Taking into account the high priority set for national security, including the strengthening of the combat capabilities of the National Armed Forces and the development of Latvia’s military industry and infrastructure, the State Audit Office of Latvia hopes that the first investments in the newly established state-owned “Valsts aizsardzības korporācija” Ltd (State Defence Corporation) will primarily be directed to the development of its core business and capacity building by weighing the amount of other expenses, including administrative expenses carefully.
The operation of state-owned “Valsts aizsardzības korporācija” Ltd (SOE) is financed from the state budget funds allocated for defence. At present, 1.6 million euros has already been paid into its fixed capital, which, among other things, is planned to be used for financing the administrative resources of the state-owned enterprise, for example, the selection and employment of a Board and employees, administrative costs of an office, business trips, purchase of fixed assets, etc.
“During the audit of the annual financial statement of the Ministry of Defence for 2023, we assessed the issue of establishing a state-owned enterprise noting that there were potential risks for the spending of funding according to its purpose. Following publicly available information, a tender for purchasing passenger cars for the needs of state-owned “Valsts aizsardzības korporācija” Ltd, where one of the cars was planned to be electric, has just been held. One tenderer participated in the tender, and if the Ministry of Defence supports it, it will cost 180,000 euros in total to the government. The conduct and results of this tender do not indicate that the activity of the state-owned enterprise is a sign of the initially planned progress towards integration into the provision system of the National Armed Forces. We call on the Ministry of Defence to strengthen the principles of management of state-owned “Valsts aizsardzības korporācija” Ltd so that the state budget funds allocated to it are primarily used for the needs of the defence sector by safeguarding internal and external security, rather than the needs of the state-owned enterprise’s administration, which should not be given priority at the moment,” indicated Mr Gatis Litvins, Council Member of the State Audit Office of Latvia.
The Cabinet of Ministers has recognized national security as the main priority by foreseeing the significant allocation of financial resources to defence spending. This year, one plans it to be 1.3 billion euros, while the funding will continue to increase in the following years by reaching 1.8 billion euros in 2027. An increase in the defence budget does not in itself characterize an increase in the national defence capabilities. It is influenced by several factors, one of which is the readiness of the defence industry to provide the armed forces with the necessary goods and services.
The establishment of state-owned “Valsts aizsardzības korporācija” Ltd was an important milestone in the previously unimplemented area of defence and security industry policy at the end of 2023, that is, the establishment of a military factory in Latvia and the development of industrial base for ammunition production. The capital shares of state-owned “Valsts aizsardzības korporācija” Ltd belong to the Ministry of Defence, which, together with the National Armed Forces, is the primary customer of the SOE with its becoming an integral part of the provision of the National Armed Forces. At the time of establishment, the SOE received 500,000 euros from the state budget funds allocated for defence. In addition, another 1.1 million euros was paid into its fixed capital this year by reducing the financing of the needs of the National Armed Forces by this amount in 2024.
When providing an opinion on the draft order “Amendments to Cabinet Order No 799 on the establishment of the state-owned limited liability company “Valsts aizsardzības korporācija” of 23 November 2023, the State Audit Office of Latvia indicated that state budget funds were allocated to state-owned “Valsts aizsardzības korporācija” Ltd in the situation when (1) the legal relationship of the delegation was in the list of planned activities of the Ministry of Defence and state-owned “Valsts aizsardzības korporācija” Ltd in the list; (2) Development of medium-term Strategy 2024-2027 of state-owned “Valsts aizsardzības korporācija” Ltd. was only planned; (3) the increase in the fixed capital would be covered from the funds allocated to the Ministry of Defence in 2024 under the budget subprogram 22.12.00 “Maintenance of the National Armed Forces”.
Taking into account the above, the State Audit Office of Latvia called on the Ministry of Defence to ensure the control of the compliance of the spending of the allocated funds with the goals and needs of the Ministry of Defence.
About the State Audit Office of Latvia
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General.
100 years of AUDIT STRENGTH
On 16 August 2023, the State Audit Law turned 100 years old. With the adoption of this Law, the State Audit Office from a formal de facto institution founded on 2 December 1918 became a de jure independent, collegial supreme audit institution of the Republic of Latvia. The State Audit Office is one of the independent state institutions enshrined in the Satversme (Constitution) of Latvia. The Constitution was signed by Roberts Ivanovs as the secretary of the Constitutional Assembly, who was then confirmed as the Auditor General. He worked as the first Auditor General for 12 years. His signature confirmed the text of our Constitution alongside that of Jānis Čakste.
Additional information
Mr Ivo Valdovskis
Communications Advisor to the Auditor General
Phone number: 23282273 | E-mail: Ivo.Valdovskis@lrvk.gov.lv