Challenging the results of external state audit in the field of public procurement
External state audit and financial control is aimed at increasing transparency, efficiency, responsibility for the use of budget funds, state assets and quasi-public sector.
External state audit and financial control is regulated by the Law on State Audit and Financial Control, the General Standards for State Audit and Financial Control, the Procedural Standards for External State Audit and Financial Control and the Rules for External State Audit and Financial Control, approved by the Regulatory Resolution of the Accounts Committee for Control over the Execution of the Republican Budget dated July 30, 2020 No 6-NK.
The state audit is carried out on the basis of the list of objects of the state audit of the Accounts Committee (Audit Commission) for the relevant year (hereinafter referred to as the List of objects of state audit).
Based on the results of the audit carried out by the external state audit and financial control bodies, the following shall be drawn up for each of the objects subjected to state audit:
1) audit report – a document drawn up by the state auditors who directly carried out the audit activity, containing the results of the performance audit and (or) compliance audit for a certain period of time, in the form in accordance with Appendix 16 to these Rules;
2) auditor's report on financial reporting – a document drawn up by the state auditors who directly carried out the audit activity, containing an opinion expressed in writing on the reliability of financial statements, as well as the compliance of the procedure for accounting and preparation of financial statements with the requirements established by the legislation on accounting and financial reporting in the Republic of Kazakhstan in the form in accordance with Appendix 18 to the current Rules (paragraph 115 of the Rules).
The identified violations and deficiencies are described objectively and accurately, with the necessary references to the details of the original documents confirming the accuracy of the entries in the Audit Report.
Violations are described with an indication of articles, paragraphs and subparagraphs of regulatory legal acts, the provisions of which have been violated, as well as acts of the objects of state audit adopted for their implementation (paragraph 117 of the Rules).
Each fact of violation, as well as the identified shortcomings and gaps in the legislation, are numbered and recorded in a separate paragraph with a description of the nature and type of violation, including those provided for in the Classifier of violations identified at the objects of state audit and financial control, approved by the regulatory resolution of the Accounts Committee dated October 1, 2018 No 18-NK.
In the description of the violation, reference is made to the documents confirming the violations. Audit evidence shall be attached to the Audit Report: a table of systemic deficiencies, a register of violations identified as a result of the audit activity, originals or certified in the prescribed manner copies of documents, certificates, photographs illustrating the facts of violations; written explanations of persons on the violations committed, acts of control measurements (inspections); conclusions of research (tests), examinations, documents or their copies; expert opinions (if involved), etc.
It is not allowed to include in the Audit Report facts, conclusions that are not confirmed by the relevant documents.
Based on the results of audit activities, an Audit Report is drawn up and sent to the audited entity within ten working days after the completion of the audit activity at the last audited object within the framework of the audit activity.
In case of disagreement with the results of the audit activity, the management of the object of state audit shall have the right to send written objections to the Audit Office within a period of no more than ten working days from the date of sending the signed Audit Report to the object.
Such objections to the Auditor's Report received by the Accounts Committee (Audit Commission) are considered at the stage of preparation of the Auditor's Report in accordance with Chapter 11-1 of the Law on SAiFC.
Based on the results of the state audit, the Auditor's Report is drawn up, which is a document drawn up on the basis of the Audit Reports containing conclusions and recommendations, and approved by the resolution of the Accounts Committee (Audit Commission).
The resolution contains:
1) a decision on the approval of the Auditor's report prepared on the basis of the results of the audit activity;
2) a decision on the transfer of the Auditor's report or an extract from it to the Government of the Republic of Kazakhstan and (or) the local executive body of the region (city, regional significance, district) and (or) the relevant maslikhat, consultative and advisory body;
3) a decision on the transfer of materials to the law enforcement authorities;
4) the decision to send the Instructions.
In general, the instructions of the Audit Commission issued based on the results of the audit were challenged in court. In accordance with subparagraph 1 of paragraph 2 of Article 5 of the Law on State Aviation and Physical Culture, the response measures of financial control are: you are responsible for the implementation of an order binding on all state bodies, organizations and officials to eliminate the identified violations and to consider the responsibility of the persons who committed them.
Therefore, the order will be an administrative act of an unfavorable nature for the audited object.
For example, between the Housing Fund of the Akimat of Nur-Sultan and the contractor A-BD LLP, an agreement was concluded on public procurement of works not related to construction, for the current repair of a residential building, for a total amount of 30,724,963 tenge at the expense of the local budget.
The State Institution "Audit Commission for the city of Nur-Sultan" conducted a state audit of the effectiveness of the use of budget funds and the management of state assets in the housing sector in the activities of the Housing Fund.
Based on the results of the audit, an order was made to the customer dated December 23, 2021 - by March 31, 2022, to reimburse the local budget for unjustified payments to contractors for unforeseen work and costs, expenses in winter, the estimated profit for the cost of building material - 3,339.8 thousand tenge.
This order was challenged under the row. Local courts dismissed the claim and found that the customer violated one of the principles of public procurement – optimal and efficient spending of money used for public procurement.
According to the conclusions of the audit: The customer unreasonably applied construction standards for reconstruction or major repairs and calculated the costs.
When carrying out current repairs, it was necessary to be guided by SN RK 1.04-26-2011, which calculates expenses on the basis of the actual market value.
With this type of work, it is mandatory to draw up a design and estimate documentation.
In this regard, the Housing Fund unreasonably accepted the cost of work from the customer.
Jurisdiction of Administrative Cases in the Field of Public Procurement
According to Part 2 of Article 102 of the APC, the courts have jurisdiction over disputes arising from public law relations provided for by this Code in administrative proceedings.
Clause 2 of the NPVS No4 clarifies that the challenges to the results of the CD, the decisions of the authorized body on the inclusion of a potential supplier in the RPD, as well as the decisions, conclusions, instructions, notifications of the authorized body based on the results of the inspection of the PP are carried out in accordance with the procedure provided for by Part 3 of Article 106 of the CAPP, at the place of residence (location) of the claimant.
If the plaintiff, along with the claim to recognize the results of the tender as illegal, demands to know the concluded civil defense agreement invalid on this basis, then such claims are subject to joint consideration in the SIAC, taking into account the requirements of part three of Article 84, part three of Article 155, part two of Article 156 of the CAPP.
The authors of the analysis draw attention to the fact that the above-mentioned provision of the NSAIDs has been repeatedly pointed out at operational meetings and seminars held for judges of administrative jurisdiction. However, there are facts of return of claims in terms of recognition of civil defense contracts, while they are filed together with claims to appeal the results of civil law.
NPVS No4 also provides that in this case, in the part of the claim for invalidation of the thief, the plaintiff does not need to comply with the procedure for pre-trial settlement of the dispute provided for by the contract.
Claims of a potential supplier against actions (inaction), decisions of the customer, organizer, single organizer of civil defense, commissions, expert, single operator in the field of civil defense, as well as actions (inaction), decisions of the authorized body and bodies of the State Aviation and Physical Culture are subject to consideration by the SMAS.
Claims of CD organizers, customers related to the application of subparagraphs 1) and 3) of part one of paragraph 4 of Article 12 of the Law on CD, as well as claims arising from the performance of CD contracts, are subject to consideration by the SIEC.
Claims to challenge the decision of the authorized body to recognize a potential supplier as an unscrupulous CD participant, recognized as such in accordance with subparagraph 2) of part one of paragraph 4 of Article 12 of the Law on CD, are subject to consideration by the CMAS.
Returns of administrative claims in the field of public procurement
The main reason for refunds due to lack of jurisdiction was that the disputed administrative act was issued in electronic form and therefore should be considered at the location (residence) of the plaintiff.
This rule was introduced in the APPC and at the initial stage of judicial practice affected the growth in the number of returns.
A larger number of claims were returned by the court of first instance of Astana due to the fact that the central administrative bodies are located in the capital.
In accordance with parts one and two of Article 3 of the CAPP, it regulates relations related to the implementation of internal administrative procedures, as well as the procedure for administrative proceedings.
The parties to the relations regulated by the Code are state bodies, administrative bodies, officials, as well as individuals and legal entities.
The subject of legal regulation of the CAPP is the activity of administrative bodies related to the adoption, cancellation, amendment, execution of a legally authoritative decision aimed at establishing, changing or canceling the rights and obligations of specific persons, the performance of legally significant actions.
1. Based on the meaning of Clause 1 of the NEDS No5, the courts should distinguish between disputes arising in the process of selecting a supplier and concluding a contract with him on civil law, the procedure for consideration of which is regulated by the rules of the CAPP, and disputes arising out of a contract on civil law, which are considered in civil proceedings.
The courts received claims arising from the Civil Defense Agreement, in particular, to declare illegal and cancel:
a) the customer's actions to send a notice of termination of the contract;
b) the defendant's inaction to fail to take measures to terminate the contract and the obligation to terminate it;
c) notice of termination before the agreement unilaterally;
d) actions to send such a notification.
The courts justify the return of such claims by the fact that the disputes are not based on administrative or other power subordination or dependence of one party (the supplier) on the other (the customer) by virtue of the powers of administrative bodies established by regulatory legal acts.
In the case under consideration, the claims contain a dispute under the terms of the contract concluded between the customer and the supplier, which excludes public law relations between them.
In such cases, the claims were lawfully returned under subparagraph 2) of part seven of Article 3 of the APC, which states that cases the procedure for which is provided for by the CPC are not subject to consideration in administrative proceedings.
The plaintiffs challenged the audit report and the auditor's report based on the results of the internal state audit, and the courts reasonably concluded that such claims were returned.
It should be noted that for a short time questions arose about the jurisdiction of these disputes due to repeated amendments to Article 19 of the Law on State Aviation and Physical Culture.
Thus, from July 1 to July 6, 2021, this article provided that the bodies of the State Audit and Physical Culture should be aware of the results of the state audit conducted by other bodies of the State Audit and Physical Culture, with the exception of documents of the internal audit services, in accordance with paragraphs 2, 3, 4 and 5 of this article, if they are not recognized by the court as illegal in accordance with the legislation of the Republic of Kazakhstan on administrative proceedings.
From July 6, 2021, this rule has been amended with the transfer of disputes to the civil procedural jurisdiction, which, according to the authors of this analysis, is justified from the point of view of legal logic, since the auditor's report and the auditor's report from even8, in the first case, contain the conclusions and recommendations of the auditors, in the second, the results of the audit.
At the same time, these documents do not have the mandatory criteria of an administrative act9. At the same time, the courts should pay attention to the fact that, according to subparagraph 1) of paragraph 2 of Article 5 of the Law on State Aviation and Physical Culture, one of the measures of financial control is the issuance of an order binding on all state bodies, organizations and officials to eliminate the identified violations and to consider the responsibility of the persons who committed them.
In addition, paragraph 7 of Article 58-4 of the same Law provides for the right to appeal against the decisions of the appeal commission of the authorized body in the field of State Aviation and Physical Culture.
Challenging such instructions and decisions of the appeal commission is carried out in administrative proceedings, as well as challenging the actions (inaction) of the SAiPEC bodies and (or) their officials10, if they meet the criteria of an administrative act, action (inaction).
Reduce
Admakt is an administrative act;
CD - public procurement;
RPD – Register of Unscrupulous Participants in Public Procurement;
SIAS – Specialized Inter-District Administrative Court;
SCAD – Judicial Chamber for Administrative Cases of the Regional Court;
SCAD of the Supreme Court of the Republic of Kazakhstan – Judicial Chamber for Administrative Cases of the Supreme Court of the Republic of Kazakhstan;
SIEC – Specialized Inter-District Economic Court;
Ministry of Finance - Ministry of Finance of the Republic of Kazakhstan;
Treasury – the Treasury Committee of the Ministry of Finance of the Republic of Kazakhstan;
KVGA – Internal State Audit Committee of the Ministry of Finance of the Republic of Kazakhstan;
DVGA – Department of Internal State Audit of the Internal State Audit Committee of the Ministry of Finance of the Republic of Kazakhstan;
State Audit and Financial Control;
CA – tender documentation;
DED – design and estimate documentation;
SN RK – Construction Standards of the Republic of Kazakhstan.
Regulatory legal framework
Constitution of the Republic of Kazakhstan; Civil Code of the Republic of Kazakhstan (CC);
Civil Procedure Code of the Republic of Kazakhstan (CPC)
Administrative Procedural Code of the Republic of Kazakhstan (APPC);
Budget Code of the Republic of Kazakhstan;
Tax Code of the Republic of Kazakhstan;
Law of the Republic of Kazakhstan "On Public Procurement" (Law on Civil Defense);
Law of the Republic of Kazakhstan "On State Audit and Financial Control" (Law on State Audit and Financial Control);
Law of the Republic of Kazakhstan "On Legal Acts";
Law of the Republic of Kazakhstan "On the National Welfare Fund";
Law of the Republic of Kazakhstan "On Procurement of Certain Entities of the Quasi-State Sector";
Rules for Public Procurement, approved by Order No. 648 of the Minister of Finance of the Republic of Kazakhstan dated December 11, 2015 (Rules No648);
Rules for the Formation and Maintenance of Registers in the Field of Public Procurement, approved by Order No. 694 of the Minister of Finance of the Republic of Kazakhstan dated December 28, 2015 (Rules No694);
Rules for Conducting In-House Audits, approved by Order No. 598 of the Minister of Finance of the Republic of Kazakhstan dated November 30, 2015 (Rules No598);
Rules for Internal State Audit and Financial Control, approved by Order No. 392 of the Minister of Finance of the Republic of Kazakhstan dated March 19, 2018 (Rules No. 392);
Special Procedure for Public Procurement, approved by the Decree of the Government of the Republic of Kazakhstan dated March 20, 2020 No127 (valid until December 31, 2020), Rules for Public Procurement with the Application of a Special Procedure, approved by the Decree of the Government of Kazakhstan dated December 31, 2015 No1200 (Rules No1200);
Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated April 21, 2022 No4 "On the Application of Public Procurement Legislation by the Courts" (NPVS No4);
Procurement Management Standard of the Fund, approved by the decision of the Board of Directors of the Fund No31/19 dated September 3, 2019;
other regulatory legal acts of the Republic of Kazakhstan.
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