The Supreme Audit Office Act from a different perspective - The SAO Board Member, Mr Rudolf Němeček
Seminar - 20th Anniversary of the SAO, Senate of the Parliament of the CR, 25.7.2013
Mr President of the Czech Republic,
esteemed guests at today´s celebratory gathering,
ladies and gentlemen,
on July 1, 1993 Act No. 166/1993, on the Supreme Audit Office, entered into effect. The concept of the Act, which established the attributes of independent audit, was entirely new and, in my opinion, timeless.
The existence of the Supreme Audit Office derives directly from the Constitution of the Czech Republic and the SAO carries out its function independently. It is not dependent on the legislature, i.e. parliament, or the executive, i.e. government. Political influences on the SAO´s work are eliminated to the highest degree possible; and for that reason it is one of the indispensable components of parliamentary democracy.
Let us take a look at the history of audit that preceded the new modern concept.
The reforms in Austria in the second half of the 18th century known as the Theresian and Josephine reforms separated the administrative service from the executive and distinguished between the authorities prescribing income benefits and remitting expenditure from the treasury authorities. The accounts of both bodies were inspected in accounting offices. Control powers were concentrated in an independent control body. This was the Court Accounting Chamber, founded in 1761, to which the accounting offices were subordinated.
In the years 1792 to 1794, Cisleithania had a Chief State Accounting Office; from 1794 to 1805 it was called Supreme State Audit; and from 1805 to 1840 the General Accounting Directorate.
The Supreme Audit Office was established in 1840 by Imperial Order No. 71/1854. It performed preventive control and the accounting service for the state administration.
The first real predecessor of the SAO´s bodies in Czech territory, however, was the Supreme Accounting Court established by Imperial Order No. 140/1866 of 21 November 1866 on the state and control service of various branches of the administration with the exception of the political and judicial administration in Hungary, Croatia, Slavonia and Transylvania. This order remained the legal basis for the organisation of the accounting and audit service until the end of the Austro-Hungarian Empire. The Austrian Supreme Accounting Court was directly subordinated to the emperor; it was autonomous, independent of and equal to the ministries. Its role was to oversee the entire state economy; it performed administrative control and parliamentary control. The control was both accountancy-based and legal, i.e. it checked whether an administrative body proceeded according to the valid legal regulations and whether an action satisfied the requirement of economy and orderly administration. The control work was entirely ex post.
The Supreme Accounting Court was organised on a collegial principle. It was administered by a board headed by a chairman who had extensive powers. The chairman was appointed by the emperor; other officials were appointed by the emperor at the proposal of the chairman. Lower officials were appointed by the board. The government had no influence on appointments and did not even countersign the deeds of appointment. The Supreme Account Court operated in the Czech territory until 1919.
After the founding of the Czechoslovak Republic, the act on the establishment and powers of the Supreme Accounting and Audit Office was passed. This office was an autonomous and independent administrative body (in the broader sense of the word) established alongside the power of government. The chairman reported to the parliament for the office´s work. The act applied (with the exception of certain changes during the Nazi occupation) until 1951.
The powers of the Supreme Accounting and Audit Office included among others exercising oversight of the state economy, state assets and the state debt; it was tasked with compiling the annual closing account of all income and expenditure and submitting it to the National Assembly. During its audit work it scrutinised administrative actions in terms of both their accounting and their legality and economy. The office judged legality mainly in terms of the budget, i.e. whether an action corresponded to the empowerment allotted to it in the budget by its substantive purpose and the scope of its financial expense. The control powers of the Supreme Accounting and Audit Office covered all the financial management of the state and its enterprises and also covered enterprises the state had a public or financial interest in.
To conclude this historical insight we should also mention the gaps in the control system of the time. There was no regulation about the office´s relationship with parliament laying down that it had the right and the obligation to report, at any time and in summary, serious identified shortcomings, especially those concerning ministerial responsibility. Another aspect was the lack of guarantee in the form of positive legal regulations that the state control body was independent of the executive, especially in personnel matters.
In 1951 Government Regulation No. 73/1951 established the Ministry of State Control as one of the instruments of centralised directive administration. Democratic control was therefore brought to an end de iure in 1951. This put control powers entirely in the hands of the executive, but more precisely under the supervision of the communist party and the government, and the legislative assembly had no chance to intervene at all.
Other changes followed in 1961, when the previously independent control was merged with state statistics with the creation of the Central Office of State Control and Statistics, with bodies in the country´s regions and districts. This institution collected the main statistical data and its control work mainly targeted the implementation of the state plan in production organisations.
In 1963 a new system of "people´s control and statistics" was created, with organs in the centre, in regions and in districts, but also in municipalities and plant works. The central commission of the people´s control was elected by the National Assembly. In 1967 state statistics and state control were re-separated again.
In January 1969 the Czech National Council established the Supreme Audit Office of the Czech Socialist Republic. (The Slovak National Council did the same.) This gave rise to institutions that were relatively independent from the executive and served mainly to provide a service to the national councils. When performing control work the institution checked the legality, effectiveness and economy of the circumstances under scrutiny, but also how complaints and suggestions from citizens were dealt with; in some cases it could also examine serious complaints.
In 1970 the Committee of People´s Control of the Czechoslovak Socialist Republic was established at federation level as a central body of state administration. This was a monocratic body. The Committee of People´s Control of the Czech Socialist Republic had an equivalent status. The Supreme Audit Office of the Czech Socialist Republic was abolished.
In 1971 a new federal act on people´s control and an act on people´s control committees were adopted, and this legislation remained in force essentially for the next twenty years.
In 1989 the Federal Ministry of Control became the central body of state administration of the Czech and Slovak Federative Republic for control matters. According to the government´s instructions it checked the fulfilment of obligations stemming from acts, other generally binding legal regulations and measures issued on the basis of acts, and the way in which complaints were dealt with; it also scrutinised legality, effectiveness and economy.
In November 1991 the constitutional act of the Czech National Council established the Supreme Audit Office of the Czech Republic as a control body independent from the government, its organs and central bodies of state administration. Although the act on the establishment of the SAO of the Czech Republic was very short and concise, it put in place the fundamental conditions for the introduction of standard democratic control. Act No. 61/1992, on the Supreme Audit Office, inter alia enabled audit of the generation and use of state budget finances, the state closing account, the financial management and use of financial and material resources of the Czech Republic, and compliance with the rights and obligations established by the generally binding legal regulations governing financial and economic relations and the exercise of state administration.
In addition to the SAO of the Czech Republic there was a Ministry of State Control of the Czech Republic, which checked the performance of tasks by state administration, the use of financial and material resources provided by the state and the use of state-owned property, the processing of petitions, complaints, notifications et al.
JUDr. Ing. Jiří Kalivoda wrote the following in his doctorate thesis from 2007: "From 1992 a kind of control power-share prevailed: the Ministry of State Control of the Czech Republic as an executive organ beside the SAO of the Czech Republic subordinated to the legislature. After the founding of the independent Czech Republic, in 1993 both the Ministry and the SAO were dissolved and under the terms of Article 97 of the Constitution of the Czech Republic the Supreme Audit Office was established; later the same year it was accepted as a member of International Organisation of Supreme Audit Institutions INTOSAI and, subsequently, as a member of the European Organisation of Supreme Audit Institutions EUROSAI."
After this historical run-through, I would now like to present a more personal view of the Act on the Supreme Audit Office.
Audit is essentially a feedback. In nature, any attack on an organism is transmitted to the central nervous system and the brain, which then issues an "instruction" for how to respond. During audit, the facts identified by the audit are transmitted via audit conclusions to the centre of power, i.e. the organs constituting the democratic division of power: to the parliament as the representative of the legislature, to the executive, i.e. the Czech government; and to the public prosecutor´s office as the judicial power in cases of suspicion of criminal activity.
In my opinion, audit conclusions are stimuli for further action leading to redress of the situation and resulting in economical, efficient and effective management. Words and proclamations are not enough: to continue the comparison with the natural world, when the central nervous system does not respond to stimuli it may lead to the death of the organism. Similarly, a society that does not respond - each according to his powers - to the identified circumstances will go round in circles and never free itself from its difficulties.
In 1993 the legislature passed the Act on the Supreme Audit Office. The Act established a collective principle of responsibility and placed the responsibility for conducting audits on the shoulders of the members of the SAO; it stipulated the SAO members´ independence partly by defining the term of office in a way ensuring they would not have existential problems and could devote all their efforts to the exercise of audit, reflecting economic affairs in society and submitting suggestions for audits, so that they could objectively assess the facts found by the audit without getting involved in politics.
By contrast, for SAO members there is an unwritten existing rule that demands a high degree of their self-control in the sense that they conduct themselves economically, efficiently and effectively, that they exert every effort to continue their education and dedicate their full time to the problems affecting society.
By law the SAO Board is formed by seventeen members comprising the President and the Vice-President. From the founding of the SAO to the present day, 19 members have been elected to the SAO Board by the Chamber of Deputies of the Parliament of the Czech Republic. There are currently sixteen members of the Board and a new candidate has been proposed for the one vacant post.
The President and Vice-President of the SAO run the Office; the SAO members therefore need not concern themselves with the problems of management; what they must do, however, is to live congruously with the Office and be a "mirror" of the management, for the simple reason of ensuring that individual failings are prevented from and state finances are not used uneconomically.
What does the Office lack? In my opinion, it has come under the thrall of bureaucratic inflexibility. Certain aspects of the administration, box-ticking and needless creation of documents should be reassessed. On the other hand, in view of the objective social need and the legislation applicable in EU member states, extending the SAO´s powers to audit of the management of state property and to audit of legal persons in which the state has an interest should be considered.
Flexibility and motivation (and vice-versa) should be "dusted off", and improvements of the state of affairs identified by audit should be discussed, finalised and implemented in the shortest possible time. In this way audit conclusions will not be just an ex post summarisation of audit findings, but a genuine stimulus for further action, both in the Office itself and for those who are tasked accordingly in the democratic system of division of power.
Parliamentary deputies should do more than just read, they should look for discrepancies between the wording of the law, the spirit of the law and the actual state of affairs. They should discuss audit findings and take steps to amend the legislation. Members of the government should analyse audit conclusions, take on tasks and demand the implementation of measures to remedy the ascertained situation; mere "taking note of" audit conclusions should be kept to a minimum. Judges should pass a verdict within a reasonable amount of time so that people can ensure justice is done; here I have in my mind, for example, the problem of the restoration of ownership of land, specifically under Act No. 229/1991, on the regulation of ownership of land and other agricultural property, which is intended to mitigate the consequences of certain property injustices perpetrated against the owners of agricultural and forestry property in the period from 1948 to 1989.
The Supreme Audit Office is an independent control authority of the Czech Republic. Among other things, it audits the management of state property and finances collected by law to the benefit of legal persons, with the exception of finances collected by municipalities or regions under their independent authority. During audit it verifies whether the audited activities comply with the legislation, scrutinises their substantive and formal accuracy and assesses whether they are economical, efficient and effective.
One of the most eminent Czech economists and politicians, Professor Karel Engliš, said: "In a democracy that is founded on universal suffrage, all citizens are competent to administer public financial matters, because they elect their representatives for the direct management of these financial matters. And there are many of those who decide directly in these financial matters. If democracy is to fulfil its historical mission, it needs people, not just the kind of people who do not think of themselves when managing public interests, but those who understand public financial matters. What causes a democratic state the greatest difficulties is that the administrators of public interests and their controllers are unable to rise above their private or party interests in their work or they simply do not understand the problems put in front of them. Both discredit democracy and, after all, without democracy there can be no salvation. Democracy therefore requires character and education."
In his final words at a parliamentary seminar on the audit of public finances held before the Act on the Supreme Audit Office was to be voted on, the deputy chairman of the Chamber of Deputy of the Parliament of the Czech Republic Karel Ledvinka said: "On behalf of Parliament I want to ask the independent auditors: audit us - this is what we ask. And remain independent from political power. And on behalf of the citizens I want to ask the independent auditors: audit every koruna. The citizens want it. The citizens deserve it. It is your duty. I also want to express my faith that it will never again occur to any politician to seek to change the SAO into an autocratically run, in other words an easily politically abused, committee of people´s (meaning political) control."
To end my talk I would like to say the following: the powers of the SAO, in other words whether these powers should be changed or widened, may be discussed, its independence may not.
Thank you for your attention.