Auditing operation No. 03/14

State Property and State Budget Funds Provided to The Forests of the Czech Republic, State Enterprise

The auditing operation was included in the Annual Audit Plan of the Supreme Audit Office (hereinafter referred to as „SAO“) for the year 2003 under No. 03/14. The auditing operation was managed and audit conclusion drawn up by Mr. Jiří Kalivoda, the Member of the SAO.

The aim of the audit was to examine the state enterprise’s management with the state property and with the funds provided from the State Budget, primarily from the point of view of effectiveness and economy.

The audit period covered the years 2001, 2002 and part of 2003 as well as in previous periods in case of relevant connections.

The audited bodies were the Ministry of Agriculture (hereinafter referred to as „MA“) and the Forests of the Czech Republic, State Enterprise, with headquarters in Hradec Králové.

A number of deficiencies were detected in the framework of the audit of the management with state property and with the funds by The Forests of the Czech Republic, State Enterprise, especially when dealing with funds.

The Forests of the Czech Republic, State Enterprise (hereinafter referred to as „FCR“) primarily:

  • Dealt with temporarily free funds unjustifiably and threatened this investment when purchasing securities from foreign companies providing a lower measure of protection;
  • Arranges forestry activities primarily via entrepreneurial subjects on the basis of contracts for the delivery of complete forestry work without putting it out to the tender;
  • Sells 94 % of the main product of its activities – wood – through an intermediary, either through Hradecká lesní a dřevařská společnost, a. s. with a repurchase regime which is unprofitable for the FCR, or through the sale of wood to other entrepreneurial subjects; the FCR uses the market sales of wood only additionally, even though it is more efficient;
  • The FCR violated the Act on Accounting in the area of bookkeeping.

The cause of the deficiencies detected at the FCR was also the inconsistent fulfilment of the obligations following from the Act on State Enterprises to the MA as the founder of the FCR:

  • An insufficient supervision by the MA whether the needs of the states, which the FCR assures by its activities, are provided effectively and economically:
    • The MA did not verify whether the FCR dealing with specific property concluded the contracts in accordance with the submitted proposal;
    • The MA did not carry out any inspection from 2001 to 2003 that focussed on the area of commercial contracts or on how the FCR handled temporarily free funds.
  • Insufficient cooperation between the MA and the supervisory board of the FCR:
    • The MA did not evaluate how by the MA appointed members of the supervisory board represented the interests of the state;
    • The supervisory board did not detect any fundamental deficiencies in the activities of the FCR during the inspected period.

The MA did not take specific measures until the end of 2003.

The FCR’s internal control was not systematic, especially in the area of property and financial control.

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