Commission Report (2002): Czech Republic

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 28: Financial control

Progress since the last Regular Report

Further progress has been made in this area since the last Regular Report.

As regards Public Internal Financial Control (PIFC), the new Act on Financial Control in Public Administration entered into force on 1 January 2002. The Decree implementing the Act entered into force in March 2002, while work is advanced in the establishment of functionally independent internal audit units in all budget spending centres. Internal Audit Manuals and Charters are currently being drafted under the authority of a co-ordinating Unit in the Ministry of Finance. A series of training activities for PIFC has been launched in co-operation with the Czech Institute of Internal Auditors.

Progress has continued in the area of external audit. The criteria for compliance with international audit standards on the level of the Supreme Audit Institutions (SAI), as identified in the Recommendations of the Presidents of SAI of October 1999, are already met to a large extent by the Supreme Audit Office (SAO) in the Czech Republic. The issues of functional, organisational and operational independence of the SAO and its audit scope are satisfactory.

No formal discharge mechanisms have been introduced in the framework of the presentation of SAO reports in Parliament. The reports are made public and discussed by the relevant Parliamentary Committees. It is common understanding that the Government is required to follow up the recommendations and report on a regular basis.

Auditing procedures are governed by appropriate audit manuals based on INTOSAI auditing standards and guidelines.

As regards the control of structural action expenditure, the SAPARD Agency at the Ministry of Agriculture has its own internal audit unit and is further supervised by audit units of the Ministry of Agriculture and the National Fund and Supreme Audit Office. A private company delegated by the Ministry of Finance performs annual certification procedures concerning accounts of the Agency. With respect to ISPA, good progress has been made with regards to establishing a management and control system, in particular regarding the legal framework at implementation level and the development of working procedures, manuals and checklists. However, further steps need to be taken to meet the requirements for internal financial control and internal audit. The Czech Republic has already started the gap assessment exercise which is the first step leading to the extended decentralised implementation system (EDIS).

Progress has been achieved in the area of protection of the Communities' financial interests. A co-operation arrangement between OLAF and the Czech Supreme Public Prosecutor`s Office was signed in October 2001 and entered into force on 1 January 2002. A technical meeting was held in January 2002 to start the implementation of this agreement. Relations, for the purpose of the protection of the Communities` financial interests, between the Supreme Public Prosecutor`s Office of the Czech Republic and other relevant Czech institutions are specified in an inter-institutional co-operation agreement. The new Act on Financial Control in Public Administration allows the competent EC bodies to carry out on-the-spot checks and stipulates that all public administration bodies shall be obliged to comply with such checks.

Overall assessment

As regards PIFC, further significant efforts are required to complete and strengthen the institution building for the PIFC system, notably to set up functionally independent internal audit units in all bodies of public administration. Further work is needed to finalise tertiary regulations relating to internal audit methodology. Given the continuous need for qualified staff in this area, sustainable training schemes need to be put in place and further monitored.

The strengthening of administrative capacity is of particular importance in order to complete the preparations for fully decentralised implementation of pre-accession aid and, after accession, of the Structural Funds.

In the area of external audit, the financial independence of the Supreme Audit Office (SAO) needs to be further enhanced. The procedure for discussion in parliament and the follow up of the recommendations of SAO audit reports should be formalised.

As regards the control of structural action expenditure, the Czech Republic needs to reinforce and accelerate efforts leading to the extended decentralised implementation system before mid 2003 in order to allow EDIS accreditation to be achieved in the second semester of 2003. In April 2002, the Commission adopted a Decision provisionally conferring management authority for SAPARD, on a fully decentralised basis, to the SAPARD Agency.

With a view to ensuring adequate protection of EC financial interests, the relevant Czech authorities need to develop internal co-ordination as well as the legislative framework to underpin effective co-operation with the competent EC bodies.

Conclusion

In its 1997 Opinion, the Commission concluded that the financial control system in the Czech Republic was just being developed. It added that major elements to control the allocation and use of public resources were not yet in place in the Czech Republic. However, the Commission concluded that if the necessary resources were made available, the Czech Republic should be in a position in the medium term to fulfil the EC requirements.

Since the Opinion, significant steps forward have been taken, mainly over the past two years. The development of a comprehensive system of PIFC, compatible with internationally accepted and EU-compliant standards, is under way as is the process of establishing corresponding institutional structures. Overall, legislative alignment is well advanced although it needs to be completed as regards the protection of the Communities` financial interests. Implementing structures have been established but further substantial efforts are required in order to render them fully operational.

Negotiations on this chapter have been provisionally closed. The Czech Republic has not requested any transitional arrangements in this area. The Czech Republic is generally meeting the commitments it has made in the accession negotiations in this field.

In order to be ready for membership, the Czech Republic`s efforts now need to focus on implementing sound financial control systems by strengthening the required institutional structures and completing the establishment of the necessary audit tools. The legislative framework and administrative structure for the protection of the Communities` financial interests should be further strengthened. Currently ongoing activities, notably the strengthening of the internal audit units through increasing human resources and training, need to be vigorously pursued in order to attain full operational capacity by accession.

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