National Audit Office: the state should be more careful in looking after its companies and foundations

Toomas Mattson | 4/11/2007 | 12:00 AM

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TALLINN, 11 April 2007 - ccording to the assessment of the NAO, the guidance and supervision of state companies and state-established foundations has not been organised purposefully and in a functional manner. If current arrangement continues, there is a risk of experiencing what happened to AS Werol Tehased and AS Eesti Viljasalv.

Auditing of public undertakings and foundations in the area of government of the Ministry of Economic Affairs and Communications and the Ministry of Agriculture revealed that there the state has no single, agreed and disclosed holding policy.

It remains unclear why the state participates in companies and what are its goals as an owner and founder. Therefore, there is a danger of companies and foundations not pursuing the interests of the state in their activity.

Ministers’ activities in directing public undertakings and foundations are not transparent: the guidelines are general not given in writing. Also, the ministries often interact directly with managements, completely ignoring the supervisory boards.

The role of the members of the Supervisory Board appointed by the Minister of Finance in companies is not clear either, as the sole responsibility for the prudent management of state companies belongs entirely to the Minister engaged in the administration of holding. The NAO is of the opinion that it should be the supervision and direction of the functioning of financial and internal control systems of state companies. At the moment they have no such obligation.

As owner of companies and founder of foundations, the state has failed to specify the duties of the Supervisory Board in exercising supervision. As the members of the Supervisory Board change often and it is not clear what is expected of them, the supervision provided by supervisory boards is uneven and not consistent.

Audit committees established a few years ago to improve the supervisory boards’ level of supervision have mostly failed to meet their goal – to serve as an adviser to the Supervisory Board upon performing supervision. In several cases in the observed period, audit committees did not actually meet, or it was done with a great delay. In most cases, it duplicated the activities of the Supervisory Board, written recommendations, assessments and suggestions on the better organisation of supervision were issued only rarely.

According to the NAO, in order to improve the level of supervision the functioning of the Minister-Supervisory Board management chain should be ensured, state holding policy with main goals unambiguously defined and supervisory duties of the Minister and Supervisory Board specified.

The Minister Economic Affairs and Communications and Minister of Agriculture generally concurred with the NAO’s recommendations. The Minister of Finance of the previous Government as the coordinator of state holding policy remained of the different opinion regarding most recommendations, considering the current organisation of supervision to be sufficient and promising to consider changes upon developing a new State Assets Act.

The state participates in more than 100 companies and foundations, at the same time the reasons and aims of participation have not been unambiguously disclosed for the taxpayer. Total value of holdings in companies was EEK 22 billion, the volume of assets of state-established foundations amounted to EEK 5.7 billion (2005). In 2006, state holdings in companies formed 16 % of monetarily appraisable state assets.

Toomas Mattson
Communication Manager of National Audit Office
Telephone: 6400 777
Mob: 51 34900

  • Posted: 4/11/2007 12:00 AM
  • Last Update: 9/15/2015 1:42 PM
  • Last Review: 9/15/2015 1:42 PM

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