Support of agriculture and forestry provided through the Farming and Forestry Relief and Guarantee Fund, Inc.
Auditing operation No. 05/10
The auditing operation was included in the Annual Audit Plan of the Supreme Audit Office (hereinafter referred to as “SAO”) for the year 2005 under No. 05/10. The auditing operation was managed and the audit conclusion drawn up by Mrs. Eliška Kadaňová, the Member of the SAO.
The aim of the audit was to examine dealing with stockholder’s rights of the state and administration of the state budget funds from point of view of fulfilment of purpose, for which the Farming and Forestry Relief and Guarantee Fund, Inc. was founded.
The audited period covered the years 1999 to 2005 (2005 up to the conclusion of the audit) as well as previous periods in certain cases of relevant connections since the Farming and Forestry Relief and Guarantee Fund was founded, i.e. 1993.
The audited bodies were the Ministry of Agriculture (hereinafter referred to as “MA”) and the Farming and Forestry Relief and Guarantee Fund, Inc. (hereinafter referred to as “FFRGF”).
In 1993, the MA founded the FFRGF as a joint-stock company according to the Government decree but without any legal provisions regulating state authorities proceedings for business companies establishing. The only stockholder is the state; the MA performs its stockholder’s rights.
The MA is simultaneously an administrator of the state budget chapter, through that are grants made available to the agricultural and related enterprises. The MA provides a part of grants directly and another part transfers to the FFRGF. This business company then allocates state subsidies to the other enterprises. However, the relevant regulations did not make possible (and they do not at present as well) to provide state assistance through entrepreneurial subject, though it would be founded by the state. More than CZK 23 billion were allocated through FFRGF from the state budget chapter 329 – Ministry of Agriculture by the date 31st December 2004.
This arrangement was criticized after the previous SAO audit. On the basis of that, they prepared a draft bill on conversion the FFRGF to a state fund. The MA ceased this intention because they came to opinion that the FFRGF can be deemed in compliance with the legal situation after 2001 to be a final beneficiary of the state budget grants. The FFRGF however did not perform the activities, for which the subsidies were determined (grants for the agricultural and related enterprises); the FFRGF henceforth conveys or provides state assistance for other entrepreneurial subjects. Thence it follows that the allocation of grants by the FFRGF was not performed in proper accordance with the Act on Budgetary Rules.
The audit further discovered that the FFRGF has had problems to define the subject of activities of this business company for the whole period of its existence. The FFRGF activity has not always corresponded (and it also does not correspond currently) with the activity written down in the Register of Commerce. The subject of activities written down in the Register of Commerce does not also correspond with the subject of activities as it is defined in the Statutes of the FFRGF.
The scope of FFRGF activities was specified by the government decree in 1993. The government failed to hear the case of some substantial changes concerning the FFRGF activities or circle of subsidized entities; it processed a few of them with considerable delay. Though the government decided in another case of lending to entrepreneurial subjects damaged by floods, this activity could not be written down in the Register of Commerce, since the FFRGF was not empowered to that. In addition, the government hitherto failed to assess policy of state support for agricultural insurance, but the FFRGF provides such assistance on the basis of the only stockholder’s decision.
In 2000, the government adopted a task to add into the MA register all final state budget beneficiaries who received purpose grants through the FFRGF. The audit discovered, that the Central register of grants and returnable financial assistances did not contain basic data on beneficiaries and grants, which the FFRGF provided to the agricultural and related enterprises. Failure to register these data relates to grants of the total amount of almost CZK four billions.
The MA did not require – and the FFRGF did not submit – documentation for the state budget final accounting of budget resources deployed. The MA presented all funds deployed by the FFRGF as consumed resources. By 31st December 2001 the FFRGF had the balance of the account of unallocated state budget resources in the total amount of CZK 2.733 billion. These resources were not returned into the state budget, and the MA – as the only stockholder – decided to found an internal purpose fund the “Fund of additional investment resources”, which was established to the date 1. 1. 2001.