Ministry of Finance unsuccessful in managing the foreign debt

PRESS RELEASE on Audit No. 13/10 – February 10, 2014

The Supreme Audit Office (SAO) examined the procedures used by the Ministry of Finance to manage and recover the Czech Republic’s receivables of civilian nature. The amount of receivables exceeded CZK 122,000 million by the end of 1998.

The amount of receivables dramatically fell and by the end of 2012, the Ministry was managing receivables amounting to just over CZK 16 billion. In the years under review, i. e. in 2011 and 2012, the Ministry collected only CZK 299.3 million in total.

The Ministry concluded agreements on the collection or sale of some receivables (unblocking agreements), which ensured either collection of receivables by a third party or sale of receivables to a third party. During the audited period 2011–2012, the Ministry concluded 11 such agreements. The SAO scrutinized seven of these unblocking agreements and revealed that the unblocking agents were selected without tendering. The concluded agreements, despite pertaining to high amounts, did not contain any collection clauses.

The nominal amounts of receivables that the Ministry gradually assigned to unblocking agents were worth tens of millions of USD, but the amounts collected were minimal. In fact, in four cases no payment was collected. For example, the Ministry assigned receivables in the amount of USD 20 million owed by the Russian Federation to a specific unblocking agent in 1999. The unblocking agent’s registered capital only exceeded to CZK 100,000 but the agreement did not contain any guarantee. The Ministry was supposed to obtain USD 15 million but later agreed to get only USD 5 million. The unblocking agent failed to pay any amount and in the end, the Ministry allowed the receivables to become statute-barred.

In connection with the management of the foreign receivables, the Ministry used specific banking services, for which it paid CZK 14.1 million in 2012. The scope of the banking services varied, however, with regard to the various receivables. In most cases, however, the services only constituted account maintenance and the dispatch of reports to the Ministry. Therefore, there is clearly no justification for the maintenance of certain accounts with respect to certain receivables and, thereby, the need to pay for the maintenance of such accounts.

The Ministry also did not proceed in the most economical manner and breached budgetary discipline when it expended over CZK 2.2 million in 2006 and 2007 on a foreign receivables information system, which, however, was never used. The project was scrapped in 2011 with the explanation that it had been financially inefficient and ineffective for the users.

The SAO informed respective financial authorities about the revealed facts as they were in facts cases of violation of budgetary regulations. The total violation amounted to CZK 2.6 million. Based on the findings from the audit, the SAO also filled a criminal complaint about violation of duties related to management of assets.

Communication Department
Supreme Audit Office

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