The audit office has expressed concerns about transparency and accountability with public money at a time when the defense budget has been rapidly growing, in part financed by hiked taxes.

"In a situation where the whole society is making efforts that place a significant burden on people and affect the financing of the development of various areas of life in order to finance the enhancement of the state's defense capabilities, the Ministry of Defence must be respectful of the taxpayers' efforts," Auditor General Janar Holm wrote.

The National Audit Office found serious shortcomings in the Ministry of Defense's contract management, including poor monitoring and missing key defense aid contracts, leaving crucial details unknown. Serious issues in asset management, slow documentation, and audit transparency are among the other issues requiring urgent resolution, the audit office found.

This includes a mistaken overpayment of US$79.1 million (€68 million) to one supplier, a further US$8.7 million (€7.5 million) later paid, and only US$47.8 million (€41 million) refunded. A €9.6 million advance payment to another supplier has been held since 2018. A prepayment of €533.2 million for EU defense aid was made, yet only around 10 percent was covered by submitted grant agreements, while €88.9 million was frozen in the budget for nearly 18 months due to incomplete transactions.

The Estonian Defense Forces (EDF) were unable to provide information on the quantities, cost, and inventory of stocks which had been registered. It took the Estonian Center for Defense Investments (RKIK) three months to provide supporting documents for economic transactions, the audit office found. The audit also faced major problems obtaining necessary data, as key contracts related to defense aid intermediation were not provided, leaving their number, timing, and value unknown. Despite ongoing requests, the National Audit Office has yet to receive required information to complete its audit and report on potential budget risks to the Riigikogu.

"The problems identified by the National Audit Office cannot be regarded as strictly accounting problems or a situation where 'the paperwork simply has to be in order," Holm said.

"The audit revealed that the organization of work was a mess, which has financially measurable consequences. Erroneous payments made to contractors, amounting to several tens of millions of euros in the worst case, or a nearly €10 million advance payment that has been waiting to be settled for eight years now, are just the major examples. The confusion in linking contracts, advance payments and goods, and other problems highlighted in the report, point to a systemic problem in the use of funds that needs urgent and substantive attention by the Ministry of Defense. In addition to the confusion and mess, the failure to provide the data and contracts necessary for auditing the annual accounts of the state, or difficulties in finding the underlying documents, also creates mistrust in a situation where trust should be created," the auditor general went on.

The Ministry of Defense must promptly address these issues to comply with Estonian Financial Reporting Standards, the audit office found.

Audit office: Serious issues with state budget carryovers, grants

Beyond the Ministry of Defense, the National Audit Office stressed that its audit covered the entire state's consolidated annual accounts. It found that while most ministries' accounting was largely sound, serious issues persisted with budget carry-overs and domestic grants.

In 2024, €1.7 billion — around 8.7 percent of the state budget — was rolled over into 2025 in ways that breached the State Budget Act, with some ministries even repurposing funds illegally. The Ministry of Finance also exceeded its permitted reserve carry-over by €36.3 million. Allocation of domestic grants remained opaque, with recipients often not asked for justification of use or carried-over balances.

The audit also highlighted the state's financial position: revenue of €16.2 billion, expenditure and investments of €17.5 billion, assets totaling €26.7 billion, and liabilities of €20.8 billion, including €9.7 billion in loans. As a positive note, the Social Insurance Board finally corrected long-standing problems in recording social benefit receivables and payables.

The National Audit Office concluded that, aside from the qualification on the Ministry of Defense's inventories, the state's 2024 accounts fairly presented Estonia's financial position and performance.

The full National Audit Office report is available here.

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