Auditing operation No. 04/40
Funds spent on acquiring of the Czech Statistical Office headquarters
The auditing operation was included in the Annual Audit Plan of the Supreme Audit Office (hereinafter referred to as “SAO”) for the year 2004 under No. 04/40. 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 provision, drawing and usage of the funds earmarked for the preparation and construction of the Czech Statistical Office headquarters.
The audited period covered the years 2001 to 2004 (to August) as well as previous periods in case of relevant connections.
The audited bodies were the Ministry of Finance (hereinafter referred to as “MF”) and the Czech Statistical Office (hereinafter referred to as “CSO”).
The CSO neglected the preparatory phase of the investment project. It failed to draw up preparatory documentation which it could evaluate at the end of this crucial phase in order to decide which alternative was best-suited to the identified objectives:
- It failed to justify the termination of renovation of the Invalidovna building; it failed to prove that the building was in critical condition and failed to justify the urgent need for erecting a new building;
- It failed to draw up a study of alternative solutions for the new headquarters, including economic analyses;
- It failed to evaluate the variant possibilities and ways of performing the building work; it failed to specify and express in figures the potential risks associated with them.
The CSO failed to provide the Czech government with objective documents to serve as a basis for the decision on the need to build a new headquarters for the CSO, describing the form of public tender, the price and means of funding. The CSO did not respect the binding prescribed procedure governing the provision of the State Budget funds as set out by the MF for programme administrators:
- When drawing up materials for the Czech government the CSO failed to respond to the MF’s repeated demands, did not respect the principles of programme financing and did not satisfy the conditions for the State Budget participation in funding the action;
- It failed to ensure that the objective of the public tender – evaluating the best bid in technical and financial terms – was achieved; in the matter of how to resolve the critical condition of buildings the CSO submitted to the Czech government merely data acquired from the public tender that was cancelled on the grounds of failure to create a competitive environment, including the price of CZK 829,063,041;
- It failed to prove that the State Budget funds were spent economically and efficiently. The expert opinions displayed a considerable dispersion in the prices ascertained. Appraising the best and most advantageous bid in technical and economic terms is the purpose of public tender, however, and not of expert opinions.
The CSO failed to prove that the State Budget funds were spent economically and efficiently; and it failed to put in place the fundamental preconditions for project management and for control work, especially as regards price data:
- It failed to define unequivocally the project’s objective; in the terms of reference it stated its requirements for the building in general terms only: it did not specify categorically the subject of the public tender;
- It did not possess the necessary financial analyses and studies; it had neither an itemised budget or control budget drawn up by an independent subject; it did not know even the basic price structure, i.e. the price of the building, of land and of other work associated with the new headquarters;
- As the authority responsible for the implementation of the project it took acquired a building with a lower technical construction standard than it could and should have obtained for CZK 829,063,041;
- From the bid submitted by a candidate in 2001 the CSO took only the price, yet it did not ensure either in the terms of reference or in the contract for a future contract that the technical construction standard of the building would be at least equal to the standard declared in this bid;
- The price appraised by an independent expert (commissioned by the SAO) is approximately CZK 110 million lower than the price that will be paid out of the State Budget.
The audit also detected shortcomings of a system nature:
- The project was performed despite violation of the MF’s methodology. The MF repeatedly warned the CSO that it was proceeding in conflict with Act No. 218/2000 Coll., the budgetary rules, and Decree No. 40/2001 Coll., on participation of the State Budget in financing of property reproduction programs, that it was flouting the principles of programme financing and that it was satisfying the conditions for State Budget participation in financing. The CSO failed to produce documents in the scope and at the times specified by the aforementioned legislation; even so, the MF issued the documents necessary for state budget participation in financing the project.
- Decree No. 40/2001 Coll. does not deal with the issue of buildings that have not yet been built but are at the stage where the investment plan is being drawn up and are going to be built by a developer;
- The possibility of state property acquiring in the form of a development contract (purchase) for buildings as yet non-existent makes it imperative that a methodology be drawn up to define categorically how programme administrators and participants should proceed when acquiring property in this way. That involves specifying the necessary documents that programme participants need to have at their disposal, in particular those that have an influence on the price and parameters of the building project and minimise the risk of the building work being overpriced. Without a budget, without a bill of quantities or a categorical description of standards and items, the risk of overpricing or selecting unsuitable parameters is considerable; without economic documents, the programme administrator is unable to manage and control the action or project. Based on the system-related shortcomings detected by the SAO’s audit the MF announced that it would deal with this issue either by issuing a methodological instruction or as part of a further amendment of Act No. 218/2000 Coll. and Decree No. 40/2001 Coll.