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Moscow Times
February 19, 2003
Kremlin Audit: Millions Misspent
By Alla Startseva
Staff Writer

Hundreds of millions of dollars of government money have been misspent in the last two years, according to a report released this week by the Kremlin's financial watchdog.

The presidential administration's auditing directorate said in a report posted on its web site that ministries misappropriated a vast, but undefined chunk of six extra-budgetary funds through which they were given $1 billion over two years.

Dozens of extra-budgetary funds are doled out to ministries every year for compelling needs that fall outside their regular federal budgets, ranging from social programs to research and development. Oversight responsibility for how the money is spent is delegated to the ministries themselves.

The verdict of abuse came after a two-month investigation of six funds given to six different ministries: Defense, Nuclear Power, Natural Resources, Industry Science and Technology, Labor and Justice.

The Justice Ministry's fund is alleged to have misspent 1.1 billion rubles ($34.4 million) given to it to develop the court system. Of this, 3 million rubles inappropriately financed a high-level junket to the Far East, as well as gifts for top ministry officials, the report said.

The Labor Ministry is alleged to have misspent money allocated for rehabilitating invalids and health care for the poor through its Republic Fund for Social Support.

Within this fund, $1.35 million was allotted to aid with "complex social rehabilitation, rest and health invigoration of disadvantaged Moscow citizens." Instead, about $1 million was redirected over the past two years toward the construction of expensive cottages. The Kremlin auditors allege that such homes were never intended for use by Moscow's disadvantaged.

The report also takes issue with the Defense Ministry's use of its fund to help servicemen and their families with housing and health expenses as well as to extend aid to veterans. But only 5.4 percent of its resources has gone toward these goals. The remainder, or more than 50 million rubles, went into managers' pockets or was funneled into "various celebrations and cultural events," the report's authors wrote.

The Industry, Science and Technology Ministry was chastised for loaning out funds earmarked for applied scientific research and experimentation to entities that are significantly better endowed. The Railways and Communication ministries together with oil majors Rosneft and LUKoil have outstanding debts to the science fund amounting to 500 million rubles ($16 million). The Kremlin wants to know why these loans were extended in the first place and why they have not been repaid.

The Nuclear Power Ministry, for its part, shifted money intended to improve nuclear, radiation and ecological safety onto another ledger to pay off 32.6 million rubles in expenses racked up by the ministry's central staff.

At the Natural Resources Ministry's geological fund, auditors found that every third contract agreement was irrelevant to the fund's work.

The auditors' report creates a hurdle for Deputy Prime Minister Alexei Kudrin, who oversees a commission deciding what should be done with these extra-budgetary funds, most of which are remnants of the Soviet era. By April, he is to have prepared proposals on how to optimize budget spending.

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