Management of frozen and encumbered assets: inconsistent record-keeping, management and valuation, maintenance errors, delayed sales
Press release on audit No 21/23 – 20 February 2023
The SAO carried out an audit of state funds spent between 2015 and 2020 on the management of assets frozen, encumbered, seized, forfeited and sold in criminal and tax proceedings. These assets are managed by a number of institutions. A total of seven institutions were reviewed by the SAO: The Ministry of the Interior (MoI), the Ministry of Justice (MoJ), the General Financial Directorate (GFD), the General Directorate of Customs (GDC), the Office for Government Representation in Property Affairs (OGRPA), the Regional Court in Ostrava and the Regional Police Directorate of the South Moravian Region (RPD SMR). The auditors focused on how each trustee registered, stored, maintained or sold the assets. They have found that there were inconsistencies among trustees in terms of registering, valuing and maintaining assets. In some cases, frozen assets have not been valued realistically or not at all by their trustees. Assets that quickly lose their market value were not sold or were sold with a delay. In doing so, the trustees reduced the income of the Special Account of the MoJ, which is intended to meet the property claims of persons harmed by a criminal offence. Shortcomings were also found in the maintenance of motor vehicles seized in criminal and tax proceedings.
The procedure followed by the auditees was verified by the SAO on an audit sample consisting of motor vehicles and electrical equipment. These are assets that quickly lose their market value over time, and it is therefore desirable to sell them as soon as possible. The auditors found that, for example, the OGRPA did not propose for sale 57% of the cars from an audit sample of 180 frozen cars. The average storage period was 522 days. Moreover, it did not propose for sale 93% of the 110 pieces of frozen electrical equipment1 from the audit sample. The RPD SMR, for its part, did not sell two cars forfeited to the state worth CZK 880 thousand. The proceeds recovered from the sale would have been paid into a special account of the Ministry of Justice, which meets property claims of persons harmed by a criminal offence. In 8 out of 10 cases of frozen cars, the GDC received a proposal from the MV CENZA (Centre of Frozen Assets) to sell them after a year and a half after the moment the cars were placed under the management of MV CENZA.
The auditors found that, although the trustee was obliged to protect the property frozen during criminal proceedings from depreciation and to ensure that its value was preserved, this was not always the case. For example, the OGRPA failed to maintain an entire two-thirds of 180 frozen cars from the audit sample. The GDC did not maintain all the frozen vehicles. Their value thus decreased as a result of the lack of maintenance, which had a negative impact on the amount of money received from the sale of these assets.
Even in the case of the management of assets in tax proceedings, rules on maintenance and, where appropriate, preparation for auctions were not established for seized motor vehicles. On the part of the GFD, the auditors found that only 11 cars were maintained and six out of 68 cars audited were ready to be auctioned.
Accounting errors and different valuations of assets made it impossible to determine the total value of the managed assets. According to the SAO estimates, the minimum value of frozen assets was CZK 3.5 billion over the audited period and assets forfeited and seized amounted to CZK 2.92 billion. Some trustees disclose information on the values of frozen assets in their annual or activity reports. According to the published reports of the National Bureau Against Organised Crime for 2017, 2018 and 2020, all the departments of the Police of the Czech Republic froze assets amounting to an average of CZK 6.24 billion between 2016 and 2020 annually. The total value of the managed assets could not be ascertained, for example, from the MV CENZA, because it did not record the value of the assets at the time of their takeover. In turn, the OGRPA registered more than 90% of the property frozen in criminal proceedings with a zero value. However, it should be noted that the law did not impose an obligation to value the frozen assets recorded. The SAO estimates that a total of CZK 320 million was spent on the management of frozen, forfeited or seized assets registered by the auditees during the period under review.
1] E.g. computers, mobile phones, printers, tablets, laptops or audio-visual equipment.
Supreme Audit Office