State Audit: Valkas Municipality in Financial Difficulties Due to Weak Financial Management

The financial difficulties of Valkas Municipality have not arisen suddenly but have developed over several years due to weak financial management and insufficient internal control, according to the State Audit. The municipality planned for higher revenues than it actually received, took on commitments without reliable funding, did not adequately control expenses and debts, and failed to ensure that utility tariffs covered actual costs, the auditors assess.

As a result, the municipality's cash flow deteriorated, delayed payments accumulated, and solvency risks increased. Ilze Bādere, a member of the State Audit Council, explains that the auditors tried to find an answer in less than six months to the question of whether the cause of Valkas Municipality's financial difficulties lies in the approach the municipality takes to organizing heating and water services. Concluding the audit, it was found that this is only partially the case.

The audit findings indicate that the root cause of financial difficulties is weak financial management and a disorganized internal control system. The municipality planned revenues in greater amounts than it actually received. In 2024, the revenue plan was not fulfilled by 2.03 million euros or 10.82%, and in 2025 by 696,000 euros or 3.49%. Despite the deterioration of financial sustainability indicators, the municipality continued to take on new commitments.

Valkas Municipality rejects accusations of insufficient budget control

Meanwhile, Valkas Municipality rejects the State Audit's accusations of insufficient budget control. The chairman of the municipal council, Vents Armands Krauklis, emphasizes that the financial problems are related to external factors, not municipal errors. Krauklis points out that both previous municipal reforms and the lack of a promised but undeveloped special financing model have had an adverse impact on Valkas. He also mentions that the more favorable social policy and tax system of neighboring Estonia have attracted about 1,000 residents of Valkas who have declared their residence in Valga.

Thus, they are not included in the municipality's financial equalization calculations. Additionally, about 500 residents of Valkas Municipality work in Estonia, paying taxes there, which further reduces Valkas's budget revenues. Krauklis also emphasizes that the municipality was initially not included in the EU Urban Environment Program, so it was forced to take loans for infrastructure projects.