More than CZK 48 billion paid out as compensation for COVID-19 restrictions served its purpose. However, some beneficiaries abused the compensation bonus
Press release on audit No 22/07 – 29 May 2023
The Supreme Audit Office (SAO) verified how the Ministry of Finance (MoF), the General Financial Directorate (GFD) and three selected tax offices handled state funds earmarked for paying out the compensation bonus, particularly to self-employed persons, who were banned or restricted by the State to carry out their business activity due to the COVID-19 pandemic between the years 2020 and 2022. During this period, 2,943,562 applications for a compensation bonus were submitted and a total of CZK 48.3 billion were paid out. The SAO found that the aid met the objective and mitigated the effects of government measures which affected mainly the activities of self-employed persons. However, in some cases the compensation bonus was abused. According to the auditors, there is a risk that some entities started business with the sole intention of receiving a compensation bonus. The auditors also pointed out that the management of the compensation bonus was administratively cumbersome, as the administrators of the bonus had to enter data from the applications manually into the IT system.
SAO auditors have a suspicion that the risk of setting up a business with the sole aim of obtaining the compensation bonus exists in the case of 1,490 entities. The audit revealed that a total of CZK 39.2 million was paid to these entities in the form of a compensation bonus in 2020, although they were not entitled to receive it. For 46 of them, the SAO assessed this risk as significant. These entities started operating between April and August 2020 and declared zero income and zero tax liability in their tax returns for that year. They did not submit income tax returns for 2019. The findings of the auditors may thus constitute an incentive for the Financial Administration of the Czech Republic to verify ex post the eligibility of these entities’ entitlement to the compensation bonus.
The validity and accuracy of the compensation bonus paid out was examined by the administrators of the bonus only after it had been paid out. Of the total amount paid, they verified (by 31 July 2022) 2.5%, i.e. CZK 1.2 billion. On the basis of these checks, the Financial Administration requested the reimbursement of the compensation bonus amounting to approximately CZK 133.2 million. The beneficiaries returned CZK 114 million into the state budget. The SAO pointed out that the three-year period for determining the tax on the compensation bonus paid out in 2020 will expire this year. Once it expires, it will not be possible to decide on the reimbursement of the unduly paid bonus.
The Financial Administration submitted 162 notifications of facts indicating the offence of abusing the bonus amounting to a total of CZK 69.3 million. By 31 August 2022, the courts had ruled on 18 criminal cases related to these notifications. On the basis of the judgments, the applicants were to reimburse CZK 5.6 million of the paid-out bonus.
The SAO positively assesses the fact that the availability of the compensation bonus and the swift processing of applications made it easier for applicants to access funding. Also, on the basis of an international comparison of aid granted in connection with the outbreak of SARS-CoV-2, according to the SAO auditors, it can be concluded that the Czech Republic paid out this aid quickly enough.
However, the auditors pointed out that the management of the compensation bonus was administratively cumbersome as there was no automated processing of applications and the bonus administrators had to enter the data from the applications manually into the IT system. Expenditure on the management of the compensation bonus amounted to one percent of the total amount spent, i.e. almost CZK 457 million. In addition to the low level of computerisation, the expenditure was also influenced by the administration of duplicate applications. In total, 208,000 duplicate applications for the compensation bonus were submitted. According to the Supreme Audit Office, expenditure on their processing amounted to approximately CZK 23 million, i.e. approximately 5% of the total expenditure on the management of the bonus.
From 2020 to 2022, self-employed persons who met the requirements laid down by law (mainly restrictions on activities in connection with the measures introduced by the state) were entitled to the bonus and, on the basis of the amendments to the Act on the Compensation Bonus, also members of selected limited liability companies and persons performing work on the basis of an agreement to work outside an employment relationship establishing participation in sickness insurance. The daily amount of the allowance varied between CZK 350 and CZK 1000, depending on the type of beneficiary and the period during which the allowance was received.
Supreme Audit Office