State-funded organisations: purchases of external services without evaluation of their economy, out of twelve research projects two were met, payment of wages instead of salaries

Press release on Audit No 22/05 – 25 September 2023

Purchases of external services without assessing their economic efficiency; non-fulfilment of research intentions; overestimated number of users of technical standards and expensive sponsored access to them; payment of wages instead of salaries. This is a list of some misconducts revealed by the SAO’s audit of selected state-funded organisations in the area of management of the contribution to the operating expenses received by these organisations from the state budget. The audited period was from 2019 to 2021.

The Ministry of the Environment, the Ministry of Agriculture, the Ministry of Industry and Trade and its subordinate the Czech Office for Standards, Metrology and Testing (OSMT) are the founders of a total of 25 state-funded organisations. State-funded organisations manage the funds obtained by the main activity and, in addition, funds received from the state budget, such as the contribution to the operating expenses. The SAO audited the management of this contribution.

The 25 organisations received from their founders between 2019 and 2021 the contribution to the operating expenses of more than CZK 8.5 billion. The SAO audited the management of it on a sample of four organisations: The Czech Environmental Information Agency (CEIA), the Institute of Agricultural Economics and Information (IAEI), the Service Administration of the Ministry of Industry and Trade and the Czech Standardization Agency (CSA).

The SAO auditors found out that the originally approved contribution to the operating expenses of these four organisations were increased by the founders each year. Between 2019 and 2021, it increased by 277.5 million from CZK 623.6 million to the final CZK 901.1 million. The audited four organisations eventually spent CZK 791.8 million in those years.

Many misconducts

The SAO auditors found a number of errors in the spending of these state budget funds. For example, organisations outsourced services for which they were themselves set up to provide, without assessing the cost-effectiveness of such purchases. For example, for the project “National Inventory of Contaminated Sites Stage II”, CEIA paid a total of CZK 116.6 million to an external contractor between 2019 and 2021, without first assessing expenditure options using e.g. its own capacities. The share of outsourced services in the Agency’s total cost increased gradually over the audited period, reaching 44 % in 2021. IAEI also paid a total of CZK 62.6 million to external companies for data collection between 2019 and 2021, without having prepared an economic analysis of the benefits of purchasing questionnaires surveys from third parties.

CSA also did not assess the economic impact of outsourcing and increased the share of purchased services in total costs to more than 45 % in 2021. At that time, the Agency paid over CZK 101 million for them. For example, CSA also bought legal services, even though in the organisational structure it provided for its own legal department. However, the Agency has never launched a recruitment procedure for the posts of staff in the legal department.

A total of CZK 29.6 million intended for the performance of research projects, which should have resulted in e.g. utility or industrial design, prototype, functional sample, certified method, etc., was spent partially ineffective by IAEI according to the SAO auditors. Out of the 12 planned tasks to be completed between 2019 and 2021, only two were implemented. For example, in 2020, when IAEI planned to get four applied results, the Institute did not manage to get a single one.

Eight times fewer users of sponsored access to Czech Technical Standards

The SAO also examined sponsored access to Czech Technical Standards (CTS). In 2021, so-called sponsors, mainly ministries, paid a fee exceeding CZK 113 million for public access to CTS. The fee, the recipient of which is CSA, is paid from the state budget on the basis of an estimate of the number of users, not on the basis of their actual number. The number of sponsored access users was estimated at 65,011 in 2021, with only 8,812 in real terms, i.e. almost eight times lower. For yearly access to this database, the sponsors paid CZK 13,283, whereas for one non-sponsored user, the annual fee for access to this database is set at CZK 2,000 by decree.

The auditors also revealed the fact that CSA, as a state-funded organisation, paid wages instead of salaries during the audited period. Thus, for example, the average monthly wage of one of the CSA’s senior staff in 2021 was four times higher than the average salary of senior managers in the same position at other audited organisations. The auditors found that since the establishment of CSA, its founder, which is the OSMT, has not carried out any audit focused on the management of public financial support.

The SAO’s audit also showed that both the founders and the audited state-funded organisation were in breach of the legislation. For example, errors in the public procurement process were detected in the timeframe, which, according to the SAO, indicate a breach of budgetary discipline of CZK 2.1 million excluding VAT.

Communication Department
Supreme Audit Office

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