The Ministry of Agriculture erred in the management of the Support and Guarantee Fund for Farmers and Forestry. It has no tools for assessing the effects of paid-out aid.
Press release on Audit No 19/18 – 29 June 2020
The Supreme Audit Office (SAO) examined the financial support for the agricultural sector paid out by the Czech state through the Support and Guarantee Fund for Farmers and Forestry (SGFFF). It is a joint-stock company and its sole owner is the Czech Republic. In the audited years 2014 to 2018, the SGFFF paid approximately CZK 6.2 billion to beneficiaries. The audit also focused on how the Ministry of Agriculture (MoA) managed the activities of this fund and revealed a number of shortcomings. Also, the MoA did not set specific objectives in order to assess the benefits of paid-out aid.
The SAO assessed how the MoA fulfilled its role as a founder and a sole shareholder of the fund on behalf of the state. Each year, the MoA also provides a subsidy from the state budget to the SGFFF. This subsidy is the main source for financial support which the Fund pays to farmers. The majority of the funds paid out by the SGFFF during the audited years was non-repayable financial aid. This included, for example, financial support to reduce interest on loans granted by commercial banks, to reduce the principal of loans when buying land, or to offset a part of the premium against unforeseen risks. The Fund also provided loans which accounted for less than a fifth of the funds provided during the audited period.
The SAO criticised a number of shortcomings in the strategic management of the SGFFF. The MoA did not set appropriate indicators for aid programmes in order to monitor how the funds contributed to the development of agriculture. The indicators were vague and did not contain the expected target values the MoA would like to achieve. The MoA monitored the number of approved applications, the number of supported persons, the amount of funds paid out, or the amount of loans granted.
Also, some documents essential for the activities of the SGFFF were approved by the MoA with considerable delays. Therefore, the question arose whether and how these documents were used to effectively exercise shareholder rights over the Fund. For example, the SGFFF’s policy concept, which set the targets for 2015, was approved by the MoA roughly two months before the end of the relevant year. Similarly, the MoA determined with great delay and, notwithstanding its own schedules, evaluation indicators for the Members of the Board of Directors. Thus, the Members of the Board performed their duties for 5 to 10 months per year without approved indicators according to which their annual remuneration is determined.
The SAO also pointed out that the legal form of the SGFFF as a joint-stock company did not comply with the general principles of the “Strategy of the Property Policy of the State” approved by the government. This Strategy states that state-owned companies are created for business purposes, so their main objective is to make a profit and should be financially independent of its owner as much as possible. Although the SGFFF is a commercial company, its activities are based entirely in supporting the economic policy of the Czech state in the agricultural sector. The main source of funds for SGFFF’s activities are subsidies from the state budget. The SGFFF is thus fundamentally financially dependent on its owner, the Czech state, in the performance of its tasks and serves to fulfil the objectives of the Czech state’s public policy.
Although the SGFFF is fully owned by the state, as a commercial company it is a private-law entity, and the audit could only take place to a limited extent compared to the audits carried out by the SAO at public institutions. Under the current legal situation, the SAO does not have the mandate to audit the funds and activities of the entire SGFFF. In turn, the SGFFF is not obliged to separate processes or regulations related to the treatment of subsidies from the state budget from other activities. The SAO was also unable to directly check the farmers as the final beneficiaries, because the SGFFF as a private-law company concluded support contracts with them on its behalf, and not on behalf of the Czech state.