Finance Minister Kalousek wants direct control of EU fund audits

Civic Democrats are worried TOP 09 Finance Minister Miroslav Kalousek wants to increase his political powers with new financial controls law   

Martin Shabu | 22.03.2012
Is Finance Minister Kalousek attempting to amass more powers, or simply following the EU's recommendations?

With billions of crowns in EU funding frozen, the Czech government is finally taking action. Finance Minister Miroslav Kalousek (TOP 09) is planning to gather all the auditors responsible for controlling EU grant expenditure from various regions and regional bodies into a single unit within his ministry. According to a number of sources, however, the Finance Ministry holds its fair share of responsibility flawed surveillance and misuse of EU funds.

It’s still unclear how European Commissioner for Regional Policy Johannes Hahn, who is in Prague on Thursday to discuss the problem of Czech drawing of EU funds, will react to Kalousek’s proposal. The Czech Republic has been given until June to put the problems right, otherwise the frozen funds will be withdrawn for good, which the minister has said would be a financial catastrophe.          

Kalousek’s second initiative to unfreeze the flow of EU funds into the country comes with a revision of the law on financial controls, which dictates the procedures and processes of audits in Czech state institutions. The bill of amendments was put to the lower house of parliament last weeks and has passed its first of three readings.

Nevertheless, a number of members of the three party ruling coalition (ODS, TOP 09, Public Affairs (VV) have major reservations about the bill in its current form. MPs from the Civic Democrats (ODS) say they are worried that the finance minister wants to strengthen his political power not only through greater control by his ministry of EU funds, but also greater powers over expenditure of Czech government funds.      

Criticism from coalition ranks 

‘The bill only introduces cosmetic measures and doesn’t deal with the issue of independence of auditors’Critics of the bill oppose powers granted to state auditors being concentrated within Kalousek’s ministry, fearing they could be used for political ends. They suspect Kalousek wants to form a second Financial Audit Unit (FAÚ), the finance ministry’s anti-laundering and financial crimes watchdog. Such an arrangement, they say, would certainly not lead to greater independence of auditors, which is the declared aim of the bill.

The bill  was reportedly the cause of uproar at a meeting of the ODS’ group of MPs and Prime Minister Petr Nečas (ODS) had to promise his party colleagues that the cabinet will again debate the proposed amendments.  

“The bill only introduces cosmetic measures and doesn’t deal with the issue of independence of auditors. Mayors have criticized the complexity of the system of controls whereby for one project several controls can take place, each of which costs a considerable amount, and complained to MPs. I’m glad the lower house has submitted the bill to the parliamentary control committee and extended the period of deliberation by 20 days,” former mayoress of Náchod and MP Zdeňka Horníková (ODS) told Czech Position.

In Horníková’s view, a better solution would be for the auditors to be under the direct control of the government in a special audit office outside the responsibility of a particular ministry and she says a whole new law, as opposed to amendments, is required.     

The Ministry of Finance, however, claims the proposal to group EU funds auditors under the ministry came from the European Commission when deputy ministers of finance and regional development, Miroslav Matej and Daniel Braun paid a visit to Brussels. “The proposal that it should be namely under the control of the Finance Ministry was first put forward in March [2011]. We were surprised by it, and last November we discussed alternatives with the European Commission,” the Finance Ministry’s press department told Czech Position.      

Auditors obey superiors

‘When a minister said ‘boo’ an auditor under the jurisdiction of that minister retreated and stopped probing. And this is not to Brussels’ liking’Czech Position asked several high placed state auditors and an auditor from the private sector about the situation and they all agreed that state auditors tasked with monitoring and improving the system of drawing EU funds by ministries and the regions are in a difficult position whereby they must obey their superiors.   

“When a minister said ‘boo’ an auditor under the jurisdiction of that minister retreated and stopped probing. And this is not to Brussels’ liking,” a high-ranking official from the Ministry of Environment, who oversaw the allocation of tens of billions of crowns told Czech Position on condition of anonymity. He says that because of this, auditors only look for formal shortcomings and thus don’t uncover embezzlement of funds. 

The official also explained how the process occurs in practice: “Once a builder came to me and said that he only does underground work. When I asked him why, he said because it’s not visible… Most EU money is spent on infrastructure projects and so-called ‘soft’ projects such as education programs. And as long as auditors don’t understand them and don’t take initiative, they don’t find anything.”

His account is backed by an auditor from a global advisory firm. According to international standards, the work of internal auditors of EU funds must be depoliticized and made fully independent. “The only proper solution is to leave audits of  EU funds to the internal audit departments of ministries.”

“However, the independence of those directors from the ministers must be strengthened,” the auditor who wished to remain anonymous, said, adding that if the government is considering centralizing controls of EU funds, it’s imperative they be under the control of the prime minister and on no account the Ministry of Finance, which, apparently, has failed in this area in the past.  

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