Challenging the State audit on the effective use of budget funds and asset management of the State 

External state audit and financial control is aimed at increasing transparency, efficiency, and responsibility for the use of budget funds, state assets, and the quasi-public sector.

The conduct of external state audit and financial control is regulated by the GAiFK Law, the General Standards of State Audit and Financial Control, the Procedural Standards of External State Audit and Financial Control, and the Rules for Conducting 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 State audit is conducted by the Accounting Committee on the basis of the list (Audit Commission facilities) the corresponding year (hereinafter referred to as the List of State Audit Facilities).

According to the results of the audit conducted by the bodies of external state audit and financial control, for each of the objects subjected to state audit, the following documents are drawn up::

1) audit report – a document prepared by the state auditors who directly conducted the audit event, containing the results of the conducted efficiency audit and (or) compliance audit for a certain period of time, in accordance with Annex 16 to these Rules.;

2) an audit report on financial statements is a document prepared by the state auditors who directly conducted the audit event, containing a written opinion on the reliability of financial statements, as well as the compliance of the accounting and financial reporting procedures with the requirements established by the legislation on accounting and financial reporting in the Republic of Kazakhstan in accordance with Annex 18 to these 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 records in the Audit Report.

Violations are described with the indication of articles, paragraphs and sub-paragraphs of regulatory legal acts, the provisions of which are violated, as well as acts of state audit facilities adopted for their implementation (paragraph 117 of the Rules). Each fact of violation, as well as identified shortcomings and gaps in legislation, are numbered and recorded in a separate paragraph describing the nature and type of violation, including those provided for in the Classifier of Violations Detected at State Audit and Financial Control Facilities, 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 documents confirming the violations. Audit evidence is attached to the Audit report: a table of systemic deficiencies, a register of identified violations based on the results of the audit, originals or duly certified copies of documents, certificates, photographs illustrating the facts of violations; written explanations of persons on violations, acts of control measurements (inspections); conclusions of research (tests), examinations, documents or their copies; expert opinions (if any), etc.

It is not allowed to include facts or conclusions in the Audit Report that are not supported by relevant documents. Based on the results of the audit activities, an Audit report is prepared and sent to the audited entity within ten working days after the completion of the audit activity at the last audited entity within the framework of the audit event.

In case of disagreement with the results of the audit event, the management of the state audit facility has the right to send written objections to the Audit Report within no more than ten working days from the date of sending the signed Audit report to the facility.

Such objections to the Audit Report received by the Accounts Committee (Audit Commission) are considered at the stage of preparing the Audit Report in accordance with Chapter 11-1 of the GAiFK Law. Based on the results of the state audit, an Audit Report is drawn up, which is a document compiled on the basis of Audit reports containing conclusions and recommendations, and approved by a resolution of the Accounting Committee (Audit Commission).

The resolution contains:

1) the decision to approve the Audit report prepared based on the results of the audit event;

2) the decision to transfer the Auditor's report or extract from it to the Government of the Republic of Kazakhstan and (or) the local executive body of the region (city of regional significance of the district) and (or) the relevant maslikhat, an advisory body;

3) the decision on the transfer of materials to law enforcement agencies;

4) the decision on the direction of Prescriptions. Basically, 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 GAiFK Law, the financial control response measures are: issuing mandatory orders for all government agencies, organizations and officials to eliminate identified violations and to consider the responsibility of those who committed them.

Therefore, the order will be an administrative act of an unfavorable nature for the audited entity. For example, the Housing Fund of the Akimat of Nur-Sultan State University and the contractor A-BD LLP signed an agreement on public procurement of non-construction works for the ongoing repair of an apartment building, totaling 30,724,963 tenge at the expense of the local budget.

The State Audit Institution "Audit Commission for the city of Nur-Sultan" conducted a state audit of the effectiveness of the use of budgetary funds and the management of state assets in the housing sector in the activities of the Housing Stock.

According to the audit results, the customer received an order dated December 23, 2021, to reimburse unreasonable payments to contractors for unforeseen work and expenses, expenses in winter, and an estimated profit on the cost of construction material – 3,339.8 thousand tenge to the local budget by March 31, 2022.

This order was challenged by the contractor. The local courts dismissed the claim and found that the customer had violated one of the principles of public procurement – the optimal and efficient use of money used for public procurement.

According to the audit findings: The Customer unreasonably applied the building regulations for reconstruction or major repairs and calculated the costs.

When carrying out routine repairs, it was necessary to be guided by the National Assembly of the Republic of Kazakhstan 1.04-26-2011 , which costs are calculated based on the actual market value.

For this type of work, it is mandatory to draw up a PSA. In this regard, the Housing Fund unreasonably accepted the cost of work from the customer. 

Pre-trial dispute settlement procedure

In accordance with paragraphs 6, 7 of Article 47 of the Law on Civil Protection, based on the results of consideration of a complaint received within the time limits established by paragraph 2 of this Article, the authorized body shall make a decision in accordance with subparagraph 6) of Article 16 of this Law or to dismiss the complaint.

In case of disagreement with the decision of the authorized body adopted in accordance with paragraph 6 of this article, the potential supplier has the right to appeal it to the appeal commission in accordance with the procedure provided for by the legislation of the Republic of Kazakhstan on state audit and financial control.

It follows from the meaning of this provision of the Law that if a potential supplier does not agree with the decision of the authorized body, when appealing actions (inaction), decisions of the customer, the organizer of public procurement within five working days from the date of posting the protocol on the results of public procurement by means of a tender (auction), appealing his decision to a higher authority is the right of a potential supplier.

However, paragraph 9 of the Law regulates that the pre-trial dispute settlement procedure provided for in this article is mandatory.

According to paragraph 2 of Article 58-6 of the Law "On State Audit and Financial Control", the appellate settlement of disputes in cases stipulated by this Law is mandatory.

By virtue of paragraph 33 of the Rules for conducting desk control, in case of disagreement with the decision of the department of the authorized body and (or) with the notification of the territorial subdivision sent in accordance with subitems 2 and 3) of part two of paragraph 26 of these Rules, the potential supplier who submitted an application for participation in the relevant tender (auction) and (or) the object of the state submits a complaint to the appeals Commission through publicly available information systems, including through a web portal in accordance with Appendix 7 to these Rules, or applies to the court. 

JURISDICTION OF ADMINISTRATIVE CASES

According to the second part of Article 102 of the CPC, the courts have jurisdiction in administrative proceedings over disputes arising from public law relations provided for by this Code.

Paragraph 2 of the NPS No. 4 clarifies that challenging the results of the GZ, decisions of the authorized body on the registration of a potential supplier in the RNU, as well as decisions, conclusions, instructions, notifications of the authorized body based on the results of the audit of the GZ, is carried out in accordance with the procedure provided for in part three of Article 106 of the APPC, at the place of residence (location) of the plaintiff.

If the plaintiff, along with the claim for recognition of the results of the tender as illegal, requires that the concluded GZ agreement be declared invalid on this basis, then such claims are subject to joint consideration by the SMAS, taking into account the requirements of part three of Article 84, part three of Article 155, part two of Article 156 of the CPC.

NPS No. 4 also provides that in this case, regarding the claim for invalidation of the contract, the plaintiff is not required to comply with the pre-trial dispute settlement procedure provided for in the contract.

Claims of a potential supplier against actions (inaction), decisions of the customer, the organizer, the single organizer of the GZ, commissions, an expert, a single operator in the field of GZ, as well as actions (inaction), decisions of the authorized body and GAiFK bodies are subject to review by the SMAS.

Claims of the organizers of the GZ, customers related to the application of subitems 1) and 3) of the first part of paragraph 4 of Article 12 of the Law on GZ, as well as claims arising from the execution of contracts on GZ, are subject to consideration by the Council of Economic Cooperation.

Claims challenging the decision of the authorized body to recognize a potential supplier as an unscrupulous participant in the GZ, recognized as such in accordance with subparagraph 2) The first part of paragraph 4 of Article 12 of the GZ Law is subject to review by the SMAS. 

PROCEDURAL TERMS IN COURTS

In accordance with parts 1 and 2 of Article 9 of the CPC, everyone has the right, in accordance with the procedure established by this Code, to apply to an administrative body, an official or a court for protection of violated or disputed rights, freedoms or legitimate interests.

The waiver of the right to appeal to an administrative body, to an official or to a court is invalid. in general, the Participants of the GZ have the right to apply to the court within the time limits set by the APPC.

Potential suppliers are challenging the decisions of authorized bodies, decisions, actions (inaction) of the customer, the organizers of the competition in the field of public procurement in accordance with Article 132 of the CPC.

At the same time, Article 136 of the APPC establishes deadlines for filing a lawsuit in court.

Claims for challenging or coercion are filed with the court within one month from the date of delivery of the decision of the body considering the complaint based on the results of the complaint review.

If the law does not provide for a pre-trial procedure or there is no body reviewing the complaint, the claim is filed within one month from the date of delivery of the administrative act or from the moment of notification in accordance with the procedure established by this Code and the legislation of the Republic of Kazakhstan.

The deadline for filing a claim that has been missed for a valid reason may be restored by the court according to the rules of the CPC.

The reasons for missing the deadline for filing a claim in court and their significance for the proper resolution of an administrative case are clarified by the court in a preliminary hearing.

Missing the deadline for filing a lawsuit without a valid reason, as well as the inability to restore the missed deadline for filing a lawsuit, are grounds for returning the claim.

The court finds out the reasons for the missed deadline in the preliminary hearing and resolves the issue of restoring the missed deadline.

In case of refusal to restore the missed deadline by the court, the claim is returned. 

REGULATORY LEGAL FRAMEWORK

- The Constitution of the Republic of Kazakhstan;

- The Civil Code of the Republic of Kazakhstan (CC);

- The Civil Procedure Code of the Republic of Kazakhstan (CC)

- Administrative Procedural Procedure Code of the Republic of Kazakhstan (APPK); - Budget Code of the Republic of Kazakhstan;

- The Tax Code of the Republic of Kazakhstan;

- The Law of the Republic of Kazakhstan "On Public Procurement" (the Law on Public Procurement);

- The Law of the Republic of Kazakhstan "On State Audit and Financial Control" (the Law on GAiFK);

- The Law of the Republic of Kazakhstan "On Legal Acts";

- The Law of the Republic of Kazakhstan "On the National Welfare Fund";

- The Law of the Republic of Kazakhstan "On Procurement of certain entities of the quasi-public sector";

- Rules for public procurement, approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated December 11, 2015 No. 648 (Rules No. 648);

- Rules for the formation and maintenance of registers in the field of public procurement, approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated December 28, 2015 No. 694 (Rules No. 694);

 - The rules for conducting desk control, approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated November 30, 2015 No. 598 (Rules No. 598);

- Rules for conducting internal State audit and Financial control, approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated March 19, 2018 No. 392 (Rules No. 392);

- A special public procurement procedure approved by Resolution of the Government of the Republic of Kazakhstan dated March 20, 2020 No. 127 (valid until December 31, 2020)

- Rules for public procurement using a special procedure, approved by Resolution of the Government of Kazakhstan dated December 31, 2015 No. 1200 (Rules No. 1200);

- Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated April 21, 2022 No. 4 "On the application of Legislation on public Procurement by Courts" (NPWS No. 4);

- The Fund's Procurement Management Standard, approved by the decision of the Board of Directors of the Fund No. 31/19 dated September 3, 2019; - other regulatory legal acts of the Republic of Kazakhstan. 

ABBREVIATIONS

administrative act – administrative act

GZ - public procurement;

RNU – register of unscrupulous participants in public procurement;

SMAS – specialized interdistrict Administrative Court;

SKAD – judicial board for administrative cases of the regional court;

SCAD of the Supreme Court of the Republic of Kazakhstan – Judicial Board for Administrative Cases of the Supreme Court of the Republic of Kazakhstan;

SMEC – specialized interdistrict Economic Court;

Ministry of Finance - Ministry of Finance of the Republic of Kazakhstan;

Treasury – 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;

GAiFK – State audit and Financial control; 

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