Auditing operation No. 04/41
Recoverable financial assistances rendered to the Office of Supervision of Saving & Credit Co-operatives and funds that are managed by the Insurance Fund of Saving & Credit Co-operatives
The auditing operation was included in the Annual Audit Plan of the Supreme Audit Office (hereinafter referred to as “SAO”) for the year 2004 under No. 04/41. The auditing operation was managed and the audit conclusion drawn up by Ms. Jana Krejčová, the Member of the SAO.
The aim of the audit was to examine the management of the recoverable financial assistances rendered to the Office of Supervision of Saving & Credit Co-operatives and funds that are managed by the Insurance Fund of Saving & Credit Co-operatives.
The audited period covered the years 1997 to 2004. The legal regulations mentioned in this audit conclusion are applied in the wording applicable to the audited period.
The audited bodies were The Office of Supervision of Saving & Credit Co-operatives (hereinafter referred as “OSSCC”), the Insurance Fund of Saving & Credit Co-operatives (hereinafter referred as “IFSCC”) and the Ministry of Finance (hereinafter referred as “MF”).
The legal system of financing of the saving and credit co-operatives supervision and deposits insurance was not adequate to the situation in the sector of saving and credit co-operatives. A certain influence also had the fact that the OSSCC as a supervision authority over saving and credit co-operatives activities and management launched its tasks execution only a year after the Act No. 87/1995 Coll. had come into force. This happened, when the law in its original wording did not include effective tools of oversight. The OSSCC at the beginning of its activity also had not the necessary equipment and staff. The OSSCC only registered newly establishing saving and credit co-operatives until 1 May 2000.
The supervision over the Saving & Credit Co-operatives was gradually improved by amendments of the Act. No. 87/1995 and also by advancing of the OSSCC activities, however, initial imperfections in the legal system and in the control of saving and credit co-operatives contributed considerably to a general crisis in this sector. It appeared particularly in the years 2000 and 2001, when almost a half of the existing 134 saving and credit co-operatives were in a forced administration, under the bankruptcy procedure or the liquidation. This situation subsequently resulted in an increase of claims for payments of redress for insured deposits that were asked from the IFSCC.
Financial resources should have been primarily revenues from the co-operatives’ payments pursuant to the Act No. 87/1995 Coll.; the recoverable financial assistances from the State Budget (hereinafter referred to as “RFA”) should cover only extraordinary needs.
The OSSCC budgets were not consistent in their items. They encompassed both revenues and expense accounts such items, whose including into the budget was not allowable. All received the RFA and their repayments were not consistently represented in the budgets. Thus, an objective grasp of the OSSCC economical behaviour cannot be obtained from budgets and balances prepared in such manners.
The MF used to authorise the OSSCC reports also in the cases when they did not contain parliamentary approved budgets as it was in the years 1999 and 2001.
The OSSCC demonstrates a surplus in its economy management in such a way, which does not reflect the real situation. The showed surplus is a difference between granted RFA in the relevant year on the one hand and an own revenues/own expenses deficit on the other hand. The own expenses besides include possible RFA repayments. Such a surplus is not the surplus of the OSSCC economical management. The RFA repayments are paid by State Budget funds granted in the form of a new RFA amount.
Expenses for the OSSCC activities amounted to CZK 110,339,000 in the audited period from 1997 to 2004 (up to 30 September 2004). The OSSCC covered these expenses by payments from saving and loan co-operatives amounting to CZK 39,627,000 and by other revenues of CZK 3,699,000. The remaining OSSCC expenses in the amount of CZK 67,013,000 were covered by the RFA.
The OSSCC received from the State Budget the RFA in the amount of CZK 142,847,000 during the period 1997 – 2004. It redeemed from this in the form of regular and extraordinary repayments amounting CZK 29,606,000. By 31 December 2004, the OSSCC outstanding commitment to the State Budget amounted to CZK 113,241,000.
The IFSCC was established at the end of 1996. Pursuant to the Act No. 87/1995, Coll., the first board of directors should have been appointed once ten saving and loan co-operatives emerged. In spite of even forty-five co-operatives being recorded in the Business Register by the end of 1996, the Minister of Finance did not appoint the first members of the board of directors until April 1997. IFSCC financial resources were mainly payments from saving and loan co-operatives, profits from financial investment, loans from saving and loan co-operatives, fines and penalties imposed by the OSSCC, surpluses of the year OSSCC economy management, grants, and other repayments.
The IFSCC gained on the whole CZK 198,246,000 during the period from 1997 to 2003; from this amounted CZK 43,117,000 from saving and loan co-operatives, CZK 128,000 from fines and penalties imposed by the OSSCC, and profits of financial investment CZK 155,001,000. The IFSCC revenues after disbursing of the ISFCC’ activities expenses in the amount to CZK 148,522,000 came to CZK 49,724,000 (without the RFA, that could have been used only for compensations for insured deposits).
By 31 December 2004 the IFSCC recorded beneficiaries’ claims in the amount to CZK 8,127 million; from this CZK 8,048 million was already paid to the same date. Such payments were carried out mainly from financial resources of CZK 8,000 million gained in the form of the RFA from the State Budget.
The current legal arrangement gives to the MF only limited possibilities to influence the area of saving and loan co-operatives. The MF could effectively react only by means of an approving power in relation to the OSSCC statutes and annual reports. Thus, the MF could only involve into solution of already developed financial problems of both the IFSCC and the OSSCC.
The MF has kept records about all of commitments arisen from the RFA granted to the OSSCC and IFSCC. These commitments are recorded as accounts receivable in the state financial assets under title “The Other Assistances” granted from the cross-budget chapter (State Budget chapter – General Treasury Administration). They are yearly updated by newly granted the RFA and their repayments received. The state’s accounts receivable due from the OSSCC reached to the total amount CZK 113.3 million by 31 December 2004, and due from the IFSCC CZK 8,000 million by the same date.
The current level of payments and benefits from saving and loan co-operatives gives no possibility to cover these resources state’s accounts receivable due from the OSSCC and namely from the ISFCC in the real time.