Frequent changes of power is creating instability in the associations belonging to the City of Narva. As those serving on supervisory boards are mainly members of Narva City Council and the positions are reshuffled with nearly every change of power, it takes time for new supervisory board members to settle in and get up to speed — until they are replaced again. As a result, supervisory board members are unable to gain a full picture of the state of the association, the issues it faces or its development needs, the National Audit Office said in a press release Thursday.

"In the case of associations belonging to the City of Narva, the focus seems to be on the composition of the supervisory board rather than the association's performance, clear owner's expectations or operational objectives," said Auditor General Janar Holm.

"Although the requirement for local authorities to establish the conditions and procedures for participation in associations was established by law in 2011, this has not been done in Narva in 14 years," he highlighted. "However, it cannot be said that decisions are not made — a case in point is when a coalition that had been in existence for only a week or so managed to change the composition of the supervisory boards of six out of seven associations before collapsing."

The coalition currently in power in the Northeastern Estonian border city is already the sixth following the last local elections, held in fall 2021. During this period, changes have been made four or five times in the supervisory boards of most municipal associations. For example, there have been five political maneuvers within the supervisory board of SA Narva Linnaelamu.

The audit noted that it is significant that out of 31 city council members, 29, i.e. nearly all of them, have managed to serve on the supervisory boards of local municipal associations since the 2021 elections. In this time, some councilmembers have even managed to serve on as many as four such supervisory boards.

The National Audit Office noted that members of these associations' supervisory boards have difficulty in understanding their role, and tend to do the work of the management board instead.

Although by law, the supervisory board is supposed to supervise the management board and provide strategic direction to a company or organization, the supervisory boards' decisions have often ended up concerning the day-to-day management of the associations, such as small purchases and the salaries and bonuses of ordinary employees. This indicates that the division of responsibility between the supervisory board and the management board in making management-related decisions is off kilter.

Despite the 2019 corruption case at AS Narva Vesi, the City of Narva has not critically reviewed its oversight system for its associations, nor has it shifted its focus areas within that system.

At the time, the corruption was linked to procurements, but during the current city council term, the city has not been motivated by this incident to pay any further attention to mitigating corruption risks in the city's associations.

In the context of corruption prevention, the risk also remains that associations' transactions involving related parties are overlooked, as the city's associations frequently failed to maintain adequate records of them.

Related parties include, for example, supervisory board members and executive management along with their family members, as well as foundations, nonprofits and companies over which these individuals have control or significant influence.

The National Audit Office found that the Narva City Council's Audit Committee has paid little attention to the city's municipal associations. Only two out of the city's seven associations have been audited under the current city council: SA Narva Linnaelamu and SA Narva Linna Arendus. In light of the earlier corruption case involving AS Narva Vesi, such limited attention to the city's associations is not justified.

The auditing body sees it as a risk that members of the city council's audit committee also serve on associations' supervisory boards themselves. While this is not expressly forbidden, it does lead to a conflict of roles, and may impact the objectivity of the selection of auditees by the city's audit committee, as in such a case, someone may end up in the role of auditor and auditee simultaneously.

For example, as of April of this year, the chair of Narva's Audit Committee simultaneously served as a member of the supervisory boards of two of the city's municipal associations — and in one case, was specifically the chair of the supervisory board.

The audit office also concluded that the focus of the Narva associations' activities are inconsistent and vague across various development documents, and based on this, it is impossible to assess either the success of the association's activity or whether the city's involvement in these associations is actually even necessary.

The National Audit Office recommends that the City of Narva establish rules for participation in associations, as provided for in the Local Government Organization Act. Currently, Narva has no such rules, despite the fact that they have been required by law since 2011. The rules should also address oversight of the associations and standards for internal procedures for their governing bodies, to ensure that supervisory boards focus more on fulfilling their statutory role going forward.

To improve the strategic management of its municipal associations, the National Audit Office recommended that the City of Narva set clear, measurable and comparable objectives for the associations' activity.

The Narva city government agreed with the recommendations. It also acknowledged that the city's involvement in associations requires clear regulation, and that the objectives for the activity of associations under the city's control need to be properly defined.

Background

The City of Narva controls a total of seven associations in town: SA Narva Haigla, SA Narva Linna Arendus, SA Narva Linnaelamu, SA Narva Sadam, AS Narva Vesi, AS Transservis-N and OÜ Narva Jäätmekäitluskeskus. Each of these associations has a supervisory board of three to seven members, most of whom are city councilmembers from the city's governing coalition. SA Narva Haigla and SA Narva Sadam are exceptions, as they also have two nonpolitical members serving on their supervisory boards.

The biggest of these municipally-controlled associations is SA Narva Haigla, whose 2024 operating revenue amounted to €37.4 million. This is followed by AS Narva Vesi (€6.5 million), SA Narva Linnaelamu (€1.7 million), SA Narva Linna Arendus (€1.4 million), OÜ Narva Jäätmekäitluskeskus (€0.9 million), AS Transservis-N (€0.15 million) and SA Narva Sadam (€0.05 million).

For its audit, the National Audit Office analyzed compliance with the obligations and exercise of the rights arising from legislation at the governing bodies level of the associations under the control of the Narva City Council, Narva city government and the City of Narva, to ensure the flow of information along the management chain, that decision-makers are well-informed and that the limits of decision-making authority in the association's economic activities are respected.

Also analyzed was the work of Narva City Council's Audit Committee and city government auditors regarding associations controlled by the city. Most of the audit questions focused on the current governing period of the Narva City Council elected in 2021, i.e. from November 19, 2021 through the time of the audit. The audit was completed in March 2025.

--

Follow ERR News on Facebook, Bluesky and X and never miss an update!