Transcript Presentation of Czech SAO - National Report on EU

SUPREME AUDIT OFFICE
CZECH REPUBLIC
Audit of state budget finances spent on
the provision of investment incentives
and investment aid
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Introduction
 Basic details of the audit
Audit begun…….. ………………….
Audited funds …………..………….
Number of auditors ………………..
Number of auditees ……………….
Shortcomings found ……………….
Audit completed…………………….
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2005
CZK 5.5 billion
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CZK 1.5 billion
2006
6.-8. November 2006, Prague
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Subject of the audit
 use of state budget finances spent on the provision of investment
incentives awarded by the government and provided on the basis of a
written Memorandum of Understanding Declaring a Common Intention
(contract)
Nature of the audit
 ex post audit
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Auditees
 ministries (Ministry of Finance [MoF] and Ministry of Labour and Social
Affairs [MoLSA])
• providers of state budget finances spent on investment incentives
• public entities
 commercial enterprises
• beneficiaries of state budget finances spent on investment incentives
• private entities
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Investment incentives system
MoLSA 
appropriations for new job creation
 appropriations for employee training (re-training)
MoF
 special-purpose appropriations and other special-purpose
appropriations concerning legal persons’ income tax
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Aims of the audit
 The aim of the audit was determined by its subject and by the
possibilities for scrutinising activities.
 What could be checked?
Use of state budget finances spent on the provision of investment
incentives.
 What could not be checked?
The overall benefits stemming from the provision of investment
incentives (it is less than 10 years since they were provided).
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Scrutiny of audited activities
During audit the Office scrutinises and appraises (Section
4 (1) of Act No. 166/1993 Coll., on the Supreme Audit Office)
Efficiency
Compliance
with the law
Effectiveness
Legal
analysis of
contract
Audit
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Performance audit methods employed
Preliminary study
 Brainstorming
• used to generate new ideas and techniques and for subsequent selection of
the most suitable method for appraising the economy, efficiency and
effectiveness of the audited activities (3E)
 Benchmarking
• defining individual audited activities and specifying standards for their
monitoring, compiling standards
 Modelling
• used to check the functionality of standards, empirical units, ascertainment
methods and techniques and to fine-tune them
• modelling uses fictitious companies and the values measured in them for 3E
appraisal of the expenditure of state budget finances on individual investment
incentives
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Performance audit methods employed
Audit programme
 Audit block diagrams
• guideline block diagrams used for scrutiny of efficiency and effectiveness,
scrutiny of measures to eliminate found shortcomings and legality check
 Productivity diagrams
• used to express the results of efficiency indicator measurement for the public
expenditure under scrutiny
 Value charts
• used to express the results of effectiveness indicator measurement for the
public expenditure under scrutiny
 Comparative analysis (benchmarking)
• depicts the volume of output generated by input sources and makes it
possible to compare the efficiency and effectiveness of expenditure of state
budget finances on the provided investment incentives using measured
indicators
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Sources used during the audit
 Previous audit
 Preliminary study for the audit
 Audit programme
 Information obtained between the end of the previous audit and the start
of this audit
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Findings from the previous audit
• CZK 1,352 million spent on investment incentives – provided by
government resolution not by act of parliament
• the investment incentives manual lacked the basic requisites for
demonstrating its validity
• the provision of a tax-based investment incentive was not tied to a fixed
minimum period of time for doing business in the Czech Republic and to
fulfilment of the terms for the provision of other investment incentives
 Response:
• CZK 12.5 million was returned to the state budget; in some cases the
MoF had not reached a decision on the shortcomings by 31.12.2005.
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Preparation of the audit
 Preliminary study
• necessary to prevent errors in the audit programme
• brainstorming done in the preliminary study stage involved three direct
participants/heads of audit groups
• modelling of the procedures contained in the preliminary study made it
possible to compile a relatively precise audit programme and enabled
auditors to work efficiently at the auditees
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Audit input and output
Intended for the public
Audit
conclusion
Output
Appeal against decisions
on objections
Objections to the audit
protocol
Audit protocols
Intended for auditors
Input
Previous audit, information obtained, preliminary study,
audit programme
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Audit findings - I
• investments supported by investment incentives attained a value of over
CZK 21 billion by the end of 2005
(CZK 12 billion more than in the contracts)
• 4,810 new jobs created (1,438 more than negotiated)
• 2,481 employees trained (by the end of 2005)
• by government resolution annexes are concluded to the contracts with
commercial enterprises that enable the companies to apply for increased,
additional special-purpose appropriations related to legal persons’ income tax
– these increased state budget outlays do not widen the range of the
companies’ obligations, however
• contract annexes
- companies make bigger profits
- the state merely incurs increased expenditure,
with a risk of further increases
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Audit findings – II
• under the signed contracts additional special-purpose appropriations were
limited by the size of the appropriation disbursed in the first five years
- the annexes removed this limitation
- the sole criterion is thus the admissible intensity
of state aid
• the state’s outlays will be greater than originally considered and cannot be
precisely estimated; in five companies where a calculation could be made the
expected increased expenditure amounts to at least CZK 801 million
• provision of investment aid to companies operating in the services sector not regulated by law
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Features of the audit
• the audit scrutinised - compliance with the law
- effectiveness and achieved effects
• the audit
- important for parliament and citizens
- performed at the right time to maximise impacts
- effective – benefits outweigh the cost of resources used
in the audit (cost of CZK 7 million)
• elimination of risks represents savings in state budget expenditure of
more than CZK 801 million; value added is at least CZK 794million
• eliminating the detected risks will enable better working of the public
sector
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Risks
 under the contract annexes state budget finances are not put towards the
achievement of a new goal – risk: the expenditure will bring no further benefits
for the state
 in the contracts the value of investments for calculating the admissible
public aid intensity is not limited either by the size of investment or a deadline
for investing (it is not possible to estimate the total state budget expenditure
on appropriations)
• risk – all additional finances invested in fixed assets by companies make it
possible to draw down larger additional special-purpose appropriations than
previously envisaged
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 the provider relaxes the new job creation condition by allowing the
companies to include employees taken on before the contract was signed
 non-compliance with the terms for appraising fulfilment of the obligation to
create jobs – risk of unjustified drawdown of state budget finances
 non-existence of legislation governing the provision of appropriations to
investors in the services sector
- risk of the shortcomings found in the audit being repeated
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Recommendations to
government
 when concluding annexes to contracts negotiate counter-performance from
the commercial enterprises in return for the provided financing
 draft legislation for the provision of investment aid in the services sector
 ensure that MoLSA adheres to the precise wording of contractual
provisions when performing control
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Thank you for your attention
Vladimír Ruta
[email protected]
Phone: +420476140724
www.nku.cz
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Questions
Comments
Discussion
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