The SAO audited 2011 closing account of the Ministry of Agriculture

Press Release – April 22, 2013

The Supreme Audit Office (SAO) aimed at reliability of 2011 final accounts of the Ministry of Agriculture and scrutinized the financial statements. In the final accounts, auditors revealed inaccuracies in the total amount of CZK 1,200 million, which had mostly been caused by incorrect accounting of provided subsidies, which had to be accounted for in the following accounting period.

It is necessary to assess the final accounts’ reliability with respect to the inaccuracy’s significance. The assessment of reliability can only be performed if there are no significant constraints. In case of the Ministry’s 2011 closing account, the valid legal regulations related to accounting at that time made it impossible for auditors to assess whether relevant regulations had been correctly applied.

The reliability of the final accounts of the Ministry was substantially influenced by inaccuracies and inconclusiveness. The total amount of inaccurate and inconclusive entries in the Ministry’s 2011 closing account was calculated to more than CZK 62,000 million, which almost equals to 70 times the amount of the maximum allowable ratio of bad evidence1. That is why the SAO could not give opinion on the reliability of the Ministry’s final accounts.

For example, incorrect accounting findings included pre-financing of projects, which would later be refunded from the EU funds. Another example is capital participations of the state in companies. In the SAO’s opinion, it is impossible to quantify the extent, to which individual ministries can control the shares in companies. In spite the obligation of accounting units to compile annual accounting statements, which should also valuate capital participations in companies, was stipulated in the Accounting Act effective from January 1, 2010, the extent of the state’s powers in companies is not expressed in the final accounts for each state budget heading as the state as a whole is not considered an accounting unit.

The SAO has repeatedly warned in its audit reports that rules for accounting and bookkeeping applicable for organisational units of the state should be clearly defined to the whole extent.

In 2011, the Ministry paid more than CZK 60 million to a private company on the basis of the court’s ruling that the Ministry had to keep the guarantor’s obligation in case of a state-owned enterprise’s credit. The Ministry guaranteed the credit in the amount of CZK 100 million in contradiction to the applicable law in 1992. As the state-owned enterprise did not pay back the credit, in 1995 the Ministry paid CZK 70 million to the bank, which declared that there would be no more claims in connection with the said credit. In 2004, the bank referred the rest of the unpaid credit to a private company, which prosecuted the claim. In 2011, on the basis of the appellate court’s ruling, the Ministry had to pay the rest of the principal sum in the amount of CZK 30 million, the delay interests in the amount of CZK 27.4 million, and the compensation for costs of judicial proceedings in the amount of CZK 2.5 million.

On the basis of qualification agreements with 21 employees, the Ministry paid school fees and study expenses in the amount of CZK 880,000. However, the law stipulates that the Ministry should only utilize the state budget funds to satisfy its essential needs and carry out provisions based on legal regulations. Tuition fees do not qualify to any of the stipulated expenditures of the organisational unit of the state, therefore the Ministry violated the budgetary regulations when covered these fees. The SAO has informed the appropriate tax administration authority of the ascertained violation of the budgetary regulations.

For further details about the auditing operation No. 12/15 (in Czech only), see the following link: (pdf 309 kB).

1) The maximum allowable ratio of bad evidence that the users of reports can treat as still acceptable was defined as 2 % of the value that best represents the scope of the financial activities of the Ministry of Agriculture for the given accounting year. That was CZK 894 million in 2011.

Communication Department
Supreme Audit Office

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