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Considerable number of educational establishments was included in registers of public funds recipients of the RF Ministry of Agriculture (432 establishments), the RF Ministry of Railways (258 institutions), the RF Ministry of Internal Affairs (160 institutions), the RF Finance Ministry (107 institutions), the RF Ministry of Transport (101 institutions), the RF Ministry of Economic Development and Trade (99 institutions), the RF State Construction Committee (91 institutions), and the RF Energy Min istry (88 institutions). Departmental sanatoria and rest homes were in cluded in registers of the RF Ministry of Internal Affairs (51 institutions), the RF Ministry of Education (30 institutions), and the Federal Security Service (17 institutions). The RF Ministry of Railways register numbered 306 hospital type institutions and policlinics, the RF Ministry of Internal Affairs 56 hospital type institutions and policlinics, the RF Ministry of Justice 44 hospital type institutions and policlinics, the RF Finance Ministry 35 hospital type institutions and policlinics. One hundred and three kindergartens were included in the register of RF Ministry of Rail ways, 80 kindergartens the RF Ministry of Internal Affairs, 24 kinder gartens Siberian department of Russian Academy of Sciences, kindergartens the RF Finance Ministry, 15 kindergartens Medical Centre of the Chancellery of the President of the Russian Federation.

Thirty five per cent of educational establishments financed from the federal budgets were not under the jurisdiction of the Ministry of Educa tion. Seventy five per cent public policlinics, sanatoria and rest homes were not under the jurisdiction of the Health Ministry.

The Energy Ministry had 92 unrelated subject institutions including 90 educational establishments and two health care institutions. The Ministry of Railways had 770 unrelated subject institutions including Without taking into account data on the principal budgetary managers, which registers of the budget recipients are unavailable.

educational establishments and two health care institutions. The Minis try of Culture 203, including 66 educational establishments. The Min istry of Transport 84, including 79 educational establishments and two health care institutions. State Construction Committee of Russia 94, including 91 educational establishments. The Ministry of Internal Affairs 305, including 204 educational establishments and 64 health care institutions. Federal Agency of Medico biological and Extreme Problems under the Health Ministry 160, including 6 educational es tablishments and 154 health care institutions.

According to the findings of the January 1, 2004 monitoring, budget network of forty five principal budgetary managers kept unrelated pub lic institutions to the tune of 2,327.

Institutions with considerable amount of extra budgetary income According to the monitoring findings as of January 1, 2004, on the whole, all federal budget recipients cash expenses related to the extra budgetary incomes constitute 13.6 per cent of their overall cash ex penses received from budget funds.

However, a number of principal budgetary managers have in their subordination recipients with extra budgetary income exceeding the amount of public financing. In some cases several times over. Forty one principal budgetary managers have in jurisdiction 3,600 institutions with extra budgetary income exceeding 25 per cent. The RF Ministry of Natural Resources has the biggest number of such institutions 1,784.

Overall number of institutions, which have extra budgetary funds ex ceeding 25 per cent, constitute 3,605 according to the answers pro vided to principal managers of budget funds, in monitoring questioners.

Assessment of the information characterizing the state of the net work of the federal budget funds recipients demonstrates serious shortcomings in its arrangement, which reduces its efficiency and ef fectiveness and increase maintenance costs. In order to improve effi ciency of budget network according to the goals of the interbudgetary and government reforms, it is necessary to resolve the following main objectives:

1) Bringing budget network into line with the new division of expendi ture powers between the levels of the budgetary system. First of all, there should be clearly defined criteria for attributing institutions of the same type of activity to institutions of municipal, regional and federal levels in cases when funding for the same service delivery from budgets of different levels is allowed (for example, science and culture institu tions depending on their scale and consumers contingent can be funded both from the federal and municipal budgets).

2) Elimination of practice when budget funds of one level of govern ment are distributed by administrative bodies, which belong to another level of government.

In order to avoid situation when budgetary funds are distributed by agencies, which are not responsible for corresponding social service delivery responsibilities of the federal institutions situated territories where there are no representative offices of the federal government bodies should be devolved to regional and local governments (if it does not contradict the ongoing division of expenditure powers between the levels of the budgetary system) or retain such institutions in the federal jurisdiction with devolution of responsibilities for the funds for their fi nancing to the budgets of the lower level in the form of subventions, which envisage exercising formal control over funds spending.

3) Transfer of institutions with the same type of activity to a single owner It is necessary to carry out an inventory of registers of public funds recipients by principal managers of budget funds and transfer public institutions, which provide similar services into administrative subordi nation of ministries and agencies, which have corresponding type of activity. In the course of reform consideration must be given to the fact that in a number of cases there can appear objective barriers for such transfer. For example, many medical higher education institutions are inseparable from a hospital basis they are attached to now and their transfer to the Ministry of Education subordination regardless of these links can negatively tell the quality of medical education. Requirements and needs of the Defence Ministry in training military specialists and the like should be taken into account.

4) Liquidation of unjustified complexity and diversification of the budget network by way of:

- Withdrawal of manager of budget funds status from those institu tions, which have in subordination less than six public institutions and subsequent transfer of corresponding institutions into direct subordination of principal budgetary manager;

- Reduction in the number of levels in the budget network system.

Ideally there should be not more than three levels (principal budg etary manager, manager of budget funds, and budget recipient).

Legislative division of powers between principal budgetary manag ers and managers of budget funds in respect of budgetary institutions.

5) Liquidation or merger of institutions, which have small contingent of clients At present there are many institutions on the regional and, espe cially, on the local level, which general maintenance and routine main tenance expenses are incomparably bigger in comparison with their volume of social service delivery. Especially acute is the issue of the so called schools with insufficient number of students in rural areas. This situation emerged, in particular, due to birth rate fall and outflow of vil lagers into the cities. In this connection it is necessary to merge or liqui date institutions, which are in small demand and devolve their responsi bilities to institutions with similar type of activity situated in neighbouring territories. The government should guarantee the citizens access to the same volume of social service delivery (for instance, arrange for trans fer of the children to neighbouring schools).

It should be noted, that at the federal level measures aimed at the budget network efficiency improvement are already being taken. For example, for the purpose of creating data base for implementation of such measures the RF Finance Ministry approved on 19 December 2003 the Order for Introducing Budgetary Sector Monitoring89. In ac cordance with this document principal budgetary manager carries out budgetary sector monitoring. Twice a year monitoring evidence is sub mitted to the RF Finance Ministry for analysis and development of pro posals for their inclusion into draft federal budget expenditures for a regular fiscal year.

In JulySeptember 2004 the Government Commission on the ad ministrative reform approved and ratified the order of efficiency im provement of the network of subordinate to the federal bodies of ex ecutive power federal state unitary enterprises, federal public institu See Order of the Finance Ministry of the Russian Federation of December 19, 2003, No.

399 On the Order of Monitoring Initiation in the Budgetary Sector.

tions, including time schedule for submitting and reviewing lists of the federal state unitary enterprises, federal public institutions in subordi nation of the federal bodies of executive power. The Government of the Russian Federation by its decree approved submitted by the Commis sion proposals on the lists of organizations90. Moreover, full scale re form in this sphere has not started yet.

3.2. Reorganization of budget institutions by implementation of the new organizational and legal status Social service delivery arrangement has virtually remained un changed from the Soviet era, even though social and economic condi tions have changed dramatically and it remains the same at all levels of the budgetary system. It is based on a premise that only institutions, which are in government (municipal) ownership and are in direct admin istrative subordination to the government bodies, exercise social ser vice delivery. Funding of these institutions is carried out on the estimate basis, i.e. by way of covering general maintenance and routine mainte nance costs. And whats more, the volume of these costs, as a rule, is determined by the volume of costs incurred during pasted periods ad justed to inflation, changes in legislation and amendments introduced in the register of institutions.

Current model of social service delivery arrangement is characteris tic by a number of principle shortcomings, among them are:

1) Chronic shortage of funding.

Theoretically, the budget should cover all general maintenance and routine maintenance costs. However, actually due to budget con straints funds are allocated only to cover the most urgent needs (salary for employees with payroll charges, payment for housing and utility ser vices). There are no investments into fixed assets of the budgetary insti tutions. This situation predetermines a low level of pay existing in budg etary sector and consequently, outflow of qualified personnel and criti cal wear of fixed assets of the public institutions, which negatively tells on the quality of delivered services.

2) Conflict between essential and entrepreneurial activity of public institutions.

http://www.government.gov.ru/data/structdoc.htmlhe_id=102&do_id=Public institutions were granted the right to engage in entrepreneu rial activity and independently manage proceeds from this type of activ ity in order to survive in conditions of budget funds shortages. However, this situation leads to a conflict between essential and entrepreneurial activity of the public institutions. When the amount of budget funding does not depend on the volume of provided free services, institutions are motivated to expand paid services at the expense of the unpaid ones.

3) Inefficient distribution of funds within the budgetary network.

In the lack of separate accountability of costs incurred as a result of essential and profit making types of activity of the institutions, part of their costs are covered by the budget. Besides, granting public institu tions the right to engage in profit making activity leads to a differentia tion in their financial situation regardless of social service delivery.

Moreover, the need to support institutions, which receive large sums from the extra budgetary funds, robs the government of a possibility to increase financing of those institutions, which by the type of activity are unable to exist outside the public sector.

4) Lack of linkage between the volumes of funding and performance results of the public institutions and as a result low performance effi ciency.

The ongoing estimate based financing of the public institutions is not aimed at the result: budget pays not the service delivery but sup ports outdated budgetary system. Institutions are devoid of incentives to cut costs and save budget funds. Competition for budgetary funds and as a result incentives improve quality are lacking.

5) A chance for accumulation of the unsanctioned accounts payable for the budget.

The fact that public institutions are engaged in profit making activity can result in accounts payable, subsidiary liabilities for which the gov ernment is held responsible (municipal education).

6) Wide spread corruption in public sector.

In conditions of public institutions under funding the society is toler ant to illegal and quasi legal charges for provision of social services paid by consumers. However, it violates the right of equal access of dif ferent strata of people (depending on their material well being) to the social services.

7) Limited rights of consumers for choosing service provider.

As a rule, consumers are not guaranteed the right of choice of social services provider. In those cases when this right is formally available public institutions are not interested in increasing the scope of custom ers because the volume of their estimate based financing does not de pend on this.

Understanding of issues generating from the conflict between es sential and profit making activity of public institutions lately resulted in attempts to strengthen control over the flows and consumption of their extra budgetary income at all levels of budgetary system. However, this did not improve the situation. Introduction of administrative measures in the lack of economic incentives aimed at efficiency improvement of public institutions resulted in hiding of extra budgetary income.

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