2017-10-17
The National Audit Office had Presented its Conclusions Regarding Consolidated Public Financial Statements for 2016
Tuesday at the Seimas, Auditor General Arūnas Dulkys had presented seven public audit conclusions, which the National Audit Office prepares every year in performing its constitutional duty: conclusions regarding the financial statements of the national, public, Compulsory Health Insurance, State Social Insurance, and other funds for 2016, as well as the implementation of the budgets of said funds. During a press conference held on Tuesday, the National Audit Office had also presented its assessment of the progress made in the implementation of recommendations provided in completed audits (“Programme Budget System: Setting up Strategic Action Plans and Monitoring their Implementation” and “Management of the Programme for Investment in 2015”).
Arūnas Dulkys had noted that we cannot yet rely on public financial data, identifying weak internal controls of establishments as the main culprit. Along with his presentation of the assessment of the state of public finances, Mister Dulkys had also specified the direction for necessary changes.
The National Consolidated Financial Statements for 2016, which include 52 billion EUR worth of public sector assets and 19 billion EUR worth in liabilities, prepared after consolidating the financial data of all public sector entities, states that internal control systems of as many as 11 (out of 14) ministries are not oriented towards appropriate organisation of activities, fail to conduct risk assessments, and redundant measures for defining operational processes, which cause unnecessary increases in administrative load, are still being employed.
The reform of the public budget system is still oriented towards expenditure in accordance with specific budget headings, rather than the desired outcome and the necessary resources. The state, having decided to own many different funds – the State Social Insurance, and the Mandatory Health Insurance funds – and receive income from a number of individual sources, as well as have state budget, fails to make a decision regarding which source to use for meeting which public needs. The National Audit Office would like to note that this leads to the development of a procedure whereby homogeneous state liabilities are covered both from the state budget, and the State Social Insurance Fund Board or the Mandatory Health Insurance Fund. The auditors recommend to first clarify the purpose of social security payments, and then clearly specify the extent of the guaranteed individual healthcare services. Currently, health insurance funds are being used to fulfil state liabilities, which are closer in substance to uninsured liabilities or, in some cases, don’t even have any attributes related to social welfare.
At the end of 2016, the Reserve Fund balance amounted to 126 million EUR, which is equal to only 0.3 percent of the GDP, or 1.5 percent of the government’s budgetary spending. Even though there is currently no consensus regarding the extent of the financial reserve that Lithuania requires, upon considering its particularly slow tendency towards increase, the reserve is estimated to reach 0.5 percent of the GDP by 2017. A financial reserve of such magnitude would hardly be enough to ensure the stability of public finances during a more difficult economic period. In order to maintain the stability of public finances, the government should seek additional sources of financing the fund.
According to the National Audit Office, the Ignalina Nuclear Power Plant Decommissioning Fund includes only a single, insignificant, source of funding, and therefore fails to represent the accurate situation regarding all the funds actually used during the process of decommissioning the Ignalina Nuclear Power Plant. To finish the process of decommissioning, the fund lacks 1.66 billion EUR. The process of decommissioning the Ignalina Nuclear Power Plant is an excessive financial burden on Lithuania which exceeds the size and economic capacity of the country. For this reason, in order to avoid the failure to implement the final decommissioning plan, which would result in the residents of Lithuania having to shoulder the related financial burden, the government must seek additional sources of financing.
On Tuesday, the National Audit Office had also presented an audit on the implementation of recommendations provided in the audits, “Programme Budget System: Setting up Strategic Action Plans and Monitoring their Implementation”, and, “Management of the Programme for Investment in 2015”, which had revealed there’s a lack of any significant changes in said processes to this day. However, there is also a positive effect which the Head of the Government had paid special attention to during the audit, namely – the reform of the Strategic Planning and Budget Development System was included into the Portfolio of the Strategic Projects of the Government, the implementation of which is controlled by the Committee on the Portfolio of the Strategic Projects of the Government.
The auditors had emphasised the importance of a responsible approach towards internal controls on the part of all the levels of the management of the public sector, otherwise the lack of complete and objective information on the financial state of the public sector, and the outcomes of economic activities will persist for a long time. Effective internal controls – both in Lithuania and the rest of the world – should be among the key tools for consistent and strategic achievement of positive outcomes, as well as for conducting risk-management.