Armenia: Threshold for mandatory audit to be increased for public organisations

On December 4, the Armenian parliament adopted an amendment to the law “On Public Organisations”. The amendment plans to increase the amount from public sources that is defined as a threshold for mandatory financial audit. However, this change might not be enough to enable better access of CSOs to public funding.

According to the 2016 law on public organisations, if they receive funding from public assets, public organisations are obliged to publish an annual activity report on a state website. The organisations should also publish an independent auditor’s report if the funds from public sources exceed a specific threshold. In the current law, this threshold is set as 5 million AMD (about 9,400 EUR) in the reporting year. After the abovementioned legal amendments enter into force, this amount will double to 10 million AMD (about 18,800 EUR). To some extent, this change will put public organisations receiving funding from public sources into the same position a foundations, which are required to conduct an independent audit and publish relevant statement in their annual report if their assets exceed 10 million AMD.

However, based on the CSO Meter research assessing the civil society environment in the Armenia, conducting financial audit is problematic for many CSOs as it creates additional financial burden for them. Many public organisations and foundations in Armenia work within grant programs and do not have any unallocated funds to pay for professional financial audit. In addition, the audit requirement creates a discriminatory approach towards public organisations in comparison with business companies: when participating in public procurement tenders, public organisations have to include the cost of the audit in the budget, which leads to the increase in the service cost, and, consequently, to the lower competitiveness of the bidding. The CSO Meter thus recommends dismissing the requirement for mandatory financial audit, placing the auditing responsibility on the government if funding was allocated from public resources.

It should be mentioned that few of Eastern European countries apply financial audit requirement towards CSOs. In the countries where audit requirement is present, it is usually applied towards CSOs with special status, e.g. public benefit organisations. Besides, the threshold amount set for mandatory audit is significantly higher in these countries. For example, audit requirement is set in Slovakia for foundations with annual turnover exceeding almost 166,000 EUR, in Poland for public benefit organisations with income starting from 724,000 EUR, in case at least 12,000 Euro was from public sources.1 In Bulgaria, CSOs can be subject to mandatory audit in case they have at least 500,000 EUR in financing or assets, or twice of this amount, depending on their status.22

Transparency International Anticorruption Center (TIAC) has launched discussions on the issues and challenges regarding mandatory audit requirement with state and civil society stakeholders. TIAC advocates for dismissal of audit requirement in the Armenian CSO legislation, seeking for possibilities to strengthen the responsibility of state agencies to conduct proper monitoring and financial oversight over the projects where public funding is allocated.