Major share of the regional loan funds has been spent on loan-related losses and administration costs

Kadri Lehenurm | 6/3/2002 | 12:00 AM

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TALLINN, 3 June 2002 - When auditing the organization of regional loan system, State Audit Office discovered that two thirds of the 36 million kroons allocated for rural entrepreneurship development in 1995-2001 and interests accumulated had has been spent to cover loan-related losses and administration costs.

The purpose of the regional political loan, established in 1995, was to support the entrepreneurship in areas with regional disparities and create jobs in rural municipalities and towns with high unemployment rate or low standard of living. The institution responsible for loan administration was the Ministry of Internal Affairs, delegating its obligations arising from loan servicing to AS Reginvest.

In accordance to the evaluation given by State Audit Office, the Ministers holding office in 1995-2001 have not been able to provide sufficient supervision over the implementation of the contract, depositing of the documents and securing equal treatment of all the potential loan applicants. The loan commission established by the Ministry to take decisions on granting loans and exercise supervision over AS Reginvest has not fulfilled its tasks. It is fair to say that the commission did nothing during two years.

The loan administrator breached the loan administration contract repeatedly: disbursed loans without the consent from the loan commission, exceeded the investment limits established by the Ministry and overcharged the Ministry for services provided. In total, AS Reginvest was paid for the administration of loans approximately 6 million kroons in 1996-2001.

State Audit Office admits that the purpose of regional policy loans is to support the entrepreneurs of the outermost regions instead of providing the state with immediate revenues. Nevertheless, the evidence gained during audit revealed that negligent loan granting system and weak supervision failed to secure expedient utilization of the funds. Therefore it was possible to use money meant for supporting entrepreneurs in outermost regions for organizing entertainment and publishing a newspaper in the town of Tartu. There is also evidence of cases where the loan contract established no purpose for providing the loan. (More extensive review of the specific cases is given in Annex 4 to the Compendium of the Chief Auditor.

In accordance to the conclusion made by the Chief Auditor the system needs to be rehabilitated or suspended as fast as possible. “It is quite clear that entrepreneurship can’t and mustn’t be supported with such methods. The Minister of Internal Affairs must regain control of the money as soon as possible,” said Mr. Parts.

State Audit Office considers it appropriate for the funds being repaid to the regional loan portfolio – both the principal and the interests – to be recorded as revenues in the state budget. As the funds for regional policy loan were allocated with the respective decision of the Government, State Audit Office considers it appropriate for the Government to give its opinion concerning the utilization of the funds.

State Audit Office also sent the audit materials and evidence to Security Police to obtain a criminal law based assessment about the system used for the administration of regional policy loans.

“The responsibility for the negligent utilization of funds lies with the Ministers of Internal Affairs and the officials within their jurisdiction who provided a trading company with convenient conditions for giving the money away and failed to exercise sufficient supervision over the operations of the company,” added Mr. Parts.

In response to State Audit Office the Minister of Internal Affairs has announced of his intention to start the reorganization of the system for servicing the regional policy loans and implementation of specific measures.

You can find the full text of the decision (in Estonian) and compendium of the decision (in English) “Regional Loan Administration,” given by the Chief Auditor concerning the respective audit at the website of State Audit Office.

Kadri Lehenurm
Head of Public Relations Service of State Audit Office
Telephone: (372) 640 0719
GSM: (372) 51 67416
E-mail: Kadri.Molder@riigikontroll.ee

  • Posted: 6/3/2002 12:00 AM
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