Defense Interest, or Why the Presidential Office Needs the Accounting Chamber

Defense Interest, or Why the Presidential Office Needs the Accounting Chamber

Accounting Chamber Chair Valeriy Patskan submitted a resignation letter asking to be dismissed. Then he withdrew it. Then he submitted it again. Or did he? He was supposed to be replaced by Gennadiy Plis, who is well known to the president’s office. Or maybe not—by the equally well-known "Servant of the People" lawmaker Andriy Klochko. But the parliamentary vote failed! And there will be a new competition. Or maybe not, writes ZN.

This is roughly how the story of replacing the head of the Accounting Chamber looks to an outside observer.

The point of the "Santa Barbara" melodrama around the appointment of the head of the Accounting Chamber can be explained with a simple but very important example for the country: defense procurement. Fasten your seatbelts, it will be interesting.

Valeriy Patskan was elected a people's deputy from the BPP and was appointed head of the Accounting Chamber back in the "criminal regime of the predecessors." So the fact that in the fourth year of Volodymyr Zelensky’s presidency Patskan remained in office looks like a complete non sequitur. At least to the authorities themselves.

After all, Head of the Presidential Office Andriy Yermak and his deputy Oleg Tatarov have long populated the SBU, the Interior Ministry, the National Police, the State Bureau of Investigation, the State Economic Security Bureau, the Ministry of Justice, the Prosecutor General’s Office, and the State Audit Service with their people. In other words, practically all agencies that are supposed to monitor corruption and criminality in the actions of government bodies are fully controlled by the presidential office.

The little window left open for fresh air in the security agencies is the Specialized Anti-Corruption Prosecutor’s Office (SAPO) and NABU. But their capacity is now in question because the Specialized Anti-Corruption Prosecutor’s Office still rests on the personal superhuman efforts of its new head, Oleksandr Klymenko, whose roster of prosecutors is still half-unfilled. And the National Anti-Corruption Bureau, without a full-fledged head, is also in disarray.

Of course, NABU and SAPO can still be fixed. Because the West, on the eve of the “Great Restoration” that it is funding, will not allow Ukrainian penny-pinchers to be left alone with the euro-dollar feeding trough. But civilian oversight bodies will likely remain unchecked.

If the presidential office gets its own head of the Accounting Chamber, the office will finally cement Bankova’s (the Presidential Office's) advantage in the division of powers between branches of government and the "manual" control of budget funds—especially defense funds.

Patskan’s dismissal turned into a Santa Barbara drama

The Accounting Chamber is a parliamentary financial control body. That means it depends on a much larger number of components of power. And that is precisely why it preserved agency and was able to investigate matters of especially large scale. That’s why Patskan’s potential dismissal attracts attention.

For example, despite attempts to push through his dismissal, the Accounting Chamber publicly reported the ineffectiveness of Zelensky’s vertical in combating the coronavirus. Specifically, that half of the funds from the special COVID fund were paved over (wasted), and that 12 billion hryvnias simply could not be spent on treating patients, paying doctors’ salaries, and addressing the pandemic’s consequences.

Now a new challenge faces the Accounting Chamber. Because of the war in Ukraine, budget funding priorities have shifted for objective reasons. If before the invasion one in nine hryvnias of the state budget went through the offices of road authorities, now half the budget goes through the Ministry of Defense.

According to a letter from Minister of Defense Oleksiy Reznikov to the chair of the Verkhovna Rada defense committee Oleksandr Zavitnevych, as of 1 October the ministry was allocated 736 billion hryvnias for the year 2022—that is, more than half of all expenditures from the state budget’s general fund. Of that sum, 438 billion hryvnias are for social expenses (including salaries for servicemembers), and 298 billion are for material and technical support. From that amount, 155 billion hryvnias were designated for the procurement and modernization of weapons and 21 billion for the repair of military equipment. So this flow must in some way be visible to our foreign partners.

But the rest of the procurements—almost 75 billion hryvnias—are effectively left to the whim of fate. Namely: 49 billion for procurement of clothing and equipment, 19 billion for monopolized army catering, and another 6 billion for fuel, the quality of which may not always match the purchase price.

There is also overdue receivables totaling 47 billion hryvnias—money paid to certain businessmen to supply something, but they either delivered nothing or delivered so late that they had time to cycle the advance payments several times.

All these figures are opportunities for some rear-echelon generals. Not for the Armed Forces of Ukraine, which heroically fight with what the Ministry of Defense provides them. Not for the General Staff, which wages war with what the Ministry of Defense supplies. But for the Ministry of Defense itself, which performs steward-like functions. And it performs them in such a way that talks have already begun about profiteering on army contracts.

For example, Ukrainian suppliers of boots and clothing say the Ministry of Defense long snubbed domestic procurement.

At the same time, rumors circulated in the market about buying Turkish boots for 3500 hryvnias, while Ukrainian boots cost about 2000 hryvnias. And the ministry could not buy Ukrainian winter clothing at 3000–3500 hryvnias, as our manufacturers requested. But it allegedly found the means to contract Turkish sets for 6000 hryvnias per set.

A classic scheme has become when the Ministry of Defense purchases Ukrainian Korsar body armor through foreign intermediaries. Even before the invasion this was officially practiced with a company from the Czech Republic, and during the full-scale war talk turned to a Polish contractor. In these and the above-described cases with the Turks, contract money is immediately moved abroad and can be divided without regard to Ukrainian law enforcement. But this very practice could and should have been the subject of an Accounting Chamber investigation. Because the chamber is not an agency that looks only at individual articles of the Criminal Code; it examines the activities of economic actors from different angles—viewing corruption and the clumsiness of inefficiency.

Such an oversight body would be appropriate because next year an unprecedented amount of 858 billion hryvnias—one third of the state budget expenditures for 2023—is to pass through the Ministry of Defense’s cash desk.

Right now the Ministry of Defense’s procurements, as the country’s largest buyer, are a black box. Attempts by anti-corruption officials to implement transparency in special defense procurements (government resolution No. 1275) requiring reporting of procurement results and unit prices were not welcomed by the Ministry of Defense.

Parliamentarians’ inquiries are also unwelcome to the ministry’s procurement system. The chair of the Verkhovna Rada Anti-Corruption Committee politely asked the ministry: from whom and at what price did it buy uniforms and body armor this year? There was no request to disclose volumes and delivery addresses, which indeed matter for security. Publishing purchase prices and supplier names would stop rumors about supplies through intermediaries of imported and Ukrainian uniforms at inflated prices. It would also reassure our Western partners that nothing is being stolen on an industrial scale on the way to the front.

The reply to the inquiry was given by Deputy Minister of Defense Vyacheslav Shapovalov, who formally is responsible for procurement of "clothing and equipment." He reported, quite cynically, that procurement reports will be published in accordance with government resolution No. 169—only 70 days after the end of martial law. By the way, that government act had already lost force a few days before Shapovalov’s response due to adoption of resolution No. 1275.

So the ministry’s rear services can freely buy from whomever they want and at whatever price they want, advancing deliveries to fantastical amounts.

A controlled Accounting Chamber, if Patskan is dismissed, will not delve into the accounting of defense procurements. Although the sheer scale of billion-hryvnia procurements is risky from the controllers’ perspective and should interest them, as should the 47 billion hryvnias in overdue receivables.

Everything will be written off as wartime exigencies.

Author: Yuriy Nikolov