2017-04-25
National Audit Office of Lithuania: necessary coordinated actions for improving the activities of the companies and institutions operating in the public sector
The Supreme Audit Institution (SAI) for the first time simultaneously provides the systematic insights about the role of the state in governing companies and institutions that operate in the public sector.
Three systemic audits – “The return of state-owned companies to the State”, "Management and activities of municipality-owned companies“, “The establishment and management of public institution” – showed that part of the public sector companies and institutions currently do not create the added value to the state and in certain cases benefit only the companies themselves, public institutions or even private groups of persons.
Data of around 1,057 legal entities of different legal forms were analysed during the audit: the state was the owner or principal shareholder of the 118 state-owned enterprises (SOE) at the beginning of 2017; there were 271 municipality-owned companies at the end of 2015, and 668 state and municipal public institutions.
According to the auditors, the state policy in this area is fragmented, lacks coherence and systematic state approach towards their governance. Municipalities lack initiative to raise common goals for the enterprises they control, a clear and objective performance evaluation system for the companies is not created, formation of a strong Board is not ensured, also strategic indicators are unambitious and not associated with the objectives of state-owned companies and public institutions, and the progress is not projected, not all the solutions are measurable and ensure the benefits to the state or municipality.
The results of activities also shows inappropriate governance of companies and institutions. Only about 40 percent of all SOE, subjected to this requirement, reached the settled annual equity capital target price of 5 percent. SOE returns on equity capital reached only 2.1 percent (normalized rate of return was 4.4 percent), and for a special reason 82 percent of 104.52 million euros dividends amount dividends paid by one of SOEs. In 2015 return on equity capital of municipality-owned companies decreased compared to the previous periods, and 5 (out of 271) of municipality-owned companies earned 75 percent of dividends. The total amount of dividends and profit of municipality-owned companies amounted 6.57 million euros in 2015. Given that the average rate of return on equity capital of Lithuanian companies is 9.2 percent, the expected profit of state-owned and municipality-owned companies could exceed 500 million euros.
According to the Supreme Audit Institution, considering the priorities and financial results of the companies and institutions, it is appropriate to evaluate the activities of public institutions and companies systematically, and to make the following strategic decisions based on evaluation results: to optimize institutions and companies of all forms, to develop a clear and consistent goal making and rate evaluation system of companies and institutions activities. It is also important to ensure an effective institutional supervision and management, separating it from policy-making.