Equity holdings of the State in Business Companies seated in the Czech Republic
Press release on completion of the auditing operation No. 05/35
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. 05/35. The auditing operation was managed and the audit conclusion drawn up by Mr. Josef Pohl, the Member of the SAO.
The aim of audit was to examine shareholders' investment operations from the state funds, which were executed by selected central administration authorities and invested in business companies seated in the Czech Republic. The audited period covered the years 2001 to 2004 as well as following periods in certain cases of relevant connections.
The audited bodies were:
- the Ministry of Transport (hereinafter referred to as “MT”)
- the Ministry of Finance (hereinafter referred to as “MF”)
- the Ministry of Labour and Social Affairs (hereinafter referred to as “MLSA”)
- the Ministry for Regional Development (hereinafter referred to as “MRD”)
- the Ministry of Industry and Trade (hereinafter referred to as “MIT”)
- the Ministry of Foreign Affairs (hereinafter referred to as “MFA”)
- and the Ministry of Agriculture (hereinafter referred to as “MA”).
The audit was focused on acquiring equity holdings of the state in order of concrete companies and ways how the stocks were gained. Auditors studied equity holdings evolvement and all changes arisen during audited period, ownership of other stocks, administration of equity holdings of the state, accounting procedures including stocktaking, revenues received and all other tasks assigned in this area by legal regulations and governments decisions.
The audit findings mainly concerned the following shortcomings in the conduct of auditees:
- The equity holdings of the state under responsibility of the determined state budget administrator should have been recorded in accounting books and presented in the balance sheet since 1.1.2001. However, this prerequisite was neglected and deficiencies occurred in accounting records about equity holdings of the state connected e.g. with changes in stock’s number, new equities acquisition, or various forms of equity valuation. Inventorying of this long-term financial property failed to follow the accounting law and related regulations.
- The equity holdings of the state under responsibility of the MF are part of the State Financial Assets. They were so far not recorded in accounting books despite operations with them are subject to the decree of the MF on budgetary structure in compliance with the new budgetary rules. The SAO pointed out already at this deficiency in its audit conclusion from the auditing operation No. 98/03 published in the Official Bulletin of the SAO, Volume 4/1998, but the MF did not adopt any remedy action.
- It could be assigned as a system shortcoming that equity holdings revenues are paid by various ways on accounts of budgetary chapters the General Treasury Administration and the Operations of State Financial Assets. These payments are carried out either directly by individual companies or through relevant ministries as shareholders.
- The MF failed to require from state budget chapters’ administrators submitting of written reports on actual state and changes of equity holdings in their administration. It also failed to monitor how these administrators fulfil closing accounts obligations according to decree No. 419/2001 Coll.
- Overall presenting of equity holdings in the closing financial statements of the Czech Republic did not correspond with their actual state during audited period particularly in connection with their irregular recording on accounts or incomplete keeping on file.
Overall summary on evolving of equity holdings of the state shows appreciably that their volume increased during analysed period almost ten times and by the end of 2004 amounted to CZK 33.9 billion. This considerable increase was influenced particularly by the non-financial state input in the newly established joined-stock company Czech Railways in 2003. A long-term unprofitable operation of this company, which is one hundred per cent owned by the state, has a negative impact on the quality of securities portfolio in ownership of the Czech Republic. Despite this fact, equity holdings of the state in business companies count for financial benefit because property dividends and share of profits (including revenue from the German company E ON AG) from 2002 till the completion of the auditing operation amounted to CZK 2 540 million.
A considerable part of this long-term financial property is worth of better attention from side of the responsible central authorities, whether it is the MF or relevant ministries fulfilling duties and rights of shareholder. Completeness and transparency of information about this property would be improved, provided that such measures were adopted in the framework of current legal regulations, which could ensure these requirements. The most important measure seems to be a complete solution of accounting procedures in the area of the State Financial Assets.