The State Audit Office (SAO) found a total discrepancy of GEL 697.4 million (USD 202 million) when comparing financial records between the Defense Ministry’s Financial Management Department and its other subdivisions, according to an April 16 audit report that examined consolidated bookkeeping as of December 31, 2019.
The independent state audit agency said the discrepancy is caused by different accounting methods used by the Defense Ministry divisions, noting for example that while Financial Management only tracks asset values, the Logistics Command of the Georgian Armed Forces records only the asset quantities. The varying methods cannot ensure the “inter-comparability and reliability” of their financial records, the SAO highlighted.
The report added however that “the Ministry clarified it took appropriate measures in 2020 to narrow down the differences, and the sum of the discrepancies decreased.”
The findings highlighted the lack of timely and effective communication between the Ministry’s divisions, also time delays between financial activities and relevant accounting records as some other causes for the inaccuracies.
For example, it said that one Ministry subdivision recorded GEL 4.8 million (USD 1.4 million) worth of transport vehicles it received as a grant in 2019 only later in February 2020.
“In some cases, the Ministry records assets that have not undergone customs duties, while subdivisions only record these assets in their quantities,” the document added.
In the lengthy audit report, the SAO argued that due to the inaccuracies, the consolidated credit and debit balances, also inventories of the Defense Ministry and its divisions do not represent their actual amounts.
Defense Ministry Responds
The Defense Ministry reiterated that it “took significant steps in 2020 to ensure that errors between data are minimized” and “to address financial reporting issues, in particular discrepancies in financial accounting,” stressing that the implementation of recommendations are still ongoing.
According to the Ministry of Defense, a large part of its receivables of GEL 238,964,804 (USD 69,265,160) are related to “alleged corrupt transactions by high-ranking officials of the previous government.” “These cases are being investigated and therefore the amounts are recorded as a liability to the agency,” the Ministry said.
The Defense Ministry also confirmed that it records assets that have not undergone customs duties “in some cases,” though added that this type of accounting is “incomplete,” due to which “the Ministry concentrates on the basic problems of financial reporting and takes appropriate measures to improve it.”