State Audit Office: municipalities should review capital company management

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Municipalities should more comprehensively and critically assess participation in capital companies, according to an audit carried out by the State Audit Office (VK), VK said in a statement on June 15.

In an interview with Latvijas Radio, VK board member Edgars Korčagins pointed out that the VK looked at 8 different municipalities – Preiļi, Ogre, Tukums, Bauska, Cēsis, Ludza, Dienvidkurzeme, and Jēkabpils, with a total of 89 capital companies.

The audit found that the overall assessment was not carried out in accordance with good practice and law. The conformity of the activities of capital companies with the Law on State Administration Equipment has not been fully evaluated; there are no objectives to be achieved with participation, so in many cases, there is no certainty as to whether municipalities should continue to engage in commercial activities. Thirdly, municipalities have not thoroughly analyzed the financial statements and performance indicators of capital companies in order to ensure that they can indeed provide long-term services to citizens.

“If the assessment of participation is not carried out in accordance with law and good practice, it is not possible to analyze the performance of capital companies and to improve their work to provide essential services for citizens,” Korčagins said.

The purpose of capital companies is to provide the public in their administrative territory with services arising from the functions of the local government.

In total, the 89 capital companies of the eight sampled municipalities met the requirements only in relation to 25, including only one – Jēkabpils municipality – the municipality had revalued the participation in all the capital companies owned by it.

 

The audit of the VK raised 16 criteria for comparable and uniform audit methods to assess how eight municipalities converted their shareholdings into capital companies. Regulatory requirements and good practices in the management of capital companies were identified as criteria, with a certain number of points allocated to each criterion. At the discretion of the national auditors, the joint assessment of the criteria proposed, with a maximum of 100 points, shows the ability of local governments to justify participation in capital companies and to ensure good governance in order to perform the functions of local governments as provided for by law as effectively as possible.

Municipalities have scored between 11 and 46 points from a maximum of 100 points. This shows significant shortcomings in both the appropriateness of the participation and the organization of the management of capital companies.

The full audit report is available on VK website (in Latvian).

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