Final accounts of the Ministry of Industry and Trade: mistakes and omissions; errors in financial statements amounted to tens of billions CZK

PRESS RELEASE on Audit No. 16/25 – July 24, 2017

The Supreme Audit Office scrutinized the final accounts of the Ministry of Industry and Trade for the year 2015, its accounting records, and the preparation of the financial statements. Auditors also focused on data, which the Ministry submitted for the evaluation of the State budget execution and then used to produce its financial statements.

In compliance with the legislation, final accounts of a state budget heading contain data about the financial management in the previous year. Prior to the publication of final accounts, they are discussed at the Chamber of Deputies of the Parliament of the Czech Republic, which is required by the budgetary regulations. Auditors revealed that the final account were incomplete. For example, the Ministry of Industry and Trade did not include the 3E evaluation of expenses of the budget heading as required by the relevant legislation. Sometimes, the data included by the Ministry into final accounts did not match the information in financial statements or the annual accounts for the year 2015, some data were incorrect or inaccurate.

Auditors concluded that the Ministry of Industry and Trade had failed to keep correct and complete accounting records and the errors in the Ministry’s accounting books and statements for 2015 exceeded CZK 25 billion. As a result, users of the Ministry’s final accounts often receive data, which are completely different from the information available in case the accounting rules are applied properly. According to the Accounting Act, financial statements should be arranged in such an order that enables users to make sound economic choices.

Due to their specific interpretation of the accounting legislation, the final accounts of the Ministry of Industry and Trade contained errors notably in the area of transfers. For example, the Ministry failed to submit claims of the State to settle the provided financial contributions, which were conditional upon a settlement obligation. On the other hand, entitlements for payments from the EU funds were overvalued since the Ministry had showed them both on the off-balance-sheet accounts as well as in the balance sheets. The Ministry also made errors when entered the contributions provided to allowance organisations under the heading “costs of own actions” instead of the transfers heading.

Errors were found in all final accounts of the Ministry, i. e. in the balance sheet, the profit and loss account, the overview of cash flows, the overview of equity changes, and in the notes to the annual accounts. These misstatements had a significant impact on the financial statements. Based on the audit findings, the SAO concluded that the Ministry’s financial statements for the year 2015 did not present a true and fair view of the object of accounting.

When scrutinizing the implementation of the Ministry’s budget for the year 2015, which showed revenues in the amount of CZK 36.9 billion and expenditures amounting to CZK 46.5 billion, auditors revealed mistakes in the amount of CZK 15.7 billion. The most significant errors were wrong classifications of funds, which had been provided for renewable energy resources. Initially, the funds were recognised as operational expenditures of the Ministry. Owing to such classifications, the information from individual final accounts of the Chapter did not agree as it was not possible to determine that the said accounts included national energy policy measures. Data put into the accounts, which are relevant to public aid, are affected by the above mentioned error.

Auditors also warned that funds amounting to a hundred of millions CZK, which were allotted to the “Energy Savings Program” had been managed by the Ministry outside of the budget. The Ministry did not keep accounts of those funds and used them without legal authorization only based on contracts that had been concluded with banking institutions. Thus, the Ministry failed to manage the monitoring of the implemented funds in accordance with the legislation in force. The contracts stipulated that such a supervision should be performed by a supervisory committee composed of a representative of the Ministry and two representatives of the bank and that the supervisory committee should have been chaired by one of the bank representatives.

Communication Department
Supreme Audit Office

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