The accounting reform of public finances provides more comprehensive information, but it has been accompanied by regulatory problems.
Press release to audit No. 17/36 - 12. 11. 2018
The Supreme Audit Office focused on the conduct of the accounting reform of public finances. This reform has introduced elements of advanced accrual accounting in the Czech public sector since 2010. Auditors focused in particular on how the reform was designed and prepared, whether it ensured the reporting of reliable and usable information or how this information was used. The audited institutions were the Ministry of Finance (MoF) and the Czech Statistical Office (CSO).
The audit has shown that the reform was not sufficiently prepared, especially in the first years of the reform. For example, the MoF's accounting rules which linked to the reform were ambiguous between 2010 and 2014. Due to this fact, the SAO was unable to comment on the reliability of the accounts in 11 audit conclusions out of 17 audits verifying the financial statements of the organisational units of the state during those accounting years. Some other accounting areas remained still not modified at the time of the audit. The MoF has been providing methodological support to assist accounting entities in introducing changes to their practices only from 2011 onwards. As a result, the first compilation of the accounts for the Czech Republic was delayed by six years.
The purpose of the reform was to ensure that public sector accounting entities show more comprehensive and useful information on the economic situation of the state. The Supreme Audit Office’s opinions on the reliability of the financial statements of the organisational units of the state after the initiation of the reform show that in many cases these units did not show reliable accounting information. Out of the 11 financial statements which the SAO has commented in its audits, the financial statements of the respective institution submitted a true and fair view of the subject matter only in two cases without reservations.
However, the situation is gradually improving in this regard. It emerges from SAO’s audits that the audited institutions, which are audited repeatedly, demonstrate a reduction of the error rate for the reported data. A positive example is the Ministry of Education, Youth and Sports and the Czech Social Security Administration.
Auditors also focused on the use of accrual accounting information in practice. The Ministry of Finance uses this information in particular for compiling accounts for the Czech Republic, the Czech Statistical Office for the compilation of national accounts. The link between the accounts and the state budget, which was envisaged at the beginning of the reform, did not take place. This would make sense, as the reform aims to provide more comprehensive information about entitlements to future budgets. The accounting reform has also not led to the use of accrual accounting information at the level of the closing accounts of the headings of the state budget or at the level of the state closing account. In sum, the potential of accrual data obtained thanks to the MoF's reform is therefore not fully exploited.
Despite the problems, the accounting reform in the area of public finances is a step in the right direction. However, the SAO recommends that the Ministry of Finance increases awareness of the usefulness of accrual accounting information. Only the information that is truly used should be requested. The SAO also recommends that the accrual data should be used for drawing up the state budget, the state closing account and the closing accounts of each heading of the state budget. The MoF should also correct the remaining problem areas in accounting rules. Otherwise, the benefits of the reform will be limited.
Accounting reporting by public sector bodies aims to provide reliable information on their financial position and performance on the basis of which their users would be able to make the appropriate economic decisions. Accrual accounting information is also instrumental in more transparent accountability.
Supreme Audit Office