In each issue of our magazine, we try to offer you an overview of the most interesting court decisions on disputes related to the qualification of violations as misuse of budget funds. This issue will be no exception. I would like to remind you that the misuse of budget funds means the direction of budget funds of the budget system and the payment of monetary obligations for purposes that do not fully or partially correspond to the goals defined by the law (decision) on the budget, the consolidated budget list, the budget list, the limits of budget obligations, the budget estimate, contract (agreement) or legal act that is the basis for the provision of these funds.
Major repairs or reconstruction?
The essence of the dispute. The Federal Penitentiary Committee for the Orenburg Region conducted an inspection of FKU IK-1 of the Federal Penitentiary Service for the Orenburg Region (hereinafter referred to as the institution), during which the control body came to the conclusion about the misuse of budget funds allocated for major repairs. According to the inspectors, the work carried out in its composition, content, and impact on the technical characteristics of the building corresponds not to a major overhaul, but to reconstruction. Payment for work performed should have been made according to KVR 414, and not KVR 243 “Purchase of goods, works, services for the purpose of major repairs of state (municipal) property.”
At the same time, the auditors’ conclusion was confirmed by the fact that the institution increased the book value of the building by the amount of work performed during the overhaul. Disagreeing with the conclusion of the control body, the institution went to court (Resolution of the Eighteenth Arbitration Court of Appeal dated January 23, 2020 No. A47-15311/2018).
The court's position. When making a decision, the arbitrators proceeded from the following. In accordance with clause 3.8 of the Methodology for determining the cost of construction products on the territory of the Russian Federation (MDS 81-35.2004), approved by Decree of the State Construction Committee of the Russian Federation dated 03/05/04 No. 15/1, major repairs of buildings and structures include work on the restoration or replacement of individual parts of buildings ( structures) or entire structures, parts and engineering equipment due to their physical wear and destruction into more durable and economical ones that improve their performance.
Preventive (current) repairs consist of systematically and timely work carried out to prevent wear of structures, finishing, engineering equipment, as well as work to eliminate minor damage and malfunctions.
According to clause 3.4 of MDS 81-35.2004, during the reconstruction (reconstruction) of existing workshops of the enterprise and facilities of the main, auxiliary and service purposes, as a rule, without expanding the existing buildings and structures of the main purpose associated with improving production and increasing its technical and economic level and carried out Under a comprehensive project to modernize an enterprise in order to increase production capacity, improve quality and change the range of products, mainly without increasing the number of employees while simultaneously improving their working conditions and environmental protection, the following activities can be carried out:
- expansion of individual buildings and structures for main, auxiliary and service purposes in cases where new high-performance and more technically advanced equipment cannot be placed in existing buildings;
- construction of new and expansion of existing workshops and auxiliary and service facilities;
- construction on the territory of an existing enterprise of new buildings and structures of the same purpose to replace those being liquidated, the further operation of which, due to technical and economic conditions, is considered inappropriate.
As a result of any repair, the purpose of the fixed asset object, its technical and economic indicators, technological or service purpose do not change, product quality does not improve, and production space does not increase.
The purpose of the reconstruction is to improve the initially adopted standard indicators of the functioning of the fixed asset object, to increase the capacity and useful life.
During the court hearing, it was established that the founder, in connection with the approval of the capital repair program, requested information about objects requiring repair, indicating the composition and scope of work, where special attention was paid to the repair of roofs of buildings. The institution allocated budgetary allocations for expenditure type 243 for major repairs of the building's roof. The founder formed a program for capital and current repairs, determined the target item, type of expenses and allocated budgetary allocations. At the same time, the type of expense according to the list of works is determined by the decision of the Federal Penitentiary Service, the main manager of budget funds.
In addition, during the court hearing, it was noted that the law enforcement functions of the Federal Treasury include preliminary and ongoing control over the conduct of transactions with federal budget funds by recipients of federal budget funds. Among the powers of the Federal Treasury to exercise internal state financial control, which establish the directions for carrying out authorization operations, the legislator includes control over the compliance of the content of the operation with the code of the budget classification of the Russian Federation specified in the payment document submitted to the Federal Treasury by the recipient of budget funds, control over the availability of documents, confirming the occurrence of a monetary obligation to be paid from the budget, monitoring the compliance of information about the registered budget obligation under a government contract with information about this government contract contained in the register of contracts concluded by customers.
Thus, in accordance with clause 13 of the Procedure for accounting by territorial bodies of the Federal Treasury of budgetary and monetary obligations of recipients of federal budget funds, approved by Order of the Ministry of Finance of the Russian Federation dated December 30, 2015 No. 221n (hereinafter referred to as the Procedure, Order No. 221n) (as amended in force in the audited period ), verification of information about the budget obligation is carried out, among other things, for compliance of the subject of the budget obligation specified in the information about the budget obligation with the classification code of federal budget expenditures indicated in the corresponding line of this information.
In case of a negative result of checking information about a budget obligation for compliance with the above requirement, the UFK, on the basis of clause 8 of the Procedure, sends a protocol to the recipient of federal budget funds in electronic form, indicating in it the reason why the budget obligation is not registered.
Thus, when registering a budget obligation, the body of the Federal Treasury is charged with the responsibility of conducting an analysis of the correctness of the recipient of federal budget funds determining the subject of the state contract based on the types of work provided for in the technical documentation.
In particular, before registering a budget obligation, information about the budget obligation is checked for compliance with the basis documents to be submitted by recipients of federal budget funds for registration of the budget obligation, as well as for compliance of the subject of the budget obligation with the KBK code.
This control (for compliance of the subject of the budget obligation specified in the information on the budget obligation with the classification code of federal budget expenditures reflected in the corresponding line of the indicated information) was successfully completed by the institution.
Taking into account the above, the court of first instance rightfully came to the conclusion that the federal budget funds provided by the main manager of budget funds with the condition that they be spent on paying for work under type of expenditure 243 “Purchase of goods, works, services for the purpose of major repairs, state property” were in fact used by the recipient of budget funds, that is, for the intended purpose provided for in the budget estimate - to pay for work for the type of expenses specified in the payment order (243).
Consequently, budget funds were used by the recipient of budget funds for purposes that corresponded to the conditions for their receipt, defined in the budget estimate approved by the main manager.
Court decision on the issue of targeted spending of funds.
Article 34 of the Budget Code of the Russian Federation enshrines the principle of efficient use of budget funds, which means that participants in the budget process, within the framework of the budget powers established by them, must proceed from the need to achieve specified results using the least amount of funds (economy) and (or) achieve the best result using a volume determined by the budget means (effectiveness).
As follows from the case materials, the autonomous institution was provided with a targeted subsidy for organizing major repairs and bringing school buildings and premises into compliance with fire safety and sanitary legislation requirements. In other words, funds were allocated in order to ensure proper maintenance and operation of existing facilities for the functioning of an educational institution, which is ensured by the necessary repairs of buildings and structures based on design estimates.
As the judges noted, the use of these funds to pay for the development of design and estimate documentation for equipping the school’s sports ground in order to receive a subsidy in the future provided for by another program and for other purposes does not correspond to the purposes of providing the initial subsidy and is a misuse of the city district’s budget funds .
The autonomous institution’s argument that these funds were used for the overhaul of the school’s existing sports ground, and therefore are intended use, cannot be justified and must be rejected. It follows from the case materials that, in fact, the sports ground was designed and created as an object with completely different characteristics, different from the existing ones. In addition, the design documentation provided for the location of completely new facilities, such as a football field, a long jump sector, a volleyball court, a basketball court, a cross-country track, a workout area, the installation of external sewerage, fencing, and external lighting.
At the time of provision and use of the subsidy, an object with such characteristics was not on the organization’s balance sheet, and therefore the funds provided for major repairs, that is, for the purpose of proper maintenance of existing property, could not be used for the design of a new sports ground.
Regarding the second violation, the court indicated the following. During the control event, the Accounts Chamber of the Russian Federation established that the institution entered into agreements to verify the estimate documentation for the equipment of the sports ground, payment for which was made through a subsidy for financial support for the implementation of the municipal task, provided to the organization under an agreement for financial support for the implementation of the municipal task. According to the regulatory documents of the constituent entity of the Russian Federation, the amount of such a subsidy is calculated based on standard costs:
- for the provision of municipal services, the cost of performing work within the framework of a municipal task;
- for the maintenance of real estate assigned to an institution or acquired institution, as well as for the payment of taxes, for which the specified property is recognized as an object of taxation.
Standard costs for property maintenance include costs for general business needs associated with the maintenance of particularly valuable movable and immovable property operated in the process of providing municipal services, including standard costs for rent, routine repairs of non-financial assets, fire safety measures associated with the maintenance property, standard costs for the purchase of services in the field of information technology, printing works, sanitary and epidemiological works.
Taking into account the fact that payment for work to verify the estimate documentation does not relate to the costs of maintaining the institution’s property, such payment is an inappropriate use of budget funds, and therefore, in this part, the conclusions of the Accounts Chamber of the Russian Federation are justified.
Regarding the third violation, the court also sided with the control body, noting the following. During the control exercise to verify the legality and effectiveness (efficiency and economy) of the use of budget funds by the Accounts Chamber of the Russian Federation, it was established that the contractor, when performing work on equipping sports grounds, used other materials and equipment that differed from those agreed upon in the documentation on the open auction and in the contract. The customer paid for this equipment and materials at the prices stipulated in the design and estimate documentation. Since in accordance with Art. 709, 711, 746 of the Civil Code of the Russian Federation, the customer is obliged to pay for the work actually performed, which presupposes that the contractor receives an equivalent payment for the work, based on the cost of the work itself and the cost of the materials used in performing the work, in a situation where the cost of the materials and equipment used is lower than agreed in the estimate, materials and equipment used in performing the work are subject to payment at the cost of the materials actually used. Payment to the contractor for materials and equipment at inflated prices entails the emergence of unjustified benefits for the contractor (unjust enrichment) and does not correspond to the goal of efficient use of budget funds.
In addition, from the case materials it follows that the customer and the contractor did not make any changes to the contract and to the design and estimate documentation in the direction of reducing the scope of work and agreeing on the use of other materials. In this regard, the contractor was obliged to include in the work completion certificates, and the customer was obliged to pay for the materials and equipment used by the contractor at their actual prices. Paying for materials and equipment at inflated (arbitrary) prices is an illegal use of budget funds.
The institution's arguments that the specified difference in the cost of materials and equipment represents savings for the contractor were rejected.
According to paragraph 1 of Art. 710 of the Civil Code of the Russian Federation, in cases where the contractor’s actual expenses turned out to be less than those taken into account when determining the price of the work, the contractor retains the right to pay for the work at the price stipulated by the contract, unless the customer proves that the savings received by the contractor affected the quality of the work performed.
The contractor's savings imply his benefit resulting from the use of the optimal and most effective methods of performing work provided for in the design documentation, and not caused by a reduction in the design scope of work, non-fulfillment of work or a change in design solutions towards cheaper ones, or inflated prices when drawing up estimate documentation.
From the meaning of this legal norm it follows that the contractor’s savings are associated with the latter’s efforts to use the most effective methods of performing the work or occurred as a result of changes in market prices for those materials and equipment, the cost of which was taken into account when determining the price; cutting costs by not performing part of the work does not constitute savings.
At the same time, there is no evidence in the case indicating that the disputed difference between the cost of the work actually performed and the contract price initially provided for is the contractor’s savings within the meaning of the provisions of Art. 710 of the Civil Code of the Russian Federation. On the contrary, the Accounts Chamber of the Russian Federation established and, when considering the available materials in the case, it was proven that the difference in the cost of paid work was formed due to the contractor’s use of materials and equipment not specified in the project documentation, as well as due to the use of cheaper materials and equipment. This cannot be considered a contractor's savings.
The customer, by accepting and paying for work and materials at inflated prices, violated the requirements of budget legislation on the efficiency of using budget funds, since when an autonomous institution fulfilled these requirements, achieving results - equipping school sports grounds could be achieved using the least amount of funds (economy) or using the received in the form of a budget subsidy could lead to the achievement of the best result (effectiveness).
Thus, the indication in the submission of the Accounts Chamber of the Russian Federation to the indicated violations as illegal use of budget funds is justified and lawful.
For the same reasons, the conclusions of the Accounts Chamber of the Russian Federation about the illegal use by the institution of budget funds paid to it for the implementation of construction control should be recognized as legitimate.
Such an agreement is a contract for the provision of services for a fee, to which the general provisions on contracts apply (Articles 702 - 729 of the Civil Code of the Russian Federation). By virtue of paragraph 1 of Art. 721 of the Civil Code of the Russian Federation, the quality of the work performed must comply with the terms of the contract, and in the absence or incompleteness of the terms of the contract - with the requirements usually applied to work of the corresponding type.
From the case materials it follows that the selected organization improperly carried out its duties to exercise construction control over the contractor’s work on equipping the customer’s construction sites. She agreed and signed acts of form KS-2, which served as the basis for the customer to pay for uncompleted work and undelivered equipment, as well as payment for equipment and materials at inflated prices.
By accepting from the contractor actually unfulfilled, inflated volumes of work, by confirming the delivery of equipment that was not delivered to the sites, by signing certificates of completed work that did not correspond to reality, the organization misled the municipal customer regarding the contractor’s performance of his duties. These actions led to unjustified payments of funds from the regional and local budgets.
The fact that construction control services were accepted by the customer in full and without comments, and also paid by the customer in full, under the specified circumstances does not refute the conclusions of the Accounts Chamber of the Russian Federation about the illegal use of these funds from the city district budget.
Thus, the Accounts Chamber of the Russian Federation had grounds for sending an order to the autonomous institution, which rightfully indicated the violations committed by the institution and qualified them as violations of budget legislation. Funds spent for purposes other than their intended purpose must be returned to the budget.
Note that similar conclusions were made by the court in the Resolution of the Supreme Court of the Supreme Soviet of February 14, 2019 No. F02-6422/2018 in case No. A58-4308/2017.
Is it possible to pay bonuses for memorable dates through savings?
The essence of the dispute. The Chamber of Control and Accounts of the city district of Zaraisk, Moscow Region, conducted an audit of the legality of the use of budget funds allocated in 2021 and for the current period of 2018 by the MBU within the framework of municipal programs, non-program expenses and funds from other income-generating activities, with elements of an audit in the field of procurement. During the audit, it was established that during the control period the institution paid bonuses to employees of the institution for memorable dates and incentive bonuses in an amount exceeding 1.5 salaries. Also in 2021, the head of the institution was paid a bonus without taking into account the time actually worked from funds from entrepreneurial or other income-generating activities. These actions were qualified by the control body as misuse of funds. Having disagreed with the conclusion of the control body, the institution went to court (Resolution of the Tenth Arbitration Court of Appeal dated February 10, 2020 No. A41-80709/2019).
The court's position. When making a decision, the arbitrators proceeded from the following. According to the contents of Part 1 of Art. 129 of the Labor Code of the Russian Federation, which reveals the concept of wages (wages), we can distinguish three components of wages, different in their content, purposes and bases for calculation, namely remuneration for labor depending on the qualifications of the employee, complexity, quantity, quality and conditions of the work performed ; compensation payments and incentive payments.
As incentive payments in Part 1 of Art. 129 of the Labor Code of the Russian Federation specifies additional payments and bonuses of an incentive nature, bonuses and other incentive payments, which include payments for memorable dates.
Unlike compensation payments, additional payments and incentive bonuses, bonuses and other incentive payments are not related to remuneration under any special conditions (for example, for work in hazardous conditions) and are not limited by law to a minimum or maximum amount. Therefore, determining the conditions, the procedure for paying incentive accruals, as well as their size is the prerogative of the employer, that is, the employer is not limited in choosing the method and procedure for additional material incentives for the employee, determining the amount of these additional payments and allowances. Incentive payments can be set by the employer either in a fixed sum of money or as a percentage of the salary (tariff rate) of the amount of work performed.
According to the Resolution of the Head of the City District of Zaraysk dated September 11, 2017 No. 1442/9 and the regulations on bonuses for employees of the institution, its head, within the limits of saving funds from the wage fund, has the right to make incentive payments to employees of the institution.
The court found: during the period under review, the institution did not receive targeted subsidies for the payment of bonuses and subsidies outside the municipal assignment, and this indicates that the disputed bonuses were paid to the employees of the institution within the limits of savings in the wage fund. The arbitrators noted that one of the many local goals financed by the founder’s subsidies allocated to the institution in the audited period is, among other things, the payment of wages to the institution’s employees.
Resolution No. 1442/9 of the Head of Administration of the City District of Zaraysk, Moscow Region dated September 11, 2017, provides for the right of employees of municipal institutions of the City District of Zaraysk of the Moscow Region in the cultural sector to receive incentive payments not only within the framework of the planned budget allocation, but also through savings in the wage fund; the right to incentive payments within the limits of wage fund savings has been transferred to the employer.
Thus, in the opinion of the court, the expenses incurred by the institution for the payment of bonuses to employees of the institution for memorable dates, bonuses of an incentive nature, comply with the current legislative order, are aimed at implementing and achieving the goals of fulfilling the municipal task, as a result of which they are rightfully recognized as targeted.
With regard to the bonus paid to the manager, the court noted that it was accrued on the basis of the order of the chairman of the Committee on Culture, Physical Culture, Sports, Work with Children and Youth of the Administration of the Zaraisk Urban District of the Moscow Region dated February 17, 2018 No. 22-l. At the same time, the instructions that such payment is made taking into account the actual time worked and should not exceed 1.5 times the official salary are not contained in this order, nor are they contained in other resolutions of the head of the Zaraysk city district.
Thus, the decision to pay the head of the institution a monthly additional payment of an incentive nature from funds received from entrepreneurial or other income-generating activities was made not by the head of the institution, but by its manager of budget funds - the chairman of the committee on culture, physical culture, sports, work with children and youth of the administration urban district of Zaraysk, Moscow region. Therefore, these payments cannot be classified as misuse of funds.
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Let us formulate the main conclusions:
- Autonomous (budgetary) institutions and their officials may be subject to administrative liability for misuse of subsidies received from the budget. Moreover, in the context of Art. 15.14 of the Code of Administrative Offenses of the Russian Federation, cases of using a subsidy to financially support the fulfillment of a state task for purposes that do not correspond to the goals of the institution’s activities may be considered.
2. Subsidies spent for other purposes are subject to return to the budget.
Audits and inspections of financial and economic activities of state (municipal) institutions, No. 1, 2021
If you restore cash expenses by clarifying the target code, is it still not targeted?
The essence of the dispute. The Department of the Federal Inspectorate for the Novgorod Region conducted an audit of the legality of the institution's use of subsidies from the federal budget. Based on its results, the Federal Treasury came to the conclusion that the institution committed inappropriate spending of budget funds, which was expressed in the direction of subsidies from the federal budget to pay for work on the reconstruction and development of the road network. The violation of the Federal Code was due to the fact that a subsidy from the federal budget was provided to the institution for expenses classified under code 0412 “Other issues in the field of the national economy”, while according to the agreement dated February 16, 2017, the institution was provided with funds under an independent expense item - under code 0409 “Road facilities”, the source of which was the consolidated budget of the Novgorod region. Having disagreed with the conclusion of the control body, the institution went to court (Determination of the Supreme Court of the Russian Federation dated March 4, 2020 No. 307-ES20-453).
The court's position. When making a decision, the arbitrators proceeded from the following. Inappropriate use of budget funds is the direction of budget funds of the budget system of the Russian Federation and the payment of monetary obligations for purposes that do not fully or partially correspond to the goals determined by the law (decision) on the budget, the consolidated budget list, budget list, budget estimate, contract (agreement) or other document , which is the legal basis for the provision of these funds (clause 1 of Article 306.4 of the Budget Code of the Russian Federation).
According to paragraph 3 of Art. 306.4 of the Budget Code of the Russian Federation, inappropriate use of budgetary funds, expressed in inappropriate use by financial authorities (main managers (administrators) and recipients of budget funds to which interbudgetary transfers are provided) of interbudgetary subsidies, subventions and other interbudgetary transfers that have a designated purpose, entails the indisputable recovery of the amount of funds received from another budget of the budget system of the Russian Federation, in the amount of funds used for other purposes, and (or) in the amount of fees for their use or suspension (reduction) of interbudgetary transfers (with the exception of subventions).
According to the concluded agreement on the allocation of a subsidy, its recipient undertakes to spend the subsidy for the purposes provided for by the said agreement, indicating the KOSGU code in accordance with the areas of expenditure, the timing of the subsidy, specified in Appendix 1 to the agreement. The specified application lists BCC 803040906101R1100464530 and 803041211002R1100464530.
According to clause 3.2 of the Instructions on the procedure for applying the budget classification of the Russian Federation, approved by Order of the Ministry of Finance of the Russian Federation dated July 1, 2013 No. 65n, in force at the time the submission was issued, the rules for assigning expenses of all budgets of the budget system of the Russian Federation to the corresponding sections and subsections of the classification of expenses are determined.
In particular, subsection. 0409 “Road management (road funds)” includes expenses for supporting the activities of institutions managing the road sector, costs for construction, reconstruction, overhaul, repair and maintenance of the existing network of public roads of federal, regional or intermunicipal significance, local significance and artificial structures on them, expenses for carrying out research, development and technological work in the field of road infrastructure, expenses for state (municipal) support in this area, as well as expenses for providing interbudgetary transfers to the budgets of the budget system of the Russian Federation for the purpose of co-financing and (or) financial support for the maintenance and development of road facilities.
Subsection 0412 “Other issues in the field of the national economy” should include expenses related to economic issues not included in the above subsections, including issues of the national economy related to the nuclear weapons complex, expenses related to the implementation of international treaties of the Russian Federation on the use of highly enriched uranium extracted from nuclear weapons, costs associated with ensuring nuclear, radiation and environmental safety, carrying out topographic, geodetic, cartographic and land management works, costs of maintaining and supporting the activities of state authorities and local self-government, institutions that carry out management and management economic issues in certain sectors of the economy, expenses in the field of tourism and tourism activities, as well as expenses in the field of electric power and civil industry.
The control body found that in the payment orders submitted by the institution, notifications about clarification of customer transactions and statements from personal accounts, the purpose code was initially indicated by the institution incorrectly, which was also confirmed by the explanation of the chief accountant. In this regard, in the opinion of the control body, the institution committed misuse of federal budget funds in terms of expenses under subsection. 0412 “Other issues in the field of national economy” for work performed related to the field of road infrastructure, the costs of which relate to subsection. 0409 “Road management (road funds)”.
At the same time, according to the court, the control body charges the institution not with violation of budget discipline in terms of proper classification of expenses, but with misuse of budget funds.
Meanwhile, by virtue of the provisions of Art. 306.4 of the Budget Code of the Russian Federation, in order to determine the non-target nature of the use of budget funds, it is necessary to take into account in the aggregate both the deviation from the regulated regime of their use, and the ratio of the result of use to the purpose established when allocating these funds, as well as other actual circumstances that existed during the use of the allocated funds.
In this case, the court established and the case materials confirm that the institution independently, within a short period of time, restored cash expenses by clarifying the purpose code.
In connection with the above, the court came to the reasonable conclusion that under such circumstances there is no direction of federal budget funds for inappropriate purposes.
Both a fine and a refund.
From all that has been said, it follows that in terms of the use of funds allocated from the budget, autonomous institutions are subject to two types of control - from administrative bodies and bodies exercising the functions and powers of the founder. A striking example of this is the case of failure to fulfill a state (municipal) task. In relation to an institution that has committed such an offense, two methods of financial impact will be applied: return of the balance of the subsidy formed in connection with the failure to achieve task indicators (initiated by the founding body), and an administrative fine (issued by the regulatory body).
The situation is similar with respect to compliance with the conditions for the provision of subsidies. As the Ministry of Finance explained in Letter No. 02-10-06/24775 dated 04/28/2016, the return of subsidies to the relevant budget in case of violation of the conditions established for their provision, and the imposition of a fine on the violator of these conditions have a different legal nature and are not double punishment. The need to return subsidies in case of violation of the conditions for their provision is aimed primarily at stimulating the conscientious fulfillment by recipients of the conditions for the provision of funds from the budget and ensuring the restoration of budget funds in an amount equivalent to the identified violation. The obligation to return the subsidy is aimed at restoring the right of a public legal entity violated as a result of the action (inaction) of the subsidy recipient, and such an obligation is not liability. Responsibility arises on the basis of Art. 15.15.5 Code of Administrative Offenses of the Russian Federation - for unlawful actions (inaction) of the guilty person.
