Management of the Military Forests and Estates: House for seven million crowns for the Head of Division, but also positive economic outturn and good return on timber sales

Press release to audit No. 18/10 - 7.1.2019

The Supreme Audit Office focused on the management of the state-owned enterprise “Vojenské lesy a statky ČR” (Military Forests and Estates of the Czech Republic; MFE CR) from 2015 to 2017. In particular, auditors examined how the company had dealt with the assets entrusted, the cost of the timber extraction, or the response to the reduction of military training areas. Within the audit, the SAO also focused on the compliance of the Ministry of Defence with its obligations as the founder of a state-owned enterprise. Apart from a few cases, the MFE CR had managed the entrusted assets with a value of CZK 8,5 billion without any major problems.

For example, the enterprise had built a family house for the director of Karlovy Vary division for more than CZK 7.3 million. According to the SAO, such costs are disproportionately high with respect to the purpose for which the construction is determined. To address an employee’s accommodation — even though in case of a manager — by constructing a family house with an adjacent land exceeds the standard of provided benefits. A family house of 233 m2 with an adjacent plot of over 2 500 m2 is in sharp contrast with the accommodation of other division directors, which ranges from 25 m2 to 54 m2 of residential area.

In the case of leases of its property, the MFE CR did not demand any payments from default interest, contractual penalties, or did not valorise such lease, even though the MFE was obliged to act so in accordance with concluded contracts. It started to enforce these payments only at the time of the audit in 2018.

Auditors also focused on the proceeds of sales of the harvested timber. From 2015 to 2017, the MFE CR received on average CZK 1,420 for 1 m3. In comparison, the state-owned enterprise “Lesy ČR” (Forests of the Czech Republic) cashed on average CZK 1,267 per 1 m3. One of the reasons for the higher profitability was that the company had sold timber by its own forces — only harvesting had been awarded contractually.

The economic result of the MFE was positive in all the years of the audited period.

In the context of the audit of the Ministry of Defence as the company’s founder, several deficiencies were detected by the SAO. These concerned, for example, the lack of company control, insufficient updating of the company’s corporate charter as well as its strategy to identify the tasks on which the MFE CR would have to deliver in the closed military training areas. Examples include the destruction of unnecessary structures that are in a poor state of technical repair, or the acceleration of pyrotechnic cleansing.

Communication Department
Supreme Audit Office

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