations on Conducting Financial Audits by the Accounting Chamber.
At the same time, we note the need to improve the ability of the Accounting Chamber to conduct audits, through a clear procedure for selecting the objects of inspections, ensuring liability based on the results of inspections, etc.
Experts also point out the importance of the Accounting Chamber in monitoring the national budget, emphasizing the need to improve the mechanisms for communicating the results of its activity. As many interested parties as possible should know about the consequences of misuse of funds for the country.
The State Audit Service performs a state financial audit of the use of budget funds. In its report for January-February 2024, the service pointed to the results of state financial control, in particular:
41 state financial audits were conducted;
violations were identified that led to losses of financial and material resources worth about EUR 2.5 billion (while in the same period in 2023 it was more than EUR 53 million).
The direct economic effect of the service's activity is UAH 13 million (compared to more than EUR 12.3 million).
According to the experts we interviewed, the Audit Service's activity should be improved by focusing not only on performance (or formal) indicators of budget implementation, but also on indicators that will show the effectiveness of using the funds received in the current budget period.
The public also monitors the use of budget funds. Access to information about budget funds is provided by the unified web portal for using public funds (spending.gov.ua). It allows getting all the necessary information about the use of public funds by all budget managers. The portal provides transactions, reports, information about contracts and their implementation, etc.
Data on the portal is updated quite often, according to experts, this allows to quickly monitor the use of budget funds. The site offers a search by several criteria, including searching by transaction or by administrator. There is also an option to download data in a machine-readable format.
Another control mechanism is the creation of The state web portal budget for citizens in 2018, at the initiative of the Ministry of Finance of Ukraine, — this is an official state portal with open data on public finances. The portal provides a glossary of budget terms, information about the budget process and its participants, and the necessary indicators. The web portal allows uploading public data in the machine-readable JSON format, which makes their use easy.

Legal framework after State evaluation

Implementation in practice after State evaluation