Misrepresented or unaccounted state and municipal property worth at least 1.7 billion euros, including peat bogs, sand, and gravel deposits that are being developed at the same time where somebody is making a profit. The value of the state guarantees was reduced by 33.8 million euros unduly.
Shortcomings in government debt management, which can lead to higher debt servicing costs with a negative impact on the fiscal space. The State Audit Office discovered such findings when carrying out due diligence in public finance accounting. These and other facts resulted in the audit report of the State Audit Office on the financial year 2018, which describes the performance and financial position of the state and local governments as of 31 December 2018, being classified in the category of opinion with reservations.
There is an urgent need to marshal the state guarantee and debt discharge accounting
With state budget spending increasing year by year, already reaching 10.75 billion euros in 2018, the public is right to demand more and more comprehensive information about where and how taxpayers’ money is being spent. During 2018, the State Audit Office received many applications containing information that causes the suspicion that the management of public authorities had not provided the auditors with complete accounting data and had not registered all transactions in previous years consciously or unconsciously. Therefore, the State Audit Office audited specific assets of the state randomly and engaged foreign experts to examine specific issues regarding the management of the national debt in this year’s audit.
In the light of the previously mentioned, the State Audit Office concluded that the 12 billion euros included in the report either were misrepresented or could not be ascertained, including 7% of the value of the State’s balance sheet assets or everything that the state-owned.
The State Audit Office believes that the deficiencies in the accounting and management of public finances found in the audit not only prevent to obtain a true view of the state’s financial position but also threaten the reputation of Latvia as a Member State of the European Union (EU) and the Organisation for Economic Cooperation and Development (OECD).
“The State Audit Office urges the Ministry of Finance to arrange both the accounting of state guarantees and government debt payments and other issues affecting the general report of the state urgently. If the responsible officials do not follow the recommendations of the State Audit Office and do not act, the State Audit Office will most likely refuse to give an opinion on the State’s annual report for this financial year and call the said officials to take responsibility for the consequences,” stressed Auditor General Elita Krūmiņa.
There are many discrepancies in the accounting and spending of the funds of ministries and local governments
Until the end of 2018, peat bogs, sand and gravel deposits under the supervision of the Ministry of Agriculture were not accounted at all, and the Ministry included them in the balance sheet only after the reproof of the State Audit Office. At the same time, the Ministry has reduced the value of those mineral resources 58 times over three months, from 3.8 billion euros to 65 million euros. Such changes in the value of assets are unlikely. Thus, the State Audit Office has launched a separate legality audit in the Ministry of Agriculture regarding accounting and mining of subsoil assets. Similar miscounting of resources was also found in the Ministry of Transport and local governments.
In addition to financial accounting and management issues, the State Audit Office also assessed the compliance of institutions’ functioning with laws and regulations and the use of funding by the purpose of granting the latter during the audit. Out of the six compliance issues audited, modified opinions were issued, or significant irregularities were found in five cases.
The State Audit Office established during the audit that one-third of the budget financing, initially intended for major improvements and national development priorities, was not used for the objectives mentioned above, but still remained at the disposal of the ministries. Therefore, in this audit, the State Audit Office issued a negative opinion regarding the planning and use of national development resources. There were 9.4 million euros out of the development spending audited totalling to 30.6 million euros, which had been identified as national priorities, not used for initial purposes but were reallocated during the year to routine needs such as salaries of civil servants, repairs, etc.
The State Audit Office issued an opinion with reservations on the expenses for councillor remuneration of local governments. Almost 70% of local governments do not comply with the legal requirements for determining the remuneration of councillors or comply only partially, among other things by exceeding the hourly rates stipulated by law.
The audit also identified several other significant inconsistencies, for example, concerning the implementation of the public administration reform plan, the efficiency of the processes at the Treasury and the State Revenue Service. See the audit report by the State Audit Office for additional information.