- State Audit Office of Latvia - http://www.lrvk.gov.lv/en/ -

Annual reports of ministries and key authorities reveal that the funds allocated to national development do not achieve its goals

The State Audit Office has completed the annual audits on the correctness of the annual reports of state authorities and informs about unacceptable trends in the planning and spending of the funds for national development.

Out of the randomly audited 30.6 million euro, at least 9 million euro was spent incompliant with its initial goal in 2018. There is a need for a political decision to change the usual approach in the absence of funding when the funds allocated for national development are kept at the disposal of a department, which is allowed to spend it on the current needs. There is also a need for a political will to decide on changing the principles of remuneration in public sector finally, since the only improvement in 2018, that is, to determine a position of the judge as the best-paid legal profession in public sector, has not reached its goal.

When auditing the annual reports, the State Audit Office primarily assesses the correctness of accounting. The year 2018 shows that the quality of accounting and annual reporting in the state authorities has not changed and is at a satisfactory level if compared to previous years.

The critical situation in planning and spending the funds for national development

In addition to the correctness of accounting during the financial audits, the State Audit Office also performs so-called compliance audits by assessing whether the properly accounted financing has been spent by the purpose, for which it was requested, regulatory enactments, and the intended result. The result of those audits prompts the State Audit Office to sound an alarm and call on the responsible officials to turn their decisions and actions towards the public interest.

The State Audit Office randomly audited and provided 50 opinions on compliance issues and concluded in at least 50% of cases that immediate action was required to remedy the problems or to reassess the expediency of the continued measure urgently.

A particularly critical situation is found in the planning and spending the financing for national development with major problems established in 88% of the cases including the fact that at least 9 million euro has been spent incompliant with the initially declared goals. Development spending consists of an additional state budget allocation to the departments for the implementation of the priorities every year that the government has recognised as being essential and immediately feasible even in the absence of funding at the expense of tightening the belt in other sectors.

Such a situation is unacceptable because the authorities engage in a kind of competition to receive additional public funding for the priority needs of industries every year. Funds are not enough for all the needs, so the applications of authorities (industries) are evaluated and compared. However, such an assessment is done only during the budget drafting process. This creates advantages to those authorities, whose “headlines” of additional funding requests are impressive enough, thus preventing the government not to grant that funding. For example, how could one not allocate additional funds to out-of-family support centres, the protection of children’s rights, the procurement of armaments for the agencies of the Ministry of Interior, etc.?

The authorities that have received additional funding during the year often realise that spending those funds is impossible due to one reason or another; they have been over-demanded or are simply unnecessary because the priorities have changed. Hence, they suggest the government to decide on the reallocation of those funds. The government does not analyse this reallocation in terms of national priorities anymore. Therefore, basically, neither the priority goals originally set nor the priorities of other industries are financed, which previously did not receive funding in the competition for development spending, but could have been financed. In most cases, the funding is left in the original department, and it is spent on repairs to the premises of that authority, purchases of fixed assets, increase in remuneration, and other current needs.

Officials should be aware that, in doing so, for example, the possibility of financing such publicly significant measures as the improvement of the existing housing stock, the implementation of organised crime prevention and combating plan, the development of teaching aid for general competency-based education, etc. was denied in 2018.

Moreover, such an approach essentially allows circumventing the state budget planning and evaluation procedures stipulated in the regulatory enactments, as the measures to be financed are not assessed with a single approach by choosing the most important national priorities.

The State Audit Office considers that there is a need for a political decision to change the usual approach to leave unused financing at the disposal of the department under the conditions of insufficient fiscal space and to prevent its reallocation to other activities within the departments without conducting a repeated comparative assessment.

A reform of the single remuneration system should be launched at last

The results of financial audits carried out by the State Audit Office illustrate the fact repeatedly that the principle of single remuneration in public administration is still not working and there is no purposeful progress observed towards the adjustment of the remuneration system.

This year marks ten years since the State Audit Office called for the remuneration system of remuneration be adjusted in public administration. In ten years, the responsible authorities, the Ministry of Finance and the State Chancery, have carried out studies, prepared informative reports, and found working groups. Since 2018, the hot-potato issue has come under the sole charge of the State Chancery.

However, one must still conclude that the actual salary received by the officials (employees) of the authorities depends on the amount of baseline spending historically allocated to the authority and the consequent possibilities to use the employees’ motivation tools provided for in the Law on Remuneration widely. Richer ministries pay benefits, bonuses, cash prizes while poor ministries bear with a monthly salary or a small raise.

In 2018, the only activity carried out by the State Chancery was the execution of the decision of the Constitutional Court of Latvia, namely, the Remuneration Law was amended to ensure that salaries of judges correspond to the principle of separation of powers by providing among other things that the remuneration of judges is higher than that of prosecutors.

In the course of financial audits, the State Audit Office was forced to conclude that those amendments to the Law have also not reached their goal. Since only an issue of one industry is solved instead of reviewing the remuneration system in its entirety, the balance requested in the decision of the Constitutional Court of Latvia is still disrupted by the statutory benefits to prosecutors, which judges do not have.

The State Audit Office has found that the annual remuneration of a prosecutor can exceed the remuneration of a judge by more than 10 thousand euro due to those benefits. The annual remuneration of several senior prosecutors of the General Prosecutor’s Office has exceeded not only the annual remuneration of the judges of the Supreme Court but also the annual remuneration of the Chief Justice of the Supreme Court.

The State Audit Office calls on the State Chancery to act purposefully and start the reform of the single remuneration system finally taking into account the lessons learned.

The audits of 26 annual reports resulted in 89 recommendations provided by the State Audit Office.