Annual Report for the year 2018 - NKÚ

MARCH 2019

ANNUALREPORT

2018

Czech Republic | Supreme Audit Office | Annual Report 2018

THE SAO IN 2018

31

31

17

17

171

121

79.6%

357

842

43

29

CZK million

completed audits

audited en��es

no�fica�ons of breaches of budgetary discipline

audit reports discussed by the Czech Government

audit reports discussed by the Chamber of Depu�es Control Commi�ee

recommenda�ons of a systemic nature

measures adopted by audited en��es

criminal complaints

submissions from ci�zens

cases where the law enforcement authori�es requested coopera�on

in no�fica�ons of breaches of budgetary discipline

rate of SAO sa�sfac�on with adopted measures

11

State as at 31 December 2018

Annual Report for the year 2018 3

Content

Opening message from the SAO president ............................................................................... 5

I. Status and Powers of the SAO .......................................................................................... 6

1. BasicinformationonthestatusandpowersoftheSAO ......................................................... 6

2. SAOBoard................................................................................................................................ 7

3. SAOmanagement .................................................................................................................... 9

4. MissionandbenefitsoftheSAO’swork ................................................................................ 10

5. Auditplanfor2018 ................................................................................................................ 10

II. Assessment of Audit and Analysis Work in 2018 ............................................................. 12

1. Openingsummary ................................................................................................................. 12

2. Publicfinances ...................................................................................................................... 17

3. Staterevenues ...................................................................................................................... 23

4. Governmentexpenditureareas............................................................................................ 28

4.1 EfficientpublicadministrationandeGovernment ...................................................... 29

4.2 Research,developmentandinnovation ...................................................................... 32

4.3 Transport ..................................................................................................................... 35

4.4 Enterprise .................................................................................................................... 41

4.5 Housing ........................................................................................................................ 45

4.6 Healthcare ................................................................................................................... 49

4.7 Environment ................................................................................................................ 53

4.8 Agriculture ................................................................................................................... 58

4.9 Education ..................................................................................................................... 60

4.10 Culture ......................................................................................................................... 63

4.11 Defenceandsecurity ................................................................................................... 65

5. Institutionalmanagement .................................................................................................... 69

5.1 Institutions’financialmanagement ............................................................................. 69

5.2 Publicprocurement ..................................................................................................... 75

5.3 ManagementoffundsprovidedtotheCzechRepublicfromabroad ......................... 82

6. SAOopinionsonthestate’sfinancialreporting .................................................................... 87

6.1 OpinionontheDraftStateClosingAccount ............................................................... 87

6.2 Opinionsonthestate’sfinancialreporting .................................................................. 87

6.3 Promotinggoodaccountingandauditpractice ........................................................... 91

III. FinancialEvaluationofAuditWork ................................................................................ 93

1. Overallfinancialevaluationofaudits ................................................................................... 93

2. DischargeofthenotificationdutypursuanttoActno280/2009Coll.,thetaxcode ........... 93

4 Annual Report for the year 2018

IV. AssessmentofOtherActivities ....................................................................................... 94

1. Cooperationwiththecriminaljusticeauthoritiesin2018 .................................................... 94

2. Opinionsondraftlegislationin2018 ..................................................................................... 94

3. Internationalcooperation .................................................................................................... 95

4. TheSAO’sworkinrespectofthepublic .............................................................................. 104

4.1 ProvisionofinformationpursuanttoActno106/1999Coll., onfreeaccesstoinformation..................................................................................... 104

4.2 Citizens’submissions .................................................................................................. 105

5. ManagementoffinancesallocatedtotheSAObudgetchapterin2018 ............................. 106

5.1 ImplementationofmandatoryindicatorsoftheSAObudgetchapter ...................... 106

5.2 Claimsfromunusedexpenditure ............................................................................... 107

5.3 Expenditureonassetreplacementprogrammefinancing ......................................... 107

5.4 InformationonexternalauditsintheSAO ................................................................. 108

5.5 Mandatoryaudit......................................................................................................... 108

6. Internalaudit ....................................................................................................................... 109

7. SAOstaffing ......................................................................................................................... 111

8. OrganisationalstructureoftheSAO ................................................................................... 115

Annexes

Annex1-AuditsincludedintheAuditPlanfor2018 .................................................................. 116

Annex2-OverviewofauditswithapprovedAuditReportsduring2018 ................................... 120

Annex3-Overviewofauditswhoseapprovedauditreportswerediscussed bytheCommitteeonBudgetaryControloftheChamber ofDeputiesofParliamentin2018................................................................................ 124

Annex4-Overviewofauditswhoseapprovedauditreportswerediscussed bytheCzechGovernmentin2018 ............................................................................... 130

Listofabbreviations ..................................................................................................................... 134

Annual Report for the year 2018 5

Opening message from the SAO president

Dearreaders,

inadditiontoitsstandarddutiesatnationallevel,theSupremeAuditOfficewasfullyengagedininternationalactivitiesin2018.WehavebeenchosenbyEUROSAI,theinternationalorganisationof50auditinstitutions,tobethenextpresidencycountry.Thatmeansthatwearepreparingthe2020EUROSAICongressinPrague,ahighlyimportantandprestigiousinternationaleventatwhichwewilltakeovertheorganisation’spresidencyforthecomingthreeyears.

Our office’s 3C – Comparison, Cooperation and Communication projectmetwith success. Theidea is quite simple.We live in a dynamically evolvingworld facing new threats, ranging fromthesustainabilityoflifeonourplanet,globalwarming,andenergy,waterandfoodshortagestofundamentalchangesinsociety,ageingpopulationand,say,thesearchforsourcesoffundingforpublicservices.

Every country has to wrestle with these issues, and the role of courts of auditors and auditinstitutions is no longer limited to coming upwith answers at the national level.Wewant tofind examples of good practice in countries tackling similar problems;wewant to showwhatresultsthesecountriesachievedandhowtheyachievedthem–inshort,everythingwecandrawinspirationfrom.Sharingthisinformationandthesepracticesproducesafundamentalchangeinthequalityofthemessagessupremeauditinstitutionstransmittosociety.Andthatisourpriority–ensuringourresultsareasusefulaspossible.

The SupremeAuditOffice’s annual report contains a number of such comparisons. Unlike theprivate sector,which adaptsdynamically to change, thepublic sector lags significantlybehind.In2018theWorldEconomicForumrankedtheCzechRepublic’scompetitiveness29th out of 140 assessedcountries,but intermsofpublicsectorperformancetheCzechRepublicwasdown in97thplace,behindcountrieslikeMoldova,UkraineorRomania.

Thiscomparisonisawarningtothepublicsectorthatthepublicadministrationisnotpreparedfordynamicchangesinsocietyandtheadjustmentsithasmadetodateareoftenmerelycosmetic.

Adapting to dynamic changes is difficult at any time. The first step towards finding a solutionis recognising the gravity of the situation. Realising that we have a cumbersome state that isincapableofcompletingthemotorwaynetwork.Astate thathas failed to respondto thebarkbeetlecalamity.Astatewherethegapbetweenthecentreandtheperipheryiswidening.Astatewithashortageofaffordablehousing.Andthatthisisthecasedespitethelargesumsofmoneythatareoftenspentontheseareas.

Let’s takea lookatourcloseneighboursormoredistantcountriestoseehowtheyfacetheseandotherchallenges,andhowtheydealwiththem.Governmentregulation,itsneedandeffect,shouldbeevaluated;thelegalframeworkanditseffectivenessindisputeresolutionneedstobeexamined; andGovernment interventions should be designedwith respect to the cost-benefitratio.

Let’smakeourstatemoredynamicandeffective.

Miloslav Kala, SAO president

6 AnnualReportfortheyear2018,StatusandPowersoftheSAO

I. Status and Powers of the SAO

1.BasicinformationonthestatusandpowersoftheSAO

TheexistenceoftheSupremeAuditOffice(SAO)isrooteddirectlyintheConstitutionoftheCzechRepublic,whichguaranteesitsindependencefromthelegislative,executiveandjudicialpowers.TheSAOthusrepresentsoneoftheindispensableelementsofparliamentarydemocracy.

More detailed rules on the status, powers, organisational structure andwork of the SAO arecontainedinActno166/1993Coll.,ontheSupremeAuditOffice(theSAOAct).UnderthisAct,theSAOmainlyscrutinisesthemanagementofstatepropertyandfinancescollectedbylawinfavouroflegalpersons,theimplementationofrevenueandexpenditureitemsofthestatebudgetandthemanagementoffundsprovidedtotheCzechRepublicfromabroad.

The SAObodies are the President andVice-President, the Board, Senates and theDisciplinaryChamber. In the interest of ensuring objectivity in the assessment of audit findings and infundamentalquestionsconcerningtheSAO’sauditpowers,theSAOBoardandsenatesdecideascollectivebodies.

TheSAO’sindependenceguaranteesthatitisnotinfluencedbythelegislature,theexecutiveorthejudiciarywhenplanning,preparingandconductingauditwork.Besidesinstitutionalindependence,theSAOhasappropriatefinancialautonomyaswell.ThedecisivebodyinthisareaistheChamberofDeputies,whichapprovesthestatebudget,includingtheSupremeAuditOfficebudgetheading.

ThebasisfortheSAO’sauditworkisitsauditplan.AfterbeingapprovedbytheSAOBoard,theauditplanisputbeforetheSAOpresident;itispresentedtotheCzechParliamentandGovernmentfortheirinformationandpublishedintheSAO Bulletin.Auditworkresultsinauditreports,whichsummariseandassessauditfindings.AuditreportsareapprovedbytheBoardortheappropriatesenatesoftheSAO.

Under its defined powers the SAO performs audits in linewith its audit standards,which arebasedontheinternationalstandardsofsupremeauditinstitutions.TheSAOperformscompliance,financialandperformanceaudits.

TheSAO’scomplianceauditscheckwhethertheauditedactivitiescomplywiththelawandreviewthesubstantialandformalcorrectnessoftheauditedactivitiesinthescopenecessaryforachievingtheauditgoals.

The SAO’sfinancial audits checkwhether theauditedentities’financial statements give a trueandfairviewofthesubjectofaccountinginaccordancewiththelaw.ThistypeofauditisatoolforverifyingtheaccuracyofinformationthatispresentedintheclosingaccountsofstatebudgetheadingsandwhichtheSAOuseswhenformulatingitsopinionsonthedraftStateClosingAccount.

TheSAO’sperformanceauditsassesstheeffectiveness,efficiencyandeconomyoftheuseofstatebudgetfinances,statepropertyorotherfinancestheSAOauditsinlinewithitspowers.

AnnualReportfortheyear2018,StatusandPowersoftheSAO 7

2. SAO Board

The SAO Board is composed of the President, the Vice-President and Members of the SAO.TheSAOBoardapprovestheauditplan,auditreports,thedraftbudgetoftheSAOsubmittedtotheChamberofDeputiesoftheParliamentoftheCzechRepublic,theclosingaccountoftheSAObudgetchapterandtheSAOfinancialstatementscompiledforthethebalance-sheetdate.TheSAOBoardalsoapprovestheAnnualReport,theSAOBoard’sandsenates’rulesofprocedure,theorganisationalrulesandchangestheretoandthedisciplinaryrules.Itdecidesonappealsagainstdecisionsonobjectionstoauditprotocolsandonobjectionsclaimingbias.

Members of the SAO Board; from left: Mr Jan Kinšt, Mr Jiří Kalivoda, Mr Adolf Beznoska, Mr Jan Stárek, Ms Zdeňka Horníková, Mr Pavel Hrnčíř, Mr Miloslav Kala, Mr Vladimír Koníček,

Mr Josef Kubíček, Mr Jan Vedral, Ms Jaromíra Steidlová, Mr Roman Procházka, Ms Hana Hykšová, Mr Daniel Reisiegel, Mr Jan Málek, Mr Petr Neuvirt.

MembersoftheSAOcarryoutauditworkanddrawupauditreports.Theymanageauditsfromtheauthorisationtoperformaudittotheapprovalofauditreports.Inthefollowingoverview,auditswhoseauditreportswerepublishedin2018aremarkedinblueandauditsnotcompletedin2018areingreen.1

TheChamberofDeputiesoftheParliamentoftheCzechRepublic(“theChamberofDeputies”)electedMrJanKinšt,MrVladimírKoníčekandMrRomanProcházkatothepositionofaMemberoftheSAOin2018.

1 IntheAnnualReport,auditsarereferredtobythenumberunderwhichtheyarelistedintheauditplanforthegivenyear.Thetextsoftheauditreportspublishedin2018canbefoundintheSAO Bulletin.


Table 1: Overview of audits conducted in 2018

SAOMember Membersince

NumberofauditsmanagedbytheSAO

Memberupto theendof2018

AuditsmanagedbytheSAOMemberin2018

Completed Notcompleted

MrJiříAdámek Apr 25, 2001 46 17/3217/33 –

MrAdolfBeznoska Mar 14,2017 4 17/1718/10

18/1818/28

MrPavelHrnčíř Dec 11, 2009 2217/2618/0118/02

18/27

MsHanaHykšová Feb13,2014 12 17/0217/25

18/0618/35

MrJiříKalivoda Sept17,1993 70 17/1217/27

18/1918/22

MrJanKinšt Jan25,2018 3 – 18/3318/34

MrVladimírKoníček Dec 4, 2018 0 – –

MrJosefKubíček Jun10,2014 13 17/2118/12

18/0818/2918/32

MrJanMálek Jun21,2016 817/0917/3517/36

18/1618/2118/24

MrPetrNeuvirt Dec 21, 2010 2917/1517/2318/04

18/1718/23

MrRomanProcházka Jan25,2018 1 – 18/36

MsHanaPýchová Oct24,2014 817/1317/1617/20

–

MrDanielReisiegel Apr 30, 2010 25 17/2417/34

18/0518/0718/31

MrJanStárek Jun4,2015 9 17/1917/29

18/1118/1418/2018/30

MsJaromíraSteidlová Nov16,2006 2817/1817/31

18/15*

18/1318/25

MrJanVedral Apr 25, 2001 5517/1417/2217/30

18/0318/0918/26

*Auditno18/15wasremovedfromtheauditplanbySAOBoardResolutionno4/VI/2018ofMay21,2018.

https://www.nku.cz/assets/kon-zavery/K17032.pdf
































3. SAO management

TheSAOmanagementconsistsofemployeesdirectlysubordinatetotheSAOPresident.ThesearetheSeniorDirectorof theAuditSection, theSeniorDirectorof theAdministrativeSection, theDirectoroftheSAOPresident’soffice,theBoardsecretary,theDirectoroftheSecurityDepartmentandtheDirectoroftheInternalAuditDepartment.

From left: Mr Radek Haubert, Senior Director of the Administrative Section; Ms Alena Fidlerová, Secretary of the SAO Board; Ms Zdeňka Horníková, SAO Vice-President;

Mr Miloslav Kala, SAO President; Ms Zuzana Čandová, Director of the President’s Office; Ms Jana Ermlová, Director of the Security Department; Ms Ladislava Slancová, Director of the Internal

Audit Department; Mr Stanislav Koucký, Senior Director of the Audit Section.


4. MissionandbenefitsoftheSAO’swork

TheSAOcontinuestobealong-termreliableandtrustworthypartnerandproviderofindependentandobjectivefeedbackonthefunctioningoftheCzechRepublic.TheSAO’smission2istoprovideobjectiveinformationonthestate’smanagementofpublicfundsandproperty.ThisinformationisnotjustimportanttotheSAO’skeypartners,i.e.theCzechParliamentandtheCzechGovernmentas the bodies responsible for the correct control and management of public funds: it is alsonecessaryforthegeneralpublicandthefunctioningofexternalcontrolassuch.

Inlinewithitsstrategy,theSAOfocusesmainlyonthoseareasthatpresentariskintermsoftheCzechRepublic’s currentand futuredevelopmentandcompetitiveness.Outputs in the formofauditreports,statementontheimplementationofthestatebudget,opinionsonthestateclosingaccountsandotheroutputsoftheSAO’sworkprovideinformationonthelegality,effectiveness,economyand efficiencyof public spending. The SAO’s objective, targeted and comprehensiblereportsandrecommendationsleadtotheremedyofshortcomingsandtoapositiveshiftinthemanagementofpublicfundsandproperty,withthepromotionofgoodpracticeinthatfield.

Themost importantbenefitsoftheSAO’sworkincludemakingtheconcernedbodieseliminateidentified shortcomings andmaking the responsible authorities adopt systemicmeasures. Theresults of audits also have an important preventive effect on other entities not targeted by aparticular audit, encouraging them toavoid similarmanagementand control errors, aswell asimprovingaccountabilityinpublicadministrationandtheenforceabilityofthelawingeneral.Thatis linkedtotheresultsoftheSAO’sworkinthefieldofassessingtheworkingof legislationandmaking legislativerecommendations.Lastbutnot least,andalthoughit isnottheprimarygoalofauditwork,theSAOdeliversakeyimpactintheformofcarryingoutitsobligationtoreportincaseswhereitidentifiesabreachofbudgetarydisciplineorfactsindicatingcommissionofacrime.

5. Audit plan for 2018

TheSAOauditplan,whichisthefundamentalbasisfortheperformanceofauditwork,determinesthefocusandtimingofauditsinthebudgetaryyear.ItisakeytoolforexercisingtheSAO’sauditpowersinlinewiththeSAOAct.TheSAO’sauditplaniscompiledindependentlyinlinewiththeSAO’spowersguaranteedbytheConstitutionoftheCzechRepublic.TheSAO’sindependenceisalso

2 TheSAO’smissionispartoftheStrategy of the Supreme Audit Office for 2018–2022.


exercisedinaccordancewiththebestpracticeofauditworkdonebysupremeauditinstitutionsinlinewiththekeyprinciplesofINTOSAI3.TheConstitutionoftheCzechRepublic,theSAOActandinternationalpracticearethefundamentalpillarsunderpinningtheexerciseofitspowers.

WhencompilingtheauditplantheSAOfocusesmainlyonthoseareasthatareimportantforthelivesofcitizens,theefficiencyofpublicadministrationandtheCzechRepublic’scompetitivenessininternationalcomparison.Forthatreason,theSAOmainlyappliesarisk-basedapproachwithaviewtoidentifyingrealrisksinareaswherethereisalikelihoodthattheprinciplesofeffectiveness,efficiencyandeconomywillnotberespectedorthelawwillbeviolated.TheSAO’sultimategoalisnotmerelytofindshortcomingsinthestate’sfinancialmanagement:aboveall,itistoimprovefinancialmanagementintherelevantareasbasedonmeasurestoremedytheshortcomings.

This endeavourplayed a central role in the compilationof the audit plan for 2018. The auditsincludedinthe2018auditplanwerebasedlargelyonsuggestionsarisingoutoftheSAO’sownindependentmonitoringandanalysiswork.Theplanalso featured twoauditsdesignedon thebasisofexternalinstigationsfromtheChamberofDeputiesandtheSenateofParliamentoftheCzechRepublic.

ProblemareastargetedbytheSAO’s2018auditplanincluded:

• staterevenuesfromthetaxationoflabourandenvironmentalpolicy;• thedigitisationoftaxproceedings;• statesupportforenterprise,researchandinnovation;• developmentoftheroadsandwaterwaysinfrastructureandsupportforregionaltransport;• investmentandmanagementofpropertyinthedefencesector;• statesupportforthenon-profitsectorandthefightagainstpoverty;• statesupportinsocialservicesandyouthemployment;• statesupportinthefieldofairqualityandmeasurestomitigatetheimpactofdrought;• managementofpublichealthinsurancefinances;• statesupportforregionalhealthcare;• digitalisationofeducationinschools;• statesupportforagriculturalproduction;• statesupportinthefieldofcrimeprevention;• reliability of financial information through which institutions are accountable for state

budgetfinancesmanagement.

Anumberofthesetopicsarepartofthelong-termstrategicareasoftheSAO’sauditwork.TheyarealsokeyareasofGovernmentpolicy.

Theauditplanfor2018wasapprovedbytheSAOBoardatits23October2017session.32auditswereapprovedintotal.During2018oneauditwascancelledandfourotherauditswereadded,makingatotalof35 audits.

Anoverviewof theaudits included in the2018auditplan,and their specific focusandtiming,ispresented inAnnex1.Theauditswerecommenced in sequenceduring theyear in linewiththetimetable.Depending on the start time and audit duration, the planned completiondates(i.e.approvaloftheaudits’auditreports)arein2018and2019.

3 The Mexico Declaration on SAI IndependenceapprovedbytheXIXCongressoftheInternationalOrganisationofSupremeAuditInstitutionsinMexicoin2007;ISSAI10.

12 AnnualReportfortheyear2018,AssessmentofAuditWork

25

4

11 10

18

hospodaření se státním majetkem a finančními prostředky vybíranými na základě zákona ve prospěch právnických osobs výjimkou prostředků vybíraných obcemi nebo kraji v jejich samostatné působnos�státního závěrečného účtu

plnění státního rozpočtu

hospodaření s prostředky poskytnutými České republice ze zahraničí a s prosředky, za něž převzal záruky stát

zadávání státních (veřejných) zakázek

II. Assessment of Audit and Analysis Work in 2018

1. Opening summary

Theassessmentofauditandanalysisworkpresentedinthissectionisbasedmainlyontheresultsofauditsthatwerecompletedin2018whentheirauditreportswereapprovedbytheSAOBoard.In addition, the assessment draws on findings from the SAO’s statements on the Draft StateClosingAccount for2017(“SCAstatement”or“SCApositionstatement”)andonthereportoneconomicdevelopmentand the implementationof theCzech statebudget for thefirsthalf of2018,informationfromEU Report 2018 andotherfindingsfromtheSAO’sanalysisandmonitoringwork.

In 2018, 31 auditswerecompleted,with26ofthemlaunchedin2017inlinewiththeauditplanand5in2018. TheauditsimplementedtheSAO’smandateinvarioussegmentsofitscompetenceaccordingtoSection3oftheSAOAct,asshowninChart1.TheauditscoveredallsegmentsoftheSAO’scompetenceexceptforfinancialmanagementbytheCzechNationalBankandtheissuanceandamortisationofGovernmentsecurities4.Anoverviewofauditscompletedin2018isgiveninAnnex2.Theauditsmainlytargetedthe2014–2017period.

Chart1:NumberofauditsbysegmentsoftheSAO’scompetencein2018

NB:Oneauditmaycoverseveralsegmentsofcompetence.

4 TheseareareasauditedbytheSAOatlongerintervals.

managementofstatepropertyandfinancescollectedbylawinfavourof legalpersonswiththeexceptionoffinancescollectedbymunicipalitiesorregionsundertheirindependentjurisdiction;

stateclosingaccount

implementationofthestatebudget

managementoffinancesprovidedtotheCzechRepublicfromabroadandoffinancesforwhichthestatehasassumedguarantees;

publicprocurement

UnderSection3ofActno166/1993Coll.theSAOaudited:

Num

bero

faud

its

AnnualReportfortheyear2018,AssessmentofAuditWork 13

Thecompletedauditsscrutinisedpropertyandfundsat171auditedentitiesinlinewiththefocusandgoalsoftheaudits.TheauditedfinancesandpropertyofthestatewasworthCZK 114 billion. Insystemicterms,theauditscoveredstatefinancesandpropertyamountingtoCZK 1,216 billion. 29notificationsofabreachofbudgetarydisciplinewithafinancialvalueofatleastCZK 842 million and11criminalcomplaintswerefiled(asdetailedinSectionIII).

171 auditedentities

31 completed audits

43 recommendationsofasystemicnature

17 auditreportsdiscussedbytheChamberofDeputiesControlCommittee

121 measuresadoptedbyauditedentities

31 audit reports discussed by the Czech Government

79.6% rateofSAOsatisfactionwithadoptedmeasures

CZK 842 million innotificationsofbreachesofbudgetarydiscipline

11 criminal complaints

TheSAOregardsthediscussionofauditreportswithkeypartners intheCzechParliamentandGovernmentascrucialforpromotingtheresultsofaudits.TheChamberofDeputiesCommitteeonBudgetaryControldiscussed17auditreportsin2018.TheGovernment’sdiscussionofauditreportswaskey.Havingdiscussed31auditreportsandtheidentifiedshortcomingsandsystemicrecommendations,theGovernmentimposed121correctivemeasures,whichtheSAOjudgedtobefullyorpartiallysatisfactoryfortheshortcomingsorrecommendations.Ifeffectivelyimplemented,thesemeasuresshouldhelpimprovethestate’sfinancialmanagementinthegivenareas.TheSAOcanthusdeclarethatthedegreeofsatisfactionwiththeadoptedmeasuresasevaluatedbytheSAOwasalmost80%.

TheaboveshowsthattheSAOscrutinisedasignificantportionofpublicfundsin2018anddeliveredsignificantbenefits,bothfinancialandnon-financial.However,itismainlythetangibleresultsoftheSAO’sauditandanalysisworkprovidingvaluableobjectiveinformationonthestate’sfinancialmanagement that liebehind thefigurespresentedabove.Every suchoutput shouldbeagoodopportunitytoputthingsrightwherevertherearedeficiencies.

TheSAO’sfindingspoint to the followingkey strengthsandweaknesses in the state’sfinancialmanagementinthepreviousperiod:

Strengths

+ State budget surplus in 2018 + Favourable economic growth in the Czech Republic + Low rate of unemployment, pay growth in private and public sectors + FallingGovernmentdebtandsmallershareofgrossdomesticproduct + Significantincreaseinstatebudgettaxrevenuesasaconsequenceofpositive

economic growth factors + Year-on-year increase in state budget investment expenditure + Faster drawdown of revenues and expenditure from the EU/FM budget for the 2014+

programming period + CzechRepublicfulfilledthefinancialindicatorfordrawdownofEuropeansubsidies

for 2018


Weaknesses

– Planningastatebudgetdeficitatatimeofeconomicgrowthandpoorquality ofthebudgetingprocess

– Soaringstatecurrentexpenditureandrelatedriskofunsustainablepublicfinances in the future

– Taxadministration‘sinsufficientpreparednessforthegrowthine-commerce – Insufficienttaxstreamliningandsimplificationfortaxpayers – Fragmentationoftheresearch,developmentandinnovationsupportsystem;

CzechRepublic‘sresultslagbehindbyinternationalbenchmarking – Slowexecutionofstrategicinvestmentsinroadsinfrastructureandinsufficientprogress

inspeedingupauthorisationprocessesforconstructionprojects – UneconomicalspendingonMoLSAinformationsystemsandcontinuingdependency

on suppliers – FailuretoimplementmeasurestoimproveairqualityandachievetheCzechRepublic‘s

energyefficiencytargets – StructureandvolumeofrealestatedonotcorrespondtotheCzecharmy‘sneedsand

puts a needless burden on the state budget – Littleuseofcentralisedprocurementinstateadministrationtocutcostsandreduce

paperwork – Failuretomakeuseofpublicprocurement‘spotentialtodeliversavingsinpurchasing

byuniversityhospitalsandnon-transparentuseoffinancialbonuses – Supportforlargefoodindustryfirmstothedetrimentofsmallandmedium-sized

agricultural enterprises – Absenceofmeaningfulevaluationoftheeffectivenessofsupportforindustrialzones

andcompetitivenessofsmallandmedium-sizedenterprises – Poordesignofthehousingsupportsystem;poorcoordinationofhousingsupporttools

andincreaseinsociallyexcludedlocalities – Unsystemicfundingofrepair,modernisationanddevelopmentof2ndand3rdclassroads;

statesubsidiesdeliverinsufficientimprovementsinroadquality – Statesubsidieshavelittleimpactontheconditionofrailrollingstock;failuretocomply

withthetimetableforopeningupthepublicrailtransportmarket,asatoolforoptimisingstate expenditure

– Insufficientuseofaccountinginformationonmanagementofstatebudgetfinances,whichsubstantiallyreducesthebenefitsofaccountingreform

Favourable economic growth and state budget results in 2018.

The 2018 results showed that the Czech Republic was doing well. The period of economic growthwasreflectedinpositivemacroeconomicdatalinked,forexample,togrowthingrossdomesticproduct(GDP)andinfinalhouseholdconsumption,fallingunemploymentandafallinGovernmentdebt as aproportionofGDP. Thehighdomestic consumptionwasdrivenbypaygrowthintheprivateandpublicsectorsandbyincreasingpublicsectoractivity,reflectedin rising state revenues, especially tax revenues and revenues from social security insurance payments.

Thestateachievedapositiveresultintheimplementationofthestatebudgetin2018,withtheoriginallyplannedstatebudgetdeficitofCZK 50 billion becomingaCZK 2.9 billion surplus.Besidesthepreviouspositiveinfluencesmentioned, increasedrevenuesfromtheEU/FMbudget,betterdrawdownoffinancesforprojectsfundedoutofoperationalprogrammesandbetterdrawdown


ofinvestmentfinancesalsoplayedarole.Despitethepositiveyear-on-yearincreaseininvestmentspending in2018,however, its share in totalbudgetexpenditure continues to fall shortof thevaluesfromtheperiodoftheeconomiccrisis.TheswifterutilisationofEU/FMbudgetfundsattheendoftheyearneverthelessremainsslightlybelowtheEUaverage.

Long-termsystemicobstaclesendangerthefuturesustainabilityofpublicfinances.

The excellent macroeconomic and state budget developments have long concealed systemic obstacles, however, which will impactontheCzechRepublic’sfutureresultsandcompetitiveness.The favourable state budget results for 2018 are no guarantee of healthypublicfinancesinthelongerterm.TheSAOhaspointedoutthatcurrentexpenditureisrisingandlittleprogresshasbeenmade towards both strategic investments and important reforms – these still largely exist on paper in conceptual or strategicdocumentsinsteadofbeingputintoeffect. Othernegativefactorsincludeinefficienciesinthestate’sfinancialmanagementandthepoorperformanceofstateadministrationincertainfields.

In 2018 the Czech Government was also warned about the long-term sustainability of publicfinances by theNational Budget Council,which regards the discrepancies between legislation,futuredemographicdevelopmentsandthedeferringofpensionreformasthechiefrisk.

AccordingtotheforecastfortheCzechRepublic’spopulationfrom2018to21005,therewillbe2.1millionpeopleagedover65inthecountryin2020and2.4millionin2030.

Aboveall,thestatehasfailedtomakeuseoftheperiodofeconomicgrowthtodrawupabudgetthatisatleastbalancedandtakesintoaccounttheprinciplesofeconomiccycles.Atthesametime,implementationofthestatebudgetishighlydependentoneconomicgrowthandunderestimatestheriskofincreasedcurrentormandatoryGovernmentspending.Thecompilationofthebudgetcontinues to be affected by inaccuracies, most notably the underestimation of revenues andfailuretorealiseexpenditure.Thatwasagainconfirmedbythepronounceddifferencesbetweentheapprovedbudgetandtheactualresults.AlthoughstatebudgetrevenuesincreasedbyalmostCZK 270 billion between 2014 and 2018, the planned state budget deficit decreased by justCZK 62 billion inthattime.ThedifferencebetweentheapprovedbudgetandrealitywasalmostCZK 53 billion in2018.AnothernegativeisthattheCZK 86.5 billion year-on-yearincreaseinstatebudgetcurrentexpenditureexceededtheCZK 84.8 billion increaseintaxrevenues,whichposesarisktothesustainabilityofstatebudgetfinancesinfuture.

Important reforms and strategic goals, e.g. simplifying taxes, streamlining tax administration for taxpayers, opening up thepublic rail transport market, developing the roads infrastructure, digitisation of public administration, improving air quality,achievingenergysavingsandsupportingsmallandmedium-sizedenterprise, are being deferred.

Oneexampleofthisintransportinfrastructureisthefactthatthemotorways network grewby less than 4 km in 2018. Significantprogresswasnotachievedinthestreamliningoftaxadministrationfor taxpayers: the act on income tax was not simplified, andcompaniesintheCzechRepublichavetospendconsiderablymoretimeonfulfillingtheirtaxobligations.

5 Published by the Czech Statistical Office in November 2018; https://www.czso.cz/csu/czso/projekce-obyvatelstva-ceske-republiky-2018-2100.

In 2018 state budget current expenditure grew by more than CZK 86 billion, which outstripped the CZK 85 billion growth in state budget tax revenues.

Companies in the Czech Republic have to spend 40% more time on fulfilling their tax obligations than the EU and European Free Trade Association average.

https://www.czso.cz/csu/czso/projekce-obyvatelstva-ceske-republiky-2018-2100

https://www.czso.cz/csu/czso/projekce-obyvatelstva-ceske-republiky-2018-2100


The poor quality of management and control by the responsible authorities hindersthe achievement of the goals of numerous state policies.

Thestate’sfinancialmanagementalsofailedtomovetowardsgoodpracticeinotherareaslinkedtothestandardofmanagementandcontrolbytheresponsibleauthorities.Theupshotisthatinanumberofareasstateadministrationisnoteffectiveatfulfillingthestate’sindispensableroleinmeetingsocialneeds.

Management and control errors in general are linked to a failure to take responsibility for effective,efficientandeconomicalmanagementofpublicfunds.Formalism,neglectofduties,growingbureaucracy,inefficientprocesses,inertiaand,inanumberofcases,afailuretoadoptmeasurestoremedyshortcomingsidentifiedbypreviousSAOauditspersist.Theunsatisfactorydesignoftheauditedentities’internalcontrolsystemsisoftenanotherreasonforthis.

Inadditiontotheabove,theSAOrepeatedlyfindsthat incertainareastherightconditionsfortheeffectiveworkingofGovernmentpoliciesarenot inplace.Thefundamentalproblemshereincludefragmentation,unclearpowersandresponsibilitiesof theconcernedbodies (e.g. in thesystemofsupportforresearch,developmentandinnovation);theabsenceofeffectivelegislationin certain areas (e.g. in support for social housing); haphazard or non-systematic approaches(e.g.tofinancingtherepair,modernisationanddevelopmentof2ndand3rdclassroads);andaboveall,inconclusiveassessmentoftheeffectiveness,efficiencyandeconomyofspendingintermsofresultsandbenefits(e.g.insupportforbusinessrealestateandinfrastructure).

Herewecangiveoneexamplefromthefieldofhousingsupport:EventhoughthestatespentoverCZK 230 billion onhousingsupportover20years, thestate’sevaluationof thebenefitsof thissupportprovideslittlemeaningfulinformation.Thesocialhousingsupportsystemisfragmented,withunclearlydefinedpowersandresponsibilitiesforthevariousbodies,includingmunicipalities,and the MoRD, as the ministry responsible for this policy, does not have the right tools tocoordinatethevariousbodies’measures.Theupshotisthatinsteadofaddressingthecausesitistheconsequencesthataredealtwith,sincethenumberofexcludedlocalitiesandthenumberofpeoplelivinginthemhaveincreasedmarkedly.

The performance of the Czech Republic’s public sector lags far behind in internationalcomparisonandhindersthecountry’soverallcompetitiveness.

ItisevidentthatthepoorperformanceofpublicadministrationrestrictstheCzechRepublic’soverall competitiveness. And that is confirmed by international comparison. According tothe regular ranking of countries’ competitiveness by the World Economic Forum’s Global Competitiveness Index (GCI),theCzechRepublicdidnotdotoobadlyin2018,comingin29th out of140assessedcountries,an improvementof threeplacesoverthepreviousyear’s ranking.However,publicsectorperformancehadanegativeimpactoncompetitiveness.Accordingtothe public sector performance indicator that is part of the overall GCI, the Czech Republic was down in 97th place. The Czech Republic is in 24th place out of the 28 EU countries (seechartno2).


Chart2:RankingsofEUcountriesininternationalcomparisonbypublicsectorperformance

0.010.020.030.040.050.060.070.080.090.0

ídeřtsorp ohlánoicutitsnI eletazaku atondoH

Source: The Global Competitiveness Report 2018; WorldEconomicForum2018; http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf.

Thefactors identifiedbytheWorld Economic Forum ascausingthebiggestproblemsforpublicsectorperformanceintheCzechRepublicincluded:

• burdensomeGovernmentregulation;• thefutureorientationofGovernment(i.e.thedegreetowhichGovernmentisadaptedto

electronictransactionforms,economicstabilityforenterprise,reactionstosocialchanges,demographicdevelopmentandhowlong-termtheGovernment’svisionis);

• theeffectivenessofthelegalframeworkforsettlingdisputes;• thelevelofe-participation,i.e.thestandardofonlineGovernmentservicesin

communicationwithcitizens;• budget transparency.

ManyoftheseaspectsareconfirmedbytheresultsoftheSAO’sauditandanalysiswork.

The followingpartsof this chapter takea closer lookat themain systemic shortcomings,withrecommendationsandother information structured in linewith theareas theSAO focusedoninthepreviousperiod.TheSAOtruststhattheywillhelpbetteridentifyandaddresstheexistingproblemsthatareimportantfortheCzechRepublic’scurrentandfuturedevelopment.

2. Publicfinances–thefavourableresultsofstatebudgetfinancesresultingfrom economic growth are no guarantee of the future sustainability of publicfinances

Based on its position statements on the Draft State Closing Account and reports on theimplementationofthestatebudget6,theresultsofauditandanalysisworkandup-to-datedatafor2018,theSAOmakescommentsonthedevelopmentoftheeconomicsituationandtheresultsofthemanagementofpublicfunds.

6 In2018,inaccordancewithSection5ofActno166/1993Coll.,ontheSupremeAuditOffice,theSAOsubmittedtotheChamberofDeputiesofParliamentoftheCzechRepublicitsStatement on the Draft State Closing Account of the Czech Republic for 2017 anditsStatement on the Report on the Implementation of the State Budget of the Czech Republic for the 1st half of 2018.

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http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf


Itisfairtosaythatthestateachievedpositiveresultsasregardspublicbudgetsandthestatebudgetin2018.Theimprovedresultsofthemanagementofstatebudgetfinanceswerecausedmainly by the expected economic growth,which continued to be driven by household finalconsumption expenditure. This spendingwas influenced both by consumer confidence and,above all, the high rate of employment, linked to pay growth and the ensuing increase in tax revenues, including social security contributions. The year-on-year increase in investmentexpenditureandexpenditureearmarkedforfundingprojectsoutofEUandFMresourcescanalsobewelcomed.Long-termsystemicshortcomingsinthecompilationandimplementationofthebudgetjeopardisethefuturedevelopmentofpublicfinances,however.

The Czech Republic’s economic growth continued in 2018, but signs of a slowdown in someimportanteconomicsectorscouldbeobservedduringtheyear.Thelabourmarketwasbecomeincreasinglytense,asithittheouterlimitsofitsutility.Unemploymentwas2.2%7 in 2018, yet the unsuitable structureof job-seekers’ qualifications is alreadybecoming a risk for the continueddevelopmentofcompanies,primarilythoseintheprocessingindustryandothertechnicalfields.

TheattainmentofastatebudgetsurplusofCZK2.9billionfor2018canberatedpositively,including its impact on reducing Government debt.

The state budget for 2018 approved by the Chamber of Deputies of Parliament of the CzechRepublic in the formof theActon theStateBudget8 set total revenuesatCZK 1,314.5 billion, totalexpenditureatCZK 1,364.5 billion,leavingadeficitofCZK 50 billion.Thedeficitplannedfor2018wasCZK 10 billion lowerthaninthepreviousyear.Actualtotalrevenuesin2018attainedCZK 1,403.9 billionandexpenditureCZK 1,401 billion,leavingasurplusofCZK 2.9 billion.

Table2:Statebudgetbalance,2013–2018 (CZKbillion)

Indicator 2013 2014 2015 2016 2017 2018Plannedbalance –100.0 –112.0 –100.0 –70.0 –60.0 –50.0Actualbalance –81.3 –77.8 –62.8 61.8 –6.2 2.9Difference 18.7 34.2 37.2 131.8 53.8 52.9

Source:MONITORinformationwebsiteandMoFpressreleaseof3.1.2019.

A much better balance than originally planned was also achieved in 2018. This trend ofconsiderable differences between plan and reality in recent years is indicative of poor-qualitybudgetcompilationmethods,wherestatebudgetrevenues(mainlytaxrevenues)areundervaluedinviewofeconomicdevelopment.Abetterstatebudgetbalancethanplannedcannotultimatelybe regarded as a success, as this reduces the predictability, transparency and effectiveness ofgovernmentspending.Intheyears2013–2018,forexample,thecumulativedifferencebetweenplanneddeficitsandtheactualstatebudgetresultsexceededCZK 300 billion.

Thecompilationofthestatebudgetcontinuestorelyonsustainableeconomicgrowthwithout making allowance for the principles of the economic cycle.

Even though the Czech Republic has displayed decent economic growth since 2014, the SAO has repeatedly pointed out that the Government has not yet been able to propose at least a balanced state budget. Although state budget revenues increased by CZK 270 billion between 2014 and 2018, the planned state budget deficit fell by just CZK 62 billion in that period.TheGovernment isalsoplanningbudgetdeficitsfor2019–2021. In2018theNationalBudgetCouncil9drewattentiontotheunsustainabilityofpublicfinancesinthecurrentsituationandthe risk of a debt trap in the long-term outlook.

7 AccordingtoCzechStatisticalOfficepreliminarydataasatFebruary19,2019.8 Actno474/2017Coll.,onthestatebudgetoftheCzechRepublicfor2018.9 Report on the Long-term Sustainability of Public Finances, NationalBudgetCouncil,October2018.


Thepossibilityoffalteringeconomicgrowthandtheresultingfallintaxrevenuesmakeitnecessaryto focus on the structure of the expenditure side of the state budget.However, the room forexpenditure“rationalisation”isconsiderablylimitedbymandatoryexpenditurewhichisfoundedinlawandcontractualobligationsandaccountsforapprox.55% oftotalspending.

Chart3:Totalandmandatoryexpenditure,2013–2017(CZKbillion)

1,173.1

1,211.6 1,297.3 1,219.81,279.8

669.3 685.1 687.7 689.9 704.8

57.1% 56.5%53.0%

56.6%55.1%

2013 2014 2015 2016 2017

Total expenditure (CZK billion)

Mandatory expenditure (CZK billion)

Share of mandatory expenditure (%)

Number of audits

Source:Stateclosingaccountsfor2013–2016,DraftStateClosingAccountfor2017.

Even though state budget finances were influenced by increased government investmentactivity,ministrieswerenotabletoexecuteasufficientvolumeofdefinedinvestmentprojects.Asdevelopmentssince2013show(seeChart4),theGovernmentdidnotmanagetoutilisethefinalbudgetforcapitalexpenditure.Despitethebetterresultin2018,when66.5% ofthefinalbudgetwasdrawndown,drawdownofthefinalbudgetforcapitalexpenditurehasnotreached75% once inthepastsixyears.

Theoveralldrawdownofcapitalexpenditureimprovedin2018asaresultofthedeadlinesetforthedrawdownofthealiquotamountofEUfundsforprojectco-financing.

Chart4:Capitalexpenditure,2013–2018(CZKbillion,%)

168 179

246

152 172175

102 112

176

84 82116

60.7% 62.2%71.4%

55.5%47.5%

66.5%

2013 2014 2015 2016 2017 2018

Final budget (CZK billion) Actual spending of the budget (CZK billion) Actual spending of the budget (%)

Source:StateTreasuryIntegratedInformationSystem.

Eventhoughcapitalexpendituretookagreatershareoftotalstatebudgetexpenditurein2018than inpreviousyears, capitalexpenditure’s resulting share (8.3%) falls shortof2013 to2015,asthefollowingchartshows.Capitalexpenditure’ssharewaslowereventhanithadbeenduringtheperiodofeconomiccrisis:in2009,forexample,it11.4%.


Chart5:Currentandcapitalexpenditureasaproportionoftotalexpenditure(%)

91.3% 90.8% 86.5% 93.1% 93.6% 91.7%

8.7% 9.2% 13.5% 6.9% 6.4% 8.3%

2013 2014 2015 2016 2017 2018

Current expenditure Capital expenditure


Thankstotheincreaseddrawdownofclaimsfromunusedexpenditure,inparticularunusedcapitalexpenditure,claimsfromunusedexpenditurefellbyCZK 36.5 billion asatJanuary1,2019.However,theSAOcontinuestoregardtheseclaims’magnitudeasariskforthefutureimplementationofthestatebudget.

Table 3: State of claims from unused expenditure as of 1 January in the years 2013–2019 (CZKbillion)

Indicator 2013 2014 2015 2016 2017 2018 2019Claimsfromunusedexpenditure 133.2 146.6 154.9 151.2 157.7 167.6 131.1

Source:Closingaccountsofstatebudgetchapters.

Theyear2018broughtanotherpronouncedyear-on-yearincreaseincurrentexpenditure,whicheven exceeded the year-on-year growth in tax revenues. The increasing current expenditure,combinedwithapossibleeconomicdownturnandtherelatedfallintaxrevenues,posesarisktothesustainabilityofstatebudgetfinancialmanagement.

Chart6:Year-on-yearchangesincurrentexpenditureandtaxrevenues,2013–2018(CZKbillion)

32.0 29.3 21.6

13.9

62.5

86.5

10.1

30.1

49.6

69.4

84.1 84.8

2013 2014 2015 2016 2017 2018

Year-on-year changes in current expenditure Year-on-year changes in tax revenues



Besides increasing mandatory expenditure on social benefitsand pensions, rising expenditure for salaries of public sectoremployees(e.g.civilservants,doctors,teacherset al.)hasamajorimpactonthegrowthofcurrentexpenditure.Inadditiontosalaryincrease, current expenditure is pushed up by the constantlyincreasing number of public sector employees. The number ofstate employees increasedbymore than18,000 between2013and2017.10

Chart 7: Expenditure on salaries and number of state employees

134.3 138.5147.1 151.4

166.6

413 595416 645

422 445 422 353

431 873

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

400 000

405 000

410 000

415 000

420 000

425 000

430 000

435 000

2013 2014 2015 2016 2017

CZK

billi

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Num

ber o

f per

sons

Expenditure on salaries and other payments for the performed work (CZK billion) Number of employees

Source:Stateclosingaccountsfor2013–2016,draftstateclosingaccountfor2017.

Governmentdebtfellin2018byCZK 2.7 billion year-on-yeartoCZK 1,622.0 billionanditsshareinGDP isalso falling thanks to theCzechRepublic’sgoodeconomicsituation.ThecompositionofGovernment debt has begun to change since 2014,with the internal debt increasing at theexpenseof the external debt.Government debt is themain component of public debt and asregards itsshare inthegrossdomesticproduct,theCzechRepublic isoneofthecountrieswiththesmallestshareintheEU.

Chart8:GovernmentdebtanditsratiotoGDP,2013–2018(CZKbillion,%)

1 683 1 664 1 6731 613 1 625 1 622

41.1% 38.6% 36.4%33.8% 32.2% 30.5%

2013 2014 2015 2016 2017 2018

Government debt (CZK billion) Government debt-to-GDP ra�o

Source:DraftStateClosingAccountfor2017andMoFpressreleaseonFebruary15,2019.

10 AccordingtodocumentationaccompanyingthedraftstatebudgetoftheCzechRepublicfor2019.

The number of public sector employees increased by more than 18,000 between 2013 and 2017 and the amount spent on salaries increased by more than CZK 30 billion. The public sector is supposed to swell by another 16,000 employees in 2019, with expenditure to increase by CZK 23 billion10.


Certainnegativefactorsthatpresentsignificantriskstohealthyandsustainablepublicfinancesastheprincipalobjectivesofbudgetaryresponsibilityhaveforlongimpactedonthemanagementofstatebudgetfinances.Thefollowingfactorsareparticularlyserious:

• failuretomakeuseofthepotentialofeconomicgrowthforputtinginplacetherightconditionsforthelong-termsustainabilityofpublicfinancesmakingallowancefortherulesoftheeconomiccycle;

• budgetcompilationmethodsthatresultinmarkeddifferencesbetweenplannedandactualrevenuesandexpenditure and undermine the predictability, transparency andeffectivenessofthemanagementofpublicfunds;

• the lack of a link between budget expenditure and performance indicators and measurable policy goals so that they are binding on the administrators of budget chapters;thatleadstoareductionin the budgetary responsibility of budget chapters´ administrators for the transparency, effectiveness,efficiencyandeconomyofthemanagementofpublicfunds;

• thepersistinginabilityofbudgetchapters´administratorstodrawdownplannedexpenditureforprogrammeandprojectfundinginconsequenceofprojects’andprocurementprocedures’insufficientpreparation,includinginefficientprocessesandineffectivelegislation;

• the lack of emphasis on responsible budgetary policy – the high dependency of budget implementationoneconomicgrowthandtheunderestimationoftherisksofthegrowthincurrentexpenditure(e.g.owingtopopulationageing,increaseinthenumberofpublicsectoremployees)andotherplannedexpenditure(e.g.discounts)withoutsecuringsources of funding.

In2018theSAOconductedoneaudittouchingonriskstothestatebudgetlinkedtoguaranteesprovided by the state11. Audit no 17/34 scrutinised whether the Ministry of Finance (MoF)proceededaccording to the lawwhenestablishing,keeping recordsofand implementingstateguaranteesandwhethertherulesformanagingreceivablesfromimplementedstateguaranteesaresetandfollowedinawayminimisingtherisksofstatebudgetlosses.TheSAO’skeyfindingswere:

• Attheendof2016theMoFregisteredguaranteesworthCZK 439 billion. In the years 2013 to2016thestatebudgetfinancesspent inconnectionwithstateguaranteesandcollateralamountedtoCZK 13.6 billion. In2017thestateofguaranteesfellsharplybyCZK 190 billion, largelybecauseofthereductionoftheguaranteeprovidedtotheCzechNationalBankforthesaleofInvestičníapoštovníbanka.Consequently,stateguaranteesamountedtoCZK 248 billion atyear-end2017.TheSAOidentifiedcertainminorshortcomingsintherecordingandreportingof stateguaranteesand theirdisclosure in thestateclosingaccount.Theauditalso found,however,thatinformationonthesizeofcommitmentsofcontributoryorganisationsforwhichthestateisliableunderthetermsofActno218/2000Coll.12 isnotpartofthestateclosingaccountorevenoftheclosingaccountsoftherelevantstatebudgetchapters.Accordingtoacalculationbytheauditteam,thesecommitmentsincreasedby42%between2014and2016toreachapprox.CZK 34 billionandconstituteapotentialriskforthestatebudgetiftheyhavetobecovered.TheSAOthereforerecommendseliminatingthisshortcominginthelegislationandmakingitobligatorytoprovideinformationaboutthesizeofthistypeofcommitment.Commitmentsofthestate’scontributoryorganisationsreachedalmostCZK 45 billionbytheendof2017;seeChart9,brokendownbyGovernmentdepartment.

11 Bymeansofguaranteesthestateassumestheobligationtopay,incertainsituations,thefinancialcommitmentofaspecificdebtorthestatedecidedtostandsuretyfor.Thesearestandardguarantees,mostcommonlyforCzechRailandtheRailTrackAdministration,andnon-standardguarantees,whichincludeguaranteeslinkedtothesaleofInvestičníapoštovníbanka,orstateguaranteeslinkedtoexportinsuranceandfinancing.

12 ActNo.218/2000Coll.,onthebudgetaryrulesandamendingcertainrelatedacts(thebudgetaryrules).

The state is planning state budget deficits in the coming years as well. A state budget deficit of CZK 40 billion is planned for 2019. The same deficit is envisaged for 2020 and 2021.

The state plans to spend CZK 6 billion on transport discounts for seniors and students in 2019.


Chart9:Commitments of contributory organisations established by individual ministries as at December 31, 2017

Ministryof Health

CZK 17 billion

Ministry of Educa�onYouth and Sport

CZK 9 billion

Ministry of TransportCZK 13 billion

Ministry of CultureCZK 1 billion

Other ministriesCZK 5 billion

NB:notincludingestimatedaccountspayable.Source:MONITORinformationwebsite.

3.State revenues – VAT administration does not guarantee the propercollectionoftaxone-commerce,eventhoughthevolumeoftransactionsis increasing dynamically; significant progress was not achieved instreamlining and simplifying the tax system

Creatingsufficientsourcesofpublicfinancesisanessentialconditionforfulfillingtheneedsandgoalsofthestate’sexpenditurepolicies.ThatiswhytheSAOhasconstantlygivenprioritytothecollectionandmanagementofstaterevenuesandtheefficiencywithwhichtheyareachieved.Taxrevenuesaccountforthelargestproportionofstaterevenues.Thepositivetrendofincreasingtaxrevenues inpracticallyallmajortax itemscontinued in2018.Thesetaxrevenues, includingsocialsecurityrevenues,amountedtoalmostCZK 1,239 billion13 in2018,accountingfor88% of total state budget revenues. The biggest items are social security premiums, value added tax,excises,personal incometaxandcorporate incometax.RevenuesfromtheEU/FMbudgetalsoincreasedyear-on-yearalongsidetaxrevenues.

Chart 10: Volume and structure of state budget tax revenues in 2018

Social security CZK 513 billion

VAT CZK 279 billion

ExcisesCZK 159 billion

Personal income tax CZK 147 billion

Corporate income taxCZK 117 billion

Others CZK 24 billion


13 AccordingtoanMoFpressreleaseofJanuary3,2019.


TheSAOcompletedtwoauditsinthefieldoftaxpolicylastyear,targetingtheissueofthefightagainsttaxevasioninthecontextofVATcollectionandadministrationinthedynamicallygrowinge-commercesegmentandmeasuresagainsttaxevasionandillegaltaxoptimisationofconnectedentitiesinthecontextofcorporateincometax:

• Auditno17/12–Administration of value added tax; • Auditno17/21 –Administration of corporate income tax.

In audit no 17/12 focusing on the administration of VAT in cross-border e-commerce in theauditedperiodof2015–2017theSAOassessedhowtheEUandCzechVATadministrationsystemsare designed, how the financial authorities proceedwhen collecting VAT and how effectivethe control system is. In addition, theworking of the new voluntary taxation system calledtheminimumone-stopshop(MOSS)14wasscrutinisedincollaborationwiththeFederalCourtofAuditorsofGermany.Theaudit results reveal the seriousfinding thatVATadministrationundertheMOSSsystemandoutsideitisnotsufficientlypreparedfore-commerceanddoesnotguaranteethatcross-bordertransactionsaredulytaxed.TheSAOalsofoundsignificantdefectsinthefinancialadministration’sworktotrackdownandchecktaxablepersons.

• In the event of goods being sent or selected services beingprovided between countries, the country of consumptionis responsible for collecting VAT. However, that country haslimited possibilities for identifying whether a transactiontook place and whether it was correctly taxed, because ifthe taxableentity itselfdoesnot report the transaction, thetaxadministratorinthecountryofconsumptionwillnotfindout about it. The audit showed that the tax administrationauthorities are not aware of the value of sent goods andprovidedselectedservicesorofthevalueoftheVATpaidtotheCR.Thesignificanceofthiskindofbusiness isborneoutbythefactthatdemonstrablyeffectedtransactionsfromtheCzechRepublicamountedtoalmostCZK 107 billion between2015andmid-2017.TheauditedfinancialauthoritiesdidnotdoenoughtotrackdownandcheckpersonsobligedtopayVAT.Attemptstotrackthemdownwererandomandtheexceptionratherthanthenorm.TheSAOhas,however, identifiedandpromotedexamplesofgoodpractice fromotherEUcountriessuchasGreatBritain,Finland,LatviaandBulgaria. 15

• IntheSAO’sjudgement,thelaunchofMOSSachieveditsgoals,reducingpaperworkfortaxadministratorsandtaxableentitiesalike;thewillingnessoftaxableentitiestopaytaxtothecountryofconsumptionhasevenincreased.Nevertheless,theSAObelievesthatthereisstillroom tomake tax administrationmoreeffective, e.g. bywidening the special schemeandincreasing the responsibility for correctlypaying tax to thecountry inwhich the taxentityregistereditsbusinesstoMOSS.

The SAO recommended a number ofmeasures regarding the EU and Czech legislation. At theEU level, the recommendations mainly concern increasing the responsibilities and powers ofcountriesinwhichsuppliersaredomiciledorregisteredsothatthesecountrieshandleasmuchoftheVATadministrationaspossibleonbehalfofallcountriesofconsumption.Inaddition,thepowers of tax administrators as regarding obtaining information from third parties (providersofpayment,postalandcourierservicesande-marketplaces)shouldbestrengthenedandthesepowersshouldbeputtosufficientuse.Atnationallevel,themostimportantmeasureistostartsystematicsearchingandcheckinginthefieldofe-commerce.

14 MiniOneStopShop–MOSS.ThisschemewaslaunchedthroughouttheEUfromJanuary1,2015withaviewtocuttingpaperworkforbusinessesbynotrequiringthemtoregisterforVATineveryMemberStateinwhichtheservicesareconsumed.

15 Source:www.ceska-ecommerce.cz.

The financial administration does not know the total amount of VAT that should have been paid to the state on e-commerce.

In 2018 there were almost 43,000 e-shops registered in the Czech Republic and the value of online transactions amounted to almost CZK 140 billion15.

http://www.ceska-ecommerce.cz


Based on the results of the SAO audit, the Czech tax administration will start activelysearchingforentitiesnotfulfillingtheirtaxobligationsanddeclaredanumberofmeasuresto improve e-commerce VAT administration. The European Court of Auditors has alsoturneditsattentiontothisissue.TheimplementationoftheMOSSschemeisincreasinglyimportantafteritwasextendedtothesendingofgoodsinthe2019–2021period.

TheMoFandtheGeneralFinancialDirectorate(GFD)bothagreedwiththeSAO’sprincipalfindingsandadoptedordeclaredtheadoptionofanumberofmeasuresto improvetheadministrationofVATinthefieldofe-commerce,e.g.theestablishmentofanewunittotrackdowntaxpayerswhoarenot fulfillingthestatutoryconditions forVATregistration.TomakecontrolworkmoreeffectiveaftertheMOSSschemeisextended,theadministrationoftaxeswillnotbedonebytheFinancialOfficefortheSouthMoravianRegionfortheentireCzechRepublic,butthiswillbedoneby the appropriate local financial offices. The CustomsAdministration is prepared for changesaffectingimportsofsmallconsignmentsthatwilltakeplaceinconnectionwiththeadoptionofthe“e-commerceVATpackage”fromJanuary1,2021.

In audit no 17/21theSAOtargetedtheadministrationofcorporateincometax.AfterVATandsocial security premiums, corporate income tax is the third largest revenue for public budgets. Thetotaltaxcollectedintheauditedperiodof2013–2016wasCZK565billion.TheSAOidentifiedillegal taxoptimisation in international transactionsbetweenentities connected in termsofpersonnel and capital as the greatest risk.

• One risk area identified in tax administration in the auditedperiodwastransferprices,ortransactionscarriedoutbetweenentitiesconnectedinpersonnelorcapitaltermsathomeandabroad. Corporate income tax is not harmonised in the EU,whichenablestaxpayerstoperformundesirableoptimisationviaconnectedentitiesabroadortaxhavens.TheEUhasadoptedseveral directives concerning international informationexchange and laying down rules to combat tax avoidancepractices.Becauseofthelengthylegislativeprocess,theCzechRepublic implemented the EU directive governing tools fordetectingillegaltaxoptimisationintonationallegislationafteradelayofseveralmonths,andthensuccessfullytookpartininternationalinformationexchange.Asregardstheimpactofinformationexchange,theGFDquantifiedtheproceedsintheauditedperiodatCZK 103 million indirecttaxes(i.e.corporateincometaxandpersonalincometax).TheSAOalsostatedthattheFinancialAdministrationoftheCzechRepublicdidnotreacttotheriskofabuseofkorunabondsingoodtime,asitstartedtocheckthetaxationofkorunabonds issued in2012as lateasin2017,i.e.fiveyearslater,andonlydidsoinresponsetoinformationfromthemediaorfromthepublicorinformationarising out of sessions of the budgetary committee of theChamberofDeputiesofParliamentoftheCR.Asaresult,thethree-yearstatuteoflimitationsforimposingtaxhadexpiredforatleast15taxpayers.

Thefightagainsttaxevasion,makingtaxcollectionmoreeffectiveandcuttingpaperworkfortaxpayers have long ranked among the Government’s key priorities in tax policy16. For that reason, the SAO has long monitored and evaluated the effectiveness and costliness of tax collectionandofmeasureslinkedtopreventinganddetectingtaxevasionandstreamliningtaxadministrationfortaxpayers.

16 Seee.g.nationalreformprogrammesoftheCzechRepublicfor2016to2018.

The statistics on the results of the financial administration’s control work were overstated in 2015 and 2016. For 2015 the GFD stated that additional tax of almost CZK 1.8 billion was levied on the basis of its checks. After appeals that were filed by the entities but were not factored into the financial administration statistics, the figure was in fact CZK 850 million. A similar thing happened in 2016, when the GFD again published a figure of CZK 1.8 billion, while the reality was just under CZK 1.1 billion.


The following charts showhow the collection of income taxes and spending on tax collectionevolvedintheyears2013–2017.

Chart11:TotaltaxcollectedandGDP,2013–2017(CZKbillion)

4 098.13 4 313.794 595.78 4 767.99

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ThechartshowsthatcollectedtaxesgrewbymorethanCZK 300 billion between2013and2017,i.e. almost 27%.ThedevelopmentofGDPforthisperiodmakesitclearthatthemainreasonsfortheincreasedtaxcollectionarestrongeconomicgrowth,salarygrowthandtherelatedconsumptionby the population. The increase in the amount of collected taxwas also affected to a smallerdegreebyotherfactors,e.g.theintroductionofcontrolstatementsandelectronicsalesrecords(since2016),buttheirimpacthasnotyetbeencrediblyquantifiedbytheMoF,astheSAOpointedoutinitspositionstatementontheDraftStateClosingAccountfor2017.Therewasasignificantincreaseintheamountofcollectedexcisesandincometaxes.Propertytaxes,whicharelesstiedtoeconomicdevelopment,haveanegligibleimpactonthetotalamountofcollectedtax.Inthelongterm,taxrevenues’highdependencyoneconomicgrowthmayposearisktothesustainabilityofstatebudgetrevenues.

Chart12:Totalexpenditureontaxcollection,2013–2017(CZKbillion)

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Spendingontaxadministrationsoared,risingbyCZK 5.3 billion, i.e. 29%, in2017comparedto2013.Thebiggestyear-on-yearrisecamein2017,whenexpenditurewasCZK 1.7 billion higherthaninthepreviousyear.Thebiggestfactorwastheincreaseinspendingonsalaries,whichrosebyCZK 1.2 billion.Theconvertedtotalaveragenumberofregisteredemployeesincreasedby175 year-on-year,reaching15,448 in 2017.


A comparison of total tax revenues and expenditure in the years 2013–2017 reveals that expenditureincreasedatafasterratethanrevenues,whichshowsthattaxadministration’scost-effectivenessdeclined.Atthesametime,themagnitudeoftaxrevenueswaslargelydrivenbythepositiveeconomicsituationandgrowinghouseholdconsumption.

InrecentyearstheCzechRepublichasalsofocusedonintroducingmeasures to fight tax evasion, especially in the VAT field. Thedevelopmentofthetaxburdenindicatesthatthesemeasures,suchascontrolstatements,hadapositiveimpactprimarilyoncompliancewith the regulations andon the fulfilmentof obligationsbyVATpayers,i.e.apreventiveeffect.Thatsaid,significantprogresshasnotbeenmadetowardsreducingtheadministrativeburdenlinkedto theadministrationandpaymentof taxes.Quite theopposite:somemeasuresintroducedtofighttaxevasionhavebroughtextrapaperworkbothfortaxpayersandtaxadministrators.Eventhoughcontrol statements, for example, are fully electronic, the timespentonadministrativeworkhasincreasedforVATpayers.

According to theTime to comply indicator,which is regularly assessedby theWorldBank andPricewaterhouseCoopers(PwC)andmeasurestheamountoftimerequiredbytaxpayerstofulfiltheirtaxobligations,230 hours hadtobespentonfulfillingtaxobligationsintheCzechRepublicin2017,whichcontinuedtobefarmorethantheEUandEFTAaverage(161 hours);seeChart13.FirmsintheCzechRepublichavetospend53 hours oncorporateincometax;75 hours ontaxesonlabour(i.e.personalincometax,includingmandatorysocialcontributionsforemployees);and102 hours onconsumptiontaxes(correspondingtoVATandexcises)17.Theintroductionofcontrolstatements in2016, forexample, addeda further14 hours18 to thetime required to fulfilVATobligations.

Chart13:Timerequiredtocomplywithtaxobligationstothestate inEUandEFTAcountries in2017(hours)

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Source: pwc.com/gx/en/services/tax/publications/paying-taxes-2019/explorer-tool.html.

So far, thenecessaryprogress in cuttingpaperwork for taxpayers, simplifying taxes andmakingtaxadministrationmoreuser-friendlyfortaxpayershasnotbeenachieved.

17 Seehttps://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2019/explorer-tool.html.18 AccordingtothePaying Taxes 2018 report;TheWorldBankGroupandPwC2017.

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No real progress was made in terms of reducing taxpayers’ administrative burden when complying with tax obligations. Firms in the Czech Republic have to spend more than 40% more time on tax compliance than the average for EU/EFTA countries.

https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-2019/explorer-tool.html?WT.mc_id=CT13-PL1300-DM2-TR2-LS1-ND30-TTA4-CN_payingtaxes-2019-data-explorer-button


TheMoF,forexample,agreedwiththeconclusionsofauditreportno16/2119 that the personal incometaxsystemisconfusingandcomplicated,withnumerousexemptionsandformsofrelief.That makes tax administrationmore complicated and increases the administrative burden ontaxpayers,withoutmakingthecollectionofthistaxmoreeffective.TheMoFpledgedtoprepareabrandnew income taxactandaMOJE daně (My taxes) website that shouldmakeelectroniccommunicationwiththeauthoritiesmoreeffective.AccordingtotheMoF,theMy taxes projectshoulddeliverasimplertaxsystem.Inadditiontothenewincometaxesact,thissimplertaxsystemshouldincludeself-assessment,individualisationandanelectronicwebsitefortaxadministration.

TheMoFhadalreadyannouncedthisprojectinresponsetotheresultsofauditno15/1720,linkedto the collapse of the Single CollectionPoints (SCP) project thatwas supposed to simplify thecollectionandadministrationoftaxesandinsurancepremiums.

Asthenewincometaxesactunderpreparationhasnotyetenteredthelegislativeprocessandthe My taxesprojectstillawaitsimplementation,improvementscannotbeexpectedinthenearfuture.

4. Government expenditure areas – achieving the goals of Government policies is hindered by recurring management and control errors

ThefollowingpartsoftheannualreportaredevotedtotheresultsoftheSAO’sauditandanalysisworkinthemainexpenditureareasofGovernmentpoliciescoveredbytheSAOlastyear.

They include a summary of the SAO’s significant findings concerning both the achievement ofpolicy goals and shortcomingsandany recommendations intended tohelppolicymakers applygoodpracticeandbettermanagementofpublicspendingwherevernecessary.Thefindingsshouldalso functionas objective assurance for the general public in termsofwhere the state standsinvariousareasandwherechange isnecessary toensure taxpayers’money is spentcorrectly.Inotherwords,toensurethatthestateisabletodeliverthenecessaryvalueforitscitizensinlinewiththeobjectiverequirementsandthustofulfilitsindispensableroleaswellaspossible.Andadditionally,toensurethatthestate’sinterventionscontributetoimprovingthecountry’sglobalcompetitiveness.Attainingmaximumvalueformoneyisanecessarypreconditionofthat.

According to the results presented in the following passages, broken down by policy areas,thesystemformanagementandcontrolofpublicfundsdidnotalwaysensurethatpublicspendingwascompliantwiththelegalregulations,effective,efficientandeconomical.

If we are to summarise the similar and recurring types of management and control shortcomings as the reasons for the state not always being able to achieve policy goals in the manner described above, the main systemic shortcomings include:

• theabsenceofeffectivelegislation (auditno17/02inthefieldofsupportforsocialhousing);

• ahaphazardandunsystematicapproach (e.g.auditno17/09inthefieldoffundingtherepair,modernisationanddevelopmentof2ndand3rdclassroads);

• fragmentation,authorities’unclearpowersandresponsibilities (e.g.auditno17/15 in the systemofsupportforresearch,developmentandinnovation);

• failuretoassesstheeffectiveness,efficiencyandeconomyinprovidingsupport asregardstheresultsandbenefitsofthesupport(e.g.auditno18/01 inthefieldofsupportforbusinessrealestate);

19 Auditreportno16/21–Income tax administration and the impacts of legislative amendments on state budget revenueswaspublishedinvolume4/2017ofthe SAO Bulletin.

20 Auditreportno15/17–Funds spent on measures related to streamlining of tax and insurance collection and administration, mainly within the project “Setup of Single Collection Point for state budget revenues” was published in volume 4/2016 of the SAO Bulletin.


• unequal treatment of applicants for support and lack of transparency when awardingsubsidies (e.g. audit no 17/26 in support under the Rural Development Programme andprioritisinglargefirmsoversmallandmedium-sizedenterprise);

• poor preparation of projects and delays in programme implementation (audit no 17/16 in the Programme of Care for National Cultural Treasures);

• failuretomakeuseofacompetitiveenvironmentwhenawardingcontractstoachievecostsavings (auditno17/33inthefieldofcostsofrailwaylevel-crossingsafety);

• insufficient control work and failure to implement measures to remedy shortcomings (e.g.auditno17/22inthefieldofICTprojectsforthedisbursementofsocialbenefits).

4.1EfficientpublicadministrationandeGovernment–notimplementingmeasurestosolveICTdevelopmentproblemsmakesthedigitisationofpublicadministrationmuchmoreexpensive;theCzechRepubliccontinuestolagfarbehindindevelopingonline state services

In2018theSAOfollowedupthefindingsithadmadeinpreviousyearswhenauditinginformationtechnologiesandthedigitisationofpublicadministration.InitsauditworktheSAOmainlyfocusesonprojectsandinformationsystemsthatareviewedashigh-risk.Andnotjusthigh-riskfromtheSAO’spointofview,butbecauseoftheirsocialramifications.

It has become clear that there has been a long-term failure to solve the problems associated with informationandcommunicationtechnologies,sotheyremainamajorcauseofuneconomicalandinefficientspending.

Persistingproblems in the expansionof thedigitisationof public administration includehaphazardmanagementof ICTresources, insufficientstaffingcapacitiesanddependencyon external ICT contractors.

ThesefactorshaveanimpactontheamountthestatehastospendonICTeveryyear.Datafromthe State Treasury Integrated Information System (STIIS)revealthatdepartmentsspentatotalofCZK 12.6 billion21 in2018.Totalexpendituremaybehigher,though,asthisfiguredidnotincludebudgetaryitemsthatmaycompriseotherrelatedspendingthanmerelydirectexpenditureonICT.

ThroughregularandsystematicmonitoringandriskanalysistheSAOidentifiedenduringandgraveproblemsinthefieldoftheMoLSA’sinformationsystemsthathadalreadybeencoveredbyauditno 12/3522.ThedatainChart14showthattheMoLSAhaslongfailedtocutspendingonICT–spendinghasrisensharplyeveryyearsince2014.In2018,whenitwasfourtimeshigherthanin2013,expenditureonICTexceededCZK 1.6 billion,accountingforover21% ofallministries’totalspendingonICT,whichamountedtoCZK 7.5 billion in 2018.

21 Selectionofbudgetitems5042,5162,5168,5172,6111,6125.22 Auditno12/35–Establishment of the Labour Office of the Czech Republic and management of state budget’s and the EU’s

property and funds related to the establishment and activity of this office and to preparation and implementation of projects in the area of welfare disbursement information systems(auditreportpublishedinvolume3/2013oftheSAO Bulletin).


Chart14:Ministries’expenditureonICTandshareofMoLSAspending,2013–2018 (CZKbillion,%)

12.7 % 7.1 % 8.6 % 12.8 % 21.1 % 21.7 %

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fallingundertherelevantstatebudgetchapter.

TheSAOthereforeconductedauditno17/22 in2018,focusingagainontheMoLSA’sinformationsystems supporting the agenda of disbursement of non-insurance social benefits and benefitsunderstateemploymentpolicy23.Tomaketheperformanceofthisagendaefficientandeconomical,theMoLSAplannedtore-awardthesesystemsbytender,thuseliminatingthedependencyonasolecontractor.TheMoLSAhadnotachievedthisgoalbytheendoftheauditorevenbytheendof2018.Theauditresultsflaggedupproblemsthatarenotisolatedandcantosomedegreebedetectedinotherstateadministrationbodiesthatfunctionasinformationsystemadministrators.TheSAO’sauditoftheMoLSArevealedthefollowingkeyproblems:

• TheMoLSA does not have sufficient staffing capacities in ICT for basic activities, which itresolvedbyoutsourcing. In2017alonetheMoLSAspenta totalofCZK 149 million on the outsourcedservices.TheMoLSA’sstaffshortageresultedinastrongdependencyonICTserviceproviders.TheMoLSAthushinderedtheachievementofthestrategicgoalofstrengtheningitsowncompetencesandmanagingICTdevelopmentandoperationefficiently.Atthesametime,itwasdiscoveredthatthecontractualpricesofrolesarisingoutofnegotiatedprocedurewithoutpublicationaremuchhigherthanthecontractualpricesofrolesarisingoutofopenprocedures(seeSectionII.5.2fordetails).

• The dependency on contractors was also evident in project management, as the MoLSAtransferredsomeofitsdecision-makingpowersinthepreparationandexecutionofmajorICTprojectstoexternalentities.TheICTstaffingshortage,strongdependencyonICTcontractorsand haphazard management of ICT resources impacted on the economy of spending intheMoLSAbudget chapter.Delays in the re-awarding of agenda systems in a competitiveenvironment meant that the MoLSA continued to be dependent on contractors for theoperation,developmentandadministrationoftheseinformationsystems.

• OneresultofthedelayinthelaunchofnewinformationsystemswasthecontinuedoperationofexistingsystemswhosemonthlyoperatingcostsareCZK 30.2 million higherthanthepriceofthenewsystemsachievedthroughcompetition.TheSAOworkedoutthatthisincreasedthecostofoperatingtheexistinginformationsystemsbyatleastCZK 363 million in 2017 alone. TheSAOjudgedtheprocedurefollowedbytheMoLSAtobeuneconomicalspending.Ifthenewinformationsystemsarelaunchedwithinthedeadlinesin2018and2021,theMoLSAwillspendafurtherCZK 794 million uneconomically.

In this audit the SAO also assessed the execution ofmeasures imposed on theMoLSA by theGovernmentafterthecompletionofauditno12/35 inordertoeliminateshortcomings.TheSAOstated that theMoLSA had only carried out three of the sixmeasures. One of the remainingmeasureswassupposedtobethecommencementofanopenawardprocedurefortheprovision

23 Thisinvolvedfourinformationsystems:thestatesocialsupportIS,materialneedandsocialservicesIS,OK Služby registerISandemploymentpolicyIS.


ofsystemintegrationservicesin2014,whichtheMoLSAfailedtodo.TheSAOjudgedthisstateofaffairstoposeariskofuneconomicalexpenditureofstatebudgetfundstothetuneofuptoCZK 185.2 million.

Havingassessedalltheseauditfindings,theSAOfiledanotificationofabreachofbudgetarydiscipline exceeding CZK 737million in valuewith the tax office and also filed two criminalcomplaints touching on several circumstances. Based on the identified and evaluatedshortcomings, the SAO recommended that the MoLSA, in line with the Development Strategy for Public Administration ICT Services,tookmeasurestoreduceitsdependencyoninformationsystemandICTservicescontractorsandendtheoperationoftheexistingagendasystemsassoonaspossible,whilesimultaneouslyensuringaproblem-freetransitiontonewtechnologies.

The continuing dependency on ICT contractors and its negative impact on state expenditurewasdeclaredbytheSAOinauditno17/24 aswell.Thisauditscrutinisedthedesignanduseofcentralpurchasinginpublicadministration.TheSAOfoundthattheMoRDhadstillnotreduceditsdependencyonacontractor(knownasvendorlock-in)inthedevelopmentandoperationoftheInformation System on Public Contracts (ISPC).TheSAOcheckedthisbyrequestingdatafromtheISPCforauditpurposes.Forobtainingdataofthevolumeandstructurenecessaryfordeterminingthe degree towhich central purchasing is used, theMoRDwould have paid approx. a furtherCZK 150,000 to the external contractor, even though the MoRD is this information system’sadministrator.Followingauditno15/1024 theSAOpointedoutback in2016thattheMoRDhashandledthemodificationandoperationofISPCbymeansofcontractsawardedtooneandthesamecontractoreversincetheISPCwascreatedin2002.

In audit no17/24 the SAOalso stated that theNational Electronic Tool (NET),which cost overCZK 230 million todevelop,issupposedtopromotethedigitisationoftheawardofpubliccontracts.AlthoughNETcontainsfunctionalitiestosupportcentralisedawardprocesses(e.g.thecollectionofrequirements),almostnobodyhasusedthisfunctionalityinNET,noteventheMoRDitself.Theawardingbodiesusedotherelectronictoolsthatenabledthecollectionofrequirementsaccordingtotheirneeds.TheSAOalsofoundthattheMoRDreceivedrequestsforthemodificationofNETin central award processes. The requestedmodifications ofNETwerenotcarriedout,however,becausetheMoRDhadnotenteredintoacontractforthedevelopmentofNETthatwouldenableittoarrangemodificationsofNET.

AnotherkeyareatheSAOhasbeenfocusingonforalongtimeisthe development of eGovernment,with particular regard to theCzech Republic’s standing in international comparison. The SAOmainly drew on the results of the assessed areas of an indexmonitoringthestandardofdigitisationoftheeconomyandsociety(DESI)25,a toolof theEuropeanCommission (“theCommission”).Although the Czech Republic’s overall score improved by threepoints in 2018, this improvementhadnoeffect on the resultingranking,sotheCzechRepublicstayedin18th place out of the total of28comparedEuropeancountries.

Even though theCzechRepublic achieved itsbiggestprogress intheDESIindicatorofdigitalpublicservices,whichmainlyinformsaboutthestandardofeGovernment,itcontinuestolagalongwaybehindtheEUaverage,withtheCzechRepubliccoming22nd out ofEUcountries.TheCommission ratedonlinecontactsbetweenpublicauthoritiesandcitizenswithoneofthelowestscoresintheEU(seeChart15).

24 Auditno15/10–Funds spent on the National Infrastructure for Electronic Public Procurement and its utilisation for purchase of selected commodities(auditreportpublishedinvolume3/2016oftheSAO Bulletin).

25 The Digital Economy and Society Index 2018 compositeindicatorassessesthefollowingaspects:connectivity,humancapital,useofinternetservices,integrationofdigitaltechnology,digitalpublicservices;EuropeanCommission2018; see https://ec.europa.eu/digital-single-market/en/desi.

A significant amount of money will be spent on ICT in the coming years as well. In 2018 the Division of the Chief Architect of the Ministry of the Interior approved ICT projects with investment costs of approx. CZK 16 billion. In terms of the financial volume of the approved projects, the key bodies are the MoI, for which the Division of the Chief Architect approved 20 projects worth a total of CZK 6.5 billion, and the MoLSA, for which the Division approved 30 projects worth a total of CZK 3 billion.

http://skripty190/scripts/rka/detail.asp?cisloakce=15/10&rok=0&sestava=0

http://skripty190/scripts/rka/detail.asp?cisloakce=15/10&rok=0&sestava=0

https://ec.europa.eu/digital-single-market/en/desi


Chart 15: Comparison of countries according to the “digital public services” indicator in 2018

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Source: EuropeanCommission,DESI2018“digital public services” indicator.

TheCzechRepubliccontinuestolagfarbehindEUcountriesinthedevelopmentofdigitalpublicservices(eGovernment).TherateofonlinecontactsbetweenpublicauthoritiesandcitizensisoneofthelowestintheEU.

4.2Research,developmentandinnovation–supportmustbetiedtoqualitativeresultsandprivatesectorinvolvementmustexpandiftheCzechRepublic’sinnovationperformance should improve

In the long-termoutlook, research,developmentand innovation(RDI) isoneof thekeydriversof improvedproductivity,economicgrowthandsustainabledevelopment. It isalsoanecessaryrequirementandsimultaneouslyanopportunityforoverallsocietaldevelopmentandprogress.SupportforRDIisthereforeoneoftheEU’stoppriorities,andtheCzechRepublicisoneofthecountriesthathascommitteditselftoprovidinganappropriatelevelofsupport.

Auditno17/15 completedin2018isanotherinaseriesofauditsfocusingonthekeyareaofRDI.Thegoalof theauditwas to scrutinise theentire systemof support forRDI,both institutional(i.e.supportoftheinstitutionsencompassingRDI)andspecial-purposesupport(i.e.supportforspecificprojects).Theauditmainlylookedatwhetherthesystemputinplaceforevaluatingthebenefits ofmoney spent onRDI is achieving thedefined goals andhelping improve theCzechRepublic’sinnovationperformanceininternationalcomparison.StatebudgetexpenditureonRDIintheyears2014to2016,whichtheaudittargeted,amountedtoCZK 83 billion,sharedalmostequallybyinstitutionalandspecial-purposesupport.Thissystemicauditfollowedupthepreviousauditsnos.15/06, 15/27and16/1926.

TheauditdetectedseriousdefectsintheRDIsupportsystem,mostnotablythefragmentationofthesupportsystem,theineffectivenessofthesupportsystemanditsinabilitytoeliminatelong-standingshortcomings.Whenevaluatingresearch, theRDIsupportsystemintheCzechRepublicishighlydependentonevaluationofthequantitativeresultsofresearchworkwithoutadirectlinktoitsquality.Theauditalsorevealedsignificantdefectsinthedesignandevaluationofspecial-purposesupportprogrammesandtheunsuitabledesignoftheevaluationofresearchorganisationsfortheprovisionofinstitutionalsupport.

26 Auditno15/06–State budget funds and European structural funds earmarked for financing of operational programmes with respect for project sustainability(auditreportpublishedinvolume1/2016oftheSAO Bulletin);auditno15/27–State funds earmarked for special-purpose support of research and development within the budget chapter of the Technological Agency of the Czech Republic(auditreportpublishedinvolume4/2016oftheSAO Bulletin);auditno16/19–State funds earmarked for special-purpose support of research and development via the budget chapter of the Grant Agency of the Czech Republic – Czech Science Foundation(auditreportpublishedinvolume3/2017oftheSAO Bulletin).

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Theauditfindingsincludedthefollowing:

• Theperformanceof key tasks in research,developmentandinnovation is not linked to direct and clear responsibility.The fragmentationof the system isalsodocumentedby thefact that the Czech Republic had 12 RDI support providersundersometypeofprogrammein2017.Therewere62 such programmesrunning in2017. The RDI support system put in placewasmostly ineffective,asmostof thestrategicgoals27 hadnotbeenachievedby theendof 2015. Theassessmentrevealedthatjustoneofthefourprincipalgoalsandeightofa total of 21 measures had been implemented. Substantialprogress was not achieved in themajority of the identifiedproblemareas.Therehasbeenno success in rollingout thekindofmeasuresthatwouldleadtosignificantimprovementsin areas where the Czech Republic has long lagged behind.TheCzechRepublic’ssignificantfailureatcreatingpatentshasbeenstatedeveryyearforat least15years.Thelowdegreeof cooperation between the public and private sectors isalsoapersisting long-termproblem.Todateassessmentsofcooperation between the public and private sectors in RDIshowthatthestepstakentopromotethiscooperationwereeithernottakenorineffective.

• Institutional support focusing on long-term conceptual development, which amounted toalmost CZK 43 billion intheauditedperiod,wasdividedbetweenanever-growingnumberof research organisations, regardless of their development concepts and RDI priorities.The Government Council for Research, Development and Innovation assessed researchorganisationsusingquantitativeresults,usuallythenumberofpublishedarticles,insteadoftaking intoaccountthequalityofthe institutionsandtheirresults. In institutionalsupport,onlytheCzechAcademyofSciencesperformeditsownassessmentputtinggreateremphasison the specificmissions of research organisations and the quality of their researchwork.Moreover, the rules put in place by the MoEYS enabled non-transparent utilisation ofinstitutionalsupport.

• IninternationalcomparisonthesupportsystemintheCzechRepublicislesseffective,astheCzechRepublic’sinnovationperformanceislaggingfurtherandfurtherbehindtheEuropeanaverage despite the rising expenditure onR&D in the public sector. The CzechRepublic isalso set tomiss thenational targetof spending1% ofGDPon research,developmentandinnovationin2020.AccordingtotheCzechStatisticalOffice,publicexpenditurein2017stoodat 0.70% of GDP.

27 Accordingtothemainstrategicdocumentfor2013–2015,whichwastheUpdated National Policy for Research, Development and Innovation for 2009–2015 with an Outlook up to 2020.

The unclear definition of responsibility in RDI was reflected in preparation of the update of national RDI policy between the MoEYS and Council for Research, Development and Innovation, or in innovation between the MoIT and Technology Agency of the Czech Republic.


ItisinRDIsupport’simpactsoninnovationperformancethattheCzech Republic has the biggest problems. The Czech Republichas constantly lagged behind in innovation performance asmeasured by the European Innovation Scoreboard28 (EIS). If theCzech Republic’s innovation performance stood at 90% of the average EU innovation performance in 2010, in 2017 the CzechRepublic’sinnovationperformancewasjust82% oftheaverageEUperformanceachievedinthatyear(seeChart16).ItisclearfromthisthattheaverageinnovationpotentialofEUcountries isgrowing,whiletheCzechRepublic’sperformanceisfalling.Thisisthefourthlargest fall among EU countries. The comparison between theCzech Republic and its key trading partners is evenmore stark:Germany, for example, stands at 120% of the EU average andAustria at 115%.

Chart16:International comparison of innovation performance according to the EuropeanInnovationScoreboard(%)

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Source: European Innovation Scoreboard 2018.

The SAO regards the fragmentation of the RDI support system, the insufficient link toevaluationofthequalityandutilityofresultsandthelowlevelofprivatesectorinvolvementasthemainreasonsfortheCzechRepublic’spoorinnovationperformance.

As the SAOpointedout in its Position Statement on theDraft StateClosingAccount for 2017,state budget expenditure of CZK 35.1 billion in 2017 may have been CZK 4.4 billion higherthaninthepreviousyear,but itwasbelowthefiguresfrom2013to2015(seeChart17),whenmainlyinvestmentexpenditureonbuildingnewresearchcentresunderoperationalprogrammeResearch and Development for Innovation 2007–2013wasdrawndown.AstheSAOconcludedinauditno15/06, CZK 24.4 billionwillhavetobespentoutofthestatebudgetonfinancingtheiroperationforthefive-yearsustainabilityperiod.Yetnumerousnewcentreswereunabletosecureadditionalsourcesoffunding,particularlyfromcontractualresearchandinternationalgrants,ashadoriginally beenenvisaged. In this context the SAOmainly draws attention to the fact thattheiroperationwillputpressureonadditionalstatebudgetexpenditureinthecomingyears.Theresultsofauditno17/15 thereforeshowthatprivatesectorinvolvementmustbeintensifiedandtheutilityofresultsmustbeimproved.

28 European Innovation Scoreboard, European Commission.

Inno

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17

ChangeinInnovationscorebetween2010and2017(relativetoEUaveragein2010)

Although more public money was spent on RDI support (the difference between 2010 and 2017 was almost 16 percentage points more than the EU average, according to EIS), the Czech Republic’s innovation performance fell by 8 percentage points compared to the EU average between 2010 and 2017.


Chart17:ExpenditureonRDI2013–2017anditsratiotoGDP

39.8 40.6 42

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2013 2014 2015 2016 2017

State Budget Expenditure (incl. EU resources)

Ra�o of state budget expenditure to GDP in % (incl. expenditure covered by revenues from the EU, the European Economic Area and Norway financial mechanisms)

Source:Stateclosingaccountsfor2013–2017.

Inconnectionwiththeauditresults,theSAOwelcomesanumberofmeasuresadoptedbytheGovernmenttomakeRDIsupportmoreeffectiveinfuture.

Thekeymeasureispreparationofanewmanagementsystemthatistobebasedonmoreintensivecommunicationwiththe individualsupportproviders,moreeffectiveevaluation,eliminationofineffectivesupportandstrongermotivation to involve theprivate sector in researchactivities.The way new programmes of special-purpose support are judged and existing programmesevaluatedwillbechanged.Anewmethodologyforassessingandevaluatingprojectproposalswillbeadopted.Atthesametime,anewmethodologyforevaluatingresearchorganisations(knownasMethodology2017+)isgraduallybeingimplementedupto2019,intendedtoensuresupportgoingtoresearchorganisationsisbasedonaqualitativeevaluationoftheirresults.ThemainconceptualmaterialforRDIsupportintheCzechRepublic–nationalRDIpolicy–validafter2020andcurrentlybeingworked on,will also respond to the shortcomings identified by the SAO’s audit. All themeasures listedaboveshould leadtomoreeffectivesupport in future,theeliminationof long-standingshortcomingsandimprovedinnovationperformance.TheSAOwillcontinuetomonitortheeffectivenessofthemeasurestakentoboosttheCzechRepublic’sinnovationperformance.

4.3Transport–thedevelopmentoftransportinfrastructureandservicescontinuedtobehinderedbyinefficientprocessesinpreparationofconstructionprojects,anon-systematicapproachandfailuretomeetthedeadlineforopeningtherailpassenger market

High-quality transport infrastructure is essential for the development of the country and itscompetitiveness and for providing services to citizens thatmeet the current requirements foreconomic and societal development. In the field of transport infrastructure, the SAOhas longfocusedonareaswherethestateofaffairsisunsatisfactory.Theaimisnotonlytopointouttheshortcomingsandtheircauses,butalsotocontributetotheimplementationofeffectivecorrectivemeasures.Thelong-standingstateofaffairsinanumberofareas,however,pointstoinadequateactionbytherelevantauthoritiestoadoptsystemicsolutionstothemostproblematicobstacleshinderingthedevelopmentoftransportinfrastructureandservices,includingtakingresponsibilityforthenecessarychanges.

In2018theSAOcompletedauditsscrutinisingthefollowingareas:

• ensuringthesafetyofrailoperationandpassengers(auditno17/33);• acquiringandreplacingrollingstock(auditno17/35);• repair,modernisationanddevelopmentofthenetworkof2ndand3rdclassroadsco-funded

fromnationalandEuropeansources(auditno17/09).


Theresultsof theauditsof rail transportshowedthat insufficientdefinitionofprioritieswhenselectingprojectsforexecutionandinsufficientdefinitionoftheoutcomeexpectedfrominvestmentsareapersistingsystemicproblem.

Significantroomforimprovementwasalsoidentifiedinthewastefulnesswithwhichsubsidiesare used. The SAO’s findings therefore pointed to the potential for savings in spending onprojects.

• AstheSAOfoundinauditno17/33targetingthesafetyofrailoperationandpassengers,theMinistryofTransport(MoT)didnot draw up a comprehensive analysis for the safety of railoperation,ananalysisthatwouldhaveidentifiedthehighest-risk level-crossings, set atimetable anddefined the amountof money necessary for improvements. That is despite thefactthattheGovernmenthadinstructedtheMoTtodrawupsuchananalysisbytheendof2008onthebasisoftheSAO’sfindingsfromthepreviousauditno07/2529.Consequently,themostdangerousstretchesoftrackandplaceswerenotmadesafer.ThatisdespitetheMoTspendingCZK 2.6 billion in the audited period of 2013–2017. This spending in these yearsdid not result in a reduction in the number of incidents onlevel-crossings. In theauditedperiodtherewereonaverage162 accidentsperyear,resulting in35 deathsand injuriesto81 people,whichisoneoftheworstrecordsinEurope.

• Inauditno17/35 theSAOstatedthattheMoTacquiredandreplaced rolling stock without having set any measurabletargets andwithout the appropriate technical, financial andtemporalsystemicmeasuresthatwouldeffectivelytackletheproblemofreplacingtheoldrollingstockintheCzechRepublic.Consequently, there is no precise specification of the rolling stock target that transportcompaniesare toachieve.TheMoTdidnotassess the impactsof theprovided support intermsofitssufficiencyandeffectiveness.

• As the SAO found in both audits, award procedures did not take place in a sufficientlycompetitiveenvironment.Thismayhaveimpactedontheeconomyofspendingonpurchasesorprojects.

Inresponsetoauditno 17/33theMoTadoptedthemeasureofcontinuingwiththeprogrammetoabolishrelativelyunusedlevel-crossings,especiallyonspecial-purposeroads,andtobuildelevatedcrossingsandproposenewtechnicalsolutionsfor“open-on-requestbarriers”forrelativelyunusedcrossings on regional and local railway lines. In this context the SAO recommends continuingimplementationofcamerasystemstopreventriskybehaviourbyroadusers.

Asdata from theEuropeanRailAgency’sERAILdatabase30 shows, theCzechRepublicwasoneof theworst EU countries in termsof thenumberof fatalitieson level-crossings in relation topopulation size in the years 2013 to 2017. There are almost two deaths on railway crossingspermillion inhabitantseveryyear in theCzechRepublic.Tocompare: inPoland thefigurewas1.3deathspermillionperyear,inBulgaria0.6andinGermany0.431(seeChart18).

29 Auditno07/25–Funds allotted for ensuring railway security and passengers’ safety(auditreportpublishedinvolume3/2008ofthe SAO Bulletin).

30 ERAIL–European Railway Accident Information Links–databaseofinformationlinkedtorailwaysafetyinEUcountriesandotherEuropean countries.

31 AccordingtotheAnalysis of the Response to Crisis Situations on Level Crossings drawnupin2017.

For some items there were unjustifiably large price differences: the unit price of the item “assembly box (stand) crossing relay logic device”, for example, was on average CZK 18,000 in contracts awarded by the Rail Track Administration – Construction Management East, while in contracts awarded by the Rail Track Administration – Construction Management West the average price was CZK 105,000, almost six times higher.


Chart 18: Average annual number of fatal accidents on level-crossings in EU countries per million inhabitants, 2013–2017

0.00

0.50

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Source: https://erail.era.europa.eu/safety-indicators.aspx;TK03indicator (numberofdeathsdoesnotincludesuicides).

Statesupportwasnotsufficientlyeffectiveintheacquisitionandmodernisationofrollingstock.Thankstothewaytherulesaredefined,thesolebeneficiaryofasubsidyforacquiringrollingstock was Czech Rail, for which the provided subsidy of CZK 4.6 billion in the years 2008–2018 madeupjust10%ofthefinancesforrollingstockrenewal,andthesubsidy’simpactonchangingits rolling stock was therefore relatively insignificant. The age structure of this transportcompany’srollingstockdidnotimprovesignificantly.

ThathadalreadybeenpointedoutbytheSAOinauditno10/2432.Theoveralleffectivenessofsupportwasalsoinfluencedbytheinsufficientopeningupoftherailmarkettocompetitionandthefailuretousethisadvantagetodesignbetterservicesforpassengers,includingrollingstockmeetingmoderntransportrequirements.TheSAO’sotherfindingsinauditno17/35included:

• Theprovisionofasubsidyfortheacquisitionofrollingstockwasmadeconditionalontheconclusionofacontractonapublicservicecommitment.Butthemarkethaslongremainedclosed,aspointedoutbytheSAO’sauditno15/2233.Securingpublicservice commitments not through a bidding process but bydirectaward,e.g.extendingcontractswiththesoletransportcompany Czech Rail, cannot be regarded as sufficientlytransparent, according to the SAO. The support’s impact onchangingtheunsatisfactoryagestructureofCzechRail’srollingstock,asdecidedonby theMoT,was relativelyminor.From2008 to 2018 Czech Rail modernised or bought new rollingstockworthatotalofCZK 44.5 billion notincludingVAT;thesubsidyaccountedforjust10.4%ofthat.Thevastmajorityofthecostofrollingstockrenewal,i.e.CZK 39.9 billion or almost 90%,wasfinancedoutofCzechRail’sownandexternalfunds(bankcreditandbonds).Despitethegradualreductionintheaverage ageof CzechRail’s rolling stock, its age structure isstillunsuitedtotheexistingandexpectedfuturerequirementsoftransportservicecustomersandthepublicforhigh-qualityandmodern regional and long-distance rail transport.MorethanathirdofCzechRail’sfleetisover30 years old,i.e.atorbeyondthethresholdofmoralandtechnicalobsolescence.

32 Auditno10/24–Funds earmarked for the acquisition and restoration of rail track vehicles(auditreportpublishedinvolume2/2011oftheSAO Bulletin).

33 Auditno15/22–State budget funds for public service in railway passenger transport(auditreportpublishedinvolume3/2016of the SAO Bulletin).

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That state support has a very little influence on tackling the problem of obsolete rolling stock is demonstrated by the fact that between 2006 and the end of the SAO audit the MoT had supported the acquisition or modernisation of 129 pieces of Czech Rail rolling stock, while the company owned 4,271 pieces of rolling stock at the end of 2017; 1,500 of these vehicles were over 30 years old.


The SAO continues to regard the opening up of the public servicesmarket to new railtransport companies and investors as an effective tool for optimising state expenditureinthefieldofpassengerrailtransport.

Even though the volume of passenger rail transport is growingconstantly (see Chart 19), Czech Rail continues to play thedominant role inpassenger transport.This isdespiteconceptualplans for giving private transport companies greater access topublicpassengerrailtransport.TheMoTdidnotcomplywiththetimetableforopeningupthemarket,approvedbytheGovernmentin2011andupdatedin2014.

Accordingtothesetargets,passengerrailtransportprovidedasapublicservicewasmeanttohavebeenprovidedon12long-distancelinesbycompaniesselectedbytender;aftertheupdate,thenumberwasreducedtosixlong-distancelines.TheMoThasstillnotresolvedtheissueoffareandtariffintegrationthatwouldenablepassengerstousevariousoperators’servicesforauniformtariffprice.Theexistingten-yearcontractwithCzechRailwillexpirein2019,sotheMoTandtheregionswillhavetoawardthemajorityofcontractsagain.TheMoTsaid34thatitwouldnothavetimetoawardthemajorityofrailwaylineroutesbytender,sotheprocedurewillbedirectaward.

Chart19:Developmentofpassengertransportontherailways(millionsofpassengers)

174.5176.1 176.6

179.2

183

2013 2014 2015 2016 2017

Source: 2017 Transport Yearbook of the Czech Republic.

Inroadtransport,afterauditingtheconstructionofmotorwaystheSAOfocusedonlower-classroads,conductingauditno17/09 whichscrutinisedsubsidiesco-fundedbytheEUandnationalsourcesfortherepair,modernisationanddevelopmentofthenetworkof2ndand3rdclassroadsinselectedregions35.

TheSAOstatesthatthefundingoftherepair,modernisationanddevelopmentof2nd and 3rd classroadsoutofthebudgetoftheStateTransportInfrastructureFund(STIF)isnotsystematic,because STIF finances were provided on an extraordinary basis depending on the financescurrentlyavailable,andnospecificmeasurablegoalsweredefinedthatwouldmakeitpossibleto evaluate the overall benefit of the expenditure. Subsidy beneficiaries did not monitorwhetherthecostsoftheconstructionworkdonewereproportionate,asaresultofwhichthereweresubstantialdifferencesintheunitpricesforwork.TheSAO’sfindingsincluded:

• Theowners of 2nd and 3rd class roadsmadeuse of EUfinancing from regional operationalprogrammesandregionalfinances.Inaddition,STIFfinancesofCZK 7.4 billion wereprovidedin2015and2016onthebasisofaGovernmentresolution.Thismoneywasprovidedwithoutknowledgeoftheregions’needsandwithoutsettingspecificmeasurablegoals.EventhoughtheSTIFprovidedbillionsofkorunainsubsidies, itdidnotassesseitherthebenefitsortheefficiencyof themoneyprovided,e.g. theextentof improvements inroadquality.Equally,

34 Seehttps://zpravy.aktualne.cz/ekonomika/doprava/stat-se-pripravuje-na-to-ze-bude-muset-vsechny-zeleznicni-tr/r~3b1a639ce68911e8bf040cc47ab5f122/.

35 IntheregionsofSouthBohemia,Liberec,Moravia-Silesia,PardubiceandPilsen.

Czech Rail accounted for 92% of passenger transport services in 2018.

https://zpravy.aktualne.cz/ekonomika/doprava/stat-se-pripravuje-na-to-ze-bude-muset-vsechny-zeleznicni-tr/r~3b1a639ce68911e8bf040cc47ab5f122/

https://zpravy.aktualne.cz/ekonomika/doprava/stat-se-pripravuje-na-to-ze-bude-muset-vsechny-zeleznicni-tr/r~3b1a639ce68911e8bf040cc47ab5f122/


the subsidy beneficiaries did not systematically assess the unit costs of thework done ordefinetheexpectedvalueofpubliccontracts.They left it toexternalcontractorstodefinetheexpectedvalueofpubliccontracts,withoutcheckinghowthisvaluewasdetermined.Dataobtainedwhenauditingfourregions(SouthBohemia,Liberec,Moravia-SilesiaandPardubice)andselectedprojectsrevealedthatrepairingonekilometreof2ndand3rdclassroadscostonaveragefromCZK 1.5 million to CZK 14 million.ThesupremeauditinstitutionoftheSlovakRepublicconductedasimilarauditin2014,whichshowedthatthepricesforrepairingroadsinregionsofSlovakiarangedfromapprox.CZK 1.8 million to CZK 5.8 millionperkilometre.The conducted audit exposed the risk of continued unsystematic financing because thestate’sfinancialinvolvementinthisareahasnotbeencomprehensivelyassessedanddefined.A further CZK 7.4 billion wasearmarkedintheSTIFbudgetfor2ndand3rdclassroadrepairin2017and2018.

Thequalityofthe2ndand3rdclassroadnetworkisunsatisfactory.Accordingtodatafrom2016coveringfive selected regions36, over50% of the total roadnetwork’s lengthwas in critical orunsatisfactorycondition(Chart20).

Chart 20: Quality of 2nd and 3rd class roads in selected regions

excellent13%

good19%

sa�sfactory17%

unsa�sfactory16%

emergency35%

Source:Auditno17/09;magazinesoftheSocietyfortheDevelopmentofRoadTransportintheCzechRepublic.

The quality of the Czech roads network is alarming by international benchmarking as well.According todata from theWorld Economic Forumassessment report from201837, theCzechRepublicisin68th place out of 140 assessedcountriesintermsofroadquality.TheCzechRepublicwasdownin23rd place out of 28EUcountries.Itisclearfromtheabovethattheunsatisfactoryquality of roads in the Czech Republic is one of the factors holding back efforts to improvethecountry’scompetitiveness.

In its outputs, whether audit reports or position statements, the SAO has long drawnattention to the fact that speeding up the preparation of transport infrastructureconstructionprojectsintermsoftheEIAprocess,planningandbuildingpermitproceduresandpreventingthedeliberateblockingofprojectsishinderedbyineffectiveprocessesandinadequatelegislation.

36 PilsenRegion/PLZ/,LiberecRegion/LIB/,CentralBohemianRegion/STČ/,OlomoucRegion/OL/and HradecKrálovéRegion/KH/.

37 The Global Competitiveness Report 2018.


The lowefficiencyof constructionprojectpreparationprocessesisconfirmedbytheWorldBank indicatorratingthebureaucracyinvolvedinobtainingbuildingpermits.Accordingtothisindicator,which also reflects the amount of time and number of stepsrequiredtoprocessbuildingpermits, in2018theCzechRepubliccame 156th out of 190 scrutinised countries of the world andoccupiedoneofthebottomrungsforEUcountries(seeChart21).TheCzechRepublicfelleven17 places downon2014.246 days and21actionswerenecessaryforobtainingbuildingpermissionintheCzechRepublic in2018,while in2014thefigureswere143 days and24 actions38. The lengthening process duration has becomea significant negative actor in housing construction as well astransportprojects,forexample(seeSectionII.4.5).

Chart21:NumberofdaysrequiredtoobtainbuildingpermitsinEUcountries

175246

0

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Source: Doing Business 2019,WordBankGroup,2018.NB:Thenumberbythecountrynameshowsthecountry’sstandingoutof190countriesaccordingtotheindexof

theoverallbureaucracyinvolvedinobtainingbuildingpermits.

These problems in preparation of construction projects aredemonstratedbyroadbuilding,forexample,whichlagsfarbehindthestrategicobjectives.Inauditno17/0539 theSAOfoundthatthepreparationofmotorwayconstructionprojects,fromthetimewhenanaffirmativeEIAisissuedtothetimewhenbuildingpermissionisobtained,lastedonaverage13 years,fouryearslongerthanthetimeidentifiedinthepreviousaudit.Themotorwaynetworkgrewby just79 km from2013 to 2017, i.e. on average16 km a year. Tohitthetargetofbuildinganadditional2,073kmofmotorwayby2050itwouldbenecessarytoopen25kmofmotorwayayearon average, starting in 2018. Just one complete new section ofmotorway3.77 km40 longwasopenedin2018,however.

38 Doing business 2015,WordBankGroup,2014.39 Auditno17/05–Construction, modernisation and reconstruction of motorways(auditreportpublishedinvolume1/2018ofthe

SAO Bulletin).40 Postoloprty–BítozevessectionoftheD7motorwayPrague–Slaný–Chomutov.

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The amount of time necessary for obtaining building permission increased by 72% from 2014 to 2018. The figure of 246 days ranks the Czech Republic among the worst countries in the EU.

The total motorway network was enlarged by just 3.77 km in 2018. Of the 12 priority motorway construction projects, 7 were commenced; 5 construction projects were not started.


Of the 12 prioritymotorway construction projects, sevenwere commenced; five constructionprojectswere not started. An exemption froma repeated EIAwas arranged for these prioritymotorway building projects that were meant to have started in 2015 and 2016 according totransportstrategies,oroneproject(D49motorway)in2013.Thefiveconstructionprojectswerenotstartedbecausebuildingpermissionhadnotbeen issued,planningpermissionproceedingsweretakingplaceorawardproceduresweretakingplace.

One of the reasons is the ineffective procedure followed by the responsible authorities foreliminating inefficientprocessesand legislativeobstacles.Thesituation isbestencapsulatedby the state of affairs where the first effective legislation could be the amendment of ActNo. 416/2009 Coll.41fromJuly2018,i.e.fouryearsaftertheGovernmentdeclaredthatitwouldstreamline the bureaucracy surrounding building permission for line construction projects,includingEIAandtheconditionsforbuyingupaffectedlandparcels.

TheamendmentofActno416/2009Coll.modifiedthetimelimitsforvariouskindsandstagesofprocedureandmakesitpossibletoexpropriatethenecessarylandifthedefinedconditionsaresatisfied.Itpermitsdisputesovercompensationtotakeplaceafterthefact,sothatthedisputedoesnotblockthe issuingofbuildingpermits.Anotheramendmentof thisactcurrentlyunderdiscussionwouldenablebetterusetobemadeofjointproceedingsfortransportinfrastructureconstructionprojectsandwould limitthenumberofbindingpositionstatementsandconsentsrequiredfordecisionstobeissued.Whetherandhowthesechangeswillactuallyspeedupthepreparationof transport infrastructureconstructionprojectswillbescrutinisedby furtherSAOauditsdoneafteranappropriateinterval.

4.4Enterprise–onebasicrequirementifenterprisesupportistobeefficientisthatthesupportisawardedonthebasisofmeaningfulassessmentofbenefitsandimpactsonimprovingbusinesses’competitivenessandvalueadded

Supportforenterpriseandinvestmentisacorepolicyofthestateintendedtoimprovebusinesses’competitiveness. The state supports entrepreneurs through subsidies, refundable financialassistanceandloans,andprovidesinvestmentincentivesortriestomakeuseofotherfinancialinstruments suchas capital inputs.Thedepartment responsible for thisarea is theMinistryofIndustryandTrade(MoIT),underwhichthesupportisfinancedoutofstatefundsinthecontextofnationalprogrammesandEuropeanUnionfinancesthroughoperationalprogrammeEnterprise and Innovation for Competitiveness (OPEIC).

In2018theSAOcompletedauditno18/01,focusingonsupportforindustrialzonesandbusinessrealestateoutofthestatebudget.Theauditalsotargetedtherealestateandinfrastructureofsmallandmedium-sizedenterprisessubsidisedoutofEuropeanUnionfinances.TheMoITspenta total of CZK 27 billion onthissupportbetween1998and2017.HeretheSAOfollowedupitsfindingsfromauditsofsupport for industrialzones in2004and2009andsupport forbusinessinfrastructure from 201642.

The SAO points out that one fundamental and enduring shortcoming of support for enterprise andinvestmentistheabsenceoffullandmeaningfulassessmentofthissupport’sbenefitsthatwouldproveitseconomicefficiencyandthedeclaredresults.

41 Act no 416/2009 Coll., on speeding up the construction of transport, water and energy infrastructure and electroniccommunicationsinfrastructure,asamendedbyActno169/2018Coll.,amendingActno416/2009Coll.,onspeedinguptheconstructionoftransport,waterandenergy infrastructureandelectroniccommunications infrastructure,asamended,andotherrelatedacts.

42 Auditno03/31–State budget funds earmarked for investments in industrial zones,whichtheSAOperformedfromNovember2003toMarch24,auditreportpublishedinvolume2/2004oftheSAO Bulletin;auditno08/29–Funds allotted for programmes of support for development of industrial zones and regeneration of brownfields,whichtheSAOperformedfromSeptember2008toMarch2009,auditreportpublishedinvolume2/2009oftheSAO Bulletin;auditno16/01–EU and state budget funds earmarked for financing of interventions within Operational Programme Enterprise and Innovation with focus on the fulfilment of objectives,auditreportpublishedinvolume1/2017oftheSAO Bulletin.


Theseshortcomingsarelinkedtotheerroneouspredictionsofthesupport’sconsiderablebenefitto the state budget or the failure to monitor the impacts of support for small and medium-sized enterpriseson increasing their competitiveness, cuttingoverheadsanddeliveringhighvalueadded.

Themainfindingsofauditno18/01wereasfollows:

• In2004and2009,furthertotheresultsofauditsnos.03/3143 and08/2944,theSAOpointedoutthattherewasnomeaningfulassessmentofthebenefitsofsupportforindustrialzones,butthisstateofaffairshasnotbeenrectified.TheSAOhadtostatethat in almost 20 years neithertheMoITnorCzechInvesthadcreatedameaningfulandcomprehensivesystemforassessingthe effectiveness of support for industrial zones. That wasdespite spending ofCZK 12 billion on support for industrialzonesoverthatperiod.Tospecifythebenefitsofthesupport,theMoITandCzechInvestuseacalculationthatignoressomefundamental state revenues and expenditure (investmentincentives, thetrafficoverloadingof roads, transportaccess,reducedsafetyof regionsetc.).Thedata theyworkwitharealsoincompleteandinconclusive.Withafewexceptions,thezonesarebeingoccupiedbyinvestors(averageoccupancyrateofapprox.80%),buttheactualbenefitsforthestatebudgetand regional development are practically not monitoredat all by theMoIT, and investors are not obliged to providedata for evaluating the benefits. In some regions, supportfor industrial zones brought problemswith increased crime,inordinatetrafficonroadsanddamagedroads,deterioratingenvironmentalconditionsetc.TheMoITalsodidnotmonitorwhethercompaniesinthevicinityofthesupportedzoneswerebeingcloseddown.

Figure 1: State-supported industrial zones, 1998–2017

Source:Auditno18/01.

43 Auditno03/31–State budget funds earmarked for investments in industrial zones (auditreportpublishedinvolume2/2004ofthe SAO Bulletin).

44 Auditno08/29–Funds allotted for programmes of support for development of industrial zones and regeneration of brownfields (auditreportpublishedinvolume2/2009oftheSAO Bulletin).

One example of an unoccupied zone is Holešov with an area of 280 hectares, on which the state spent CZK 1.1 billion: the occupancy rate is just 2% of the site. There is also a risk that the Přerov-Bochoř zone under preparation and approx. just 20 km from Holešov will be under-occupied.


• AccordingtotheMoIT’simprecisecalculations,theexpendituretodateonsupportforindustrialzonesisgreaterthanthetotalrevenues.TheMoIT’soriginalexpectationthatitwouldprovidesupportuptotheendof2009withanexceptedbenefitofalmostCZK 25 billion for the state hasnotbeenrealised.Quitetheopposite:inrealitytheimpactonthestatebudgetin2014wasnegative,i.e.stateexpenditurewasCZK 1.5 billion higherthanthebenefitfromthesupport.TheMoITdeferredapositivebenefituntil2021(seeChart22).

Chart22:Expectedcumulativeimpactofsupportforindustrialzonesfrom2005to2030onthestatebudget(CZKmillion)

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2005 2009 2013 2017 2021 2025 2029

Dopa

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Source: MoIT.

• One intendedbenefitofsupport forbusinessrealestateand infrastructureundertheReal Estate 2014–2020 programme for smallandmedium-sizedenterprises is their transition toproduction ensuring competitiveness, reduced overheads, high value added and greatersuccessoninternationalmarkets.AlthoughCZK 751 million wasspenton252projectsunderthe Real Estate 2014–2020 programmeoutofEU fundsupto June2018, theMoITdidnotfollow these projects up with an assessment whether the businesses are registering theexpectedbenefits.Forhalfoftheauditedsampleof12projects,ithasnotbeenconfirmedyetthatthesupporthadmadethebusinessesmorecompetitive,reducedtheiroverheadsandbroughtsuccessoninternationalmarkets.

TheSAOalsodrawsattentiontothefailuretoachievethestrategicobjectiveofreducingthenumberofbrownfieldsites45andthetakeoverofagriculturallandfornewbuildprojectsinlinewiththeprinciplesofsustainabledevelopment.Underthisobjective,theregenerationofbrownfieldsitesissupposedtobepreferredoverbuildingindustrialzonesongreenfieldsites.

Astheresultsofauditno18/01showed,since2010theMoIThasnotsupportedthecreationofanyindustrialzonesonbrownfieldsites. 96%ofthetotalof102supportedzoneswerebuiltongreenfieldsites,andfourmorenewgreenfieldsitezonesarebeingconsidered,includingtheoccupationofagriculturalland.

45 Brownfieldsarerealestate(land,buildings,complexes)thatisinsufficientlyused,neglectedandpossiblyalsocontaminated;theycannotbeusedappropriatelyandeffectivelywithoutregeneration;theyarelegaciesofindustrial,farming,residential,militaryorotheractivities.

Year

Impa

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Figure2:BrownfieldsitesintheCzechRepublic(accumulationintheCzechRepublic,numberofbrownfieldsandstructureoftheirtotalareabytypeofownershipintheregions)

NB: Accumulationinaterritory–frommin.tomax.onascalefromviolettoyellow.Source: www.brownfieldy.eu,stateasat22.1.2019;drawnupbySAO.

According to CzechInvest data from the public part of the brownfield sites database46, as at January22,2019therewere466brownfieldsitesintheCzechRepublicthatwereconsideredastoppriorityforregeneration.Almost1,100hectaresoutofatotalareaexceeding2,300,000hawereinpublicownership.

Based on the conducted audit, theMoIT submitted amaterial to theGovernment adoptingmeasures designed for a comprehensive assessment of the society-wide impacts of the support, initiatingtheprovisionofadditionalinformationbyapplicantsonthepositiveimpactsonthedevelopmentofsocietyaspartofsustainabilityreportsand,aboveall,forfulfillingthestrategicobjectiveofprioritisingsupportforbrownfieldsiteregeneration.

InitsPositionStatementonthestateclosingaccount,theSAOalsoflaggedupthefactthattheownershipstructureofproduction factorsandtheproportionofnon-residentsmeant that theoutflowofprofitsisgreaterintheCzechRepublicthaninthevastmajorityofEuropeancountries.Measuredbytheratiobetweengrossdomesticproductandgrossnationalincome,lessthan95% oftheprofitsgeneratedintheCzechRepublicremainedherein2017,puttingtheCzechRepublicsecondlastintherankingofEuropeancountries(seeChart23).TheCzechRepublic’sratiobetweendomesticvalueaddedandexportshaslongrangedfrom50% to 62%,whichalsoputstheCzechRepubliconthebottomrungsintheEU.Moretargetedsupport,focusingonCzechcompaniesandactivitieswithhighervalueadded,includingactivitiesdrivingresearchandinnovationandsupportfor start-ups,oughttobringimprovements.TheSAOpointedout,however,thattheimpactofthissupporthasnotyetbeenassessedbytherelevantauthorities.

46 Seewww.brownfieldy.eu.

http://www.brownfieldy.eu


Chart23:RatiobetweengrossnationalincomeandgrossdomesticproductinselectedEuropeancountriesin2017(%)

94%

75%

80%

85%

90%

95%

100%

105%

Source: Eurostat.

4.5Housing–implementinghousingpolicyrequiresthestate’scoordinationroletobefulfilledandsocialhousingtobedefined,includingtheresponsibilitiesoftheconcernedentities

Thestate’sroleinthefieldofhousingistocreateastableenvironmentstrengtheningpersonalresponsibilityandtosupportthepublic’smotivationtoprovideforthemselves.Butthestatealsohastoput inplacetherightconditionsandtools tohelpthosewho, forobjectivereasons,areunabletoprovide for theirownhousingneeds.Thekeyprinciplesof thestate’shousingpolicyareeconomicproportionality,i.e.respectingelementaryeconomicprinciples,thesustainabilityofpublicandprivatefinancesandthestate’sresponsibilityforputtinginplacetherightconditionsenablingindividualstoexercisetheirrighttohousing47.

Giventhispolicy’simportanceanditsimpactononeofthemostfundamentalneedsofcitizens,theSAOhas regardedhousingasoneof its auditpriorities in thepast years. In2018 theSAOcompleted audit no17/02 focusing on support for social housing. Thiswas the culminationofaseriesofaudits48targetinghousingsupport.

Housingsupportisalsosignificantintermsoftheamountofmoneythe state spends on it. Between 1997 and 2017 theMinistry ofRegionalDevelopment(MoRD),StateHousingDevelopmentFund(SHDF),theMoF,theMinistryofLabourandSocialAffairs(MoLSA),theMinistryoftheInterior(MoI)andtheMinistryoftheEnvironment(MoE)providedstatefinancestotallingCZK 232.4 billion. At least CZK 2 billion of EuropeanUnion financeswas spent on housingsupportin2016and2017.Themainformsofsupportaresubsidiesand credit for investments in housing, energy saving subsidies,contributions towards building saving andmortgages and socialcontributionsortop-upallowanceforhousing.Throughsubsidiesalonethestatecontributedtothecreationofatleast22,500 social housing units49. In addition, the state finances social work andsocialserviceslinkedtohousing.

47 Housing Concept of the Czech Republic up to 2020,revisedin2016.48 Besidesauditno17/02,alsoauditno15/18–Funds earmarked for housing support(auditreportpublishedinvolume3/2016

of the SAO Bulletin)andauditno09/24–Funds earmarked for housing supportprogrammes,(auditreportpublishedinvolume3/2010oftheSAO Bulletin).

49 Takenfromtheauditreportfromauditno15/18(1997to2012,amountingtoCZK137.8billion)andfromtheMinistryofRegionalDevelopmentmaterial:Selected Housing Data 2017,MoRD,June2018(2013to2017,amountingtoCZK94.6billion,numberofsupportedhousingunits).

Denm

ark

Ger

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Fran

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Swed

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Finlan

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Bulgaria

Gre

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Nethe

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Belgium

Spain

Latvia

Esto

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Portug

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Slov

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Cypr

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Czec

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Ireland

Between 1997 and 2017 the state, through various entities and housing support measures, provided CZK 232 billion of public money; despite that, the support is not properly coordinated.


Chart24showstheproportionsoffinancespaidoutbythestatefrom2012to2016onauditedinterventions in social housing. As the chart reveals, themajority of thismoneywas providedby the MoLSA and the lion’s share of funding went on the housing allowance and housingtop-up allowance (almost89% of the total funding provided by the said entities). In the fieldof socialhousing, from2012 to2016 theMoLSA spentCZK 40.6 billion onhousingallowance,CZK 13.7 billion onthehousingtop-upallowance,CZK 4.3 billion onrelatedsocialservicesandCZK 0.5 billion onsocialwork50.

Chart24:Proportions of finances paid out for audited interventions and to support theconstruction and acquisition of housing for low-income or otherwise vulnerablegroupsofthepopulation

66.3%

22.3%

0.9%

7.0% 2.4% 1.1%

MoLSA – housing allowance

MoLSA – housing top-up allowance

MoLSA – social services

MoLSA – related social services

MoRD – construc�on of supported flats

SHDF – construc�on of social and rental flats, construc�on and acquisi�on of housing for young people


The key and long-term shortcomings the SAO has identified through its auditwork aremajorobstacles to theefficient implementationofhousingsupportpolicyandachievingtheirgoals,especiallyinthefieldofsocialhousing.

TheSAOregardsthefollowingfindingsasthemostserious:

• The state support system intended to achieve the goals of the housing concept is fragmented.

• MeasuresinthefieldofhousingaresupposedtobecoordinatedbytheMinistryforRegionalDevelopment,whichlacksadequatetoolsforthis.

• Theroleofmunicipalitiesremainsunclear.• There is no act on social housing. • Thestatespendsaconsiderableamountofmoneyinconnectionwithhousing,butfailsto

evaluatethebenefitsofthissupportinameaningfulway.• Statebenefitsforhousingmayhelpreducethenumberofpeopleatriskofpovertyor

materialdeprivation,andinsomecasesthuspreventsocialexclusion,buttheydonothelptackle the causes.

Thisassessmentisbasedontheresultsofauditsthatgaverisetothefollowingfindings:

• In audit no 15/18 the SAO drew attention to shortcomings consisting in the MoRD’s non-functioningcoordinationrole,afailuretoclarifytherolesofmunicipalitiesandthestateandafailuretomonitorthebenefitsonspendingforthetargetgroupsofpeople.TheSAOstatedthatseveralministrieshavepowersinthefieldofhousing,whichdisruptstheworkingoftheMoRD’scoordinationroleanditsabilitytopushthroughhousingpolicyobjectives.AndthatisdespitethefactthattheMoRDisbylawresponsibleforcoordinatingtheactivitiesofministriesandothercentralbodiesinstatehousingpolicy,includingcoordinatingthefunding

50 Accordingtoauditno17/02(2012to2016,housingallowance,housingtop-upallowance,socialservicesandsocialwork).


of these activities. Although theMoRD spent a total ofCZK 4.9 billion on acquiringmorethan 9,000 rental apartments between2003and2015,applicantsforsubsidiesdidnothavetoprovethattheyneededapartmentsandtheMoRDdidnotevenmonitorwhethertheseapartmentswereactuallybeingusedbythetargetgroupsofpeopleforthegivenpurpose.Usingasampleofsupportedhousingunits,theSAOfoundthataquarterofthemwerenotrentedtothetargetgroupofpeople.Evenafter18yearsofprovidingthissupporttheMoRDdidnothaveameaningfulevaluationofthebenefitsofhousingsupport.Thatisdespitehavingspent CZK 1.8 billion onthesesubsidiesbetween2011and2015alone.

• TheSAOmadesimilarfindingsinauditno09/24.TheMoRDpracticallydidnotcoordinateatalltheactivitiesofotherministriesinsupportofhousing;itdidnothaveaccurateinformationonthelevelofsupportprovidedbyotherministries;anditdidnotassesstheeffectivenessofthesupportprovided.

• Inauditno17/02theSAOconcludedthattheexistinghousingsupport for low-incomeorotherwise vulnerable groupswasnothelpingtacklethecausesofsocialexclusionoroftheriskofsocialexclusioneffectively.SupportfromtheMoLSAisbasedmainlyonprovidingthehousingallowanceandhousingtop-upallowance.AlthoughtheMoLSApaidoutalmostCZK 60 billion onauditedinterventionsbetween2012and2016,theproblemofsocialexclusiongotworse.Thenumberofsociallyexcludedlocalitiesgrew from310 with 80,000 inhabitants in 2006 to 606 with 115,000 inhabitants in 2015. The annual amount paidoutbytheMoLSAonauditedinterventionsgrewbymorethan 68% between2012and2016.Whatismore,theMoLSAdidnotevaluatethevariousinstruments’impacts.Thehousingallowanceandhousingtop-upallowance,onwhichtheMoLSApaidoutCZK 54.3 billion between2012and2016,areneithermotivationalnorpreventive innature.Although they reducethenumberofpeopleatriskofpoverty,theydonothelpsolvethecauseoftheproblem.

• Audit no17/02 also showed that thebasic attributesof the social housing systemarenotdefined. Inparticular, theconceptofsocialhousing itself isnotdefined,andneither is thetargetgroupofpeoplesocialhousingissupposedtobeintendedfor.Oneofthegoalsofthesocialhousingconceptsince2015hasbeenthepassingofalawonsocialhousingthatwouldpreciselydefinetheseterms.Nosuchlawhasbeenenactedtodate,however.

2012 2016

2006 2015

Theshortcomingsinthedesignandworkingofthesocialhousingsupportsystemasdefinedabovedonotputinplacethebasicpreconditionsnecessaryforsuccessfulimplementationofthe state concept of social housing51, which is supposed to ensure that people who meet the criteriadefinedbylawhavedignifiedconditionsforhousingandtoreducethelikelihoodoftheirfalling into poverty.

51 Concept of Social Housing of the Czech Republic 2015–2025isaframeworkdocumentsettingthecoursefordevelopingasystemofsocialhousingintheCzechRepublic.

Although the amount of money spent on housing allowance and housing top-up allowance has soared, the number of social excluded localities almost doubled and the number of inhabitants of socially excluded localities grew by almost half (more than 40%).


Thefragmentationofthesocialhousingsupportsystemandtheneedtocoordinatetheimpactsofinstrumentsandvariousmeasuresareborneoutbytheschematicrepresentationofthelinksbetweenthevariousentitiessupportingsocialhousing.TheCompetencesActrequirestheMoRDtocoordinatehousingpolicyactivitiesbyministriesandothercentralauthorities.ButtheMoRDdoes not have sufficient tools to push throughhousing policy objectives so that the system iseffectiveanddeliversefficientspendingofpublicmoney.Inaddition,numerousentitiesatbothstateadministrationlevelandself-Governmentlevelareinvolvedinaddressingtheissueofhousingfor low-incomeorotherwisevulnerablepopulationgroups.TheseareprimarilytheMoLSA,theLabourOffice of the Czech Republic, theOffice of theGovernment of the Czech Republic andmunicipalities.Theseentitieshavetheappropriatepowersandresponsibilities,butinsomecasesthesearenotclearlydefinedandapplied.ThisalsoencompassestheAgencyforSocialInclusion(“theAgency”),whichispartoftheOfficeoftheCzechGovernmentandwassetupforafiniteperiodupto2022.TheAgency,whichissupposedtocarryoutsocialinclusionactivities,includinghousing,doesnotpossesspowersandresponsibilitiesinthisareaonthebasisofalegalregulationoranypowersandcompetencesvis-à-visotherpartners.

Figure3:Entitiesinvolvedinhousingsupportforlow-incomeorotherwisevulnerablepopulationgroups


The SAO points out that the constant postponing of the enactment of a law on social housing thatwoulddefinethesocialhousingsupportsystem,thetargetgroupsofthepopulationand the rules for providing housing support mean there is a risk that the availability of housingforvariousvulnerablegroupswillcontinuetoworsenandthenumberofpeopleaffectedwillgrow.

Theenactmentofalawonsocialhousinghasbeenoneofthegoalsoftheconceptofsocialhousingsince 2015. The role of municipalities still remains unclear. One consequence is the differentapproachestakenbymunicipalitiesinthisareaandthedifferenteconomicpossibilities.

BasedontheabovefindingsofSAOaudits,thekeyauthoritiesannouncedaseriesofmeasurestoputinplacetherightconditionsforachievingthegoalsofhousingsupport.Theseincludingthe following:

• The MoRD revised the housing concept and declared that it will improve the subsidiesmonitoringsystem,willdesignamechanismformonitoringthebenefitsofsupportandtheuseofthesupportedhousingunits,andwillreduceadministrativeexpensesforbanks.

• In responseto theresultsof theSAOaudit, theMoLSAstated itwoulddraft legislationonthecalculationofbenefitsandchangesaffectingthesocialservicessystemandsocialwork,including pushing for salary increases for social workers; it stated that it was working toimprovedatamonitoring,wasplanningtoreviseandupdatetheconceptofsocialhousingandwouldhelpdrawupanactonsocialhousing.


• TheLabourOfficeoftheCzechRepublicstatedthatitwasstabilisingthenumberofemployeesin units working on the material need agenda, would constantly monitor the number ofrelevant investigations, would emphasise the methodology and performance of socialinvestigationsandevaluatetheireffects,wouldfocusongettingbenefitrecipientsontothelabourmarket,wouldcontinue tocooperatewithmunicipalities’ socialworkersandwouldcoordinatejointactionbytheAssociationofTownsandMunicipalitiesoftheCzechRepublicandtheAssociationofLocalSelf-GoverningUnitsoftheCzechRepublic.

• In its programme declaration52, the Government declared itwould adopt an act on socialhousingthatwouldsystematicallytacklethehousingshortageonthesupplyside.Itwillensurehousingsupportistargetedsothatthenumbersofpeopleexperiencingahousingemergencywouldbereducedandrentalhousingwouldbeaccessibleforallpopulationgroups.TheOfficeoftheGovernmentalsoproposedamendingtheactonsocialservices.

The SAOwill continue to evaluate the adoptionandeffectivenessof the announcedmeasuresandplans.Accordingtoup-to-dateinformation,however,anactonsocialhousingisnotcurrentlybeingprepared.Theadoptionofanactonaffordablehousingiscurrentlybeingdiscussed.

TheSAOassessedtheresultsofitsauditandanalysisworkinthefieldofstatesupportforhousingin the summary Report on Housing in the Czech Republic,whichitpublishedin201853.

4.6 Healthcare – making greater use of award procedures could cut costs and make purchasing more transparent

The reasons for theSAO’s long-termandsystematic focusonhealthcareare the largesumsofmoney spent and the non-transparency of purchasingwithout award procedures. That iswhythemainfocusesofSAO sauditworkinhealthcarearestatehospitals’andotherstatemedicalfacilities’financialmanagementandtheperformanceoftheroleoftheMinistryofHealth(MoH)astheresponsibleauthorityforhealthcare.TheSAO’sprincipalendeavouristodetectroomforimprovement in their financialmanagement, identify the causes of the unsatisfactory state ofaffairsandprovidehealthcareorganisationswithrecommendationsthatwouldmaketheirworkmoreeffective.

Publicspendingonhealthcareinvolveshugesumsofmoneythathavebeenincreasingsince2013,asChart25shows54.PublicspendingonhealthcareamountedtoCZK 294 billion in2017,withthecostofacutecarereachingCZK 160 billion.

Chart25:Publicexpenditureonhealthcare2013–2017(CZKbillion)

247255

269276

294

2013 2014 2015 2016 2017

Source:Healthcareyearbooksfor2013–2017.

TheSAOcompletedthreeauditsinthefieldofhealthcarein2018.TwofocusedonthefinancialmanagementoftheNationalInstituteofPublicHealth(auditno17/13)andtheNationalInstituteofMentalHealth(auditno17/14).Theresultsofauditno17/13aredescribedinSectionII.5.1of

52 Seehttps://www.vlada.cz/cz/jednani-vlady/programove-prohlaseni-vlady.53 Seehttps://www.nku.cz/assets/publikace-a-dokumenty/ostatni-publikace/zprava-o-bydleni-v-ceske-republice.pdf.54 Thedataapplyto189acutecarehospitals.

https://www.vlada.cz/cz/jednani-vlady/programove-prohlaseni-vlady

https://www.nku.cz/assets/publikace-a-dokumenty/ostatni-publikace/zprava-o-bydleni-v-ceske-republice.pdf


thisannualreport.Thethirdaudit(auditno17/19)focusedonthepaymentofthecostsoftheworkofthreeselecteduniversityhospitals:Brno,MotolandtheCentralMilitaryHospital.

When auditing university hospitals in recent years, the SAO has regularly drawn attentionto fundamental and recurring shortcomings in their financialmanagement, especially in thepurchasingofmedicamentsandmedicalequipment.TheSAOhasauditedalluniversityhospitalsintheCRsince2012.Initspreviousaudits(auditsnos.12/2355 and 16/2856)theSAOrepeatedlypointedoutthatuniversityhospitalsboughtmedicamentsandmedicalequipmenttoooftenatsignificantlydifferentpriceswithoutopenawardproceduresandthattheacceptanceanduseofbonuseswasnon-transparent,non-systematicandwithoutclearlydefinedrules.Despiteallthemeasuresimposedtotackleshortcomingsfromthepreviousaudits,theSAOidentifiedalmostidenticalshortcomingsinauditno17/19.

• BrnoUniversityHospital (BUH) andMotolUniversityHospital (MUH),whichwere foundedby theMinistry of Health, and the CentralMilitary Hospital –Military University HospitalPrague(CMH),foundedbytheMinistryofDefence(MoD),boughtmedicamentsandmedicalequipmentworthCZK 15.9 billion from2014to2016,veryoftenwithoutawardproceduresand usually directly from suppliers. BUH, for example, did not hold any tenders at all forpurchasesofspecialisedcentremedicinesandmedicalequipment.AstheSAOfoundintheauditedsample,BUHusedawardproceduresforonaverage5% ofpurchases,MUH9.6% andCMH 21.4%. Figure4showstheexecutedawardproceduresonanauditedsampleofselectedidenticalmedicamentsandmedicalequipmentexpressedaspercentages.

• TheSAOalsoidentifiedsignificantroomforcostsavings,drawingattentiontotheconsiderabledifferences in the prices of identical medicines and medical equipment paid by variousuniversityhospitals.Thebiggestpercentagedifferencewasasmuchas449% inmedicamentsand110%inmedicalequipment. Onereasonforthedifferentpriceswasthesizeoffinancialbonusesprovidedbythesupplier.Theprocessofnegotiatingandusingbonuseswasdifferentineachuniversityhospitalandshowedsignsofnon-transparency.Insomecases,itwasmerelyanoralagreement,yetthevalueoftotalbonusesformedicamentsandmedicalequipmentintheyears2014to2016wasaroundCZK 1 billion. Theabsenceofclearlydefinedrulesmeantthatuniversityhospitalstreatedbonusesdifferentlyinawardprocedures.Thehospitalsdidnotusuallytakethemintoaccountinawardprocedures.OneexampleofgoodpracticewasCMH,whoseproceduretheSAOregardsastransparentasitdefinedtheofferpriceandbonusesassomeassessmentcriteriainawardproceduressothattheendpricewasthelowest.

Figure4:Proportionofexecutedawardprocedures(%)


55 Auditreportno12/23–Funds spent by selected university hospitals on their operational costs waspublishedinvolume3/2013of the SAO Bulletin.

56 Auditreportno16/28–Funds spent by selected university hospitals on settlement of their operational costs waspublishedinvolume6/2017oftheSAO Bulletin.


The SAO draws attention to a serious systemic shortcoming in health insurance linked tobonuses.Theacceptance,reportinganduseofbonusesfromsuppliersinthehealthcaresystemis non-systemic, and their existence enables the maximum payments covered by health insurance companies.

The receiptofbonusesdidnot influence the reportingofprovidedmedical services tovarioushealth insurance companies, as the university hospitals agreed on payments predominantlyinsomelump-sumformwithhealthinsurancecompanies.InthecaseofMUH,forexample,itwasfoundthatlump-sumpaymentsaccountedforapprox.99%ofpaymentsforprovidedhealthcareservicesfromhealthinsurancecompaniesin2014and2015.

The SAOalso looked at how the founders of university hospitals fulfilled their obligations andidentifiedariskintheprovisionofmoneytotheauditedhospitals57.During2016theMoHissuedanempowermentactwithin themeaningofArticle106(2)of theTreaty on the Functioning of the European Unionforservicesofgeneraleconomicinterest58toBUHandMUHforthefieldofinvestments.TheMoDissuednorulescoveringtheprovisionofmoney,eventhoughtheSAOdrewattentiontotheriskinthisareaaspartofauditno15/3859.

TheSAOseesroomforcuttingcostswhenpurchasingmedicamentsandmedicalequipmentand for transparentprocedurewhenselectingsuppliers: thiscanbeachievedbymakinggreater use of award procedures in line with the Act on Public Procurement60.

Recommendations

The SAO issued the following recommendations based on the shortcomings found in auditno 17/19:

• recommendationsforfoundingorganisations(ministries): – theMoHshouldpayattentiontothedevelopmentstrategiesdrawnupbyhospitalsand

drawupitsowndevelopmentconceptfortheorganisationsitdirectlymanages; – theMoHandMoDshoulddefinepreciserulesfortheacceptance,reportinganduseof

bonusesfromsuppliers; – theMoHshouldchecktheeffectivenessofandjustificationfortheexistenceoftheBUH

endowmentfundandweighupthereasonsforitscontinuedexistence;

• recommendationsforhospitals: – medicamentsandmedicalequipmentshouldbepurchasedinatransparentmannervia

awardprocedures; – inawardprocedures,thepriceincludinganybonusestobeprovidedshouldbedefined

as a criterion.

TheSAOconsiders it very important that theMoHaccepted theSAO’s recommendationsaseffective assistance and acted on the results of this and previous audits, in particular auditno 16/28, by implementing a number of measures to remedy the identified shortcomingsinuniversityhospitals’financialmanagement:

• E.g.intheformoforderoftheministerno13/201861,whichsetrulesfortheawardofpubliccontracts, gaining and using bonuses and reporting them to health insurance companies.Whethertherulesareclear,adequateandeffectivewillonlybeknownwhentheSAOauditsuniversityhospitalsagaininthefuture,however.

57 Article107(1)oftheTreaty on the Functioning of the European Union.58 Aserviceofgeneraleconomic interest isaservice foraparticulargroupofcitizensorsocietyasawholewhichthepublic

authoritiesregardasessentialforcultural,socialorsocietalreasons.59 Auditno15/38–State property and funds allotted to the state-funded organisation “Vojenská lázeňská a rekreační zařízení”

(Army Spa and Recreational Facilities) (auditreportpublishedinvolume1/2017oftheSAO Bulletin).60 Actno134/2016Coll.,onpublicprocurement.61 InArticle3ofOrderno13/2018 Selected Principles of the Transparent Financial Management of Directly Managed Organisations

of the Ministry of Health in the Field of Goods and Services Purchasing, ref.noMZDR16781/2018,effectivefromSeptember1,2018, theMinistryofHealthimposedanobligationonsubordinateuniversityhospitalstoproperlysubstantiateanddocumenteveryexemptionfromtheuseofawardproceedingstoselectcontractors.


• Anotherdirecteffectoftheaudithelpingtoremedyanegativephenomenon–thehugepricedifferencesforidenticalmedicamentsormedicalequipmentpaidbyvarioushospitals–istheMoH’smovetowardscentralpurchasing.Inmid2018thehealthministerdecidedtorunapilotprojectforjointpurchasingofselectedcommodities(medicinesandmedicalmaterial)bystatehospitals. Joint purchasing should deliver both financial savings and reduced bureaucracylinkedtopublicprocurement.Themeasure’seffectwillbeunknownuntilafollow-upauditisconducted.

TheSAOwelcomesallthemeasurestakenbytheMoHandhopesthattheMoHwillcontinuetotakesystemicstepstoboosttransparencyandmakethefinancialmanagementofthehospitalsitdirectlymanagesmoreefficient.

Last year, SAO audit no 17/14 both focused on financial management by the contributoryorganisationNationalInstituteofMentalHealth(NIMH)and,aboveall,soughttoanswerthequestionwhether theMoH, as the founding organisation, has a plan for further funding itsoperationsandactivities.TheauditresultsshowedthattheMoHwasnotfulfillingitsobligationsasfoundersufficiently. NotonlydoesMoHknowtheNIMH’srealfinancialrequirements,itpaidnoattentiontooptionsforfundingitin2020.Whatismore,theMoHdidnotcheckitsfinancialmanagement once between 2014 and the end of the SAO audit.

• TheNIMH’sfundamentalmissionistoperformscientificandresearchworkfocusingonmentalhealthandmentalillness.Italsoprovidesmedicalservices,however,withbothinpatientandoutpatientcare.TheNIMHwasfoundedin2015,largelywiththehelpofEuropeansubsidiesunderoperationalprogrammeResearch and Development for Innovation;itsheadquartersareinanewbuildinginKlecanythatcostapprox.CZK 700 million toacquire.ThelaunchoftheNIMHcostroughlyafurtherCZK 200 million.Operatingcosts,whichtotalledCZK 222 million in2016,weremainlycoveredoutofnational funding.Todate,morethanaquarterof theNIMH’soperatingcostshascomeoutoftheNational Sustainability Programme that comes undertheMoEYS(itreceivedCZK 60 million fromthisprogrammein2016).Buttheprogrammewillterminatein2020andtheNIMHwillloseitssolemajorguaranteedsourceofrevenues,asitdoesnotreceivearegularcontributiontowardsoperatingcostsfromtheMoHasitsfounder.

Recommendations

TheSAOconsiders itnecessary that theMoHclarify the system for the furtherfinancingoftheNIMH’soperationssufficientlyinadvancebeforefundingundertheSustainability for the National Institute of Mental Healthprojectceases.InitspositionstatementontheSAO’sauditreporttheMoHacceptedthisrecommendationandpledgedtodrawupanNIMHfundingplanduring2018,includingarecapitulationofpossiblesourcesoffinancingandclarificationoftheroleofcontributionsfromthefounderinthefundingoftheNIMH.

Financial balance in the public health insurance system

The Czech system of public health insurance works well incomparison to other health systems in developed countries.SpendingonhealthcareasapercentageofGDP is relatively low,but even so the system delivers full healthcare to the wholepopulation. The SAOpoints out that in theperiodof economicgrowth health insurance companies did not create sufficientprovisions thatwould guarantee balanced budgets in periods oflowereconomicgrowth,andthusalsoareductioninthepremiumscollectedforpublichealthinsurance.Atthesametime,thestatedidnotput inplace the legislativeconditions for thecreationofsuchprovisions. Thepublichealth insurance systemended2017CZK 9.5 billion intheblack.Atthesametime,thefinancialbalanceson health insurance companies’ current accounts increased by46.5% to reach CZK 30.5 billion (seeChart26).Thesebalancesthus

According to the Czech Statistical Office’s Czech population forecast for 2018–2100, the Czech population will include 2.1 million people aged 65+ in 2020 and 2.4 million in 2030.


exceeded10% of totalexpenditure in thepublichealth insurance system.For the secondyearrunning, theCzecheconomy’sdynamicgrowthhasmeantthathealth insurancecompaniesarecreating significantprovisions forperiodswith reducedpremiumscollection.The rateof theseprovisionsisstillbelowthatin2007and2008,sothesystemislessstablethaninthatperiod.

Chart 26: Revenues and expenditure in the public health insurance system of the Czech Republic (CZKbillion)

202.8 211.4 212.2 215.6 220.4 223.6 228.6241.2

252.6264.9

284.8

185.6200.6 218.6 222.5 225.5

230.4 229.9239.0

252.0 258.9275.3

17.2 10.8 -6.4 -6.9 -5.2 -6.7 -1.3 2.20.6 5.9 9.5

26.837.6 31.1 24.3 14.7 13.1 13.5 15.1 15.4 20.8 30.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Revenue of the public health insurance

Expenditure of the public health insurance

Balance of the public health insurance

Financial provision of the public health insurance

Source: summaryevaluationofthedevelopmentofpublichealthinsuranceresultsintheindividualyears.

According to the SAO, while the public health insurance system is currently stabilised, this does notmeanthatitisfinanciallysustainableinthemedium-termorlong-termoutlook,whenthesystemwillbeconfrontedbytheimpactsofpopulationageingandthedevelopmentofnew,expensivemedicaltechnologies.Thestatewillnotbeabletoguaranteehigh-qualityhealthcarepaid for out of public money without a fundamental change in the funding of healthcare.

4.7 Environment – the state is failing to implement measures and achieve goals for air qualityandenergysavings

The principal aim of state policy on the environment is to ensure a healthy and high-qualityenvironment for citizens, to contribute significantly to the efficient useof all resources and tominimisethenegativeimpactsofhumanactivityontheenvironment.Themethodsforprotectingthe environment are set out in State Environmental Policy of the Czech Republic 2012–2020 (“thePolicy”).Themainthematicfieldsincludeprotectingtheclimateandimprovingairquality;thegoalsaretoreducegreenhousegasemissions,lowerthelevelofairpollution,promoteefficientandenvironmentallyfriendlyuseofrenewablesandimproveenergyefficiency.TheSAOhaspaidsystematicattentiontohowthestateworks towardstheseprioritiesof thePolicy. Indoingso,it seeks to identify themost important causes of the unsatisfactory state of affairs andmakerecommendationsforeffectivecorrectivemeasures.

TheSAOagainturneditsattentiontothesetwoenvironmentalprioritiesin2018,completingtwoauditsfocusingon:

• theimplementationofmeasurestoimproveenergyefficiencyunderoperationalprogrammeEnterprise and Innovation for Competitiveness (OPEIC)(auditno17/23);

• the implementation of measures in support of improving air quality under operationalprogramme Environment (OP Env) and the National Environmental Programme (auditno 18/04).


Air pollution, both in the Czech Republic and throughout Europe, is one of the highest-riskenvironmental factors causing early deaths and increasing the incidence of a broad range ofillnesses.ThemostproblematicissuecurrentlyintermsofharmtohumanhealthisthelevelofconcentrationsofparticulatematterPM62.InternationalcomparisonrevealedthatthelevelofairpollutioninvariousEuropeanstatesdiffersconsiderably,ascanbeseeninFigure5,whichshowsthepercentageof thepopulationsofEUcountriesexposed toPM10

63 concentrationsexceeding

thepermittedairpollutionthresholdin2016.18ofthe31Europeancountrieshadconcentrationsabovethepermitted limit.Accordingto theEuropeanEnvironmentAgency (EEA – Air pollution country fact sheet 2018),11.9% ofthepopulationwasexposedtoPM10concentrationsexceedingthepermittedlimit.ThatputtheCzechRepublicin8thplace,amongthecountrieswithworseairqualityinEurope.

Figure5:Percentage of the urban population exposed to PM10 concentrations exceeding thepermittedlevelin2016

Source:EEA– Air pollution country fact sheet 2018.

What is alarming is that in 2017 approx. 5,700 people died in the Czech Republic because of air pollution64and39smogsituations lastingatotalof3,757hoursweredeclared.Airquality isconsiderablyinfluencedbydispersalconditions,however.Auditno18/04drewattentiontothefactthattheCzechRepublic’sairqualitydidnotimprovefrom2015to2017,eventhoughthestate is spending billions of koruna on it. The values of some of the main pollutants65continuetoexceedthelegallydefinedlimits.ThereisthereforeariskthattheCzechRepublicwillmissits2020 immission limits targets66. The biggest air polluters in the Czech Republic include transport, industry and households.

62 PM(particulatematter)issolidparticlesor(solid)dustparticles.63 PM10–i.e.coarseparticlesinthecontextofsuspendedPMparticles.64 AccordingtoReport on the Environment of the Czech Republic for 2017, MoE.65 MainlyPM(PM isdividedbysize intocoarseparticles (PM10)andfineparticles (PM2,5));benzo(a)pyrene (BaP)andnitrogen

dioxide(NO2).66 Theimmissionslimitisthehighestpermissiblelevelofairpollutionexpressedinunitsofconcentrationbymass.


• AtsystemleveltheSAOscrutinisedthefundingofairqualityimprovement in2015to2018outofbothOPEnvironment spriorityaxis2:Improvement of air quality in human settlements andtheNational Environmental Programme (NEP),amountingto a total of CZK 10.6 billion,withCZK 9.9 billion ofthatcomingfromOPEnvironment.Basedontheaudit,theSAOidentifiedsignificantrisksthattheairqualitytargetsdefinedfor2020willbemissed67.RegardingsupportundertheNEPfor improvingairquality,theSAOflaggeduptheabsenceofquantifiableandmeasurablegoalsthatwouldbeafundamentalpreconditionforevaluatingthepriorityarea(airquality)underthisprogramme.Consequently,theStateEnvironmentalFund(SEF)performedno assessment of whether the supported projects had agenuineimpactonimprovingairqualityintheCR.

• Scrutinyoftheimplementationofvariousmeasures,interimevaluationsandthedevelopmentofemissions led theSAOto theconclusion that theCzechRepublic’sprioritymeasures forimproving air quality are not being executed adequately and in good time. Seven of the23prioritymeasureswerenotexecutedbytherequireddeadlineorevenbythecompletionoftheSAOaudit inSeptember2018.These includecuttingtheshareof fossil fuelsused inlocalhouseholdheating,speedingupthereplacementofthefleetofpassengercarsormakinggreateruseofalternativepowersystemsforfreighttransport.Anothersixmeasuresarebeingimplemented,butareunlikelytobecompletedontimeandtotherequiredextent.TheSAOalsoconcludedthattheCzechRepublic’sstrictnationalemissiontargetsfor2020,i.e.targetsthatmustnotbeoverstepped,willbehardtohit,giventhatthespeedandrateofemissionsreductionshasbeengraduallydecliningorstagnatinginrecentyears.Forexample,emissionsoffineparticlesthatareamongthemainpollutantsmayhavefallenby12%between2005and2016,buttheywouldhavetofallbyafurther42% tocomplywiththe2020limit.

The funding system via OP Environment is designed in a way that the replacement of old-fashionedandunsatisfactorysourcesof localhouseholdheatingthatareamajorsourceofairpollutionintheCzechRepublicareprimarilysupported.CZK6.4billionwasearmarkedfor households out of priority axis 2 of OP Environment in the years 2015–2017. The SAO found thatsupportingthereplacementofold-fashionedboilers68withlow-emissionsheatingsourceswasspeedingupthereductionofemissionsinthissector.Italsopointedout,though,thatthefinancialallocationsforthefirsttwocalls forapplicationswouldonlycoverthereplacementofapprox.10%ofold-fashionedboilers,ofwhichthereareestimatedtobe570,000intheCzechRepublic.

TheSAOdrewattentiontothefactthattheOPEnvironmentsupporttargetisthereplacementofapprox.14%ofunsatisfactoryold-fashionedboilers,while intheyears2015–2017thefirsttwocallsforapplicationscoveredapprox.10%oftheseboilers.Theresultingeffectofthe ban on using these boilers in 2022 will depend on the level of compliance with the ban and the enforceability of the ban.

WhenOPEnvironmentwasbeingdesigned,localheatingwasasourceofasignificantportionofpollutantemissionsinthe“respiratoryzone”,whichiskeyintermsoftheeffectsofairpollutionon human health. Figure6showstheevolutionofthegenerationofsolidpollutantsfor2016intheCzechRepublicbyregion.Itisclearthatthelevelofemissionsofthesesubstancesdiffersmarkedlyindifferentpartsofthecountry.

67 TheCzechRepublicagainsetatargetofcomplyingwiththeimmissionslimitslaiddownbylaw,thistimeby2020,bymeansofmeasuresatnationalleveldefinedintheNational Programme of Emissions Reduction of the Czech Republic approvedattheendof2015andataregionallevelinairqualityimprovementprogrammesissuedbytheMoEinthefirsthalfof2016.

68 Boilersofemissionscategories1and2asperCSNEN305-1,theoperationofwhichwillbeprohibitedwitheffectfrom1.9.2022underActno201/2012Coll.

The strict national emission limits for 2020 will be hard to comply with.


Figure6:GenerationofsolidpollutantsintheCzechRepublicfor2016

Source:CzechHydrometeorologicalInstitute.NB: SolidpollutantscomprisePM10andPM2.5.

Giventhemajorinfluenceofcross-bordertransmissiononthelevelofairpollutionintheCzechRepublicandPoland,theSAOrecommendedthattheMinistryoftheEnvironment(MoE)holdcross-borderconsultationswithPolandwhenpreparingthenationalprogrammeforreducingairpollution.

AnotherpriorityoftheNEPlinkedtoclimateprotectionandairqualityimprovementandtargetedbytheSAOin2018wasimprovementsinenergyefficiency.Improvingenergyefficiencyisanotherof the Europe 2020 strategyobjectives.OneoftheindicatorsmonitoredbyEurostatinthiscontextisenergyintensityinEuropeancountries.Thisindicatorisderivedfromtheratiobetweengrossinlandenergyconsumptionandgrossdomesticproduct.Theratioisexpressedinkilogramsofoilequivalent(KGOE)69perunitofGDP.Countries’energyintensityisdeterminedbythestructureoftheireconomy.Andinparticular,whetheracountryisorientedmoretowardsservicesorindustry.Forthatreason,theCzechRepublichasthethirdhighestenergy intensity intheEU.TheCzecheconomy’senergyintensityismorethandoubletheEUaverage(seeChart27).

Chart27:ComparisonofEU28countries’energyproductivityin2016(KGOEper€1,000)

238

119

050

100150200250300350400450

BG EE CZ HU PL RO SK LV LT HR FI SI BE CY PT ELEU

28 FR NL SE DE ES AT IT GB LU MT DK IE

Source: http://ec.europa.eu/eurostat/cache/infographs/energy/bloc-4b.html,Eurostatdata.

In 2018 the SAO completed audit no 17/23, focusing on support provided out of OP EIC to small, medium-sizedandlargefirmsforachievingpermanentenergysavingsintheindustrialsector.TheauditcheckedhowtheMinistryofIndustryandTrade(MoIT)andtheAgencyforEnterpriseandInnovationdistributedsubsidies.Atsystemlevel,theamountauditedwasCZK4.7billion.

69 Standardisedunitofenergy.

http://ec.europa.eu/eurostat/cache/infographs/energy/bloc-4b.html


The audit showed that energy savings were minimal at the end of 2017, mainly owing to the slowdrawdownofmoney,thelongtimetakenforapprovingsubsidyapplicationsandthelackofinterestinthesupport.TheSAO’sotherfindingsincluded:

• TheCzechRepublic’sinlandenergyefficiencytargetofnewenergysavingsof51.1petajoules(PJ)70by2020wouldbemissed.TheSAOfoundthemainriskoffailingtodelivertheplannedsavings in OP Environment, whose contribution to achieving this goal is key. 20 PJ wassupposed tobe savedby2020 thanks to subsidiesoutofOPEnvironment,but theenergysavingshadnotreachedeven1%ofthepredictedvaluebytheendof2017.Thereisthereforeasignificantriskthattheplanned20 PJ energysavingsatthelevelofthespecifictargetofOPEnvironmentwillnotbeachieved.Anotherkeyfactorforevaluatingachievedenergysavingsiscost-effectiveness,basedondataonthespecificsubsidyper1GJofsavings.In15auditedprojectstheSAOfoundthattheaveragespecificsubsidyper1GJofsavedenergycameoutatapprox.CZK 2,200,whereastheoriginalexpectationhadbeenCZK 1,000.

• Meeting the targets for increased energy efficiency is mainly endangered by the slowdrawdown in priority axis 3 of OP EIC. Just13% of the allocation ofCZK 22 billion of EUfinancesearmarkedforenergysavingshadbeenapproved in legaldocumentationand lessthan 3% of this money71hadbeendrawndown,i.e.approx.CZK 600 million.Tospeedupthedrawdown,theMoITcreatedacreditfundin2017thatapplicantsforthesupportcoulduse.Thelackofdemandforthesupportmeantthatnotoneloanwasprovidedoutofthisfund,however.Anothercausewasthelongprocessofsubsidyapplicationapproval.Althoughtheaveragedurationoftheapprovalprocessiscomingdown,assessingprojectapplicationstookonaverage404 days in 2017.

From SAO’s the long-term perspective, one fundamental enduring negative phenomenon intheprovisionofsupportisthefailuretoevaluateitsbenefitsorimpacts.TheSAOagaindrewattentiontotheinsufficientdesignof indicatorsformonitoringandevaluatingthebenefitofprojectsandtheaxisgoalsinthecontextofthisaudit:

• Tomonitorperformanceatthelevelofaxis3,theMoITusedthe indicator of “number of enterprises receiving support” and to assess the goal of improving energyefficiency in theenterprisesector itusedthestatistical indicatorof“net final energy consumption in industry”. The supported projects’specificbenefitforenergysavingscannotbeascertainedusingindicatorslikethis.TheMoITwillnotbeabletocheckwhethergoalsareachievedinthecaseofthefinancial instrumentforthe Energy Savings programmeeither.

Inresponsetothedetectedshortcomings(auditno17/23)hinderingtheachievementoftheCzechRepublic’s inland energy efficiency target, theMoIT adopted a number of measures affectingcontrolandmethodologicalworkandseekingtosimplifyassessmentcriteriaandspeeduptheapprovalofapplicationsforsupportoutofpriorityaxis3ofOPEIC.

TheSAOiscriticalofthefactthatmeasuresadoptedinresponsetoshortcomingsidentifiedinprevious audits nos. 16/0172 and 13/1773 were not fully executed, even though the MoIT declared thesemeasuresintherelevantpositionstatementsontheSAO’sauditreportsdiscussedbytheGovernment. Above all, shortcomings in the design and performance of control work by the MoITandAgencyforEnterpriseandInnovationapplyingtothe2007–2013programmingperiodremainedunresolved. These shortcomings continue toexist andwereagaindetected in thesubsequent2014–2020programmingperiodinOPEmployment.

70 TheCzechRepublic’scontributionof51.1petajoules(PJ)towardsachievingtheEUtargetforenergyefficiencyasperamendingDirective2009/125/ESa2010/30/EUandrepealingDirectives2004/8/ESand2006/32/ES.

71 Stateofcontractinganddrawdownasof20April2018accordingtostatisticspublishedbytheEnterpriseandInnovationAgency.72 Audit reportno16/01–EU and state budget funds earmarked for financing of interventions with Operational Programme

Enterprise and Innovation with focus on the fulfilment of objectiveswaspublishedinvolume1/2017oftheSAO Bulletin.73 Auditreportno13/17–EU and state budget funds earmarked for the implementation of Operational Programme Enterprise and

Innovation waspublishedinvolume2/2014oftheSAO Bulletin.

The state does not evaluate whether supported projects genuinely contribute to improved air quality or improved energy efficiency.


DespitethebillionsofkorunaspentundertheNEPonclimateprotectionandairqualityimprovement, the targets set by the CzechRepublic in air quality and improved energyefficiencywillnotbeachievedby2020.

4.8Agriculture–theconditionsandrulesinplacemeanthatsupportispredominantlyprovided to large food industry companies to the detriment of small and medium-sizedfirms

Improving the competitiveness of Czech agriculture is one of the top priorities of the CzechRepublic’sagriculturalpolicyupto203074.EUfundsareoneofthemainsourcesoffundingforsupport for agriculture, and in particular the Rural Development Programme (RDP), which isdesignedtosupport thecompetitivenessofagriculture,ensurethatsustainableuse ismadeofnaturalresourcesandclimatemeasuresandachievebalanceddevelopmentofruraleconomies.€2.3billionwasearmarkedfortheCzechRepublicintheRDP.Figure7breaksdownthelevelofsupportfrom2014–2020ruraldevelopmentprogrammesinEUMemberStatesandaproportionateindicator of the level of support per 100,000 inhabitants. With support of €22 million per100,000 inhabitants,theCzechRepubliccame16th out of the 28 countries.

Figure7:LevelofRDP2014–2020supportinMemberStatesandproportionateindicatorofthelevelofsupportper100,000inhabitants(€)

Source:Regulation(EU)of1305/2013oftheEuropeanParliamentandoftheCouncilof17December2013onsupportforruraldevelopmentbytheEuropeanAgriculturalFundforRuralDevelopment(EAFRD)andrepealingCouncilRegulation(EC)No1698/2005;Eurostat.

AspartofitsauditworkinagricultureandEuropeansubsidies,theSAOtriestofindanswerstothequestionswhetherthestatechannelssubsidiesintothedefinedsupportareasinlinewiththerulessetbythestateandwhethereffectiveandnecessaryprojectshelpingachieveprogrammegoalsandmeasuresareselectedandfinanced.

Inauditno17/26theSAOfocusedonEuropeansubsidiesprovidedundertheRural Development Programme of the Czech Republic for 2014–2020 (RDP),Cooperation measure. Subsidies underthismeasure are intended to strengthen research, technological development and innovationinagricultureand tohelpsmallandmedium-sizedfirms.Themeasure’s totalallocation isover€150million.

74 CzechGovernmentResolutionno392ofMay5,2016,on Strategy of the Department of the Ministry of Agriculture of the Czech Republic with an Outlook up to 2030.


TheMoAearmarkedoverCZK2.8billionofthemeasure’stotalallocationofCZK3.8billion75 (i.e.74%)onasinglespecificareapromotingdevelopmentofagriculturalproductsprocessing,where it set such rules that most of the approved applicants were large food industry companies thatspentthesubsidyonbuyingmachinery,technologiesandbuildingalterationsratherthanondevelopmentandinnovation.Smallandmedium-sizedenterprises,forwhichthesubsidieswereoriginally intended,arenotsupported,eitherbecauseofthecomplicatedsubsidyconditionsor because the MoA selected such areas of support these enterprises are not interested in. Theupshotisthatthesupportdoesnotworkinthreeofthesixareas(operations),andthesearetheareasthatweresupposedtohelpsmallandmedium-sizedfirms.

Chart28showsthatmostofthemoneyisallottedtooperation16.2.2supportingdevelopmentinagriculturalproductsprocessing,whichmeansthattheentireCooperation measureisimplementedmainlythroughthisoneoperation.

Chart28:TotalpublicexpenditureonvariousoperationsofM16Cooperation measure 76(€)

16.1.19 733 333 €

16.2.117 720 633 €

16.2.2110 882 529 €

16.3.16 474 891 €

16.4.14 000 000 €

16.6.11 475 000 €

Source:Informationfromauditreportno17/26.

TheSAO’sotherfindingsinauditno17/26included:

• TheMoAtreatedapplicantsinvariousoperationsunequally.Itadvantagedlargeprocessingcompanies, which can repeatedly apply for subsidies under operation 16.2.2, the biggestoperation infinancial terms,becausetheMoAdidnotsetcapsonsupportperbeneficiaryovertheprogrammingperiodinthecontextofthisoperation.TheSAOalsopointedoutthatspending on science, research and innovation,which is a key element of theCooperation measure,wasnegligible.Asitfound,thisaccountedforroughly1% ofexpenditurein46auditedprojectapplications.

• TheSAOalsodetectedshortcomingsinthewaythegoalsoftheCooperation measureweresetandimplemented:thesewerehardtoassessasattheendof2017becausetheMoAhadreleasedfullfundingforjustfiveprojects,astheMoAdidnotsetanyinitialortargetvaluesformonitoringthebenefitoftheCooperationmeasureintermsofthegoalsofEurope 2020.

The SAO stated that the drawdown conditions and rules designed by the MoA poseasignificantthreattotheselectionofeffectiveandnecessaryprojectsandtoachievingthegoalsoftheCooperationmeasure.

75 ConversionusingtheEuropeanCentralBankrateasatDecember29,2017:25.535CZK/€.76 Operation16.1.1Support for operational groups and European Innovation Partnership projects;operation16.2.1Support for the

development of new products, procedures and technologies in agricultural primary production;operation16.2.2Support for the development of new products, procedures and technologies in processing and marketing agricultural products;operation16.3.1Equipment and resource sharing;operation16.4.1Horizontal and vertical cooperation among actors in short supply chains and local markets;operation16.6.1Horizontal and vertical cooperation in sustainable production of biomass for energy production, food production and in industrial processes.


AspartofthisaudittheSAOalsopaidattentiontoproceduresthataresupposedtoensurethatsupportisprovidedtothoseapplicantsthatmeetthedefinedsubsidyconditionsandareeligible.Applicant eligibility is an issue that encompasses possible conflicts of interests, as describedingreaterdetailinSectionII.5.2ofthisannualreport.

TheMoAagreedwiththeSAO’sreportsandadoptedmeasurestoremedytheshortcomingsidentifiedbytheaudit.Inparticular,theMoAdeclaredthatitwould:

• extensivelymodifyandsimplifytherulesfortwounsuccessfuloperationssothatthereisgreater demand for these formsof cooperationand the rules aremore accommodatingtowardsapplicants,inparticularmicro-firmsandsmallandmedium-sizedfirms;

• analyseall thereasonsforthe lowtake-upandadjusttheconditionssothat inthenextprogrammingperiodtheymotivatesmallandmedium-sizedbusinessestoparticipatemoreinthesetypesofoperation;

• improvetheworkofassessmentcommissionsinthesenseofboostingthetransparencyofprojectassessmentwhenselectingprojectsforfinancing.

Inmanycases,however,theMoAwillonlymovetoremedytheidentifiedshortcomingsinthenextprogrammingperiod.

FindingsfromauditstargetingRDP2007–2013broughtinformationabouterrorsinthesubsidiesprovision system that helped theMoA design the 2014–2020 programming period. TheMoAintroducedcriteriaforselectingprojectsonthebasisoftheirfeasibility,effectivenessandeconomy,forexample.Therewasanimprovementinthesettingoflimitsforeligibleexpenditure,wheretheMoAdefinedand specifiedmaximum limits for eligible expenditure. Shortcomings still persist,though,especiallyasregardsprojectselectionintermsofquality,effectivenessandnecessityandthesettingofgoalsandmonitoringoftheeffectsandbenefitsofthesupport.

4.9Education–therealimpactofstatepolicyonsupportforchildren’sandyoungpeople’sfreetimecannotbeevaluatedwithoutgoalsbeingsetforwhatthestatewants to achieve

Theaimofstatesupportinthefieldofchildrenandyoungpeopleistohelpimproveyoungpeople’squalityoflife,mainlybyallowingthemtodeveloptheirpersonalitiessothattheycanadapttheirrequirements to the constantly changing environment andutilize their creative and innovativepotentialinpracticeandinactiveparticipationinsociety.

In2018theSAOfocuseditsattentiononsupportforworkwithchildrenandyoungpeople,whichisbasedontheConcept of Support for Youth for 2014–2020 (Concept2020)andisimplementedbytheMoEYSthroughprogrammes of state support for work with children and young people for non-Governmental non-profit organisations (“the Programmes”). In audit no 17/17 the SAOcheckedhowtheMoEYSawardedsubsidies toNGOs tosupportworkwithchildrenandyoungpeopleandfoundawholeseriesoffundamentalerrors.

As the guarantor of state policy on children and young people, the MoEYS was not informed aboutotherministries’ implementation toolsused to realiseConcept2020orabout theamount of money channelled into this area every year out of public budgets.

Even though the MoEYS provided subsidies worth CZK 509 million through the Programmes, their impactonthetargetgroupwasimpossibletoevaluateobjectively.TheMoEYSdidnotdefineanymeasurabletargetsineitherConcept2020ortheProgrammesthemselves.Byviolatingthedefinedconditionsforprovidingsubsidies,theMoEYScreatedanon-transparentenvironmentandunequalconditionsforsubsidyapplicants.Itevenviolateditsownrulesandlegalregulations.


• More than a hundred organisations regularly receivedsupportundertheauditedProgrammes.Halfofallthemoneydistributedintheauditedperiodwenttothreeorganisations,asChart29shows.TheMoEYS’sassessmentandselectionofprojects for support in2014and2015wasnon-transparent,and subsidy applicantswerenot even able tofindoutwhatcriteria would be used to assess their projects. TheMoEYSdid notmake the project assessment and selectionmethodtransparentuntil2016.Whenadministeringapplications,theMoEYSdidnotdiscardapplicantswhodidnotmeetbindingconditions; and it violated its own rules, the Government’sprinciplesandthelegalregulationsintheprocessofprovidingsubsidies.

• InthecontextoftheauditedprojectstheSAOfoundthatin2014,whenbeneficiariescouldapply for a 10% or 20% increase in subsidies already approved, theMoEYS in some casesincreasedthesubsidybyapprox.90% to 360% oftheoriginalamount.ItmoreoverapprovedsubsidiestotallingalmostCZK 62 million foreightprojectseventhoughtheapplicantsdidnotsendamodifiedbudgetinthecorrectformordidnotmeetthedeadlineforsubmittingthemodifiedbudget. TheMoEYSalso supportedprojectsof twobeneficiaries that applied foroverCZK 2 million insubsidiesfororganisationswithauxiliaryactivityclubs,eventhoughtheyhadnosuchactivityclubs.

In thecaseofsixbeneficiaries, theSAO judgedtheshortcomingstobeviolationsofbudgetarydisciplinewith a value exceedingCZK 1 million and sent a notification to the appropriate taxadministrators.

Chart29:Ten beneficiaries drawing down the largest cumulative volume of subsidies from 2014to2016(CZKmillion)

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Source:Informationfromauditreportno17/17.

It was not clear from the MoEYS materials what it wants to achieve by supporting work with children and young people. The only indicators monitored in the audited period were the amount of money paid out and the number of supported organisations.


TheseerrorsfoundintheauditedprojectsareevidencethattheMoEYS’sinternalcontrolsystemintheadministrationofsupportapplicationsandintheprovisionofthissupportdidnotwork;thesameappliedwhentheimplementedprojectsweresubjectedtofollow-upaudit.Bynotperforming rigorouscheckingofbillingafter thecompletionofprojects, itacceptedwithoutcomment billings that showed:

• thatineligiblecostswerepaidoutofsubsidies;• individualbudgetaryitemsandtotalprojectcostswerenotcompliedwith;• billingswereincompleteorinaccurate.

Recommendations

Giventheseriesofgraveerrorsintheadministrationofsubsidiescausedbythefailingofcontrolmechanisms, the SAO recommended that the MoEYS primarily focus on the correct design and functionalityofitsinternalcontrolsystemandthusrigorouslyensurecompliancewiththeActonFinancialControl. TheSAOalso recommendedweighingup the creationof legislationonwork with children and youth or at least on support for work with children and youth, as it is the case in other European countries like Slovakia, Germany or Austria.

On the other hand, the SAOwelcomes theMoEYS’smoves to stabilise the field ofworkwithchildren. TheMoEYShas recently taken steps to ensure greater stability of keyNGOsworkingwithchildrenandyoungpeople;havingsatisfiedthedefinedcriteria,theseNGOswereawardedacertificateofrecognised organisation for work with children and young people.InOctober2017it signed contracts on long-term cooperation with these NGOs, guaranteeing them a certainminimumsubsidyamountforthespecifiedperiod.Thesemulti-yearcontractsareusedinotherEuropeanUnioncountries,e.g.Belgium.TheSAOregardstheMoEYS’seffortstoensureagreaterdegreeoffinancialcertaintyforNGOsworkingwithchildrenandyoungpeopleasastepintherightdirectionforstabilisation.

TheSAOalsoconsidershighlyimportantthattheMoEYSrespondedtotheSAOauditbyadoptingmeasurestosetmeasurabletargetsandindicatorsforsubsidyprogrammes,tocheckthefinalassessmentsofprojectsandtoevaluatesubsidyprogrammes.TheMoEYSshouldalsoworkoninterimassessmentofprogresstowardsthegoalsofConcept2020,onthepreparationofafinalevaluationofConcept2020andonpreparationofanewyouthsupportconceptafter2020.

Childrenandyoungpeopleaccounted for31%of the totalpopulationof theCzechRepublic in2017. Thiswas the 8th lowest share in the EU, according to Eurostat data. As Chart 30 shows,in2017thehighestshareofchildrenandyouthintheEUwasfoundinIreland(39%)andthelowestin Italy (29%). It is interesting to lookatexamplesofnon-EUcountries,where theshare is farmorepronounced.ThatincludesIceland,wherechildrenandyoungpeoplemakeup41%ofthepopulation,orTurkeywith48%.

Chart30:Percentageshareofchildrenandyouthinthetotalpopulationin2017

31% 33%

0%

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30%

40%

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IT BG PT EL ES SI DE CZ HR HU LV ATEU

28 RO PL LT EE MT SK FI NL BE LU FR DK SE UK CY IE

Source: Eurostat.


4.10Culture–insufficientpreparationoftheprogrammeanditsprojectsresultedintheimplementationperiodbeingextendedandcausedslowdrawdownoffundsforcarefornationalculturaltreasures

Inthefieldofcareforculturalheritage,theSAO’sauditsseektosystematicallycoverinvestmentsincareforimmovableandmovableassetsofoutstandingculturalandhistoricvalue.

The Government’s long-term aim is to increase spending on culture to 1% of state budgetexpenditure. Since 2016, final budgeted spending on culture has hit this target, and in 2017and2018budgetedexpenditureoncultureevenexceeded it,asChart31shows.Nevertheless,spendingactuallydrawndownonculturewaslowerinbothyears,amountingto0.74% of state budgetexpenditurein2017and0.81% in2018.Therehasbeenalong-terminabilitytospendonculturetheamountdefinedasappropriatebytheGovernment.

Chart 31: Expenditure on culture and its share of state budget expenditure 2013–2018 (CZKbillion)

8.48 7.51 8.01

9.15 10.07 10.54 10.51 11.15 11.61

12.23

14.52 15.82

7.57 8.01 8.57 8.91 9.52

11.47 11.73 12.12

12.97 12.20 12.80 14.01

2013 2014 2015 2016 2017 2018Approved budget of expenditure on culture Final budget of expenditure on cultureActual expenditure on culture 1% of the state budget expenditure

Source:MONITORinformationwebsite.NB:Expenditurereportedundersection33–Culture, Churches and Media wasincludedinexpenditureonculture

withoutsubsection333–Activities of registered churches and religious societies,334–Mediaandparagraph3362–Activity of the central state authority in the field of the media (pursuanttoDecreeno323/2002Coll.,onthebudgetcomposition).

Less than 66% of the final budget for expenditure on culturewas utilised in 2017, mainly as a result of the low drawdownin programme financing. The least successful programmes indrawdown terms included the Programme of Care for National Cultural Treasures (“theProgramme”),whichisthelargestintermsof volume; this is a clear example of insufficient preparation ofprojects in programme financing, when the budgeted funds forthe year in question are not utilised. Every year, earmarked butunusedfundsarethenshiftedtoclaimsfromunusedexpenditureandincludedinthebudgetinthefollowingyears.AvailablebudgetfinancesofCZK 4.7 billion andCZK 4 billion wereunutilisedbytheMoCin2017and2018respectively.

The SAO has repeatedly drawn attention to this systemic shortcoming in audits of theprogrammeofcareforculturalheritage.TheSAOdrewattentiontoinadequatepreparationofthe Programme of Care for National Cultural Treasures and poor control work by the MoC when itauditedtheprogrammeback in2012(auditno11/0577).Theseproblems ledtosubstantial

77 Theauditreportfromauditno11/05–Funds earmarked for the Programme for the care of national cultural treasure in state ownershipwaspublishedinvolume1/2012oftheSAO Bulletin.

The state is unable to make full and effective use of the existing funding for culture.


changesintheprogramme,theextensionofitsimplementation(includingdelaystotheprojectsthatwerecarriedout)andtheassociatedslowdrawdownoftheallocation.EventhoughtheMoCdeclaredin2012thatitwouldpayincreasedattentiontocheckingtheprogramme’sprojects,theseshortcomingspersisted.ThisfactwasconfirmedbytheSAOinthefollow-upauditoftheprogramme, audit no 17/16in2018,whentheSAOstatedthattheprogramme’seffectivenesswas constantly being undermined by the fact that it was not going ahead as envisaged in terms ofbothcontentandtiming.

• Theprogrammethatwassupposedtobecompleted in2014wasextendedbysixyearsbytheMoC. The main reason for extending the programme was delays in the execution ofconstructionprojects.TheSAOfoundthatthedifficultyoftheconstructionworkhadbeenunderestimated in the audited projects; there was insufficient preparation; unrealisticdeadlinesweremovedback;thedefinitionoftheconstructionprojectwaschanged;andtheproject pricewas increased.Newprojectswere being added to the programmeat a timewhenitwasoriginallysupposedtohavebeencompleted.BytheendoftheSAOauditin2017,theMoChadutilisedjustCZK 4.2 billion ofthetotalfundingofCZK 10 billion, i.e. 42%;eventhoughtheprogrammeissupposedtoendin2020,thereisariskitwillbeextendedfurther.

Chart32:Utilisationofprogrammefundsinvolvingclaimsfromunusedexpenditure

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600

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Source:ClosingaccountsoftheMoCbudgetchapter2007–2016;MoCdataasatOctober20,2017.

• The SAO also drew attention to cases of uneconomical use of Programme finances. Inconsequence of the extraordinarily long time it took the MoC to approve the tenderdocumentation(21 months)fortheselectionofacontractortobuildanewcentraldepositoryoftheMuseumofDecorativeArtsinPrague,thedepositorywasbuiltatthesametimeasitshistoricbuildingwasbeing repaired. Themuseum thereforehad to relocate its collectionsand employees to alternative premises, which pushed up state budget expenditure byCZK 11 million.

AstheSAOpointedoutinitspositionstatementontheDraftStateClosingAccountfor2017,theeffortstoincreasestatebudgetexpenditureoncultureposeariskthattheincreasedamountwillbeusedineffectively.ThisriskisalsosignalledbytheSAO’sfindingthatthemoneyavailableforprogrammesisdrawndownslowly,becauseprojectsarenotproperlyprepared,andinsomecases uneconomically.

Theprogramme is a clear example of insufficient preparationof projects in programmefinancing,asaresultofwhichbudgetedfinancesaresignificantlyunder-utilisedinthegivenyear.


Whencheckingthemeasurestoremedyshortcomingsidentifiedinauditno11/15,accordingtowhichtheMoCwassupposedtopay increasedattentiontocontrolwork intheprojectsundertheProgramme,theSAOfoundthattheMoCfulfilledthismeasuresolelyforoneoftwoselectedprojectsandperformedalmostnocontroloftheindividualprojects.Inresponsetotheresultsofauditno17/16 andtheirdiscussionbytheCzechGovernment,theMoCagainadoptedmeasuresdesignedtoincreasethenumberofinspectionsofsubsidybeneficiariesandmeasurestoensurethattheMoCdidnotinordinatelyprolongthepreparationprocessforinvestmentprojects.TheMoCwillalsomakeitcompulsoryforparticipantsininvestmentprojectswithsubsidiesexceedingCZK 100 million tosubmitafeasibilitystudyaccompanyingtheinvestmentproject.

4.11Defenceandsecurity–arealdefinitionofcurrentandfutureneeds,intermsofbothrealestateandotherfactors,isoneoftherequirementsforefficientuseofstatefinances

Defenceandsecurity isa long-termandcontinuousprocess theSAOpayssystematicattentionto.Onewidelydebated issueof recenttimes is how the responsible authoritiesusebudgetedfinancestoachievethegoalsofthestate’sdefenceandsecuritypolicy.In2018,forexample,thefinancialmanagementofboththeMoDandMoIendedwithalmostthesamelevelofunutilisedbudget funds amounting to several billion koruna. The SAO strives to draw attention to theseshortcomings in the management of state resources and to make recommendations to helpimprovetheunsatisfactorystateofaffairs.

In2018theSAOcompletedthreeauditstargeting:

• management of real estate assigned to the tasks of the Army of the Czech Republic (“theArmy”)inauditno18/02;

• financialmanagementofstatefirmMilitaryForestsandEstatesoftheCzechRepublicinauditno 18/10;

• managementofpublicarchivesintheMinistryoftheInterior(MoI)inauditno18/12.

Despitethepositiveeconomicdevelopmentandtherelatedenlargementofthedefencebudget,theMoD’sinabilitytoexecuteimportantmodernisationinvestments,includingpurchasesofnewmilitarytechnologyandequipment,isaseriousproblemindefencepolicy.Thecriticalsituationhaslastedforseveralyearsnow,andin2018theMoDagainpostponedorstoppedanumberofplannedstrategicinvestments.TheMoDfailedtoutilisecapitalexpendituretotallingCZK 2 billion in 2017. AlthoughtheMoD’scapitalexpenditurebudgethasbeengrowingsince2015,thesuccessofitsutilisationhasbeendeclining(seeChart33).Unutilisedcapitalexpenditureevenamountedto CZK 2.7 billion in2018.ThemainreasonsfornotmakingfulluseofthebudgetincludedtheunrealisedpurchaseofMADRmobile3Dradio-locatorsworthCZK 868 million andthecontractforthemodernisationofhowitzersworthCZK 1.3 billion thatwasscrappedatthestartof2018.Anothernegativeconsequenceofthiswasanincreaseinclaimsfromunusedexpenditure,whichreachedCZK 3.5 billion asatJanuary1,2019.


Chart 33: Final budget and actual drawdown of capital expenditure by the MoD in 2013–2018 (CZKmillion)andimplementationofthebudget(%)

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Initspositionstatementonthedraftstateclosingaccountfor2017andbasedonitsauditandanalysiswork, the SAOdrew attention to the fact that theMoD, contrary to theNATO trend,reduceditsshareofexpenditureonassetacquisitionandreplacementin2010–2017andincreasedtheshareofpersonnelcosts.ItisthusfairtosaythatMoDexpenditureinthisperiodwasshiftedontothemandatoryexpendituresideratherthanbeingchannelledintoinvestmentsinnecessaryrenewalandmodernisation.Personnel-relatedmandatoryexpenditureamountedtoover50%oftheapprovedbudgetagainin2018.

In 2018, audit no 18/02targetedthereplacement,modernisationandnecessityofrealestatemanagedbytheMoDandtheArmyServiceContributoryOrganisation(ASCO)forArmytasks.In2015–2017 the MoD and ASCO had more than 32,000 items of real estate worth CZK 62.7 billion78 and military complexes covering a total area of 400 km2. The SAO audit found that the extent oftheMoDandASCOrealestateexceedstherequirementsofthepresent-dayArmy,hasanunsatisfactorystructureandisinunsatisfactorycondition,andisaneedlessburdenonthestatebudget.Unusedbuildingsinparticularareconsequentlybeingneglected,andnumeroussuchbuildingsarefallingintodisrepair.TheMoDitselfestimatedthattheoverallstateofneglectofits buildings amounted to a value of CZK 13.4 billion.

• TheMoDwasnotusingrealestateworthoverCZK 6.5 billion andthecostofmanagingthisrealestatewasCZK 32.5 million in 2017 alone. This was often real estate that the Armystoppedusingbefore2010inconnectionwiththeswitchtoaprofessionalarmy(inJanuary2005).TheSAOalsopointedoutinthestrongestpossibletermsthattheMoDwasnotfulfillingorevenrespectingtheprinciplesandtaskslinkedtooptimisingthe volume and structure of real estate that theMoD itselfdefinedintheWhite Paper on Defence79 (“theWhitePaper”).That was despite the fact that abiding by these principleswould have both reduced the amount ofmoney needed tomanageandoperate the real estate andhelpedacquire thefinancesnecessary for investing in the realestate.TheMoDdid not respect the defined principle of reinvesting fundsacquiredthroughthesaleofrealestateintherenewalofarmy

78 AccordingtothenumberofitemsinrecordsoftheMoDandASCO.79 ConceptualdocumentapprovedbyCzechGovernmentresolutionno369of18May2011,on the White Paper on Defence.

Hostels administered by the ASCO were not even 50% occupied in 2015–2017 and six were not used at all, e.g. hostels in Lázně Bohdaneč or Slaný.


buildings,forexample:itusedjustCZK 780 milliononrenewingrealestate out of a total sum of CZK 4.2 billion thatitacquiredthroughsales.TheMoDalsofailedtoplacetheemphasisonthemaximumpossibleproceedsfromsalesofrealestate(anotherprinciple).Usingasampleofeightsoldcomplexesofrealestate,theSAOfoundthattheproceedsfromtheirsaleamountedtojust29.1% ofthetotalpriceidentifiedbyexpertanalyses.

• AccordingtotheWhite Paper,theMoDwasalsotomakeitsuseofaccommodationfacilitiesmore efficient, which would free up other funds for the renovation of its real estate. In2014 theMoD proposed terminating the operation of 37 hostels thatwere underused or loss-makingandsubsequentlysellingoff31ofthem.TheASCOwouldthushavesavedoverCZK 21 million ayear.IntheendtheMoDapprovedthesaleofjustsevenhostels,soover62% oftheinefficienthostelsremainedinthedefencesector.TheASCO’scumulativelossfromtheadministrationandoperationof theseproperties totalledCZK 25 million over threeyears. TheSAOjudgedtheoperationofthesehostelstobeinefficient.

If theMoDhadrigorously implementedtheproceduresandtaskswhich it itselfdefinedin theWhite Paper, it could have acquired funds for the necessary renovation of armypropertiesinuse.ThevolumeofrealestateexceedsthecurrentArmyrequirements,andneither its structurenor its condition is consistentwith these requirements,whichputsa needless burden on the state budget.

AccordingtoinformationpresentedatasessionoftheCommitteeonDefenceoftheChamberofDeputiesofParliamentonNovember21,2018,theMoDintendstopayconsiderableattentiontoitsrealestateinfrastructureandplanstoinvestCZK 1.3 billion inthisarea.Inviewofthereportsofauditno18/02, inwhichtheSAOfoundthattheMoDitselfestimatesthattheoverallstateofnegligenceofbuildingstobeworthCZK 13.4 billion,theamountoftheplannedinvestmentsinrealestateappearsinsufficientunlessthereisamajorreductioninthisrealestate.Thiswasconfirmedbytheresultsofthisaudit.

AnotherexampleofrealestatenotservingtherequirementsandtasksoftheArmywasthrownup by the results of audit no 18/10,focusingonthefinancialmanagementofstatefirmMilitaryForestsandEstatesoftheCzechRepublic(MFE).Since2016mostofMFE’sbusiness,i.e.64%,hastaken place on land outside military zones80. The Army therefore does not use most of this land forArmytraining,andMFE’senterpriseactivitiesintheterritoryoftheabolishedmilitaryzonesareincreasinglymovinginthedirectionofensuringtherightconditionsforthedevelopmentof tourist use (cycle paths, footpaths, information centres, car parks etc.). Even though thiswasalargeproportionoftheterritories,theMoD,asthefounderofMFE,didnotspecifyanyconditionsorrequirementsforMFE’sbusinessactivitiesintheabolishedmilitaryzones.

• ThetotalvalueofMFEassetshas increasedconstantlyfromCZK 8.3 billion in 2015 to CZK 8.8 billion in2017,eventhoughtheareaofthemilitaryzonesdecreased.MFEdidnotreacttotheirabolitionanddidnotupdateitsstrategyinthiscontext.For24years,MFEcarriedoutactivitiesithadnoauthorisationfor:from1992to2016itcarriedoutmaintenanceofsmallwaterways,realestateandroadsownedbythestatebothinsideandoutsidemilitaryzones,incontraventionofitsfoundingcharter.

• TheSAOalsocomparedtheproceedsfromthesaleofextractedtimberbetweenthestatefirmsMFE and Forests of the Czech Republic (FCR). In the audited period, MFE obtainedagreaterfinancialyieldfromtimberthanFCR,eventhoughthetimberwasmainlyacquiredbyrandomextractionbybothstatefirms.MFEobtainedonaverageCZK 1,420 per m3;FCRonaverageCZK 1,267 (seeChart34).MFEonlysellstimberthathasalreadybeenextracted,whileFCRsellstimberthatisstillstanding81.MFE’sapproachprovedtobemoreadvantageousin economic terms.

80 AdelimitedpartofstateterritoryintendedforensuringthedefenceofthestateandfortrainingthearmedforcespursuanttoSection30(1)ofActNo.222/1999Coll.,onensuringthedefenceoftheCzechRepublic.

81 Saleofstandingtimberistherighttoextractadefinednumberoftreesinablocksaleatthehighestprice.


Chart34:Comparison of the proceeds from the sale of timber byMFE and FCR 2015–2017 (CZK/m3)

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WhenauditingselectedpublicarchivescomingundertheMoIlastyear(auditno18/12),theSAObothscrutinisedtheirfinancialmanagementandsoughttoassessthearchivematerialsdigitisationprocess,includingthebuildingoftheNational Digital Archive.Indoingso,itexaminedtheconditionsofcareforarchivematerialsandtheMoI’sconceptualandmethodologicalworkinthisfield.

The SAO has long drawn attention to systemic shortcomings in conceptual work, where non-existent, unclear or insufficiently elaborated concepts are not an effective tool forachievingthedefinedgoalsinthegivenfield.Thiswasconfirmedbytheresultsofthearchivesaudit.TheSAOidentifiedthattheMoIonlydrewupanarchivesdevelopmentconcept14yearsaftertheActonArchives,whichimposedthisdutyonit,enteredintoeffect.Atthesametime,theMoI’smethodologicalmanagementofarchivesinthedigitisationprocesswasinsufficient.TheMoIevenfailedtodefinearesponsiblecoordinatorandtimetableforarchivesdigitisationinthecurrentapprovedconcept.Consequently,archivestookdifferentapproachestodigitisingtheir archivematerials and theextent towhichdigitisationhasbeen completed is currentlyunknown.

• Mostofthedigitisationworkwasdonebyanexternalentitythatprocessed81% of the total numberofover40 million completeddigitisations82(mainlyregistersofbirths,marriagesanddeathsandlandregisters). Theexternalentityperformedthedigitisationat itsowncost inreturnforbeingallowedtokeeponecopyofthedigitisedmaterialandtheoptionoffurtherelectronicuse.IntheSAO’sview,itisasignificantriskthefactthatasubstantialportionofthethuscreateddigitalversionsofarchivematerialsareownedbyaprivateentityandthestatehasno controloverhow theyareactuallyused. In addition, theSAOdrewattentionto the limited functionality of theNational Digital Archive project, which has been underdevelopment since2004and currentlyonlyenables archivematerials tobe takenout andreceived indigital form,which isoneofsixrequirements laiddownbytheActonArchivesfor thisarea.Havingscrutinised themanagementof stateproperty, theSAO found thatatthetimeoftheaudit’scompletion22 buildingsofselectedstatearchivesdidnotsatisfytheconditionsforstorageandcareforarchivematerials.

IfafunctionalarchivesnetworkistobeestablishedintheCzechRepublicandthedigitisationprocessistobecompleted,itisnecessarythattheMoIdefinespecificobligations,goalsandprioritiesinthisfieldandputinplacetherightconditionsforcaringforandstoringarchivematerials.

82 Digitisationsaredigitaldocumentscreatedbydigitisationofarchivematerials.


5.Institutionalmanagement

TheSAO’sauditandanalysisworktargetsmanagementbystateinstitutionsaswellasthestate’sexpenditurepolicies.Whenscrutinisingtheirmanagementandcontrolsystems,theSAOmainlyfocuses on how the institutionsmanage property entrusted to them and state financeswhenoperating and carrying out their tasks. In more than half the audits the SAO also scrutinisespublicprocurementandcompliancewiththerelevantrulesandprinciplesthatareessentialforeconomicaluseofpublicmoney.ThemanagementoffundsprovidedtotheCzechRepublicfromabroad,especiallyfromtheEUbudget,remainsatthecentreoftheSAO’sattention.

This section summarises the SAO’s findings from these areas. The shortcomings identified byscrutinyofcompliancewiththerulesofmanagementandtheeconomy,efficiencyandeffectivenessoftheperformedactivitiesindicatethatthereisstillconsiderableroomforenhancinginstitutions’managementprocessesandimprovingtheirefficiency.

5.1Institutions’financialmanagement–aneffectiveinternalcontrolsystemputsinplacetherightconditionsforeffective,efficientandeconomicalperformanceofstateorganisations’workThe financial management of state institutions is one of the key areas the SAO targets in itsauditwork.Atthispointintime,whentheSAOistryingtotargetitsauditsmainlyatthevariousexpenditure policies of the state, with closer attention devoted to the effectiveness of statepolicies,auditingstateinstitutions’financialmanagementisalsopartofthisscrutiny.Tenauditsdealingwiththisissuewerecompletedin2018,focusingon:

• the financial management of selected organisational units of the state (“SOUS”) andcontributoryorganisations(auditno17/13scrutinisedtheStateHealthDepartment(“SHD”);auditno17/14theNationalInstituteofMentalHealth(“NIMH”);auditno17/20theFurtherEducationFund(“FEF”);auditno17/29theSecurityInformationService83;auditno17/32 the MoTanditsselectedSOUS;auditno18/02theMoDandASCOinthefieldofrealestateoftheCzecharmy;andauditno18/12selectedpublicarchivesundertheMoIdepartment);

• defrayalofcostsfromtheactivitiesofselectedhospitals(auditno17/19);• financialmanagementbythestatefirmsCzechPost(auditno17/27)andMilitaryForestsand

EstatesoftheCR(auditno18/10).

As in the previous years, the SAO monitored spending linked to the operation of stateorganisationsandthemanagementofstateproperty.Theyear-on-yearincreaseintotalstatebudget expenditure in 2018 was largely driven by current expenditure, which encompasses organisations’operationalexpenditure.Therisingtendencyincurrentexpenditureinthefirsthalfof2018wasconfirmedintheReport on Implementation of the State Budget of the Czech Republic for the 1st Half of 2018andbyup-to-datedatafor2018(seealsoSectionII.2).

Thestateclosingaccount for2017showsthata totalofCZK 89.1 billion wasspentonsalariesandotherpaymentsforworkdonein2017;ofthattotal,salariesamountedtoCZK 82.4 billion, ayear-on-year increaseofCZK 7.5 billion, or 10.1%,over2016.OtherpaymentsforworkdonetotalledCZK 6.7 billion,ayear-on-year increaseofCZK 272 million. Non-investmentpurchasesandrelatedexpenditurealsoincreasedyear-on-yearbyCZK 4 billion. Therewasalsoanincreaseinspendingonservices–upbyCZK 3.1 billion;material–upbyCZK 1.5 billion;spendinglinkedto non-investment purchases, contributions, reimbursements and material gifts – up byCZK 268 million;andspendingonwater,fuelandenergy–upbyCZK 184 million.

Thedevelopmentsinselecteditemsofministries’non-investmentexpenditurein2018confirmthenegativetrendofrisingcurrentexpenditure.AsChart35shows,alltheministries’selecteditemshavebeenincreasingsince2016.Ofthecategoriesofexpenditureshowninthechart,themostprogressiveincreaseclearlycameinsalaries,withspendingonthisareaincreasingonaverageby6.6% peryearsince2013.Otherpurchasingunderscrutinyhasagainbeengrowingsince2017afteradecreasein2016.Thebiggestyear-on-yearincreasecanbeobservedinpurchasesofmaterial.

83 Thisauditwasclassifiedanditsreportwasnotpublished.


Chart35:Selecteditemsofnon-investmentexpenditurebyministries,2013–2018(CZKbillion)

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Purchases of services are part of non-investment purchases. Chart 36 shows how ministries’expenditureonpurchasingselectedcategoriesofserviceshasevolved.Therehasbeensignificantandenduring yearly growth in spendingondataprocessingand services linked to informationand communication technologies. Expenditure on purchasing other services in 2017 and 2018registered the first slight increase following regular year-on-year falls after 2012. There wasasignificantyear-on-yeardecreaseinspendingonconsultation,advisoryandlegalservicesin2018.Spendingontrainingservicesandotherpurchasingnotclassifiedelsewherehas longremainedalmostunchanged.Oneinterestingexpenditureitemisrent,whichhasreturnedtoyear-on-yeargrowthafteramarkedfallin2016.

Chart36:Ministries’expenditureonselectedservicesin2013–2018(CZKbillion)

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TheSAOhaslongpaidsystematicattentiontothecostsofselectedservices,focusingnotjuston the level of costs but on the efficiency and economyof spending. In 2018 the results ofauditwork in thefieldof ICT-relatedexternalservicespointedtopersistingproblems linkedmainlytodependencyonaspecificcontractor,whichhaveanegativeimpactontheefficiencyand economy of state expenditure. One example was audit no 17/22targetingtheacquisition,operationanddevelopmentoffourISmainlycoveringtheagendaofthedisbursementofnon-insurancesocialbenefitsandemployment-relatedbenefits.

• InthisaudittheSAOfoundthattheMoLSA,evenwhiletryingtofreeitselffromdependencyononecontractor,wasnotabletofill28ICTjobsintheauditedperiodanddealtwiththeshortageofpersonnelbybuyingexternalICTservices(e.g.systemintegration,projectmanagement),spendingCZK 149 million onthisin2017alone.TheMoLSAthusremainedentirelydependenton service providers at thetimeof completionof the audit. The SAO also concluded thattheMoLSA had uneconomically spent CZK 10.3 million on external ICT services that theministrydidnotmakefulluseoforexceededthefinanciallimitdefinedinthesignedorderandonpaymentstoanexternalcontractorforastrategicdocumentthatwasnotfinished.TheMoLSApaidoverCZK 8 million forthisdevelopmentstrategy.IfthesamenumberofMoLSAemployeeshadworkedon it, thecostwouldhavecometoapprox.CZK 1.1 million,bytheSAO’scalculation.TheresultsofthisauditaresetoutindetailinSectionII.4.1.

Manyof the identified shortcomings are causedby state organisations’ inoperative internalcontrolmechanisms.Astheresultsofauditsdonein2018showed,someauditedinstitutionsdidnothaveaneffectiveinternalcontrolsystemcapableofthetimelydetection,assessmentandminimisationofriskslinkedtoactivitiescoveredbyaccountingandinthefieldofpurchasingandeconomicoperations.Iftheauditedentities’internalcontrolsystemhadworked,itislikelythatthefollowingfatalshortcomingsintheirfinancialmanagementthatresultedininefficientand uneconomical spending would never have occurred.

• Inauditno17/13 theSAOfoundthattheStateHealthDepartment’sinternalcontrolsystemdid not functionduring the auditedperiod and that therewas nopreliminary checking ofpurchasingandeconomicoperationsbytheSHD.Inpractice,thefailuretocarryouttheselegalobligationsled,amongotherthings,toinefficientand,aboveall,uneconomicaluseofproperty.Forexample, theSHDprovidedhousing to itsemployeeswithout requiringanappropriatepaymentfromthem.Inparticular,theSAOflaggedupacasewhereamanagementemployeepaidCZK 960 amonth fora renovated53m2apartment inPrague, includingpayments forenergy,water,sewerageandotherhousing-relateditems.AtacostofalmostCZK 32 million the SDHalsorenovatedacateringfacilityitsubsequentlyleftunusedforninemonths.AstheSDHdidnotappointanyemployeestoperformpreliminarychecksofpurchasingandalleconomicoperations,itpaidaninvoiceofCZK 360,000 fortechnicalsupervisionwithoutacontractandpaiderroneousinvoicesworthCZK 99,000,forexample.

In connectionwith thenon-functioning internal control system, theSAOdrewattention toanumberofotherseriouserrorsaffectingthedividingupofpubliccontractsforsuppliesofmedicalmaterialamountingtoCZK 39 million,purchasesofspecialmedicalequipment forCZK 7 million withoutatenderandoversteppingofthesalarylimitbyalmostCZK 21 million. TheSAOjudgedtheseshortcomingstobeabreachofbudgetarydisciplinewithatotalvalueofCZK 67 million andfiledacriminalcomplaintwiththecriminaljusticeauthorities.

• Inauditno17/14theSAOpointedoutthattheNIMH’saccountingin2014–2016wasinaccurateandincomplete.SomeoftheaccountingerrorsconcernedtheconstructionofanewbuildinginKlecany.Forexample, theNIMH incorrectlyspecifiedthevariouscosts factored intothenewbuilding’s acquisition price, thuswrongly posting an acquisition cost ofCZK 2 million lowerfortheasset.TheSAOalsoscrutinisedthepurchaseof23itemsofmedicalandotherequipment–therehadbeennofinancialcontrolbeforeanyoftheitemswerepurchased.ThedetectederrorswerepartlybecausetheNIMHhadnotintroducedaneffectiveinternalcontrolsystem.TheNIMHdidnothaveaninternalauditunit,thenecessaryinternalregulationsandappropriateinternalauditrules.


• Inauditno17/20 theSAOpointedoutthattheFEFhadnotimplementedaninternalcontrolsystemputtinginplacetherightconditionsfortheeffective,efficientandeconomicalexerciseofstateadministration.Inthiscontext,theSAO’sauditof66internshipscostingCZK 4.2 million revealedthattheFEFbroketherulesoftheInternships for Young Job-Seekers 2,payinginfullfor 13 internships, i.e. almost CZK 830,000,eventhoughsomeoftheinternshipprovidersandsomeoftheinternsdidnotmeetallthedefinedrequirements.Theinterns,forexample,hadnottakenamandatorye-learningcourseofsoftskills;someinternshipslackedamentortoguidetheintern,etc.

Recommendations

Basedontheidentifiedfactsandshortcomingsfromauditno17/14,withparticularregardtotheunsatisfactorystateof internalregulations,theSAOrecommendedthattheNIMHadoptmeasurestoputinplaceaneffectiveinternalcontrolsystem,andinparticularperformanauditof thevalid internal regulationsand theirupdatesor,whereappropriate, introduce internalregulationssettingoutrulesinareascurrentlyunregulated.

TheSAOconsiders itparamountthattheNIMHsetupaninternalauditunittoevaluatealltheinternalregulationsandstartmakingimprovements.

IntheSAO’sopinion,failingtocarryoutinternalcontrolworkinthesenseoftheActonFinancial Control represents a serious systemic shortcoming and simultaneously a risk that theprinciplesof effectiveness, efficiency andeconomywill notbe compliedwith in themanagementofstatepropertyandfinances.

The SAO continues to see considerable room for optimisation in themanagement of stateproperty and finances. Here, too, the audit results point to equivalent shortcomings in theconductofstateinstitutions.Themostcommonerrorsin2018concernedsurplusrealestate,uneconomicalspending,andreducingtheproceedsfromlettingsandtheuseofstaterealestatefreeofchargebythirdparties.Somecasesarealsoanupshotofstateauthorities’insufficientworkorfailuretotakeresponsibilityforspendinginlinewiththeprinciplesofeffectiveness,efficiencyandeconomy,eventhoughthelaw84clearlyrequiresthisofthem.

• In audit no17/16 the SAO found that under theProgramme of Care for National Cultural Treasures a total of CZK 5 million wasspentonoutputsthatwerenotused.Theseincludedexpositions which were being prepared but had to be dropped by the National TechnicalMuseumbecausetheyweretoocomplicatedornotreadyintime,andprojectdocumentationcommissionedbytheNationalFilmArchivethatwentunused.

• Inauditno17/32 theSAOstatedthattheMoTandRoadsandMotorwaysDirectorate(“RMD”)were ineffectiveatresolving issuesofownershipof landbeneaththemotorway inPrague-Slivenecfromtheyear2000to2017.Consequently,theMoTpaidmorethanCZK 47 million to the landowners on the grounds of unjustified state enrichment and court expensesovera17-year period. IntheSAO’sopinion,themoneyspentcouldhavebeenmuchlessiftheownershipof the landhadbeen resolvedearlier. TheSAOalso found in2009 that theWaterwaysDirectorate(“WD”)enteredintoadisadvantageousagreementwithacommercialcompany on a settlement concerning payment for future extra costs associated with theoperationof a siding85 amounting toCZK 36 million. TheWDsubsequently refused topaytheagreedsumwithoutgoodreason.Itthenlostthesubsequentcourtcasesandhadtopaya further CZK 64 million inpenaltyinterest,acontractualpenaltyandcourtcosts.TheSAOjudgedthisproceduretobeuneconomical.

84 E.g.Actno219/2000Coll.,onthepropertyoftheCzechRepublicanditsrepresentationinlegalrelations,andActno218/2000Coll.,onthebudgetaryrulesandamendingcertainrelatedacts(thebudgetaryrules).

85 Theextrawork issupposedtohavebeennecessaryforthecompany inconnectionwithaprojectcalledReconstruction of a Rail Bridge on the Kolín – Nymburk Line km 298,866,whoseinvestorwastheWD.TheprojectwasauditedbytheSAOinauditno14/03(auditreportpublishedinvolume4/2014oftheSAO Bulletin).


• The results of audit no 17/32 also showed that theMoT did not factor property with anacquisitionpriceofoverCZK 10 million into rents; itmadethisproperty,alongwithotherkitchenandcanteenequipment,availabletothetenantandalsosetamuchlowerrentthantheaveragerentsaccordingtotheCzechStatisticalOffice:themonthlyrentsetbytheMoTwasCZK 127.50/m2,whiletheaveragerentforequivalentpremiseswasCZK 380/m2. InsevencasestheMoTdidnotincreasetherentyear-on-yearinlinewiththeconsumerpricesindex,asagreedinthecontracts.

• Inauditno18/02 theSAOauditfoundthattheextentofMoDandASCOrealestateexceedstherequirementsofthepresent-dayArmy,hasanunsatisfactorystructureandisinunsatisfactorycondition,andisaneedlessburdenonthestatebudget.TheMoDwasnotusingrealestateworthoverCZK 6.5 billion and thecostofmanaging this realestatewasCZK 32.5 million in2017alone.Unusedbuildingsinparticularareconsequentlybeingneglected,andnumeroussuch buildings are falling into disrepair. TheMoD itself estimated that the overall state ofneglectofitsbuildingsamountedtoavalueofCZK 13.4 billion.

• In audit no 18/10 the SAO found thatMilitary Forests and Estates of the Czech Republic(“MFE”)builtahouseatacostofoverCZK 7 million asaccommodationforthedirectoroftheKarlovyVarydivision.Giventhepurposeofthebuilding,thecostswereexcessive,accordingtotheSAO.Providingaccommodationforanemployee–evenasenioremployee–bybuildingahouseonalargeplotoflandgoesfarbeyondthecustomaryperksoffered.Thehousewithan area of 233 m2onlandcoveringalmost2,600m2wasinsharpcontrasttothehousingofothermanagementstaff,whichrangedfrom25m2 to 54 m2oflivingspace.

InresponsetotheSAO’srecommendationsfromauditno17/32,theMoTandRMDareimplementingmeasurestoimprovetheunsatisfactorystateofaffairsinownershipissues.IntheexistingbuildingpermitstheMoTstatesthatitwillonlybuildonlandwhichitownsoronwhichithasacontractualrighttobuildetc.Atthesametime,theMoTiscarryingoutlegislativework:inconnectionwithan amendmentofActno416/2009Coll., for example, a situationwhere an investorbuildsonsomeoneelse’s landshouldnotarise,partlybecausetheamendmentmakespossiblefast-trackexpropriation.

AccordingtotheSAO, it isessentialthatauditedentitiesmakethenecessarychangestoensurethatstatepropertyisusedtoperformthedefinedactivities.

TheSAOalsofocuseseveryyearonassessingthedrawdownoffinancesforselecteditemstocovercosts,whereitseesroomforsavings.TheresultsoftheSAO’sauditworkin2018showedthattherewereagainsignificantdifferencesinunitpricesforpurchasedservicesorcomparabletravelexpensesbetweentheselectedauditedentities.

• In audit no 17/32 the SAO concluded from a comparison of unit costs that the RailwaysInspectorate(“RI”)had88% higher averagecosts for foreignworktripsthanotherauditedstate organisations. From 2015 to 2017 the WD had several times higher costs for legalservicesconvertedtooneemployeethantheotherauditedstateorganisations:thesecostsperemployeewereCZK 34,000 intheMoT,forexample,andCZK 153,000 intheWD.In2017theaveragemonthlysalarycostsperemployeegrewby 34%from2016to2017intheWD. Thisincreasewaslinkedtothepaymentofbonusesfromunusedsalaryfinancesbecause13newlycreatedjobswerenotfilled.

• The unit prices comparisonwhich the SAO performed in audit no 17/33 at the Rail TrackAdministration (“RTA”) revealed that there were major differences in the prices of someidenticalitemsofworkinprojectsawardedbyvariousconstructionadministrationunits:thepriceforassemblinga“relayapparatuslogicstands”,forexample,rangedfromCZK 18,000 to CZK 105,000.


Inthisaspectoffinancialmanagement,inauditno17/32 the SAO welcomed the fact that the MoT andWD had takenmeasures to eliminate the shortcomings identified in the previousaudit no 13/3386, mainly in areas leading to cost savings. The WD, for example, had managed to reduceoperatingcosts,restricttheuseofexternalcontractorsandmovefromprivatelyownedpremises into the MoT building.

In2018,inauditno17/27 targetingthefinancialmanagementofCzechPost,statefirm,theSAOagainfoundthatalthoughCzechPosthadmadeaprofitintheauditedperiod,therewasamarkedfallinprofitfromCZK 241 million in 2015 to CZK 78 million in2017,withbothrevenuesandcostsfalling.WhenassessingtheeconomicefficiencyofCzechPost,theSAOstatedthattheindicatorsforassessingeconomicefficiencyhaddeclined in thefive-yearperiodunderscrutiny.Profits in2017were31% downonthefigurefrom2013,mainlybecauseoffallingsalesofpostalservices.ThetotalnumberofcomplaintsaboutservicesprovidedbyCzechPostin2017increasedby 11,000 year-on-yeartoatotalof66,000 complaints.Themajorityofthecomplaints(82%)concernedthedeliveryofpostalconsignments.WhatisalarmingisthatinthissituationtheMoI,asthefounderofCzechPost,hasnotdrawnupalong-termdevelopmentconceptanddidnotperformanycontrolworkatCzechPostintheauditedperiod.

• InthisaudittheSAOalsoflaggeduptheriskthatthesavingsenvisagedfromthePošta Partner project,whichisdesignedtotransferthemajorityofCzechPostestablishmentstocontractualpartners(municipalities,individualsandorganisations)by2025,willnotbedelivered.PartlybecauseCzechPosthadnotdrawnupastrategyforthesetransfers,itwasnotabletotransferthebranchesasoriginallyenvisagedsothatthetargetof691 CzechPostbranchesand2,527 “postofficepartnerships”wouldbeachievedin2025(seeChart37).TheSAOconcludedthatthisstateofaffairspresentedariskthattheprojectcompletiondeadlinewouldbemissed,withapossible impacton thecompany’sfinances resulting fromthe failure toachievetheexpectedsavings.

Chart37:NumberofplacesofbusinessofCzechPostandPartnerpostoffices–planandrealityas at August 2, 2018

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Branches of the Czech Post Pošta Partner Post Offices

Source:Auditno17/27;www.ceskaposta.cz.

• Whendeciding to relocate a branch inOpava from its ownbuilding into leased premises,CzechPostdidnotproceedinthemosteconomicalmanner,asitworkedentirelyonthebasisofitsownroughestimatesratherthanexpertopinions,analysisandresearch.Whatismore,CzechPostenteredintoaleaseagreementthatcontainedanunbalanceddistributionofrights,obligationsandpenaltiestoitsowndetriment.TheSAOalsoconcludedthatCzechPostwasnotproceedingeffectively,efficientlyandeconomically87 intheuseofmanagers’owncars. Using a selected sample of 20managers’ cars it found that almost 64%of the kilometrescoveredbythesecarswereforprivatepurposes.TheSAOregardsthatextentofusingcarsforprivatepurposesasdisproportionate.

86 Auditreportno13/33–State property and funds allotted to the Ministry of Transport and its selected organisational units of the statewaspublishedinvolume3/2014oftheSAO Bulletin.

87 AccordingtoActno77/1997Coll.,onstatefirms.

http://www.ceskaposta.cz


Recommendations

Based on the identified and evaluated shortcomings, the SAO formulated a number ofrecommendations:

• The MoI, together with Czech Post, should reassess the designated property so that it matches thespecificationinthefoundingdeedandtheactualrequirementsofthestatefirm;

• IncollaborationwithCzechPost,theMoIshouldupdatethestatefirm’sfoundingdocumentsingoodtimesothattheycorrespondtotheActonStateFirmsandtoreality;

• CzechPostshouldevaluateitseconomicactivitiessothatprofitabilityandeconomicefficiencyare stabilised, partlywith regard to the state’s payments for the provision of basic postalservices;

• Czech Post should draw up a uniform and comprehensive concept for the Pošta Partner project,with a precise timetable for transferring its branches to Partner post offices, includingactual,measurableandassessablebenefitsandobjectives.

The SAO states that if the long-term and recurring shortcomings in this area are to be eliminated itisessentialthattherelevantstateinstitutionsmakeeffectivechangestotheinternalcontrolsystemsthatwillensurerigorouscompliancewithlegislationonthecareforstatepropertyandontheexpenditureofstatefinancesinlinewiththeprinciplesofeffectiveness,efficiencyandeconomy.

Itisalsonecessary,intheSAO’sview,fortheauditedentitiestomakethenecessarychangesthat will:

• improvethecareforentrustedstateproperty;• ensuremoneyisusedtocoveressentialrequirements;• preventtheoveruseofexternalservices;• maketheperformanceofday-to-dayactivitiesmoreefficientanddeliversavingsinthe

related expenditure.

5.2Publicprocurement–lowuseofcentralisedprocurementinstateadministrationdidnotleadtocostsavingsorreducetheadministrativeburden

Initsprecedingannualreportsfor2015to2017theSAOrepeatedlystatedthatitsawconsiderableroominpublicprocurementformakingthestatemoreefficient.Oneofthemostpressingproblemsinpublicprocurementhasbeentheexcessiveuseofnegotiatedprocedurewithoutpublication(“NPWP”),whichrestrictsthecompetitiveenvironmentandposesariskofwastefulspendingofpublicmoney.TheexistenceofthisproblemwasagainconfirmedbytheresultsoftheSAO’sauditandanalysisworkin2018.

TheSAOregardsthefrequentawardofpubliccontractswithoutopeneconomiccompetition,eitherintheformofNPWPorbuyingdirectlyfromsuppliers,asoneofthekeyfactorspreventingcost-cuttinginthestatesector.Theoveruseofthesenon-competitiveprocedures,whichoftenresult insignificantlyhigherprices,wasconfirmedbytheresultsof theSAO’saudits in2018lookingatpubliccontractsforthepurchasingandoperationofICTandpurchasingofmedicinesandmedicalequipment.

• Inauditno17/22 theSAO found that theMoLSA,having failed to re-awarda contract forinformation systems for the disbursement of benefits by the end of 2016, ensured theiroperationin2017and2018byenteringintoanothercontractwiththeexistingsystemssupplierunderNPWP.However,theMoLSAfailedtoprovethatthetechnicalreasonswereinplaceforsuchprocedureandviolatedtheprincipleofthediscriminationban.TheSAOjudgedthistobeabreachofbudgetarydisciplinewithafinancialimpactofasmuchasCZK 500 million. At the sametime,theoperationoftheexistingsystemsledtouneconomicalspending,asSectionII.4.1shows.


Inthe2012–2017periodtheMoLSAcontractedoutsystemintegrationservicesworthoverCZK 303 million toasinglecontractorwithoutatender.TheSAOconcludedthattheMoLSAmoreover enabled a fundamental change in the rights and obligations stemming from theconcludedcontractandviolatedthediscriminationban.Thisresultedinanunauthoriseduseof CZK 173 million. In thisaudit, theSAOalsocomparedunitprices for ICTworkachievedin open tender and under NPWP. The comparison revealed that the prices of roles undercontractsusingopenawardproceduresaresignificantlylowerthanthepricesofrolesundercontractsawardedusingNPWP.ThecontractualpricesfortheroleofprojectmanagerunderopenawardprocedurerangedfromCZK 4,800 to 8,500 perman/day,butunderNPWPtheyrangedformCZK 14,300 to 24,860.

• Intheyears2014to2016,auditeduniversityhospitalsthatspentatotalofCZK 15.9 billion onbuyingmedicinesandmedicalequipmentmademinimaluseofawardproceduresaspertheActonPublicProcurement88,eventhoughtheyareobligedtousethemaspubliccontractingorganisations.Theymostlyboughtdirectlyfromsuppliers.Thedetailsofthisnon-transparentpurchasingarepresentedinSectionII.4.6(auditno17/19).

The SAO followed up the issue of uneconomical spending of public money in the context ofpubliccontractslastyearbyscrutinisingcentralisedawardprocedures.Whenthesearecorrectlydesignedandusedtheycanbothdeliverfinancialsavingsandcutbureaucracyandmakepurchasingprocessesefficient.Internationalcomparisonshowsthattheuseofcentralised,or“cooperative”,procurement in theCzechRepublic lags farbehind theEUaverage. TheEuropeanCommissionregards 10% as the optimum rate of centralised award procedures; the Czech Republic onlyachieved5% in2017.ThisfactisbestillustratedbyChart38.

Chart38:RateofuseofcentralisedprocurementinselectedEuropeancountriesin2017(%)

10%

Op�mum rate of centralised purchasing according to the European Commission

Source:PublicprocurementintheEUaccordingtothe“cooperativeprocurement”indicator,accessibleat: http://ec.europa.eu/internal_market/scoreboard/performance_per_policy_area/public_procurement/index_en.htm.

88 Section21ofAct no137/2006Coll., onpublic procurement, and Sections2(3) and3ofActNo. 134/2016Coll., onpublicprocurement.

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http://ec.europa.eu/internal_market/scoreboard/performance_per_policy_area/public_procurement/index_en.htm


In audit no 17/24 the SAO focused on two parallel systems of centralised procurement: the ministerial systems of centralised public procurement of ministries (“ministerial systems”),via which central state authorities have been buying commodities for the requirements ofallorganisationsunderagivenministrysince2012,andtheCentral State Purchasing (“CSP”)systemintroducedtwoyearslaterforpurchasesforthewholestateadministration.Inthisauditthe SAO concluded that the CSP was not working and was not delivering any savings even four yearsafterlaunch.Bycontrast,theministerialsystems,which16centralstateauthoritiesareobliged to introduceanduse, is functional, in the SAO’sopinion, even though theexpectedpotentialwasnotfullyexploited.

The correct working of centralised procurement is predicated on regular assessment. The only benefitofcentralisedprocurementthatwasassessedwasfinancialsavings,butthesefigureswere distorted. The reduction in administrative costs and greater efficiency of purchasingprocesses were not monitored and assessed for either the ministerial systems or the CSP. By contrast, savings are not quantified on the level of individual public contracts in othercountries,wherethebenefitsareevaluatedcomprehensively.

• ItwasoriginallyexpectedthatpubliccontractsworthCZK 45 billion wouldbeawardedeveryyearthroughtheministerialsystems,butin201689thefigurewasjustCZK 8.2 billion90.Eventhough this system was supposed to cut paperwork, the exemptions from commoditiespurchasingandthecalculationofsavingscausesincreasedpaperwork.Onlyonelargepubliccontract,forthepurchaseofofficepaper,hadbeenawardedthroughtheCSPsystembytheendoftheaudit.

The SAO sees the following as the reasons for the Central State Purchasing system’sfailure:

• itsuseisvoluntary,unliketheministerialsystems;

• the same commodities can be bought in both centralprocurement systems. In the case of the office paper commodity, for example, it turnedout that theofficepaperbought as the only public contract awarded through CSPin 2016 and 2017wasworthCZK 47 million, i.e., the paper wasmore expensive than paper bought throughministerialsystems;

• technicalstandardsorstandardsforthefunctionalpropertiesofthecommoditiesbeingpurchasedhavenotbeenapproved,eventhoughtheseareoneofthenecessarypreconditionsfortheoptimalworkingofCSP;

• there is no electronic CSP-support tool meeting therequirements of central procuring authorities, especially asregardsthecollatingofrequirements.

TheSAOwasunabletojudgethedegreetowhichcentralisedprocurementisusedintheCzechRepublic from the data presented in the Public Contracts Bulletin, because the MoRD did not have the necessary data at its disposal, despite it being the administrator of the public contracts informationsystemandthePublic Contracts Bulletin.TheSAOdrewattentiontotheMoRD’sdependencyonaninformationsystemcontractor,knownasvendorlock-in,inauditno15/1091.

89 Datafor2017werenotavailableduringtheaudit.90 AccordingtotheReport on the Assessment of the Departmental Systems of Centralised Procurement and Central Purchasing by

the State for 2016 (also“2016AssessmentReport”).Thereportfor2017hadnotbeenreleasedbytheendoftheaudit.91 Theauditreportofauditno15/10–Funds spent on the National Infrastructure for Electronic Public Procurement (NIPEZ) and its

utilisation for purchase of selected commoditieswaspublishedinvolume3/2016oftheSAO Bulletin.

Software products purchasing which the MoI has performed for entities from the entire public administration since 2008 is an example of functional centralised procurement. These purchases allow small contracting organisations to obtain greater discounts, and support from the MoI makes it easier for them to award public contracts and cut administrative costs.


Recommendations

Based on the shortcomings identified in centralised procurement, the SAO recommendedthat the existing design of the centralised procurement system should be reassessed; andinparticular:

• attention should be focused on cutting administrative costs and evaluating non-financialbenefits;

• thecentralisedprocurementprocessshouldbefullydigitisedinlinewithcentralcontractingorganisations’requirements,includingmonitoringandevaluationoffinancialbenefits;

• theextentofcommoditieswhosepurchasingisobligatoryshouldbereassessedwithregardtothebenefitsandnegativeimpactsoncentralisedprocurement.

Ifcorrectlydesignedandused,centralisedprocurementcanbothdeliverfinancialsavingsandcut theadministrativeburdenon thecontractingorganisations.TheSAOpointsoutthat its use in the Czech Republic is far below the EU average.

In thefieldof public procurement, the SAO considers it important todrawattention to thepersistingfloutingof the legal rulesand to incorrectprocedures that fail toput inplace thebasicpreconditionsfordeliveringvalueformoney.Thismainlyinvolvedfailingtoputinplaceasufficientlycompetitiveenvironment inpublicprocurementandtheself-servingdivisionofthesubjectofapubliccontractintomultipleseparatecontractssothattheycansubsequentlybe awarded as below-the-threshold contracts or small-scale contracts. This is borne out by examples from audits done in 2018:

• When scrutinising the award of public contractswith a total value ofCZK 731 million for buildingprojectstoincreasesafetyonlevel-crossingstheSAOfoundthatthepubliccontractswereawardedinalow-competitionenvironment.Onaverage,threecandidatestookpartinthetenders,whichcouldhavehadanegative impacton thebidprices fromtheRailTrackAdministration’s point of view and could thus have resulted in wasteful spending on theprojects.Wastefulnesscouldhavebeencausedbyagreementsbetweencontractorsbeforebidsweresubmitted92,asthecandidates’bidpricesforcertainprojectswereclearlyderivedfromtheselectedcandidate’sbidprice(auditno17/33).

• Theselectionofthesupplierofrollingstockconsequentlydidnottakeplaceinasufficientlycompetitive environment. In six projects Czech Rail acquired 28 pieces of rolling stock forCZK 4.3 billion.Thepubliccontractsforthesupplyofthisrollingstockwereawardedinfourawardprocedures,ineachofwhichitselectedsuppliersonthebasisofasinglebid.TheSAOconcludedthatproceedinginthismannerdidnotverifytheadvantageousnessofthepriceanddeliverytermsinacompetitionbetweenmultiplesuppliers.Thismayhaveimpactedontheeconomyofspendingontheprojects(auditno17/35).

• From2014 to2016 theStateHealthDepartmentbought specialmedicalmaterial thatwasnot part of a contract and from one and the same supplier. Instead of responding to thesituationbyholdinganappropriate awardprocedure, it divideduppublic contractsworthfrom CZK 11 million to almost CZK 15 million intosmaller-scalecontracts.TheSHDthuslostthechanceofevaluating theeconomicadvantageousnessofotherpotentialbids.TheSHDalsoboughtspecialmedicalmaterialorservicingintheformofseparateordersorcontractsoraddendatocontracts,withoutstagingtheappropriateawardprocedurepursuanttotheActonPublicProcurement93.TheSAOjudgedtheSHD’sactionstobeabreachofbudgetarydisciplinewithavalueofatleastCZK 56 million (auditno 17/13).

Thefailuretocomplywiththelegallyprescribedproceduresandtomakeuseofacompetitiveenvironment in public procurement has a negative impact on achieving economicallyadvantageous contracts throughout their life cycle.

92 Prohibitedagreementspriortothesubmissionofbids,knownasbid-rigging.93 Actno137/2006Coll.,onpublicprocurement.


Reliability and completeness of data on public procurement

The Act on Public Procurement obliges organisations awarding public contracts to publishinformation(e.g.theoutcomeoftheawardprocedure)inthePublic Contracts Bulletin (“PCBulletin”)andonthecontractingorganisation’swebsite.ThecontractingorganisationsendsthisinformationtothePCBulletinusinganelectronicform,inwhichitfillsintherequiredinformation.

The Act on Public Procurement provides that the PC Bulletin is part of the public contractsinformationsystem;intechnologicalterms,however,ittakestheformofaseparatemodulewithitsowndatabaseandisoperatedbyadifferentoperator.Thepubliccontractsinformationsystemisapublicadministration informationsystemwhichtheMoRDisresponsibleforadministering.TheMoRDdoesnotpossessadatasetofpubliccontractscorresponding to thedatapublishedin thePCBulletin. ThePCBulletinoperator is obliged topasson informationpublished in thepubliccontractsinformationsystemdatabaseforfurtheruse.TheMoRDprocessesthesedataforstatisticalpurposesandusesthemtodrawupannualreportsonthestateofpubliccontractsintheCzechRepublic.TheMoRDprovidesselecteddatafromthepubliccontractsinformationsystemasopendata.

Inthefieldofpublicprocurement,theSAOalsosystematicallymonitorsandevaluateschangesinthevolumeandstructureofcontractsaswellasscrutinisingindividualcontractsawardedbythestate.Thisanalyticalwork isessentialbothforeffectiveplanningofauditworkandfortheperformanceofauditanddocumentingtheactualstateoftheactivitiesunderscrutiny.

TheSAOdrawsattentiontolong-standingandpersistingshortcomingslinkedtothepoorqualityofdataandinformationonpubliccontracts.Initsauditandanalyticalwork,theSAOrepeatedlyhas to contend with unreliable and incomplete data in thepubliccontractsinformationsystemandopendatafromthepubliccontractsinformationsystem.

TheSAOhasidentifiedthefollowingfundamentalproblems:

• There are no control mechanisms in place for verifying the accuracy of the data entered in thePCBulletin,whichmakesitpossibleforcontractingorganisationstoenternonsensicalfinancialvaluesandotherdataornotfilltheminatall.

• TherearediscrepanciesbetweenthedatainthePCBulletinwebsiteandthepubliccontractsinformationsystem;thesediscrepanciesarisewhendataaretransferredfromthebulletintotheinformationsystem.

• Thepoorreliabilityofopendataisnegativelyaffectedbythepoor-qualitydatafromthepubliccontractsinformationsystemfromwhichtheopendataareprovided.

• TheMoRDaccessesthepublicprocurementdatainthepubliccontractsinformationsystemviapre-definedreports;theMoRDcanonlygetaccesstoalldataonpubliccontractsintheinformationsystembypayingafee.

• Numerous errors and confusion in the data are caused by the inappropriately regulated formofpublication;thisappliestothepublicationofmasteragreements,forexample,addendaorgenerallyweaksupervisionovercontractingorganisations’profiles.

TheseproblemsaredocumentedbythefollowingSAOfindings:

• In audit no15/10 scrutinising theNational Infrastructure for Electronic Public Procurement (“NIEPP”), it was found that there are differences between the information published bycontractingorganisationsinthePCBulletinandthatstatedonpubliccontractsinformationsystem forms. These differences arise when data are transferred from the PC Bulletin tothepubliccontracts informationsystem,astheMoRDcreatedthemastwotechnologicallyseparatesystems,eventhoughthePCBulletinissupposedtobeoneofthepubliccontractsinformationsystemmodulesundertheActonPublicProcurement.OtherdiscrepanciesarisewhendataareenteredbycontractingorganisationsinthePCBulletin,astherearenocontrolmechanismsforverifyingtheentereddata.Oneoftheidentifieddiscrepanciesbetweenthedatawasinaccuratevaluesfortheoverallfinalvalueofapubliccontract(thedecimalpoint


wasmovedtwoplacesinthecaseofseveralpubliccontracts),butalsodifferentCPVcodes,differentcurrenciesetc.TheSAOalsodetectedthatthereweredistorteddataintheMoRD’soutputsbasedonerroneousdata(e.g.intheElectronisation Strategy for 2016 to 2020,ituseddatafromtheAnnual Report on the State of Public Contracts in the Czech Republic for 2014, eventhoughitknewthatthesedataweredistortedbecauseformshadbeenwronglyuploadedintothepubliccontractsinformationsystem).

• In audit no 17/24 the SAOwas unable to use data from the public contracts informationsystemtoverifydatapresentedinMoRDoutputsconcerningthedegreeofuseofcentralisedprocurementforpurchasingvariouscommodities,becausesomekeydataarenottransferredfromthePCBulletinintotheinformationsystem,eventhoughcontractingorganisationsfilltheminontheformspublishedinthePCBulletin(e.g. informationabouttheconclusionofmasteragreements,onsub-contractsundermasteragreementsand, lastbutnot least,onthefactthatacontractwasawardedbyacentralcontractingorganisation).EventhoughtheMoRDistheadministratorofthepubliccontractsinformationsystemthatshouldcontaindatafromthePCBulletinandmakethemaccessibletothegeneralpublic,theMoRDcanonlygainaccesstoallthedataonpubliccontractsinaggregatedformbypayingafee.ProvidingdatafromthePCBulletin fordetermining thedegree towhichcentralisedprocurement isusedwouldrequirepayingapprox.CZK 150,000 totheexternalcontractor,accordingtotheMoRD.

In its analytical work the SAO found that open data on public contracts contain incorrect orincompletevalues,whichhinderstheirfurtheruse.

• E.g. open data as at February 4, 2019 contained below-the-threshold public contract noZ2016-001986,withthefinalvalueofthecontractstatedasCZK 7.4 trillion (notincl.VAT),eventhoughafinalvalueofCZK 3.6 million (notincl.VAT)isgiveninanotherpartoftheform.

• SomeformspublishedonthePCBulletinwebsitearenotintheinformationsystematall(orintheopendata).E.g.thePCBulletinwebsiteshowsaform(formF03)fornotifyingtheawardofpubliccontractno522014withafinalcontractvalueofCZK 29.7 million,butthisformisnotpresentintheinformationsystem.

• InopendatatherearedifferencesfromthePCBulletinasregardsthesendingdateofformsaswell,e.g.inthecaseofcontractnoZ2016-000733(formF2016-003214).

The SAO compared the aggregate information on the volumes of public contracts from opendata from thepublic contracts information systemand informationpublishedby theMoRD inannual reports, the sourceofwhich is also data from the information system,with data fromthefirmDatlab94,whichacquires informationandprocesses itmorecomprehensively fromtheforms published in the PC Bulletin andmetadata from the contracting organisations’ profiles.Whenpurgingprices,ittakesintoconsiderationmorethantenvariables–itcomparesamountswithandwithoutVAT,expectedprices,pricesperpartetc.Itdetectsandpurgesunitprices,theimplementationofmasteragreementsandpurchasingindynamicpurchasingsystems.TheresultisanestimateoftheamountactuallyspentthatismorerobustthanthemerebidpriceregisteredinthePCBulletin.Giventhefindingsofauditsconcerningtheinformationinfrastructureforpubliccontracts(NIEPP),theSAOregardedtheDatlabdataasreliableandsuitableforverifyingthedataprovidedbytheMoRDfromthepubliccontractsinformationsystem.Theresultsofthecomparisonforpubliccontractsawardedbyallcontractingorganisationsintotalfor2016to2018areshownin Chart 39.

94 Datlaboperates theVsechnyZakazky.czwebsite, thatprovides informationaboutallawardedpubliccontracts in theCzechRepublic.DatlabalsoprocessesdataonpubliccontractsthroughouttheEU.TheEuropeanCommissionholdsupitsmethodologyasanexampletoMemberStates.


Chart 39: Volume and share of public contracts awarded under NPWP compared to the total numberofpubliccontractsawardedbyallcontractingorganisationsin2016–2018

234 317 471236 333 500271 334

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Source:Datlabdatamodel,opendata fromthepubliccontracts informationsystem, information fromMoRDannualreportsonpublicprocurementfor2016and2017.

*Publiccontractsinformationsystemreport–accordingtotheformsenddatetoPCBulletin;othersaccordingtotheawarddateofthepubliccontract.

The chart shows amarked year-on-year fall in the volume of contracts awarded underNPWPbetween2016and2017.Inreality,though,theactualreductionintheshareofpubliccontractsawardedthroughNPWPneednothaveoccurred,notevenfollowingthechangeinthelegislationin2016.ThechangeinthelawresultedinachangetotheformscontractingorganisationsfillininthePCBulletin.Theirnewdesignand,inparticular,theconversionoftheseformsintodatadoesnotmakeitpossibletoidentifyextraworkcommissionedunderSection222oftheActonPublicProcurement;accordingtoananalysisbyDatlab,thisextraworkwasworthatleastCZK7billionin2018.Realistically,however,amuchgreatervolumeofextraworkcanbeexpected,becausesome types of contract addenda are now not published at all.ThisriskworksagainstthepositivedevelopmentsinthereductionintheuseofNPWP.Thefactspresentedabovepointtoenduringrisksthatpubliccontractsstatisticsinthepubliccontractsinformationsystemwillbedistorted.

Although these forms reflect the requirementsof theEuropeanUnion, theministrywas givenenoughleewaytomakeitsownadjustmentstotheirdesign,tocreatecontrolmechanismsandtoadoptothermeasuresthatwouldresultinhigh-qualitydataoutputs,andthustheeffectiveuseofinformationonpubliccontracts.Theformswerenotimproved.

Thecomparisonresultsshowadifferenceinthetotalvaluesobtainedfromopendataofthepubliccontracts information system, informationpublishedby theMoRD in annual reportsonpublicprocurement (for2016and2017)and theDatlab information fromthePCBulletinandprofilesaswell. These differences amount to billions of koruna and cannot be viewed as insignificant.InitsannualreporttheMoRDstatedthatitperformsmanualcorrectionsofcontractsregisteredintheinformationsystem(values,identificationofthecontractingorganisation).Thereisalwaysariskattachedtofrequentmanualalterations,andunsystematicmanualcorrectionsaremoreovera substantial hindrance to follow-up analysis and audit work. Input controlmechanismsmustthereforebeputinplacetomakeitpossibletopreventformsbeingwronglyfilledinbycontractingorganisations.


The unknown methodology governing these manual interventions, the need to purge datasufficientlyofevidenterrorsandaddmissinginformation,andtheabsenceofcertainkeyfieldsalsoresultinverypoorqualityopendataonpubliccontracts.TheMoRD’sanalysisworkcanbedescribedasa“blackbox”:itispracticallyimpossibletoverifyevenutterlyelementaryinformationonpublicprocurement.

TheMoRDistheadministratorofthepubliccontractsinformationsystem,partofwhichisbylawthePCBulletin.TheMoRDhasgotitselfintoasituationwhereitisdependentontheinformationsystemcontractoranditsonlyaccesstodatainthePCBulletinisviatheformspublishedonthePCBulletinwebsite.Consequently,itisnoteasytoascertaintheexactdifferencebetweendatainthePCBulletinandtheinformationsystemorwhetheranyaggregateddatafromtheinformationsystemcanberegardedasdefinitiveand,ifso,whatdata.TheSAOpointsoutthatthepubliccontractsinformationsystemdoesnotprovidereliableandrelevantinformationforusers.Havingpoor-qualityopendataonpubliccontractsispointless.

5.3 Management of funds provided to the Czech Republic from abroad – compliance withthen+3ruleinalloperationalprogrammes

In2018 theSAOcompletedfiveaudits thatweremainlydevoted to themanagementof fundsprovidedtotheCzechRepublicfromabroad.

Inonecase,theaudit(KAč.17/25)targetedsupportprovidedfromthefinancialmechanismsoftheEuropeanEconomicAreaandNorway;theotherfourscrutinisedfundsprovidedtotheCzechRepublicfromtheEUbudget.Theseauditsfocusedon:

• measures to improve energy efficiency under Operational Programme Enterprise and Innovation for Competitiveness 2014–2020 (auditno17/23);

• the Cooperation measureundertheRural Development Programme of the Czech Republic for 2014–2020 (auditno17/26);

• therepair,modernisationanddevelopmentofthe2ndand3rdclassroadsnetworkinselectedregionsco-fundedoutofEUandnationalfinances(auditno17/09);

• measurestoimproveairqualityunderOPEnvironment (auditno18/04).

In linewiththeseaudits’priorityfocusonvariousexpenditureareasofGovernmentpolicy,theresultsoftheseaudits,withtheexceptionofauditno17/25,wereassessedintheprevioussectionsofthisannualreport(SectionII.4).ThissectionmainlydealswithsystemicshortcomingsandrisksconcerningthemanagementandcontrolsystemforfundsprovidedtotheCzechRepublicoutoftheEUbudget.

IntermsoftheuseoffundsprovidedtotheCzechRepublicfromtheEUbudget,thepastyearswere influenced by a relatively long delay in the drawdown of the allocation, which was stillpalpablein2017,especiallywhencomparingthefiguresreportedforcomparablesegmentsofthe2007–2013and2014–2020programmingperiods,whentheCzechRepublicwasdoingworseinthenewprogrammingperiod.In2018,however,directcomparisonofthecurrentprogrammingperiodwith the samesegmentsof the2007–2013programmingperiodenables theSAO to state thattheimplementingauthoritiesgraduallymanagedtoovercometheinitialdelayandspeeduptheutilisationoftheallocationfromtheEuropeanStructuralandInvestmentFunds(ESIF)–especiallyintermsofthevolumeoffinancesinpaymentapplicationssenttotheCommission(seeTable4).

Even so, the current equalling of the allocation drawdown level with that of the previousprogrammingperioddoesnotruleouttheriskofarepetitionofthesituationfrom2015,i.e.thefinalyearofeligibilityfor2007–2013programmingperiodexpenditurewhenalmostaquarteroftheentireallocationremainedunutilised.Hecticdrawdownobviouslybringsanincreasedriskoferrorsandlessemphasisonprojects’outcomesorbenefits95.

95 SeeECASpecialReport17/2018–Commission’s and Member States’ Actions in the last years of the 2007–2013 programmes tackled low absorption but had insufficient focus on results,publishedon13September2018.


Table4:Comparisonofrelativefigurescharacterisingallocationdrawdowninthecorrespondingsegments of the 2007–2013 and 2014–2020 programming periods

Perio

d

Approv

edprojects/

globa

lg ran

ts

Fund

spaidtoben

eficiaries

Fund

ssub

mitted

for c

ertifi

catio

n

Certifie

dfund

ssub

mitted

to

the

Com

mis

sion

Perio

d

Fund

sinlegald

ocum

entson

p rov

ision

/transfero

fsup

port

Fund

sinpa

idpaymen

tap

plicati

ons

Fund

sbilled

inpaymen

tap

plicati

ons

Fund

sininterim

paymen

ta p

plic

ants

sent

to th

e Co

mm

issi

on

XII. 2010 55.4 26.2 12.2 11.4 XII. 2017 47.1 16.3 12.2 11

VI. 2011 65.3 32.3 21.2 13.7 VI. 2018 57.6 22.0 16.9 13

X. 2011 70.0 36.6 23.7 14.9 X. 2018 64.4 27.4 22.1 18

XII. 2011 70.5 38.6 24.3 17.4 XII. 2018 67.1 31.8 25.7 25

Source: MoRDmonthlymonitoringreportforthe2007–2013programmingperiod,December2011;MoRDmonthlymonitoringreportforthe2014–2020programmingperiod,December2018.GraphicrepresentationbytheSAO.

AcomparisonoftheCzechRepublicwithotherEUMemberStatesattheendof2018islessflatteringincertainareas.IntermsoftotalinterimutilisationoftheESIFallocation(including“pre-financingpayments”),theCzechRepublicwasin21st placewithadrawdownofapprox.25%, andthelossof approx.2.5 percentagepointsbehind theEUaverage.TheMemberStates in16th–17th place currentlyrepresenttheMemberStateaverage(UnitedKingdomandLatvia).TheCzechRepublic’spositionasat30September2018wasevenworseintermsofthetotalvolumeoffundscoveredbyasubsidyprovisiondecision(orotherlegaldocument)correlatedtothesizeoftheESIFallocation.HeretheCzechRepublicwasin22nd place,sevenplacesbehindtheEUaverage.

2018was thefirstyearof the2014–2020programmingperiodwhen then+3 rulehad tobecompliedwithatthelevelofalloperationalprogrammes.Allthemanagingauthoritiescompliedwiththen+3rulelimitattheendof2018.Thatmeansthattheentireallocationof2014and2015had been successfully drawn down, so the Czech Republic will not lose any ESIF funding in that yearandcancontinuetouseUnionfundstosupportitsregions.Intotal,paymentapplicationsworthmorethan€5.6billionweresenttotheEuropeanCommissionbytheendof2018,whichfulfilledthen+3drawdownlimit.Theoperationalprogrammesthatbestcompliedwiththen+3rule were the RDP, OP Emp and OP TA. Togiveaclearpicture,inChart40wepresentacomparisonofthefinancialprogressachievedin2018comparedto2017.ItisclearfromthechartthattheRDPandIROPachievedthehighestpercentageincreaseindrawdownin2018.

The Czech Republic can utilise almost CZK 583 billion (main allocation) for the 2014–2020programmingperiod.ProjectsworthmorethanCZK 391 billion (67.1%oftheallocation)hadbeenapprovedbytheendof2018.Bythesamedate,expenditureexceedingCZK 185 billion (31.8% of theallocation)hadbeenreimbursedtobeneficiaries.


Chart 40: Comparison of the drawdown of EU funds in the 2014–2020 programming period ininterimpaymentapplicationssenttotheEuropeanCommission(%)

43.8

32.9 32.527.9

23.220.2 19.7 19.2 18.5 17.4

28.9

17.4 18.2 17.4

85.9 4.3 2.6

6.61.8

RDP OP Em OP TA OPT OP En OPF OP RDE IROP OP EIC OP PGP

As at Dec 31, 2018 As at Dec 31, 2017

Source: MoRDmonthlymonitoringreportforthe2014–2020programmingperiod,December2018.NB:Thedataapplytothemainallocationofaprogrammeinthe2014–2020programmingperiod,i.e.withoutthe

performancereserve.

Despitethen+3rulebeingcompliedwith,thestateofprogresstowardsthe“milestones”asatDecember31,2018remainedarisk.FailuretoreachthemilestonesdefinedfortheCzechRepublic for 2018 could result in the Czech Republic not being awarded the “performance reserve”,whichonaverageamountsto6%ofthetotalallocation,whichcouldleadtoalossof up to CZK 36.2 billion.

In 2018 the SAO completed audit no 17/25 focusing on the support the Czech Republic obtained from2011to2017underthefinancialmechanismsoftheEuropeanEconomicAreaandNorway(EEA+N).TheaimofthesupportwastoreduceeconomicdisparitiesintheEEAandstrengthenties between the participating countries (Kingdom of Norway, Iceland and Principality ofLiechtenstein).TheCzechRepublicreceivedCZK3.2billionunderthissupportinthe2009–2014programmingperiod.TheSAOauditshowedthat theCzechRepublichadmanagedtoutilisealmost91%oftheallocatedfundsbytheendof2017.Whenscrutinisingtheimplementationsystemandprogresstowardstheprogrammes’goals,however,theSAOwascompelledtostatethattheefficiencyoftheEEA+NfinancialmechanismsimplementationstructureintheCzechRepublicwaspoorandthepreparationsfordrawingdownfundstookalongtime.

• Support fromtheEEA+Nfinancialmechanismswasprovidedforawholeseriesofareas(seeChart41)anddistributedviaa large number of 15 thematically targeted programmes,under which 894 diverse projects were executed. Thequantityofprogrammesandthe19 entitiesinvolvedinthemmade this systemcomplicated, thematically fragmentedandadministratively demanding. Yet over 60% of the allocationwasdividedupbetweenjustfourprogrammes.Theremainingprogrammes,bycontrast,includedthosethatcomprisedjustoneproject.

• As regards the goals of the programmes, the SAO foundthatachievementofthegoalscouldnotbedemonstrated in11ofthe14auditedprogrammes.Itwasnotclearwhatwassupposedtobeachievedwiththemoney,astheformulationofgoalsandtheassignedmonitoringindicatorsprovidednoquantitativeorotherwisedetailedfeedback.Thesetgoalsweremerelygeneraldeclarationswithoutmeasurablecriteria,suchas“afairerandmoreeffectivejudicialsystem”etc.

The implementation structure of the European Economic Area and Norway financial mechanisms in the Czech Republic was needlessly complicated and administratively demanding in the 2009–2014 programming period.


Chart 41: Areas supported in the 2009–2014 programming period

R&D10%

Cultural heritage 18%

Healthcare16%

Environmental protection21%

Education3%

Human rights, social inclusion, NGOs19%

Justice, crime, public administration4%

Cooperation with Schengen and Norwegian institutions7%

Techn. assistance, fund for bilateral relations2%

Reserve0%

Source:Memorandumofunderstandingonthe implementationof theEEAandNorwayfinancialmechanisms for2009–2014.

The results of audit no 17/25pointedtogeneralproblemslinkedtosettinggoalsforprogrammes,whereitisveryhardorimpossibletoevaluatethem.Sustainabilityalsoprovedtobeproblematicandhighlyrisky,asthesupportproviderdidnotperformanychecksofprojects’sustainability.TheSAOhaddrawnattentiontothesefactspreviously(e.g.inauditno15/06).

Management of funds from abroad and support for eligible enterprises

In its systematic audit work the SAO scrutinises the design, functionality and effectiveness ofthemanagement and control systems for individual programmes; in doing so, it assesses theapplication/project selection and approval process, i.e. decision-making on the provision ofsupport,amongotherthings.Itpaysattentiontotheproceduresdesignedtoensurethatsupportischannelledtothoseapplicantswhosatisfythedefinedsubsidyconditionsandareeligible–thisincludesthe issueofpossibleconflictsof interests.Specifically,theSAOassessestheprocessesforverifyingthesizeofanenterprise/applicant,itsownershipstructure,whetherenterprisesareconnectedetc.

Onefundamentalproblemofpossibleconflictsofinterestsisidentifyingthelinkbetweenspecific transactions (projects) and interest groups and bearers of public authority.At present, complicated and confusing ownership and capital links do not permit a systematicapproach to judgingpossible conflictsof interestsand itdependsentirelyonrandomlyacquiredinformationwhetheritisverifiedadhocthatmanagementandcontrolsystemsinthisareaarefunctional.

When checking the eligibility of applicants,which encompasses the conflict of interests issue,theSAOfoundthefollowing:

• Thesizeofanenterpriseanditsownershipstructurewereoftenprovenmerelybymeansofswornstatementsbyapplicants,withoutanyverificationprocedurestakingplace.

• Programmes claiming to support small and medium-sized enterprises actually supported largeenterprisesgeneratingsignificantprofits,sothesupportmighthavebeenunnecessary.

• Somedecision-makingprocesseswereencumberedbyaninsufficientaudittrail,meaningthattheycouldnotberigorouslyverifiedafterthefactandwerenottransparent.


Initsaudits(auditsnos.14/2696, 16/0197, 17/0698, 17/23and17/26)theSAOflaggedupanumberof theaforementionedserious shortcomings, someofwhichweredealtwith in thepastwhileanumberofthempersist:

• When checking the size of an enterprise and its ownership and property structure, theMoIT, MoA and SAIF relied on sworn statements, even though the size of an enterprisehad a considerable impact on the amount of support awarded (audit no 16/01).With nowayof checking this, therewasa risk that the supportwouldbeprovided to an ineligibleenterprise.Bytheendof2017,forexample,theMoIThadnotdefinedadetailedprocedureforfullyuncoveringtheownershipstructuresofsupportapplicantswhenassessingthesizeofenterprises. InonecasetheMoIT,beforepayingthesubsidy,receivedacomplaintexpressingasuspicionthattheapplicantwasnotamedium-sizedenterprise,as ithaddeclared,butalargeenterprise.TheMoITdidnotinvestigatethissuspicion,eventhoughthesupportforlargeenterpriseswas10% lower.

• Inthecaseofagriculturalsubsidies,theMoAadvantagedlargefirms,especiallyforexpensiveprojects, for which the MoA put in place simpler conditions for acquiring subsidies thanfor small projects carriedoutbymicro-firms, small ormedium-sizedenterprises. Subsidiesworthmillionsofkorunaareprovidedtolargefirms,eventhoughtheirprofitsrunintothehundredsortensofmillionsofkorunaandtheyrankamongthemainprivatefoodindustryandagriculturalcompaniesintheCzechRepublic.IntheCooperationmeasure,forexample,specifically sub-measure16.2.2 fundedoutof theRDP2014–2020, asmuchas70% of the subsidybeneficiarieswere largefirms thatwereoftendrawingdown subsidies repeatedly,withtheamountsrunningintothetenstohundredsofmillionkorunaperyear.Littlesupportandfewadvantagesareprovidedtomicro,smallandmedium-sizedenterprises.

Toconclude,itcanbesaidthattheSAOhaslongpaidattentiontotheissueofconflictsofinterestsandtheeligibilityofapplicants/beneficiaries,butthesubsidiesauditedtodatewerenotcoveredbythenewlyadoptedRegulation(EU,Euratom)2018/104699 of the European Parliament and of the Council, applicable since August 2, 2018 and devoted to the issue of assessing eligibility forEuropeansubsidiesinentitieswhosepositionmayputtheminconflictwiththeEuropeanUnion’sfinancialinterests.TheSAOdrewattentiontonumerousshortcomings,someofwhichwere eliminated and some of which persist.

In linewith the requirementsof thenewfinancial regulation, theCzechRepublic shouldapplynewrulesandtakesuitablemeasurestopreventconflictsofinterests.TheEuropeanCommissionbegancheckingtheCzechRepublic’scompliancewiththerulesforassessingconflictsofinterestsattheendof2018inresponsetoanotificationfiledbyTransparencyInternationaloftheCzechRepublic.AuditorsshouldcheckwhethertheruleswerebrokenwhenEuropeansubsidieswerebeingdrawndownandwhetheranyofthesubsidybeneficiarieswereinaconflictofinterestswiththeEU’sfinancialinterests.

96 Auditreportno14/26–Funds spent on the projects of the Rural Development Programmewaspublishedinvolume2/2015oftheSAO Bulletin.

97 Auditreportno16/01–EU and state budget funds earmarked for financing of interventions within the Operational Programme Enterprise and Innovation with the focus on the fulfilment of objectiveswaspublishedinvolume1/2017oftheSAO Bulletin.

98 Auditreportno17/06–EU and state budget funds spent on forestry supportwaspublishedinvolume1/2018oftheSAO Bulletin.99 Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial

rules applicable to the general budget of the Union, amending Regulations (EU) no 1296/2013, (EU) no 1301/2013,(EU) no 1303/2013, (EU) no 1304/2013, (EU) no 1309/2013, (EU) no 1316/2013, (EU) no 223/2014 and (EU) no 283/2014 andDecisionno541/2014/EUandrepealingRegulation(EU,Euratom)no966/2012.


6.SAOopinionsonthestate’sfinancialreporting

6.1OpinionontheDraftStateClosingAccount

In2018theSAOgaveitsopinionontheaccuracyofreporteddata100 in its Opinion on the Draft State Closing Account of the Czech Republic for 2017, i.e. its opinion on the completeness andaccuracyofthestatebudgetrevenuesandexpenditurereportedinthedraftSCA.

Themain toolusedby theSAO for checking thefigures isfinancial audit,which systematicallyscrutinises the closing accounts of state budget chapters, data submitted for assessing theimplementationofthestatebudgetintermsofclassificationbybudgetarycompositionanddatainfinancialstatements.Inaddition,themethodofcomparingSCAdatawiththerelevantbudgetandaccounting informationsystems isusedandthe internalconsistencyofcomponentsofthedraftSCAandevaluationreportsischecked.

The SAO expressed the opinion that the data101containedinthedraftSCAfor2017canbeconsidered accurate102.However,theSAOhaslongdrawnattentiontothefactthatclosingaccounts makeminimal use of accrual-based data from financial statements. Given thataccrual-baseddataprovideverymeaningful informationaboutstatebudgetchapters, theSAOconsidersitappropriatethattherelevantlegalregulationsplacegreateremphasisonthe use of these data in closing accounts.

6.2Opinionsonthestate’sfinancialreporting

Thepurpose of regularly scrutinising the state’s financial reporting is to obtain andpresentinformation about its reliability, whichmakes it possible to boost users’ confidence in thisinformationandalsohelpensuretheinformationisaccurate.Accountingunitsusethefinancialinformationtodrawupaccountsontheirfinancialmanagement,andthedataaresupposedtobeusedformonitoringandmanagingpublicfinances.Theutilityofthisinformationdependsonitsreliability,however.Forthatreason,theSAOdevotespartofitscapacitytofinancialauditsothatitcancheckthereliabilityoffinancialstatementsanddataforassessingimplementationofthe budget and closing accounts.

In2018theSAOcompletedthefollowingthreefinancialaudits:

• Auditno17/18–Closing account of the state budget chapter of the Ministry of the Environment for the year 2016, the financial statements and data for 2016 and data for 2016 submitted for the assessment of fulfilment of the state budget 2016;

• Auditno17/30 –Closing account of the state budget chapter of the Ministry of Defence for the year 2017, the financial statements and data for 2017 and data for 2017 submitted for the assessment of fulfilment of the state budget 2017;

• Auditno17/31 –Closing account of the state budget chapter of the Ministry of Agriculture for the year 2017, the financial statements and data for 2017 and data for 2017 submitted for the assessment of fulfilment of the state budget 2017.

Audit results with regard to financial statements

Thefocusofattentioninfinancialauditisaccountingandthecompilationoffinancialstatements.TheSAOcheckedwhethertheauditedentitieskepttheiraccountsinamannerensuringthatthefinancialstatementstheyunderpingiveatrueandfairviewofthesubjectofaccounting.

100 ThesearedatapresentedinbooksGandHofthedraftSCA.101 I.e.datapresentedinbooksGandHofthedraftSCA2017.102 Formore on the opinion on the accuracy of SCA data seewww.nku.cz/assets/publikace-a-dokumenty/stanoviska-nku-ke-

statnimu-rozpoctu/stanovisko-k-szu-2017.pdf.

http://www.nku.cz/assets/publikace-a-dokumenty/stanoviska-nku-ke-statnimu-rozpoctu/stanovisko-k-szu-2017.pdf

http://www.nku.cz/assets/publikace-a-dokumenty/stanoviska-nku-ke-statnimu-rozpoctu/stanovisko-k-szu-2017.pdf


Table5:Resultsoffinancialauditswithregardtofinancialstatements (CZKbillion)

Auditno

Auditedentity

Type of financialaudit103

Auditedvolume Quanti- fied

inaccuracies

Keyinaccuracies

Correctederrors (interimaudit)

Opiniononfinancial

statementsNet

assets Costs Reve- nues

17/18 MoE Expost 13.745 20.909 18.162 1.698

• Incorrectvaluationofgreenhousegasemissionallowances (CZK0.518billion)

• Failuretoaccountforcontingentreceivablesfromreceivedsecurity(CZK0.727billion)

• Failuretoaccountforcontingentliabilitiesfromcontracts (CZK0.229billion).

x

Opinionwithreservationowingtosignificantmisstate-ments

17/30 MoD Interim 131.212 53.694 5.967 0.405

• Incorrectaccruingofrevenuesfromsale of surplus aircraft (CZK0.149billion)

• Incorrect accountingforbuildingrenovation (CZK0.054billion)

• Incorrectaccruingof costs (CZK0.026billion).

3.000Unmodified(affirmative)statement

17/31 MoA Interim 19.921 47.067 33.063 0.000 x 1.600Unmodified(affirmative)statement

Total x x 164.878 121.670 57.192 2.103 x 4.600 x

Source:auditreportsfromtheaudits.

Theaudit results showed that in two cases the SAO issuedanaffirmative statementon thefinancial statements, but in one case significant misstatements were found, leading to astatementwithreservationbeingissued(seeChart42).Italsobecameclearthatfinancialauditscommencedduringtheauditedperiod(interimaudit,whentheauditedentitieshavethechancetocorrectmostof the identifiedmisstatementsbeforecompiling theirfinancial statements)ledtoasignificantreductionintheerrorrateinfinancialstatementsandthusalsotogreaterreliabilityoftheinformationpresented.

103 Expostfinancialauditscrutinisesdatafromissuedannualfinancialstatements;interimfinancialauditstartsbeforetheaccountsareclosedandfinancialstatementsissued.





Chart42:Opinionsonfinancialstatementsissuedaspartofauditsnos.17/18,17/30and17/31

Balance sheet

Statement of changes in equity Profit and Loss Account

A�achment

Accounts no 945 a 974

Cash Flow Statement

Data is reliable

Data is not reliable (reserva�on)

Accounts no 401 a 407

Balance sheet

Statement of changes in equity Profit and Loss Account

A�achment

Cash Flow Statement

Audits no 17/30 and 17/31 Audit no 17/18

Source:Informationfromauditreports.

It is also fair to say that systematically repeated SAOaudits contribute to greater reliabilityofthe reported data,which has a positive impact on the informational value of data in financialstatementsofspecificauditedaccountingunitsandalsoontheutilityofconsolidatedaccountingstatements for the Czech Republic. This conclusion is demonstrated by the following Chart43,whichpresentsanassessmentof the inaccuracies identified infinancial auditsdoneat theaforesaidauditedentitiesovertimeandwithregardtothemateriality104stipulatedforassessingthereliabilityoffinancialstatements.

Chart43:Developmentofinaccuracieswithregardtomaterialityinauditedentitiesovertime

Audit no 12/15

Audit no 13/38 Audit no 17/31

Audit no 13/29

Audit no 17/30

Audit no 14/19

Audit no 17/18

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

ytilairetam fo elpitlu

M

MoA MoD MoE

Source: Auditreports.

104 Materiality (i.e. thevalueof inaccuracies that can reasonablybeexpected to influence,either individuallyor inaggregate,economicdecision-makingbyusersoffinancialstatements)isthecriterionusedtoassessthereliabilityoffinancialstatements.Inlinewithgoodpractice,thisisusuallysetatapprox.2%ofthevaluethatbestrepresentsthecharacteroftheaccountingunit.Thiscanbeassetsortotalcosts,forexample.

TIME


Results of audits with regard to financial reporting

Aspartofitsfinancialauditwork,theSAOalsoscrutinisesdataforassessingtheimplementationofthestatebudgetandthefinancialstatementscompiledfromthem.

Table6:Resultsoffinancialauditswithregardtofinancialreporting (CZKbillion)

Audit no

Audited entity

Type of financial

audit

Audited volumeQuantified

inaccuraciesKey

inaccuracies

Corrected errors (interimaudit)Revenues Expenditure

17/18 MoE Expost 3.964 1.965 0.081Misclassificationofrevenuesandexpenditure

x

17/30 MoD Interim 1.071 2.702 0.116Misclassificationofrevenuesandexpenditure

0.000

17/31 MoA Interim 9.544 9.475 0.013Misclassificationofrevenuesandexpenditure

0.100

Total x x 14.579 14.142 0.210 x 0.100

Source:Auditreports.

Thetableshowsnosignificant inaccuracieswere found in theauditedfinancial reports.ThisinfluencedtheSAO’sopiniononthedraftSCAfor2017(seeSectionII.6.1).

Audit results with regard to closing accounts of budget chapters

Scrutiny of the covering reports accompanying the audited closing accounts revealed isolatedshortcomings concerning a failure to present some of the information required by the legalregulations.Nosignificantinaccuracieswerefoundinnumericalsetsandtableannexescontainingdatafromfinancialstatements.

Initsauditsofclosingaccounts,theSAOrepeatedlymentionedthatmoreuseshouldbemadeof accrual-based data, including their use for drawing up closing accounts, and presented acomparisonofcertainaccrual-basedandcash-baseddata(auditsnos.17/18, 17/31). Inthecase of audit no 17/18doneattheMoE,forexample,theSAOstatedthattheresultingbalancecalculated on cash-based data from 2016 represented a surplus of CZK 8.6 billion according tofinancialstatements,whiletheresultaccordingtotheprofit/lossstatementwasa lossofCZK 2.7 billion.

This cash-based surpluswas influencedby significantMoE revenues from the saleof emissionallowances; no cash expenditurewas linked to them. Emission allowances are a specific assetacquiredbytheMoEatnocost.Someofthemgeneratesubsequentrevenuesfromsale,butaconsiderableamount isdistributed freeofchargetooperators.Costs fromthis freelyacquiredassetarereportedintheprofit/lossstatementcompiledonanaccrualbasis;thesefreelyacquiredanddivestedallowancesbringnootherrevenuesordata.Whenallowancesaresold,thecostsofdiscardingthemarereported,aswellasrevenuesandproceedsfromtheirsale.Thecostsofalltheseoperationswereconsequentlymuchhigherthantherelatedproceeds.

Inauditreportno17/18theSAOstatedthattheaccountingregulationsdonotdistinguishbetweenreportingemissionsallowancesasstatepropertyattheMoEaccountingentityorattheoperatoraccountingentity,eventhoughitisclearthatemissionallowancesfulfiladifferentfunctionattheMoEthanatoperators. Ifthisassetwasaccountedforwithrespectto itsfunctioninthegivenaccountingentity,itwouldbepossibletoreportitdifferentlyinfinancialstatements.





Theauditreportsfromauditsnos.17/18, 17/30and17/31werediscussedbytheCzechGovernmentin 2018. The statements of the audited entities in response to the audit reports revealed anendeavour to eliminate the identified shortcomings; the audited ministries reacted to all theshortcomingspresentedintheauditreports.

6.3Promotinggoodaccountingandauditpractice

By its very nature, the SAO is not only an audit institution but also a professional institution.Ithasbeen involved in international standardisation foraccountingandthepossibilityofusinginternationallyrecognizedgoodreportingpracticeinthepublicsectoroftheCzechRepublic.In2018, it provided a translation of the International Public SectorAccounting Standards (IPSAS)handbook. This work, carried out under an agreement with the International Federation ofAccountants (IFAC), involvedexperts fromtheSAO,experts fromtheacademic sphere (PragueUniversityofEconomics),theMoF,andotherprofessionalinstitutions.ThetranslationofIPSASsis freely available on the SAOwebsite105, helping promote good practice, including training offutureexperts.In2018,theSAOheldaconferenceinPraguemarkingthepublicationoftheIPSAShandbook.

In 2018 the SAO conducted audit no 17/36 to check whether the public finances reformwaspreparedandexecutedinawayensuringthatreliableandusableinformationisreportedontheeconomicsituationofthestateandaccountingentitiesthatarestateorganisationalunitsandtheircontributoryorganisations.

Basedonitsfindingsfromthisaudit,theSAOrecommendedthattheMoF:

• makeuseofaccrual-basedaccountinginformationwhencompilingthestatebudget,closingaccountsofstatebudgetchaptersandthestateclosingaccount;

• formulategeneralfoundationsforthestate’saccounting(whatthepurposeandgoalofaccountingare,howtoachievethesegoalsandwhothefinancialstatementswillbeusedby)anddefinecertainkeycomponents(assets,liabilities,costs,revenues);

• tightenupambiguousorinsufficientlyregulatedareasoftheaccountingregulations(reportingfinalcorrections106,stateownershipinterestsincommercialcorporations107 and greenhouse gas emission allowances108);

• conductareview,incollaborationwiththeCzechStatisticalOffice,ofthe“auxiliaryanalyticaloverview”reportinordertorationaliseitandreducethenumberofreportedfacts;

• publishaccountingstatementsfortheCzechRepublicinthesameplaceasaccountinginformationforstateorganisationsandcontributoryorganisationsispublished,i.e.ontheMONITORinformationwebsite,andpublishaccountingstatementsadditionallyfortheindividualconsolidationunitsofthestateandforthehigherconsolidationunitsofthestate.

105 Seehttps://www.nku.cz/cz/publikace-a-dokumenty/ostatni-publikace/prirucka-mezinarodnich-ucetnich-standardu-pro-verejny-sektor-vydani-2016-id9494/.

106 Itisnotclearhowcorrectionsshouldbefairlyrecordedintheaccounts–whetheritisanewcost,orareductionofrevenue, orwhatcostorrevenueisinvolved.

107 Thisisaproblemofindividualfinancialstatements;itisnotclearfromthelegislationwhetherorganisationalunitsofthestatewithownershipinterestsexercisedecidinginfluence,fundamentalinfluenceorotherinfluence,orwhether,asorganisationalunitsofthestatethatarenotlegalpersons,theycanexerciseinfluenceatall.Thisambiguityhasadirectimpactonthevaluationofownershipinterests.

108 Greenhousegasemissionallowancesareaspecificassetreported in theMinistryof theEnvironment’sbalancesheet.TheaccountingregulationsdonotdistinguishbetweenthereportingofallowancesasastateassetattheMoEaccountingentityandatanoperatoraccountingentity,eventhoughitisclearthatemissionallowancesserveadifferentfunctionattheMoEthanatoperators.Ifthisasset’sfunctionasalong-termintangibleassetinthegivenaccountingentity,itcouldberepresenteddifferently in the accounts as well. Neither the existing Czech legislation nor the relevant European regulations make itpossibletodetermineunequivocallyatwhatmomentallowancesbecomealong-termintangibleassetallottedtotheministry. ButaprecisedeterminationoftheinceptionofemissionallowanceshasafundamentalsignificanceintermsofdeterminingthemomentasofwhichtheallowancesaretobeaccountedforandvaluedasanassetoftheCzechRepublic.(Source:auditreportno 17/18.)

https://www.nku.cz/cz/publikace-a-dokumenty/ostatni-publikace/prirucka-mezinarodnich-ucetnich-standardu-pro-verejny-sektor-vydani-2016-id9494/

https://www.nku.cz/cz/publikace-a-dokumenty/ostatni-publikace/prirucka-mezinarodnich-ucetnich-standardu-pro-verejny-sektor-vydani-2016-id9494/


TheMoFistakingsomeconcretestepstoeliminatecertainriskslinkedtothelackofaconceptualframework: in 2018, for example, it published a document entitled Summary Concept of New Accounting Legislation 2020–2030andmadeitavailableforpublicdebate.Amongotherthings,this extensive document proposes tackling the lack of a definition of basic terms (e.g. assets),whichiscriticisedbytheSAO,andsettlingitinlinewiththepresent-dayunderstandingofaccrual-basedaccounting.

Through itsauditwork, theSAOhelps identify systemic risksandproblems in the reportingof accounting and budget data, looks for possible solutions and promotes greater use of accrual-basedaccountingdataon the state’sfinancial situationandperformance, e.g.whencompiling closing accounts for budget chapters and the state closing account. This is a process whose goal is to ensure that data are usable and reliable for the purposes of accountability and decision-making.

• TheSAO’sfinancialauditsdrawattentiontoanyshortcomings inthereliabilityof reporteddataand thushelp the responsible authoritiesavoid them. Interimfinancial audit resultedinthestate’sfinancialinformationbeingcorrectedbyavalueofalmostCZK 5 billion in the 2017accountingyear,forexample.Consequently,usersobtainedmoreaccuratedataonthestate’sfinancialmanagementandtheauditedentitieshadthechancetoreacttotheSAO’sfindingsimmediatelyintheiraccountingandcontrolsystems,whichincreasesthevalueaddedoffinancialaudit.

• In2018theSAOalsomadeuseofitsfindingsfromscrutinisingreportedaccountingandbudgetinformation in the consultation process for draft legislative amendments (e.g. Decree no323/2002Coll.,onthebudgetarycomposition)andothermaterials(MoFproposalforunifyingthereportingoftransfersinthestate’saccounting).

In 2018 the SAO had a representative as commissioner on the Audit Commission of theEuropeanSpaceAgency.TheSAOrepresentativechairedtheAuditCommissiononbehalfoftheCzechRepublicin2018.TheSAOthusparticipatedininternationalauditsatthehighestlevel.TheSAO’sexperiencefromauditwork in internationalorganisationswerethenpresented inMarch2018ataninternationalexpertseminarstagedbytheSAO.

TheSAOcreatedandmaintainsanautomatedtoolforanalysingaccountingandfinancialreportinginorder tobeable toplanauditsbetterandconduct themmoreeffectively. Italsousessomedatafromopensources,e.g.fromtherealestateregister,theregisterofcontractsorthecentralrecordsofstatebudgetsubsidies.

AnnualReportfortheyear2018,FinancialEvaluationofAuditWork 93

III.FinancialEvaluationofAuditWork

1.Overallfinancialevaluationofaudits

An overall financial evaluation of audit work is performed every year via the indicator of thetotalvolumeofauditedfinances,assetsandliabilities.Thisinformationgivesaninsightintothetotal statebudget revenuesandexpenditure, stateassetsand liabilities, fundsprovided to theCzechRepublicfromabroadandmiscellaneousfinances(e.g.statefunds)auditedbytheSAOinthepreviousperiod.Theindicator’svalueis influencedprimarilybythenumberofaudits,theirsubjectsandgoalsandthelengthoftheauditedperiod.

ThetotalauditedamountofCZK 114 billion correspondstoauditswhoseauditreportwasapprovedin2018.Thisamountdoesnotincludedatafromauditsscrutinisingtheclosingaccountsofstatebudgetchapters(seeSectionII.6.2ofthisannualreport)ordataonfinancesassessedsolelyatsystemlevel(e.g.whenauditingstrategicandconceptualmaterialsorprogrammefinancesaspartofauditoftheiradministratorsorintermediarybodies).Thevalueoffinancesauditedatsystemlevelinauditscompletedin2018wasCZK 1,216 billion.

2.DischargeofthenotificationdutypursuanttoActno280/2009Coll.,thetax code

Based on the facts ascertained, the SAO informs the relevant tax administrators of identifiedshortcomingsmentioned in audit protocols and linked to the audited entities’ tax obligations.Specificauditfindingscanbeusedbytheappropriatetaxadministratorstolaunchproceedingsthatcouldleadtoadecisiontoimposeapenaltyforabreachofbudgetarydiscipline.

In 2018, 29notificationsfrom13auditsweresenttotaxadministratorsunderthenotificationduty.Thesenotificationswererelatedtotheadministrationoftaxes.Thetotalfinanciallossquantifiedin these notifications amounted to almost CZK 842 million. The largest aggregate amount ofCZK 737 million was reported on results of an audit designed to checkwhether theMinistryof LabourandSocialAffairs spent statebudget fundsearmarked for theacquisition,operationand development of selected information systems supporting the agenda of disbursement of non-insurancebenefitsandthelabourmarketsystemeconomicallyandeffectively(auditno17/22).

94 AnnualReportfortheyear2018,AssessmentofOtherActivities

IV.AssessmentofOtherActivities

1.Cooperationwiththecriminaljusticeauthoritiesin2018

In2018theSAOfiledelevennotificationsofcircumstancesindicatingthecommissionofacrimepursuanttoSection8(1)oftheCriminalCodeandbasedonfindingsfromsix audits.

In response to the shortcomings found in audit no 17/10 a notification was filed concerningasuspicionofthecrimeofbreachofdutyintheadministrationofentrustedproperty.

In response to the shortcomings found in audit no 17/13 a notification was filed concerningasuspicionof thecrimeofbreachofduty in theadministrationofentrustedpropertyandthecrimeofviolationoftheeconomiccompetitionrules.

Inresponsetoshortcomingsidentifiedinauditno17/17 four notificationswerefiledconcerninga suspicionof the crimeof subsidy fraud, andone notificationof a suspicionof the crimesofbreachofdutyintheadministrationofentrustedpropertyandabuseofoffice.

Inresponsetoshortcomingsidentifiedinauditno17/22 two notificationswerefiledconcerningasuspicionofthecrimeofbreachofdutyintheadministrationofentrustedproperty,thecrimeofviolationoftheeconomiccompetitionrules,thecrimeofnegotiatinganadvantageintheawardofapubliccontract,inpubliccompetitionandinpublicauctions,andthecrimeofabuseofoffice.

In response to the shortcomings found in audit no 17/32 a notification was filed concerningasuspicionofthecrimeofbreachofdutyintheadministrationofentrustedproperty.

In response to the shortcomings found in audit no 17/33 a notification was filed concerningasuspicionof thecrimeofbreachofduty in theadministrationofentrustedpropertyandthecrimeofviolationoftheeconomiccompetitionrules.

It follows from the above that in 2018 the SAOmost frequently filed notifications concernedasuspicionofthecrimesofbreachofdutyintheadministrationofentrustedpropertyandsubsidyfraud.

ThecriminaljusticeauthoritiesrequestedtheSAO’scooperationin17casesin2018.FurthertotheserequeststheSAOprovidedauditmaterialsfrom24audits.In2018theSAOPresidentreleased18 employees from their confidentialitydutypursuant to Section23ofActno166/1993Coll., ontheSupremeAuditOffice,andonthegroundsofimportantpublicinterest.

2.Opinionsondraftlegislationin2018

IninterdepartmentalconsultationundertheGovernment Legislative Rules theSAOgaveitsopinionondraftlegislationtouchingonitscompetencesorconcerningitasastateorganisation.In2018theSAOreceivedforassessmentatotalof137 legislativedraftsandothermaterialsrelatingtolegalregulation.TheSAOissuedspecificcommentson50 drafts,mainlybasedonfindingsfromitsauditwork.

Among the most important legislative drafts commented on by the SAO in 2018 were theGovernmentdraftsofanactonlobbyingandanactonprotectionforwhistle-blowerssubmittedbytheOfficeoftheGovernmentoftheCzechRepublicandonaGovernmentdraftamendmenttotheactonfreeaccesstoinformationsubmittedbytheMinistryoftheInterior.TheSAO’scommentsonthesedraftsweremostlyacceptedbyproposersofthelegislation,butthesedraftswerenotdiscussedbytheGovernmentbeforetheendof2018.

InNovember2018theSAOexpresseditsoppositiontoaParliamentarydeputies’draftofanactontherelocationofcertainGovernmentoffices,includinganenvisagedmoveoftheSAO’sofficesfromPraguetoOlomouc.

AnnualReportfortheyear2018,AssessmentofOtherActivities 95

IntheconsultationprocedureforadraftamendmentoftheGovernmentregulationonsalariesinpublicservicesandadministrationsubmittedbytheMinistryofLabourandSocialAffairstheSAOproposedaddinganewannexdetailingpaytariffsapplicabletoSAOemployees,designedinawaypreventingunwarranteddifferences in thepay of SAOemployees and state employees.Whendealingwiththecommentssubmittedonthedraft,theMoLSAexpresseditsagreementwiththechangeinhowSAOemployeesarepaid,recommendingthatthisissuebedealtwithinthecontextofanamendmentoftheActontheSupremeAuditOffice.

TheSAOalsofiledspecificcommentsonthedraftofanewdecreeoncybersecuritysubmittedbytheNationalCyberandInformationSecurityOffice,ondraftamendmentsofdecreesimplementingthebudgetaryrulesactandontheactonfinancialcontrolsubmittedbytheMoF,andonmaterialssubmittedbytheMoRDconcerningtheapplicationofActno134/2016Coll.,onpublicprocurement.

AsregardsdraftlegislationcommentedonbytheSAOinpreviousyears,theCzechGovernment,at its sessiononDecember 3, 2018, approved adraftact amendingAct no166/1993Coll., ontheSupremeAuditOffice,asamended,andother relatedacts,governing theextensionof theSAO’s competence to audit the management of public finances and finances provided frompublicbudgetsandmanagementof thepropertyof territorialself-governingunits (regionsandmunicipalitieswithextendedcompetence)andthepropertyoflegalpersonsinwhichthestateoraterritorialself-governingunithasamajorityshareofregisteredcapitalorinrespectofwhichtheyarethecontrollingpersons.TheGovernmentsubmittedthedraftacttotheChamberofDeputiesof the Parliament of the Czech Republic on December 20, 2018 (Parliamentary print no 360).However,theGovernmentdidnotsubmitthedraftactamendingArticle97ofConstitutionalActno1/1993Coll.,theConstitutionoftheCzechRepublic,asamended,totheChamberofDeputies,because itagreedwiththedraftsubmitted inJuly2018byagroupofdeputiesfromtheCzechPirateParty(Parliamentaryprintno229)thatcoveredthesameissue.TheGovernmentexpressedaneutralopiniononarelateddeputies’draftactgoverningtheextensionoftheSAO’scompetence(Parliamentaryprintno230).TheChamberofDeputiesdidnotdebateanyofthedraftactsontheextensionoftheSAO’scompetenceduring2018inthefirstreading.

Anotherdeputies’draftamendmentoftheActontheSupremeAuditOffice(Parliamentaryprintno236), containing specific ruleson thepayof the SAOemployees in the formof anewSAOsalarycodeissuedbythepresidentoftheSAOafterapprovalbytheChamberofDeputiesbudgetcommittee,wasnotdebatedeither.

In addition, the legislative process was not completed in 2018 for the act on personal dataprocessingthatadaptsCzechlawtothedirectlyapplicableDirective(EU)2016/679oftheEuropeanParliamentandoftheCouncilontheprotectionofnaturalpersonswithregardtotheprocessingofpersonaldataandonthefreemovementofsuchdata,andrepealingDirective95/46/EC(knownastheGDPR).

3.Internationalcooperation

TheSAO’sinternationalcooperationin2018focusedmainlyonactivitieswithinworkinggroupsof EUROSAI, INTOSAI, the Contact Committee and the European Court of Auditors. Therewasalsobilateralcooperation,mainlywiththeSAIsofGermanyandSlovakia.AstheEUROSAI2020congressdrewnearanditbecamenecessarytoinformtheheadsofotherSAIsonthecongress’svision,thenumberofmeetingsattop(presidential)levelalsoincreased.

TheongoingcooperationwiththeEuropeanSpaceAgency(ESA)intheprovisionofexternalauditcomprisedasignificantpartoftheSAO’sinternationalcooperation(9meetingsintotal).

SAO representatives took part in 54 events abroad, with many of the trips abroad being formeetingsofEUROSAIandINTOSAIworkinggroups(14suchmeetingsintotal).SAOrepresentatives’participation inworkshopsandseminarsabroad(11events)andconferencesabroad(9events)wasanothersignificantpartoftheSAO’sinternationalactivities.


Chart44:NumberandfocusofSAOrepresentatives’tripsabroadin2018

Bilateral coopera�on15%

Workshops, seminars20%

Mee�ngs of the ESA17%

Mee�ngs of working groups(EUROSAI/INTOSAI)

26%

Conferences/Congresses17%

Others5%

SAOpresidentMiloslavKalatookpartinthe49thsessionoftheEUROSAIGoverningBoard,whichtookplaceinGdanskinmid-March.TheSAOhasbeensendingitsrepresentativestothemeetingsof the Governing Board since 2011, when it became the chair of the GT3 working group forknowledgesharing.AsthenextcongressorganiserandpresidentofEUROSAI,theSAOhasbeenamemberoftheGoverningBoardandcoordinationteamsince2017.TheSAOalsoleadsEUROSAIStrategicGoal1onProfessional Cooperation.ThenewEUROSAI Strategic Plan for 2017–2023 wasdiscussedattheGoverningBoard’s49th session.

49th session of the EUROSAI Governing Board, Gdansk, Poland

During 2018 SAO representatives, as part of bilateral cooperation with the Slovak Republic,completedtheself-assessmentprocessfortheSAIofSlovakiausingtheINTOSAIPMFmethodology,in which the SAO participates as an external assessor. A meeting was held in Malacky in mid-March.ThefinalmeetingwasheldinČastá-PapierničkainJune.Duringthismeeting,theSAOpresidenthandedovertheQuality Assurance Statement regarding Self-assessment of the Supreme Audit Office of the Slovak Republic using the MPF MethodologytoPresidentoftheSlovakSAIKarolMitrík.


Anotherimportanteventwasthesessionofsubgroup2oftheINTOSAIworkinggrouponthefightagainstcorruptionandmoneylaundering(INTOSAIWGFACML)focusingonpreparingahandbookcalledAudit of Corruption Prevention in Public Procurement,whichtookplaceinViennainApril.This subgroup’s thirdmeetingwas heldwith a view to discussing the existing and new draftsof parts of the handbook on the audit of corruption prevention in public procurement,whichis tobuildon ISSAI5700elaboratedbythissubgroup.SAOrepresentativespreparedChapter2of thehandbookdealingwith a definitionof public procurement, descriptionof theprinciplesofpublicprocurement,thevariousphasesandtypesofpubliccontractinrelationtotherisksofandpreventionofcorruption intochapter2ofthehandbook,whichfocusesondefiningpublicprocurement.AfourthmeetingofthissubgroupinPragueinOctober2018followedtheViennameeting.

A conferencewith thetitleThe Role of Supreme Audit Institutions in Enhancing Accountability, Transparency and Integrity in the Public SectorheldinSofiainMaywasattendedbySAOpresidentMiloslavKalawithrepresentativesoftheauditsection.TheconferencetookplaceontheoccasionoftheBulgaria’spresidencyoftheCounciloftheEuropeanUnion.AmongthesubjectsdiscussedherewastheroleofsupremeauditinstitutionsinaccessiontalkswithWesternBalkancountries(Serbia, Montenegro, Macedonia and Albania). The SAO also used the conference to presentplansandactivitieslinkedtotheEUROSAICongressinPraguein2020andtheSAO’ssubsequentpresidencyofEUROSAI.

Conference entitled The Role of Supreme Audit Institutions in Enhancing Accountability, Transparency and Integrity in the Public Sector, Sofia, Bulgaria

SAOrepresentativesvisitedtheEuropeanCourtofAudit(ECA)inearlyJune.Thepurposeofthisofficialforeigntravelwastopresentplannedandcurrentactivitieslinkedtothepreparationsforthe SAO’s Presidencyof EUROSAI and for the agendaof the EUROSAI 2020Congress.One keyactivityinthisregardistheBenchmarking Information Exchange Project(BIEP).TheSAOseekstomaketheECAitspartnerinthisactivity.TheadvantageslieintheECA’smandate,whichenablesittocarryoutauditmissions invariousEUMemberStatesandothercountriesandtoperforminternational benchmarking. An outline of the ECA’s active involvement in workshops at theEUROSAI2020Congresswasalsopresentedatthemeeting.


Anotherimportanteventwasthe18thmeetingoftheINTOSAIworkinggrouponenvironmentalauditing,whichwas attendedby SAO representatives in July. Themain goal of themeeting inBandung,Indonesia,wastopresenttheprogressmadeintheprojectsformingthisworkinggroup’sworkplanfor2017–2019.Thekeythemesoftheplenarysessionwere:thequalityoftheurbanenvironment, sustainable useof soil, reports from joint audits and the issueof environmentalauditing. Projects taking place in the 2017–2019 period were also presented at the meeting.During thatperiod theSAOhasbeen leadingaproject calledGreen Cities – Sustainable Urban Development.

18th meeting of the INTOSAI WGEA working group, Bandung, Indonesia

In September, SAO representatives tookpart in theplenary sessionof theContactCommittee– VAT working group, which took place in Warsaw. The main presentations concerned theprocedurefollowedbythetaxadministrationinrollingoutnewmeasurestofightVATevasion,legislativeamendments in thisfield,andassessmentofquestionnaires sent toMemberStates’taxadministrationregardinge-commerceandexperiencefromthefightagainstVATevasion inthepastdecade.Theworkofthevarioussubgroupswasalsopresentedattheplenarysession.ThisworkinggroupwillbechairedbytheSAIofPolandinthecomingperiod.

Anotherimportanteventwasthe16thsessionoftheEUROSAIworkinggrouponenvironmentalaudit,heldinBratislavaattheendofSeptember.Thismeetingwasprecededbyaone-dayseminaronauditinthefieldofclimatechange.Themeetingdiscussedwaystoobtainandanalysedataandincreasetheimpactsofenvironmentalauditwork.

AmeetingoftheContactCommitteetookplaceinDubrovnikinmid-October.Themeetingincludeda seminar on the theme of Interaction with EU Citizens – Opening SAIs.Here,audit institutionsshowcasedinnovativeapproachestheyuseintheirwork.TherewasalsotheannualsummaryoftheresultsachievedbyContactCommitteeworkinggroups.


Meeting of the Contact Committee, Dubrovnik, Croatia

At the turnofOctoberandNovember2018anSAOrepresentative tookpart ina study trip toDelhi,India,dealingwithauditofstate-ownedenterprisesorganisedbytheInternationalCentreforInformationSystemsandAudit.Thiswasthe144thstudytriporganisedbythisinstitutionandtargetingtheuseofIFSandIFRSinternationalaccountingstandards,theexecutionofpublicandprivatepartnershipprojects(PPPprojects)andissueslinkedtotrendsanddevelopmentsinthepublic sector. The study trips organised by the institution take place on amulticultural basis,promotingtheexchangeofideasandexperiences.

Study trip focusing on audit of state-owned enterprises – organised by the International Centre for Information Systems and Audit (ICISA) in Delhi

AttheendofOctoberrepresentativesoftheSAOandSAIofGermanyconductedthe2ndmeetingoftheteamforimplementationofstrategicgoal1:Professional cooperation.TheSG1workinggroupwassetup inresponsetotheEUROSAIstrategicplanfor2017–2023and itsgoal is topromoteeffective and innovative audit methods and simplify the exchange of knowledge, experienceandgoodpracticebetweenEuropeanauditinstitutions.Themainitemsontheagendaweretheupdatingofthegroup’splanofoperationsfor2017–2023,presentationoftheresultsoftheworkdonetodateonvariousissuesandadebateonthefutureofSG1.TheSAOrepresentativesinformedtheircolleaguesofprogressonSAOprojectsthathavebeenanintegralpartoftheEUROSAIplanof


operationssincelastyearandarecontinuingtodevelopsuccessfully.Consequently,BIEPprojects,the hackathon, the database of EUROSAI audits and products and training organised withinEUROSAIwerediscussedinTirana.

2nd meeting of the implementation team of strategic goal 1: Professional cooperation, Tirana, Albania

AmeetingofrepresentativesoftheEUROSAIGoverningBoardwasheldinIstanbulinNovemberwiththetitleGoverning as a Team for the Future.ThemeetingwasorganisedbytheSAIofTurkeytoclarifyopinionsandfutureexpectationswithregardtoteamwork,i.e.howtheGoverningBoardshouldmanageEUROSAIeffectivelyasateam.

A EUROSAI Emerging Issues Workshop wasstagedafterthemeetingof theGoverningBoardtosetoutthenewchallengesauditinstitutionswillfaceinthefuture.TheseminarwasbasedonanonlinesurveyorganisedbytheSAIofFinland.Themesthatrecurredinthesurveysreturnedby190participantswerepresentedattheworkshop.Thistopic,preparedundertheleadershipoftheSAIofFinland,shouldbeoneofthethemesofthe2020CongressinPrague.

TheSAOwasalsoactiveinorganisinginternationaleventsintheCzechRepublicin2018.Outofatotalof25events,mostofthemtookplaceunderbilateralcooperation(12events)inconnectionwith theapproachingEUROSAICongress in2020.Activities involvingcooperationwith theECAwerealsofrequent(7events).

In 2018 the SAOwent aheadwith the BIEP project, sharing informationwith other countries’supremeauditinstitutions.TheauditinstitutionsofFinland,Hungary,Germany,Poland,Portugal,SlovakiaandtheUnitedKingdomandtheEuropeanCourtofAuditorsplayedanactivecooperationroleinthecontextofBIEP.TheSAOsharedinformationwiththeSAIofSlovakia,forexample,whichin2018publishedanalyticalinformationonsocialhousingandareportonpreparednesstoachievesustainabledevelopmentgoals(SDG).InformationexchangeviaBIEPmadeitpossibletoincludeinternational benchmarking in the SAO’s audit reports. During the year, SAO representativespresentedtheresultsofcooperationunderBIEPatseveralinternationaleventsandinvitedothercountriestotakepartintheproject.

ThestructureofinternationaleventsorganisedbytheSAOisshowninChart45.


Chart45:NumberandfocusofinternationaleventsorganisedbytheSAOin2018

Audit missions ECA28%

Bilateral coopera�on48%

Mee�ngs of work. groups8%

Other visits16%

TheregularannualmeetingbetweentheSAOpresidentandambassadorsofEUMemberStatesandrepresentativesoftheMinistryofForeignAffairsandRepresentationoftheEuropeanCommissionintheCzechRepublictookplaceinFebruary.TheSAOpresidentpresentedtheSAO’sinternationalactivities,andinparticulartheSAO’ssuccessatthelastEUROSAICongressheldinTurkeyinMay2017.There, theSAOwasawarded thepresidencyof thisorganisation in2020–2023.TheBIEPprojectand1stpublicadministrationhackathon,whichtheSAOorganisedinautumn2017,werealsopresentedtotheguests.

Meeting of ambassadors of EU Member States and representatives of the MoFA at the SAO

AttheturnofFebruaryandMarch,thepresidentsoftheSAIsofGermanyandtheNetherlandsvisitedtheSAOtosupportitinitspreparationsfortheEUROSAIpresidency.TheSAOpresidentacquaintedbothguestswiththepresidencyvisionandthegoalstheSAOwould liketoachieveduringitspresidency.TheBIEPandpublicadministrationhackathonwerealsodiscussed.

InMarch 2018 the SAO staged a seminar focusing on audit of international organisations andinternationalaccountingstandards.Theaimoftheeventwastoexchangeexperience,demonstratevarioustechniquesforauditinginternationalorganisationsandexplainthebasisoftheuseoftheinternational accounting standards that underpin the accounting of a number of internationalorganisations.ContributionsfromforeignguestsattheseminardealtwithauditsoftheEuropeanSpaceAgency,theEuropeanNuclearResearchCentreandtheUnitedNations.RepresentativesoftheChamberofAuditorsoftheCzechRepublicandthePragueUniversityofEconomicsexplainedtheinternationalaccountingstandards.


Participants in the Audit of International Organisations and International Accounting Standards seminar

AttheendofJune,theSAOwelcomedadelegationfromtheAustrianCourtofAuditheadedbyitsPresidentandINTOSAISecretaryGeneralMargitKraker.Possibleformsofauditcooperationandtheimpactsofauditworkwerediscussedatthemeeting.Datasharingbetweenauditinstitutionsandopendatainpublicinstitutionswerealsodiscussed.

Visit by the President of the Austrian Court of Audit

Basedonpriorexperienceandthelong-standingcooperationonjointaudits,ameetingwasheldattheSAOwithcolleaguesfromtheSlovakSAIinearlySeptember.Atthemeeting,theydefinedthebasicpointsofajointinternationalreportforcoordinatedauditsaimedatsupportingselectedareasofclimate-energypolicywithanemphasisonmaintaining the long-termsustainabilityofpublicrevenues.

InSeptember,Presidentof theBulgarianSAITzvetanTzvetkovvisitedtheSAO.At themeeting,the Bulgarian side discussedwith SAO representatives on financial responsibility in the publicsector.ThepossibilitiesofcooperationontheBIEPprojectwerealsodebated.ThePresidentoftheBulgarianSAIappreciatedtheSAO’sinternationalworkanddescribedtheSAOasaleadingSAIin Central Europe.


Visit by the president of the SAI of Bulgaria

AmeetingbetweenSAOrepresentativesandFederalCourtofAuditorsofGermanytookplaceattheendofSeptember.Thepurposeofthemeetingwastoworkonajointreportontheresultsof a coordinated audit on value added tax. This audit scrutinised the administration of VAT in cross-bordere-commercebetweentradersandconsumers.Atthemeeting,theauditorspaidcloseattention toshortcomings in the legislationor in theprocedure followedby taxadministratorsinthefieldofVATincross-bordere-commerce.

JointassessmentsandrecommendationsforimprovingtheadministrationofVATinthe“MiniOneStopShop”schemewereformulatedandtheresultsofthecoordinatedauditweresummarised.Both audit institutionsplan topublish the joint report on the results of the coordinated auditinspring2019.

Another important event last yearwas an event tomark the 25th anniversary of the foundingof the SAO,whichwas staged in the Liechtenstein Palace at the beginning ofOctober. At thisevent,theSAOwashonouredtowelcomePresidentoftheCzechRepublicMilošZemanandotherprominentpersonalitiesoftheCzechpoliticalsceneandselectedstateinstitutions.TheeventwasalsoattendedbyguestsfromtheSAIsofAlbania,Hungary,Poland,Slovakia,Slovenia,Turkeyandthe ECA.

Event to mark the 25th anniversary of the founding of the SAO (Prague, Liechtenstein Palace)


The 16thmeeting of the Steering Committee of the INTOSAIWorkingGroup on EnvironmentalAuditwasheldattheendofOctober.12environmentalauditprojects,encompassingsustainabledevelopmentgoals,climatechange,airpollution,wastewatermanagementandfoodproduction,for example, were discussed. The participants also said that audit institutions should lead byexampleandbemoreecological.Atthemeeting,theSAOtestedautomatictranslatorstofacilitatecommunicationatinternationalmeetingsandenableparticipantstocommunicateintheirmothertongue.

16th meeting of the Steering Committee of the INTOSAI Working Group on Environmental Audit

4.TheSAO’sworkinrespectofthepublic

4.1ProvisionofinformationpursuanttoActno106/1999Coll.,onfreeaccess toinformation

In 2018 the SAO received ten written requests for information under the terms of ActNo.106/1999Coll.,onfreeaccesstoinformation,asamended(“theInformationAct”).TheSAOdealtwithfiverequestsbyprovidingtherequestedinformationinfull,e.g.informationaboutauditcompetenceandperformedaudits,investments,staffingandinternalregulations.TheSAOshelvedthree requests:onebecause thecommunicated fee foranextraordinarilyextensive search forinformationandcopiesofrequesteddocumentswasnotpaid;onebecausetherequiredadditionalinformation to the requestwasnot supplied; andonebecause the requested informationwasnotrelatedtotheSAO’scompetence.Oneapplicant,havingbeenaskedtosupplytherequiredparticularsaspertheInformationAct,cancelledherrequest,andtherequestedinformationwassubsequentlyprovidedtoherseparatelyfromthetermsoftheInformationAct.Inonecase,theSAO issued a decision rejecting a request in accordancewith Section 14(5) of the InformationAct,as theapplicantdidnotrewordherunclearly formulatedrequestwhencalledontodosobytheSAO.TheSAOPresidentsubsequentlyrejectedtheapplicant’ssubsequentappealagainstthedecisionandupheld thecontesteddecision.Nocomplaintspursuant toSection16aof theInformationActwerefiledagainsttheSAO’sprocedurewhenhandlingrequestsforinformation.Alltherequestsforinformationwereprocessedwithinthestatutorydeadlines.


4.2Citizens’submissions

In 2018 the SAO’s communication division registered 357 written submissions (suggestions,complaints,requests,enquiriesetc.)fromcitizensandlegalentities.Thecontentofallsubmissionsis judged with regard to the SAO’s powers and from the perspective of the possible use ofinformation from the submissions in auditwork. Submissions concerningareas coveredby theSAO’s competence are used as a supplementary information source in the context of relatedplannedauditsandwhenpreparingideasforauditsinthecomingperiod.In2018theSAOreceived132 external suggestions that could be acted on, i.e. 37% of the total number of submissionsreceived. In its auditwork theSAOmainlymadeuseoffindings fromsubmissions focusingonthemanagementofsubsidyfinancesprovidedfromnationalsourcesandEuropeanfundstostateorganisations,territorialself-governingunitsandotherbeneficiaries;56submissions,i.e.40%oftheusableexternalsuggestions,concernedthisarea.

Chart 46: Overview of the total number of submissions and their usability for audit work, 2010–2018

316 329

469497 504

564

447

319357

117 125182

137168

205149

101132

2010 2011 2012 2013 2014 2015 2016 2017 2018

Total number of submissions Usable submissons

Mostcommunication–over60%ofsubmissions–fromcitizenstotheSAOin2018wasagaininelectronicform,primarilye-Post,databoxandtheWrite to us applicationontheSAOwebsite.

Chart 47: Breakdown of submissions in 2018 by manner of delivery and their usability

129

9

166

183542

3

62

10 15

mail personally e-mail data box web applica�on

delivered of which usable


5.ManagementoffinancesallocatedtotheSAObudgetchapterin2018

5.1ImplementationofmandatoryindicatorsoftheSAObudgetchapter

Theapprovedbudgetchapter381–Supreme Audit Office for2018wassetbyActno474/2017Coll.,onthestatebudgetoftheCzechRepublicfor2018.

Table7:Overviewoftheimplementationofdefinedmandatoryindicatorsin2018(CZKthousand)

Approved budget

Budget after

changes (BC)

Final budget (FB)

ActualImplemen-

tation (BC)in%

Implemen- tation

(FB)in%

Summaryindicators

Totalrevenues 1,013 1,013 – 2,289.73 226.12 –

Totalexpenditure 678,017 678,017 856,091 575,725.23 84.91 67.25

Totalnon-taxrevenues,capitalrevenuesandreceivedtransfers 1,013 1,013 – 2,289.73 226.12 –inwhich:

TotalrevenuesfromtheEuropeanUnionbudgetwithouttheCommonAgriculturalPolicy 616 616 – 311.91 50.67 –Total miscellaneous non-taxrevenues, capitalrevenuesandreceivedtransfers 397 397 – 1,977.82 498.19 –

Specificindicators–expenditure Expenditureonperformance oftheSAO’sduties 678,017 678,017 856,091 575,725.23 84.91 67.25Cross-cuttingindicators

Staffpayandotherpayments forworkdone 309,681 309,681 312,333 311,202.87 100.49 99.64Obligatoryinsurancepremiumspaidbytheemployer 105,291 105,291 106,193 105,412.39 100.11 99.26Transfertotheculturalandsocialneedsfund 5,703 5,703 5,756 5,752.81 100.87 99.94Salariesofemployeesonly 285,160 285,160 287,813 287,680.97 100.88 99.95PaytoemployeesincivilservicepositionspursuanttotheActontheCivilServiceTotalexpenditureco-financedinfull or in part from the European UnionbudgetwithouttheCommonAgriculturalPolicy 1,231 1,231 1,231 902.88 73.33 73.33inwhich:

fromthestatebudget 616 616 616 451.44 73.33 73.33shareoftheEUbudget 616 616 616 451.44 73.33 73.33

Totalexpenditureheldin EDS/SMVSprogrammefinancinginformationsystem 177,790 177,790 350,615 80,874.42 45.49 23.07


Revenues

ActualrevenuesintheSAObudgetchapterwereCZK 2,289,730,i.e.226.12%overtheapprovedbudgetrevenuesCZK 1,012,600.

Expenditure

The approved expenditure for the budget chapter was CZK 678,016,930; actual expenditurewasCZK 575,725,230, i.e.84.91%of thebudgetedfigure.Savings frompreviousyears totallingCZK 178,074,480 were included into the budget, making the total budgeted expenditureCZK 856,091,410 and was drawn to 67.25%. The biggest expenditure item (CZK 422,368,080,i.e.77.98%)isrepresentedbyexpendituresonsalariesandotherpaymentsforworkperformed(includingexpendituresonsalariesofSAOrepresentatives)andrelatedexpenditures,i.e.statutoryinsurancepremiumsandthecontributiontotheCulturalandSocialNeedsFund.

AllthemandatoryindicatorsoftheSAObudgetchapterwerefulfilledin2018.

Chart48givesanoverviewofexpenditureinbudgetchapter381–Supreme Audit Office from 2014 to2018.TheapprovedbudgetgrewbyCZK177,224,000from2014to2018.Themainreasonforthegrowthinthebudgetarefundsforsalaries,includingcontributions,whichgrewbyCZK88,858,000between2014and2018,andfundsofCZK121,000,000ontheconstructionofaheadoffice in2018.

Chart 48: Overview of expenditure in budget chapter 381 – Supreme Audit Office according to theapprovedbudgetandimplementationofthebudgetfortheyears2014–2018

500.39518.20 500.84 518.78

678.02

435.44472.92 496.11 504.12

575.73

2014 2015 2016 2017 2018

Budget Reality

5.2 Claims from unused expenditure

ClaimsfromunusedexpenditurestoodatCZK161,105,550asatyear-end2018.ClaimsamountingtoCZK178,074,480werefactoredintothebudgetin2018.

5.3Expenditureonassetreplacementprogrammefinancing

BudgetfundswerespentontheimplementationofProgramme18101–Development and Renewal of the Material and Technical Resources of the Supreme Audit Office from 2011, specificallyoninformationandcommunicationtechnologies,onassetreplacementandconstructionofaheadoffice.AtotalofCZK80,874,420wasdrawndown.


5.4InformationonexternalauditsintheSAO

TheauditslistedbelowwereperformedintheSupremeAuditOfficebyexternalbodiesin2018:

• OnMay 22, 2018 the City of PragueHygiene Authority performed two inspections in thepersonneldivisionfocusingon:

– fulfilment of the obligations imposed on enterprises providing a catering service byRegulation(EC)no852/2004oftheEuropeanParliamentandoftheCouncilonthehygieneof foodstuffs, Regulation (EC) 178/2002 of the EP and of the Council laying down thegeneralprinciplesandrequirementsoffoodlaw,establishingtheEuropeanFoodSafetyAuthority,Actno258/2000Coll.,ontheprotectionofpublichealthandamendingcertainrelatedacts,andActno110/1997Coll.,onfoodstuffsandtobaccoproductsandamendingcertainrelatedacts;

– fulfilmentoftheobligationsimposedonprovidersofchildcareservicesforachildren’sgroupofupto12childrenbySections8and15ofActno247/2014Coll.,ontheprovisionof child care services and amending certain related acts, and implementing Decreeno281/2014Coll.,andSection50ofActno258/2000Coll.,ontheprotectionofpublichealthandamendingcertainrelatedacts,asamended.

Theinspectionrevealedthatnoshortcomingscontraveningtheapplicablelegislationonpublichealthprotectionwerefound.

• On October 3, 2018 the Fire Rescue Corps of the Hradec Králové Region performed aninspectionattheSAOregionalofficeinHradecKrálovéon“compliance with the obligations laid down by the fire safety regulations in the scope defined by Sections 4, 5, 6, 15, 16 and 16a of the Act on Fire Safety and obligations stemming from the related regulations”.Itconcluded:“No shortcomings in terms of fulfilment of the obligations stemming from the Act on Fire Safety were found by the inspection.”

• OnNovember14and15,2018theBulovkaHospital’sCentreforPreventiveCareperformedaninspectionoftheSupremeAuditOffice’sheadofficeanditstrainingcentre(inspectionofworkplaceequipment–partofworkplacemedical services).The inspection revealed thatthe overall working environment and provision for employees’ needs at work are fullysatisfactoryattheaforementionedworkplaces.

• OnNovember30,2018thePrague-basedRegionalHygieneAuthorityoftheCentralBohemianRegion performed an inspection of compliance with the requirements of Regulation (EC)No852/2004oftheEPandoftheCouncilonfoodstuffshygieneandActno258/2000Coll.,on theprotectionof public health and amending certain related acts, as amended, at thePřestavlkytrainingcentre.Noshortcomingswerefoundbytheinspection.

• From August 27 to October 12, 2018 the National Cyber and Information Security OfficeperformedapenetrationtestattheSupremeAuditOffice.Thepurposeofthetestingwastodetectvulnerabilitiesthatcouldresultinthesystemorwebapplicationsbeingbreachedandweredetectable fromoutsideusingresourcesusedbyahacker.The test detected certain errors in the system and services, but these errors were not serious in nature. The measures adopted to eliminate them will be implemented in the 1stquarterof2019.

5.5 Mandatory audit

Theannualfinancial statementsof theSAOwereauditedbyanauditorwithin themeaningofSection33(3)ofActno166/1993Coll.,ontheSupremeAuditOffice,asamended.Accordingtotheauditor’sstatement,“the financial statements present a true and fair view of the Supreme Audit Office’s assets and liabilities as at December 31, 2018 and its expenses and revenues and profit/loss and receipts and payments for the year ending December 31, 2018 in accordance with the Czech accounting regulations”.


6. Internal audit

ThefundamentallegalandregulatorynormsgoverningtheworkoftheInternalAuditDepartmentin2018wereActno320/2001Coll.,onfinancialcontrolinpublicadministrationandamendingcertainacts (ActonFinancialControl),Decreeno416/2004Coll.,which implementsActNo.320/2001Coll.,andtheInternational Professional Practices FrameworkoftheInstituteofInternalAuditors.

TheInternalAuditDepartmentisorganizationallyseparatefromthemanagementandexecutivestructures, and functionally independent and reporting directly to the SAO President. Thisdepartmenthas4systemisedpostsandtheconvertedaverageannualnumberofemployeeswhoperformedinternalauditin2018was4.82.

The Strategy of the Internal Audit Department for the Years 2016–2018 forms the basis of theInternalAuditDepartment’sworkin2018109,whichwasapprovedbytheSAOPresidentonJanuary2,2018.ThemainmaterialsunderpinningtheauditplanwereasummaryanalysisoftheSAO srisks, includingrisks identifiedby internalaudit,andtheaudituniverse110.Theannualplanwasalso based on themedium-term internal audit plan for 2016 to 2018, on the results of auditsperformedattheSAObyexternalauthorities,theresultsofpreviouslyconductedinternalaudits,the fulfilmentofobligationsstemming fromtheActonFinancialControland theActonCyberSecurity111andtheInternalAuditDepartment’scapacity.

Basedontheapprovedauditplanfor2018,theInternalAuditDepartmentconductedsixaudits.

Table 8:

Numberofapprovedinternalauditsintheauditplanfor2018

Numberofcompletedinternalauditsaccordingtotheplan

for 2018

Numberofcompletedinternalauditsthatwerenotpartofthe

plan for 2018

6 6 0

Whencompiling theprogrammesof individual audits and selectinga sampleofoperations foraudit,themaintargetswere:

• the design ofmanagement and controlmechanisms in the SAO’s operations and financialactivities;

• assessmentofthelevelofcomplianceofactivitieswiththelegislativeandinternalregulations;• state of implementation ofmeasures adopted to remedy shortcomings found by previous

internalaudits;• specifying the criteria of economy, efficiency and effectiveness with regard to the

implementationoftheapprovedSAObudget;• possibleriskslinkedtotheauditedareasandtheirpotentialimpacts.

Theinternalauditsmainlyscrutinised:

• auditwork’scompliancewithinternationalstandards112;• theactualstateofimplementationofrecommendationsandmeasuresdesignedtoremedy

shortcomingsidentifiedininternalauditsperformedintheyears2016–2018;• thefunctioningandeffectivenessoftheinternalcontrolsystem;• drawdownoffundsfromselectedbudgetitemsofauthorizingofficers;

109 Filecode241/18-NKU70/6/18.110 AudituniversemeansthelistofallpossibleinternalauditsthatcouldbeperformedintheSAO.111 OnceayeartheInternalAuditDepartmentshouldscrutinisee.g.theeffectivenessoftheinternalauditsystemonthebasisof

Section30(7)ofActno320/2001Coll.and,inaccordancewithSection3(1)(f)ofDecreeno316/2014Coll.,auditcybersecuritypursuanttoSection15.

112 The International Professional Practices Framework.Publishedby:TheInstituteofInternalAuditors.


• activitiesrelatedtoanewSAO sheadofficebuilding;• compliance with the relevant provisions of Act no 181/2014 Coll., on cyber security and

amendingcertainacts(ActonCyberSecurity).

The results of audits completed in 2018were discussedwith themanagement of the auditeddepartmentsandunits.Theirfindingsdeliveredaddedvalue insuggestionsforamendmentstocertain internal regulationsormethodologies toalign themwith the legislation, in listingareasof risk,detectingerrorsorconfirmingthat theselectedauditedprocessesare inplaceandaresufficientlyfunctional.

Shortcomingswereidentifiedmainlyinthefieldsofcybersecurityandpersonaldataprotection.

Fromtheperspectiveoftheperformedinternalaudits,thereisnoindicationthattheSAOfinancialstatementsdidnotgiveatrueandfairviewofthesubjectofaccounting.In2018theInternalAuditDepartmentfoundnoshortcomingswithasignificantrisk113forthemanagementofpublicfunds.

Relevant and specificmeasureswithtime limits for their implementationwereadopted for alltheshortcomingsidentifiedduringtheinternalauditwork.Theimplementationoftheadoptedmeasures is regularly monitored and assessed by the Internal Audit Division. The approvedmeasureswithadeadlineofDecember31,2018wereexecutedbytheresponsibleemployees.

TheperformedinternalauditsproducednoseriousfindingswithinthemeaningofSection22(6)oftheActonFinancialControl.Nocorruptionorfraudwasdetected.

Inaddition,throughout2018theInternalAuditDepartment:

1. performedconsultationworkandmethodologicalwork,primarilyinthefollowingareas:

– riskmanagement; – contractualrelations; – cybersecurity; – implementationofmeasures; – publicprocurement; – personaldataprotection;

2. organised:

– trainingforinternalauditors; – the Corporate Governance conferenceheldattheSAOonSeptember20,2018.Themain

themewascompanymanagementandauditfromtheperspectiveofbothexternalandinternalaudit.Thiswasthefifthyearofthemeetingofrepresentativesofthemaincontrolandaudit institutionsof theCzechRepublic,which theSAOorganiseswith thehelpoftheMoF,theChamberofAuditorsoftheCzechRepublic,theCzechInstituteofInternalAuditorsandthePublicAuditOversightBoard;

3. cooperated:

– withtheexternalauditfirmAGISaudit,a.s.,forthepurposeofauditofaccountingandfinancialreportsandtheannualfinancialstatementsoftheSAOfor2018totheextentnecessaryforverifyingtheeffectivenessoftheinternalauditsystem.

– withtheGovernmentrepresentativeforinformationtechnologiesanddigitisationandwithauthorisedexpertsfromtheGovernmentCouncilforInformationSocietytocooperateonthe Digital Czech Republic programme;

4. analysedtheresultsofexternalauditsattheSAO.

113 The InternalAuditDepartmentuses a classificationof findingsdividing them intohigh, intermediate and low significance.FindingswithhighsignificancerepresentshortcomingsthatcanimpactontheSAO’sfurtherexistence,jeopardisetheSAO’sfinancialsituationandhasafundamentalimpactonthefunctionalityoftheinternalauditenvironment;theyarefundamentalsystemicshortcomingsinaparticularareaormayinvolvebreachesofthelegislation.


OnFebruary5,2019SAOPresidentMiloslavKalatookoverandsignedtheAnnual Report on the Results of Internal Audit for 2018114. Thisreportcontainsthefollowingdeclarationoninternalaudit:“Based on the results of the audits, we declare that in the selected areas of the internal operational and financial management of the SAO in the audited period the design of management and control mechanisms was proportionate and effective, with the exception of shortcomings of intermediate and low significance. However, these identified shortcomings were not of such a nature as to materially affect the performance of financial management and the functionality of the internal audit system. They shall support improving the quality of the control environment, updating and complying with internal regulations, employee training, and the protection of the SAO’s legitimate rights and interests.”

The InternalAuditDepartment’sQuality Assurance and Improvement Programme encompasses bothinternalandexternalauditinlinewithInternationalStandardfortheProfessionalPracticeofInternalAuditingno1310.AnexternalqualityassessmentwithinthemeaningofStandardno1312115wasperformedbytheSAOattheendof2014.TheInternalAuditDepartmenthasplannedtoperformanotherexternalassessmentbytheendof2021116.

7.SAOstaffing

In2018,theSAOhad467employees117,323ofwhomworkedintheauditsection,i.e.69.16%ofthetotalregisteredaveragenumberofSAOemployeesin2018.45newemployeeswerehiredin2018and19othersreturnedtoworkafterparentalleave.48employeesendedtheiremployment.Thefluctuationratein2018was7.26%.Chart49showshowtheannualemployeefluctuationrateevolvedintheSAOfrom2011to2018.

Chart49:DevelopmentoftheannualemployeefluctuationrateoftheSAO,2011–2018

7.8%

5.8% 5.8%

8.2%6.8% 7.3%

3.7%

7.3%

2011 2012 2013 2014 2015 2016 2017 2018

The converted average number of SAO employees for 2018 was 460; the converted averagenumberofemployeesintheauditsectionfor2018was317.Chart50showstheconvertedaveragenumberofSAOemployeesandemployeesofthePragueandterritorialdepartmentsforthe2008to2018period.

114 Filecode152/19-NKU70/34/19.115 “External assessment must be done at least once every five years by a professionally competent and independent external

assessor...”116 InconnectionwiththestagingoftheEUROSAIXICongressinPragueonMay31–June4,2020.117 Averageregisterednumberofemployeesfor2018.


Chart 50: Development of the converted average number of SAO employees, 2008–2018

437463 466 463 462 464 462 464 460 457 460

297327 332 328 329 328 329 341 345 348 355

140 136 134 135 133 136 133 123 115 109 105

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Num

ber

Total number Prague Territorial departments

Chart51showsthedurationofSAOemployees’employmentasatDecember31,2018.13.32%ofthetotalnumberofemployeeshadbeenemployedbytheSAOforlessthantwoyearsasatthatdate.20.08%ofthetotalworkforcehadbeenemployedbytheSAOforover20years.

Chart51:DurationofSAOemployees’employmentasatDecember31,2018(%)

13% 14% 21% 19% 13% 20%Year 2018

Up to 2 years Up to 5 years Up to 10 years Up to 15 years Up to 20 years Over 20 years

TheSAOoffers itsemployeesequalworking conditionsandopportunities.Chart52 shows theproportionofmenandwomenemployedattheSAOin2018.

Chart52:ProportionofmenandwomenemployedattheSAOin2018(%)

38%

62%

Men

Women

Chart53 shows theproportionofmenandwomen inmanagementpositions in theSAOasat31December2018.


Chart53:ProportionofmenandwomeninmanagerialpositionsattheSAO, stateasatDecember31,2018(%)

54%46%Men

Women

TheaverageageofSAOemployeesin2018was47.TheagestructureoftheSAOworkforceasat31December2018,includingacomparisonwiththeyears2008–2017,isshowninChart54.

Chart 54: Age structure of SAO employees for the 2008–2018 period (comparisonofthestatesatyear-end)

14%

17%

15%

12%

11%

9%

9%

10%

9%

10%

10%

21%

21%

22%

25%

25%

27%

29%

29%

29%

26%

24%

24%

24%

24%

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2011

2012

2013

2014

2015

2016

2017

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21–30 years 31–40 years 41–50 years 51–60 years 61 years and over

84.57%oftheSAO’sworkforcewereuniversity-educatedasatDecember31,2018.Chart55breaksdowntheeducationalstructureofSAOemployeesasatDecember31,2018.


Chart55:QualificationstructureoftheSAOworkforcebyeducationalattainment as at December 31, 2018

85%

12%

3%

University graduates

Secondary School Cer�ficate

Appren�ceship Cer�ficate

Labour-law,wageandotherdemandsofSAOemployeesweresatisfied inaccordancewith thevalidcollectiveagreement.

Training and development

Training isan important tool fordevelopinghumancapitalat theSAO.Basedon the identifieddevelopmentneedsoftheSAO’sspecialiseddepartmentsandunits,diversetrainingactivitiesareprovidedinordertoimproveemployees’professionalknowledgeandskillsaspartoftheSAO’ssystematictrainingsystem.

Creatingacomprehensivesystemofprofessionaltrainingmakesitpossibletoplaceexactdemandsontheknowledge,skillsandexperienceofemployees,bothintheauditsectionandelsewhereattheSAO.Specialisedprogrammesofferingawiderangeoftrainingoptionsforacquiringnecessaryknowledgeandskillsinadditiontoemployee’squalificationsarepartoftheprofessionaltrainingsystem.

Training programmes aremainly handled by internal instructors, who share their professionalknowledgeandskillsand,aboveall,experience.Thismakestheinstructorskillscourseevenmoreimportant.

Initialtrainingfornewemployeestakestheformofseminarsandlecturescombinedwithuseofnewtechnologies.

As the SAO’s international position is strengthening, regular language tuition focusing onprofessionalterminologyhasbecomeanintegralpartoftraining.

ThestructureofSAOemployeetrainingbysectionsin2018isshowninChart56.

Chart56:SAOemployeeparticipationintrainingactivitiesin2018

73%

17%

10%

Audit Sec�on

Administra�ve Sec�on

Other Departments


8.OrganisationalstructureoftheSAO

PodrobnáorganizačnístrukturajedostupnánawebovýchstránkáchNKÚ.

SAO BOARD

SAOPresident SAOMembers SAOVice-President

BoardSecretary

BoardSecretariat OfficeoftheVice-President

Officeofthe SAO President

• runbytheDirectoroftheOfficeoftheSAOPresident;• theDirectorcoordinatestheworkofemployeesunderthismanagementauthority;• coordinates,asinstructedbytheSAOPresident,theworkofmanagementemployees

subordinatetotheSAOPresident;• identifiesandassessestheOffice’sneedsinthefieldofinternationalcooperation.

AdministrationSection

AuditSection

Security Department

Internal Audit

Department

• runby theSeniorDirectorof theAdministrative section,who coordinates thework oftheunitsunderhismanagementauthority;

• submits to the SAO President proposals for the section’s internal organisationalstructureandisresponsiblefortheOffice’sworkinginmaterial,operational,technical,andeconomicterms.

• run by the Senior Director of the Audit section, whoworks with SAOMembers toensurethatauditsachievetheirobjectivesandtakeplaceaccordingtothetimetable;

• departments of the Audit Section (departments 510-580, based in Prague, and9 territorialdepartments)performauditatauditedentitiesbasedontheauditplanandwithinthescopelaiddownbytheSAOorganisationalrules.

• carriesouttasksbasedontheregulationsontheprotectionofclassifiedinformation;• keepstheprescribedrecordsofclassifieddocuments;• carriesouttasksrelatingtobuildingsecurityandtheoperationofsecurityfacilitiesand

tasksinthefieldofoccupationalhealthandsafetyandfiresafety.

• carriesout internalaudit in theSAOaccording tomedium-termandannual internalauditplans;

• drawsupresultingreportsfortheSAOPresident;• performsconsultingandmethodologicalworkwithin the scopeof itsauthorityand

implementsinternationalstandardsinitswork.

116 Annex1totheSAOAnnualReportfor2018

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I.notes:

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asc

ontained

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63Nov

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TheCo

mmittee

notes:

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asc

ontained

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5/17;

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form

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asc

ontained

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1081

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mmittee

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; b)M

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asc

ontained

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mmittee

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ontained

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134 AnnualReportfortheyearfor2018,Listofabbreviations

Listofabbreviations

ACT-J Anti-infectiveforsystemicuseASCO ArmyServiceContributoryOrganisationBIEP BenchmarkingInformationExchangeProjectCustomsAdministration

oftheCzechRepublicBUH BrnoUniversityHospitalCMH Central Military HospitalConcept 2020 ConceptofSupportforYoungPeople2014–2020CR CzechRepublicDESI DigitalEconomyandSocietyIndexEEA European Economic AreaECA EuropeanCourtofAuditorsEIA EnvironmentalImpactAssessmentEIS EuropeanInnovationScoreboardEP European ParliamentESA EuropeanSpaceAgencyEU EuropeanUnionEU28 28EuropeanUnionMemberStatesEU/FM EUfundsandfinancialmechanismsoftheEuropeanEconomicAreaEUROSAI EuropeanOrganisationofSupremeAuditInstitutionsFEF FurtherEducationFundGDP grossdomesticproductGFD GeneralFinancialDirectorateGJ gigajouleICT informationandcommunicationtechnologiesINTOSAI InternationalOrganisationofSupremeAuditInstitutionsIS informationsystemKGOE kilogramofoilequivalentMoRD MinistryforRegionalDevelopmentMFE MilitaryForestsandEstatesMoA MinistryofAgricultureMoC Ministry of CultureMoD Ministry of DefenceMoE MinistryoftheEnvironmentMoEYS MinistryofEducation,YouthandSportsMoF MinistryofFinanceMoFA MinistryofForeignAffairsMoH Ministry of HealthMoI Ministry of the InteriorMoIT MinistryofIndustryandTradeMoJ MinistryofJusticeMoLSA MinistryofLabourandSocialAffairs

AnnualReportfortheyear2018,Listofabbreviations 135

MoT Ministry of TransportMUH MotolUniversityHospitalNIMH NationalInstituteforMentalHealthNPWP negotiatedprocedurewithoutpublicationOP operationalprogrammeOP EIC OperationalProgrammeEnterpriseandInnovationforCompetitivenessOP Emp OperationalProgrammeEmploymentOP Env OperationalProgrammeEnvironmentOP F OperationalProgrammeFisheriesOP PGP OperationalProgrammePrague–GrowthPoleOP T OperationalProgrammeTransportOP TA OperationalProgrammeTechnicalAssistancePCBulletin PublicContractsBulletinPC IS publiccontractsinformationsystemPJ petajoulePM particulatematterPMF performancemeasurementframeworkPwC PricewaterhouseCoopersR&D researchanddevelopmentRDI research,developmentandinnovationRDP RuralDevelopmentProgrammeRMD RoadsandMotorwaysDirectorateRTA RailTrackAdministrationSAI supremeauditinstitutionSAIF StateAgriculturalInterventionFundSAO SupremeAuditOfficeoftheCzechRepublicSEF StateEnvironmentalFundSHDF StateHousingDevelopmentFundSG1 EUROSAIstrategicgoal1for2017–2023STIF StateTransportInfrastructureFundSTIIS StateTreasuryIntegratedInformationSystemUN UnitedNationsVAT valueaddedtaxWD WaterwaysDirectorateWGEA INTOSAIworkinggrouponenvironmentalauditWGFACML INTOSAIworkinggrouponthefightagainstcorruptionandmoneylaundering

Issued by the Supreme Audit Office

in 2019

MARCH 2019

ANNUALREPORT

2018

Czech Republic | Supreme Audit Office | Annual Report 2018

Annual Report for the year 2018 - NKÚ

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