DOI: https://doi.org/10.62204/2336-498X-2025-1-11

ON THE ISSUES OF CONDUCTING A FORENSIC ECONOMIC EXAMINATION

WHEN INVESTIGATING THE AMOUNT OF DAMAGE CAUSED

TO BUDGETARY INSTITUTIONS AS A RESULT OF VIOLATIONS OF LEGISLATION

IN THE FIELD OF PUBLIC PROCUREMENT UNDER MARTIAL LAW

 

Dmytro Dyachkov,

Dr. Sc. (Econ), Professor,
Director of the Educational and Scientific Institute of Economics,
Management, Law and Information Technologies,
Poltava State Agrarian University, Poltava, Ukraine,
dmytro.dyachkov@pdau.edu.ua; ORCID ID: 0000-0002-2637-0099

Olena Kuzmenko,

Forensic expert, Economic Research Department,
Poltava Scientific Research Forensic Center,
olenatest052022@gmail.com; ORCID ID: 0009-0006-7227-8687

  

Annotation. Currently, under martial law, the organization of public procurement based on a transparent and competitive approach to the acquisition of goods, works and services is becoming an important element of national economic management. For Ukraine today, transparent, efficient and fair public procurement is an engine of economic growth that creates new opportunities for businesses and jobs for the population. For Ukraine today, it has become a topical issue not only for the economy but also for the functioning of society as a whole.

This article deals with a specific issue that arises in the course of forensic economic examination to determine the damages incurred by budgetary institutions as a result of changes in the essential terms (price) in contracts concluded as a result of procurement procedures.

Keywords: budgetary funds, public procurement, overpricing, losses.

 

Formulation of the problem. Currently, our country is in conditions it has never experienced before. Given the fact that the treacherous large-scale invasion of Ukrainian land by Russian invaders on the morning of February 24, 2022, divided our usual life into “Before” and “After”, the war requires resources and mobilization of the entire society. The consequences of the armed conflict taking place in Ukraine are felt in various spheres of human activity, the functioning of enterprises, society and the state as a whole.

The invasion of Ukraine by the Russian invaders has changed approaches to the main components of the economy, including public procurement. The martial law regime has made its own adjustments to public procurement in Ukraine, the legislation is changing rapidly, and the circumstances of its application are sometimes changing even faster. In wartime, all the same prohibitions apply as in peacetime: it is forbidden to steal, it is forbidden to abuse, it is forbidden to spend scarce resources inefficiently. In these circumstances, the issue of liability for financial violations committed in wartime becomes more relevant than ever.

It should be noted that different liabilities are possible in the field of public procurement, namely:

  • commercial and legal (i.e., liability is stipulated in the procurement contract or a contract concluded without the use of an electronic procurement system);
  • civil liability (liability for non-contractual damage, including damage caused by increased authority or abuse of office);
  • disciplinary (liability under the employment contract, the Labor Code of Ukraine or a disciplinary statute);
  • administrative (liability under the Code of Ukraine on Administrative Offenses);
  • criminal (liability under the Criminal Code of Ukraine).

Business operation of public sector entities in the field of public procurement always attract public attention, as they often involve contracts worth millions of dollars.

Analysis of recent research and publications. Simakova-Yefremian E. is studying the issue of reforming forensic expert activity and the need to improve the legislation of Ukraine on forensic expert activity [4]. Pirig V. I. studies the use of special knowledge in pre-trial investigation [5, 6]. Vasylynchuk V. I., Slyvenko V. R. Study the Improvement of Criminal Liability for Crimes in the Field of Public Procurement [14].

Setting the purpose and objectives of the study – is to highlight problematic issues in conducting forensic economic examinations to establish damages to budgetary institutions by changing the essential terms (price) of concluded contracts based on the results of public procurement procedures.

The main research material. According to information provided by the Ministry of Economy of Ukraine, despite Russia’s full-scale war against Ukraine, the total number of completed procurements in the Prozorro public procurement system in 2022 amounted to 2.8 million contracts worth UAH 484 million. At the same time, the number of competitive procurements last year was about 160 thousand, and the amount of concluded agreements was UAH 198 million.

The total number of customers in 2022 was about 30 thousand, of which 16 thousand announced competitive procurement. The total number of bidders was about 181 thousand, and 33 thousand participants took part in competitive bidding.

The top 5 procurements of 2022 are as follows: food – 25 thousand; construction works – 23 thousand; medical equipment – 20 thousand; petroleum products – 15 thousand; agricultural products – 8 thousand [17].

Also, according to the Ministry of Economy of Ukraine, in the public procurement system in 2023, the volume of procurement conducted through the Prozorro system tripled to UAH 480 billion compared to last year [18].

The Law of Ukraine “On Public Procurement” dated 25.12.2015 No. 922-VIII [1] defines the list of institutions authorized to exercise control in the field of public procurement, namely: the central executive body implementing the state policy in the field of treasury services for budget funds, the Accounting Chamber of Ukraine, the Antimonopoly Committee of Ukraine, the central executive body implementing the state policy in the field of state financial control and public control. The above-mentioned institutions exercise control in the field of public procurement each within the limits of their powers defined by the Constitution and laws of Ukraine (Table 1).

The State Audit Service of Ukraine (hereinafter referred to as SASU or the State Audit Service) is the central executive body that implements the state policy in the field of state financial control and exercises control in the field of public procurement. Pursuant to Article 5 of the Law of Ukraine “On the Basic Principles of State Financial Control in Ukraine”, control over compliance with procurement legislation is exercised by monitoring procurement in accordance with the procedure established by the Law of Ukraine “On Public Procurement”, conducting procurement audits, as well as during state financial audit and inspection.

The existence of offenses in the field of public procurement is confirmed by the results of their inspections and monitoring conducted by the State Audit Service of Ukraine. Thus, according to the State Audit Service of Ukraine, in January- December 2023, 395 inspections and almost 12.2 thousand procurement monitoring were conducted. Based on the results of procurement monitoring, the State Audit Service prevented violations during the reporting period, including by canceling tenders worth more than UAH 7.4 billion and terminating contracts worth almost UAH 12.4 billion. In addition, according to the State Audit Service. 102 pretrial investigations were initiated by law enforcement agencies as a result of monitoring compliance with procurement legislation [1].

In the process of public procurement, one of the main criteria for assessing its efficiency and an indicator of achieving savings is the price. That is why price changes in the course of the procurement contract are subject to special attention of controlling and law enforcement authorities. It should be noted that offenses established by the state financial control body based on the results of control measures in the field of public procurement often become the basis for the appointment of a forensic economic examination in criminal proceedings.

During pre-trial investigations, law enforcement agencies are increasingly raising the issue of misappropriation of budget funds by officials of budgetary institutions in the course of public procurement through fictitious companies, purchase of goods, works, services at “inflated prices”, as well as determining the amount of damage based on the results of procurement as a result of additional agreements on price changes, namely its increase per unit of goods. It is noteworthy that the main qualifying factor in the plots of investigations in economic criminal proceedings in all law enforcement agencies without exception is the concept of procurement at an “inflated price” and violation of the principle of maximum economy, efficiency and proportionality.

In their activities, law enforcement agencies assess the actions taken by the perpetrator to cause the negative consequences. For example, whether the head of the procuring entity foresaw the possibility of damage to the enterprise or the local community when signing additional agreements to increase the price. According to law enforcement agencies, the head of the procuring entity should take this into account, check prices and determine all possible risks, possible savings and efficiency of using funds for a particular procurement.

However, it should be noted that the current legislation of Ukraine does not contain the phrase “inflated prices”. Similarly, there are no such legal concepts as: “fair price”, “permitted markup”, etc., neither in the Criminal Code of Ukraine, nor in the Resolution of the Cabinet of Ministers of Ukraine “On Approval of Peculiarities of Public Procurement of Goods, Works and Services for Customers Provided for by the Law of Ukraine “On Public Procurement” for the Period of Martial Law in Ukraine and within 90 days from the date of its termination or cancellation”, nor in the special Law of Ukraine “On Public Procurement”. The latter contains only definitions of the terms “expected value”, “abnormally low price” and “reduced price” [2,3]. In addition, it should be noted that currently in Ukraine, the State Service of Ukraine on Food Safety and Consumer Protection exercises state supervision (control) in the field of pricing only for socially important products, gasoline and diesel fuel.

Therefore, in the course of court proceedings concerning the use of budgetary funds under contracts concluded as a result of public procurement, situations arise when, in order to establish certain circumstances of the case or facts, it is necessary to obtain information relating to special knowledge and cannot be obtained except by addressing a list of questions to an expert institution or expert.

Specialized knowledge, according to E. B. Simakova-Yefremian, includes “professional knowledge and skills in the field of science, technology, art, craft, etc. that are necessary to clarify issues that arise during the investigation and trial of specific cases” [4]. I. V. Pirig in his scientific work clarifies that this is the knowledge that “is not professional for an investigator, prosecutor, investigating judge, judge, etc.”, i.e., is beyond legal knowledge. Special economic knowledge, according to V. V. Fedchyshina, is the knowledge, skills, abilities and practical experience of persons knowledgeable in the field of economics on issues that reflect the current level of development of economic science, objects, phenomena and processes [5,6]. At the same time, it should be noted that the expert economist’s special knowledge goes beyond clarifying legal issues (part 1. Article 242 of the CPC of Ukraine) and assessing the legality of procedures regulated by regulatory legal acts, as well as assessing the actions (inaction) of officials [9].

Despite the above, the initiators of the appointment of a forensic economic examination often raise questions related to public procurement, for example: “Is it documented that the customer “….” violated the principle of maximum economy, efficiency and proportionality when it concluded the additional agreement No. _ of _ to the Procurement Agreement No. _ of _ with LLC “…..” regarding the change in the price per unit (namely, the increase in the price per unit), which led to damage. If so, what is the amount of damage caused to the budgetary institution as a result of changes in essential terms, in particular, the price in the contract concluded as a result of the procurement procedure?”

It is worth noting that the principle of maximum economy, efficiency and proportionality is one of the procurement principles set forth in Article 3 of the Law of Ukraine “On Public Procurement”. This principle is unconditional and reflects the regularities of legal relations arising in the field of public procurement [10]. At the same time, the legislation relating to public procurement in Ukraine still lacks a clear definition of the terms “maximum economy”, “efficiency” and “proportionality”, in particular, and does not define the indicators of economy and efficiency criteria.

In addition, according to the information provided in the Accounting Chamber’s report for 2022, the Ministry of Economy of Ukraine (which is the authorized body for state policy in the field of public procurement) has not developed and approved a methodology for comprehensive economic analysis of the efficiency of public procurement [11]. The analysis conducted by the Accounting Chamber showed that the Report of the Ministry of Economy does not contain sufficient information on the validity of the savings indicator, which it defines as the difference between the expected cost of procurement and the most economically advantageous offer. Therefore, it can be concluded that the lack of a methodology for calculating the savings, efficiency and proportionality of public procurement does not allow for a forensic economic examination to document the amount of losses caused by non-compliance with public procurement principles by public sector entities.

Pursuant to Article 224(2) of the Commercial Code of Ukraine, “losses are defined as expenses incurred by the managed party, loss or damage to its property, as well as income not received by it that the managed party would have received in case of proper fulfillment of the obligation or before the rules of economic activity were observed by the other party” [12]. Also, according to part 1 of Article 225 of the Commercial Code of Ukraine, it is determined that “the losses to be reimbursed by the person who committed the economic offense include: the cost of lost, damaged or destroyed property, determined in accordance with the requirements of the law; additional costs (penalties paid to other entities, the cost of additional work, additional materials, etc. According to the provisions of the Commercial Code of Ukraine, a loss on procurement transactions occurs in case of violation by a participant of economic relations of its obligations under the procurement contract, taking into account the requirements of part 5 of Article 41 of the Law “On Public Procurement” [10] and for certain customers, paragraph 19 of the CMU Resolution No. 1178 [10, 13].

According to V. I. Vasylynchuk and V. R. Slyvenko, the biggest problem in determining damages in case of violations of legislation in the field of public procurement is the lack of a unified methodology for calculating such damages by executive authorities implementing state policy in the field of state financial control [14]. This, according to scientists, makes it impossible to effectively compensate for the identified losses.

Unlike auditors and inspectors, who establish facts, expert economists, within the scope of their competence, conduct research on data that has been established during audits, inspections and monitoring. Expert economists provide conclusions only on the basis of documents confirming business transactions, in accordance with the requirements of the current legislation governing the documentation and reporting of certain transactions, including public procurement. In addition, “conducting audit actions (determination by expert economists of any economic indicators without prior documentary checks of financial and economic activities by the subject of control) does not belong to the tasks of economic expertise” and is not provided for by the requirements of the last paragraph of clause 1.1 of section III of Instruction No. 53/5 [15]. Therefore, the appointment and conduct of a forensic economic examination is a process of interaction between experts and the initiators of an economic study.

When conducting forensic economic examinations, the expert shall take into account the following conditions:

– the material damage (losses) to the budgetary institution must be established by the body whose main tasks and functions include financial control over compliance with the public procurement legislation;

– documentary evidence of damages for unjustified transfer of funds may be made taking into account the conclusions of other types of examinations.

Therefore, taking into account the amendments and the lack of a methodology for determining damages in the field of public procurement, the following questions may be asked by the initiators of a forensic economic examination:

– Are the conclusions stated in the inspection report of the supervisory authority (number, date) regarding the overstatement of the volume of public procurement (name of goods, works, services) by the amount of (specify the amount) compared to the terms of the contract (number, date) concluded as a result of competitive bidding confirmed by documents?

– Are the conclusions of the inspection report of the supervisory authority (number, date) regarding the unjustified transfer of budget funds in the amount of (specify the amount) documented, taking into account the conclusions of other types of examinations?

Law enforcement agencies should be provided with documentary evidence to support the calculation of the amount of damages caused by additional agreements to procurement contracts that increase the price of a unit of goods during the economic examination:

– an audit (inspection) report that establishes a violation of tender legislation, including documents used by auditors (inspectors) in the course of state financial control;

– conclusions of other types of expertise, which establish an overstatement of the price per unit of goods;

– a court decision to invalidate additional agreements;

– primary and accounting documents containing information on business transactions.

Conclusions. Therefore, the familiarity of the forensic authorities with the procedural capabilities of forensic economic examination, the subject of its research, as well as the competence of experts affects the correctness of the question posed to the expert economist, and thus the completeness of the economic research, its quality and timing [16].

As practice shows, inefficient use of budgetary (public) funds in the field of public procurement leads to significant losses to the state, territorial communities and associations of territorial communities. Therefore, in order to minimize the risks associated with violation of procurement procedures and inefficient and ineffective use of funds, it is proposed to develop and approve a methodology for conducting forensic economic examinations of business transactions related to fluctuations in unit prices in the context of contracts concluded as a result of public procurement. In particular, it is necessary to define the procedure for conducting such an economic examination, the documents that may be the subject of the examination, and the methods that may be used. It is the development of such scientific and methodological approaches that is a promising area for further research on the economical and efficient use of budget funds in the field of public procurement.

 

References:

 

  1. Performance of the State Audit Service and its interregional territorial bodies in January-September 2023. URL: https://dasu.gov.ua/ua/plugins/userPages/3517.
  2. Criminal Code of Ukraine: Law of Ukraine dated 05.04.2001 No. 2341-III (updated on 19.08.2022) URL: http://zakon.rada.gov.ua/laws/show/2341-14.
  3. Kuzmenko O.E. Economic and legal aspects of studying the amount of damage caused to budgetary institutions by changing the essential terms of the contract in the implementation of public procurement. Management of resource provision of economic activity of enterprises of the real sector of the economy: materials of the VII All-Ukrainian scientific and practical. Intern. conf. with international scientists. 27 October. 2022. Poltava: PDAU. С.90-92.
  4. Simakova-Efremian E. Problems of forensic expert activity in the norms of the current legislation of Ukraine. Law of Ukraine. 2004. № 6. С. 99-102.
  5. Pirig I. V. Theory and practice of using special knowledge in the investigation of cargo thefts on railway transport: PhD thesis: 12.00.09. Kyiv, 2006. 21 с.
  6. Fedchyshina V. V. Special economic knowledge and its use in the course of operational and investigative activities, pre-trial investigation and court proceedings: theoretical and legal foundations. Actual problems of national jurisprudence. 2018. № 3. С. 215-218.
  7. Criminal Procedure Code of Ukraine. URL: https://zakon.rada.gov.ua/laws/show/4651-17#Text/.
  8. On public procurement: Law of Ukraine of 25.12.2015 №922-VIII. URL: https://zakon.rada.gov.ua/laws/show/922-19#n943.
  9. Report of the Accounting Chamber for 2022. URL: http://rp.gov.ua/upload-files/Activity/Reports/2022/ZVIT_RP_2022.pdf.
  10. Commercial Code of Ukraine. URL: https://zakon.rada.gov.ua/laws/show/436-15#Text.
  11. On Approval of the Peculiarities of Public Procurement of Goods, Works and Services for Customers Provided for by the Law of Ukraine “On Public Procurement”: Resolution of the Cabinet of Ministers of Ukraine of 12.10.2022 No. 1178. URL: https://zakon.rada.gov.ua/laws/show/1178-2022-п#Text.
  12. Vasylynchuk V.I., Slyvenko V.R. Improvement of criminal liability for crimes in the field of public procurement. Scientific Bulletin of the National Academy of Internal Affairs. 2014. № 1 URL: http://elar.naiau.kiev.ua/bitstream/123456789/625/2/vasulchuk_ua.pdf.
  13. Scientific and methodological recommendations on the preparation and appointment of forensic examinations and expert studies, approved by the Order of the Ministry of Justice of Ukraine of 08.10.1998 No. 53/5 (updated on 19.08.2022) URL: https://zakon.rada.gov.ua/laws/show/z0705-98 #Text.
  14. Problematic issues in conducting forensic economic examinations to establish damages caused to budgetary institutions as a result of changes in essential terms (prices) in contracts concluded as a result of procurement procedures. Scientific Bulletin of the Scientific Research Institute. 2020. Issue 8. С. 58-66.
  15. In 2022, 2.8 million contracts totaling UAH 484 million were concluded in the Prozorro system. URL: https://www.kmu.gov.ua/news/v-2022-rotsi-v-systemi-prozorro-bulo-ukladeno-28-mln-kontraktiv-na-zahalnu-sumu-484-mln-hrn-nadiia-bihun.
  16. Results of public procurement: In 2023, procurement volumes tripled to UAH 480 billion URL: https://www.kmu.gov.ua/news/pidsumky-publichnykh-zakupivel-u-2023-rotsi-obsiahy-zakupivel-zrosly-utrychi-do-480-mlrd-hrn.