Auditing operation No. 03/31

State Budget funds provided for investment to the industrial zones

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. 03/31. The auditing operation was managed and audit conclusion drawn up by Mr. Josef Pohl, the Member of the SAO.

The aim of the audit was to examine the management of the State Budget funds provided for investment to the industrial zones including the assessment of the declared benefits and measures adopted in relation to the results of the SAO auditing operation No. 01/26, which was published in the SAO Bulletin No. 2/2002.

The audited period covered the years 1998 to 2003 – audit of the assessment of the declared benefits of the programme of support for the development of industrial zones and the transfer of land from municipalities to investors, and the years 2002 and 2003 – audit of the implementation of a programme of support for the development of industrial zones and evaluation of measures adopted in response to the results of the SAO auditing operation No. 01/26.

The audited bodies were the Ministry of Industry and Trade (hereinafter referred to as “MIT”), the Agency for the support of business and investment CzechInvest, which during the course of the audit became the successor to the Czech Agency for Foreign Investment, contributory organisation, and selected beneficiaries and selected Tax Offices and Labour Offices.

The MIT and CzechInvest adopted measures eliminating certain deficiencies in the system of providing support, particularly in the area of assessing applications and assessing objectively the level of support.

Deficiencies remain in the drawing of funds on administration of the Programme. The measures adopted in this area were ineffective, for example, the MIT did not specify the exact amount of overhead cost that CzechInvest could draw. CzechInvest did not pay sufficient attention to the drawing of funds in 2002 and 2003 and in certain cases drew funds uneconomically or for a different purpose. In addition, in the implementation of a tender for the provision of training as part of the programme „Accreditation of Industrial Zones“, CzechInvest did not act transparently when CzechInvest did not credibly demonstrate the evaluation of the received bids and selected the bidder with the highest bid price and stated the standard of tutor as the deciding criteria without checking that the tutors actually performed this training.

Regardless of the deficiencies determined by the previous audit MIT imposed no sanctions on municipalities. At beneficiaries were again determined certain deficiencies in implementation (the transfer of land to investors, particularly in relation to the usage of industrial zones for the intended purpose, procedure of public tender implementation, failure to adhere to stated deadlines). However, the extent of these deficiencies was, in comparison to the previous audit, significantly lower.

The MIT did not quantify certain fundamental objectives of the Programme from the perspective of the industry restructuring and the stabilisation of the investors presence in an industrial zone in terms of, for example, the added value of manufacturers in the zone, the proportion of exports, the research and the development and the standard of production and the technology.

According to the repeated assessment of economic efficiency performed by the MIT and CzechInvest, there is a reduction in the benefits of industrial zones for the State Budget as opposed to the expectations. The positive effect on the State Budget up to 2010 will be approximately three times less and in 2004. There will be almost no benefit as opposed to the anticipated CZK 37.5 billion. The assessment of economic efficiency was not, however, performed thoroughly enough having overlooked certain influences (e.g. the transfer of land, other subsidies, the tax relief). The assessment also contained false, inaccurate and distorted data and unsubstantiated assumptions.

In the audited sample of ten industrial zones the impact on employment was examined at Labour Offices and tax receipts at Tax Offices. It was impossible to determine the precise number of employees hired by investors from the job seekers registered at Labour Offices. The benefit in terms of income tax from investors wasn’t significant. From the perspective of the value added tax the large deduction of investors were higher, which meant the negative benefit for the State Budget.

In future years the Programme should concentrate on the support of the industrial zones for which a strategic investor is secured in advance.

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