MainPublications of our law firmPublications in mediaArticle about an audit of State financial inspection. For "Law and Business"

Article about an audit of State financial inspection. For "Law and Business"

Andriy Buzynnyi (lawyer of law firm “Pravova Dopomoga”) provided his legal opinion on preparations before audit of the State Financial Inspection for “Law and Business” newspaper.

The material has been published in the issue number 7 (1097) of 16.02—22.02.2013 and is also available on newspaper’s website under the link - http://zib.com.ua/ru/print/14422-chto_nuzhno_znat_biznesu_o_proverkah_finansovoy_inspekcii.html.

“Not controlled” establishments

The facts business should know about audits of financial inspection in Ukraine

№7 (1097) 16.02—22.02.2013

One of the main features of entrepreneurship is reliance at own risk. During audits by control authorities business entity’s feeling of risk escalates, especially when we are talking about unscheduled on-site audits, in particular counter verification. The latter is not a measure of enterprise control but its consequences may be unpredictable. So before a visit by employees of the State Financial Inspection entrepreneurs should “get armed” with necessary information.

As we know, in December of 2010 the Main control and audit department has been reorganized into State Financial Inspection. The authority of the latter is stipulated by the law “On main principles of state financial control in Ukraine” number 2939-XII dated 26.01.93 (this is the new regulation’s name in version of the law number 5463-VI dated 16.10.2012). The authority includes:

• scheduled on-site audits;

• unscheduled on-site audits;

• counter verifications.

The latter can be conducted at enterprises which had legal relations with an establishment under control. According to legislation such enterprises include state authorities, budget establishments and business entities which belong to state sector of economy as well as enterprises and organizations which are funded by budgets of all levels or use state property. Thus, business entities of private sector do not belong to ones that are under control of the State Financial Inspection. But they still can face some measure of influence in case if they had legal relations with establishments under control.

Based on this we can conclude that bodies of the State Financial Inspection are entitled to perform unscheduled audit or counter verification of data regarding “not controlled” enterprises. Another method of interaction is requesting of certificates and copies of documents related to transactions and settlements with enterprises, establishments and organization that are undergoing an audit. This method does not involve on-site actions.

According to the law unscheduled on-site audits of business entities despite form of ownership are performed by bodies of the State Financial Inspection only after a court decision has been made basing on request of public prosecutor or investigator in order to support investigation of a criminal case. If there is no such decision the only way out is to perform counter verification which is a “method of documentary verification of business entities which had legal relations with a establishment under control, type, amount and quality of transactions and settlements that were performed between them in order to confirm their actuality and completeness of description in accounting of establishment under control”.

There is no law regulating the procedure of counter verification so it should be performed in accordance with the Resolution of the Cabinet of Ministers of Ukraine “On approval of regulations on performance of audits by State Financial Inspection and its local bodies” number 550 dated 20.04.2006.

Such verification is performed in the form of documentary and actual inspection of type, amount of transactions performed between business entity and establishment which is under control. As a result of verification a certificate (not protocol) is issued in duplicate. One copy is provided for a business entity which had legal relations with controlled entity while another is added to audit materials.”

Counter verification is not a measure of business entity control this object of control is represented by a different establishment. With a help of counter verification it is possible to confirm actuality and completeness of transactions description in auditing of the controlled establishment.

The verification itself is nothing special for a business entity. The control authority has not that many mechanisms of its performance and the subject of inspection is quite narrow. However results of documentary verification may be unpredictable. In particular counter verification may become a forerunner of a claim since during its performance the information about enterprise’s documentation and particular agreement (transaction) is obtained. In this regard one should not neglect presence of a lawyer at the stage of inspection in order to avoid possible risks.

Andriy Buzynnyi, senior lawyer of law firm “Pravova Dopomoga”.

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