On November 8, 2013, Ministry of Finance employees including the Minister, the deputy Ministers, Department Heads, and some of their deputies were awarded iphone 5 telephones for exceptional performance of duties by the Minister of Finance’s order #372. According to the Ministry of Finance’s Department of Public Relations, the mobile phones that were distributed had been confiscated as contraband and were transferred to the custody of the state.

There are two problems with this:

1. The Minister of Finance did not have the right to give himself a telephone through the order, because this violates the law on Public Service, Article 75, Para 2, which is part of the legal basis on which the order rests. Specifically, according to Article 75, “One time cash awards, valuable gifts, or salary increases as performance incentives can only be given by the official or institution which is entitled to hire for that position.” Hence, only the Prime Minister had the right to award the Minister for performance, as he is the person who is responsible for hiring the Finance Minister. Therefore the Finance Minister did not have the right to give himself a valuable gift. Consequently, he must return the phone or have its value docked from his salary.

2. The property (mobile telephones) confiscating body (the revenue service) and the Service Agency of the Ministry of Finance have used the discretionary powers granted them by law to the detriment of state interests. The law on State Property and the regulatory act on Moveable Property Transferred to the custody of the State (Minister of Finance Order #771) defines in which forms movable property under the control of the state shall be dispensed with. Specifically:

1. The sale of property through auction (electronic, public);
2. The direct sale of property;
3. Sale of property through a third party;
4. Distribution of property without sale;
5. Destruction of property;
6. Leasing of property.

From the six forms above, three different options for the sale of property are given. Neither the law on State Property nor the regulatory act on Moveable Property Transferred to the Custody of the State appropriately defines in what situations the state can distribute property without sale. This imparts wide discretionary powers on the Service Agency of the Ministry of Finance and the confiscating body, which is clearly connected to serious risks.

According to the Service Agency of the Ministry of Finance, the mobile telephones were not accompanied by complete documentation, which hampered their sale. In this case, the Revenue Service (the property confiscating body) and the Service Agency should have acted in state interests. Hence by the principle of (net) realizable value (which requires an appraisal of the item), they should not have chosen to dispose of state property to the profit of the Ministry of Finance (distribution without sale), but rather should have realized the value of the property through its sale via one of the three different forms given above. Had this been done, the state budget would not have lost income. In this vein, the Revenue Service and the Minister of Finance used existing legislation to dispose of the telephones for personal gain to the clear detriment of the state budget.

It should be noted that the best assurance against activities of the sort described above would be to introduce, implement, and harmonize Georgian legislation (including the law On State Property and the regulatory act on Moveable Property Transferred to the Custody of the State) with International Public Sector Accounting Standards (IPSAS). Unfortunately, the government does not intend to implement IPSAS in the near future.