By: Sara Bertoncelj / Nova24tv
The Court of Audit is the body that, according to the Constitution, is the highest body for the control of state accounts, the state budget and total public spending in the Republic of Slovenia. So, there is no doubt that we have a body in our country that offers professional and independent advice to users of public funds, while also conducting a business review to protect taxpayers who contribute money to the budget, from which public funds are then drawn. However, the question that arises is whether the Court of Audit is really carrying out its fundamental task? Some of the clues we have listed with the help of financial experts say the opposite. Especially when it comes to the business of the SD party – it is by no means possible to give a positive opinion on their business, but the Court of Audit obviously thought otherwise.
Recently, we have already pointed out a few things regarding the operations of the Social Democrats (SD). Among other things, the Court of Audit or the President of the Court of Audit Tomaž Vesel confirmed that SD has only a loan of 500,000 euros, although it is clear that the party received another 100,000 euros in the same bank and on the same day. How could such an anomaly have occurred? The operations of each entity are subject to clear legal provisions. Political parties, in addition to complying with the written legal provisions, are morally obliged to regulate their business in such a way that they can set an example for everyone. The purpose of founding a political party is to actively influence the basic social norms – which are created by example and with the help of written provisions. It is impossible to imagine how someone who does not know how to manage domestic finances in accordance with the regulations is able to do it elsewhere.
As everyone may have certain reservations or concerns about their business, there must be a professional and independent body that can help with this. This is all the more important when doing business and spending public funds. One such body that offers help and advice to users of public funds is, of course, the Court of Audit. This court has written on its website: “The Court of Audit advises users of public funds primarily by making recommendations during or after the completion of audits but may also give opinions on public finance issues. It also advises on important issues outside the audit process.” The basic task of the Court of Audit is to review and control the operations of users of public funds. By auditing, it obtains appropriate and sufficient information for expressing an opinion on the auditee’s operations. It then issues a report on the performed audit, which it forwards to the auditees and the National Assembly and publishes on its website.
Is the Court of Audit really carrying out its fundamental task?
As they also wrote on their website: “According to the Constitution, the Court of Audit of the Republic of Slovenia is the highest body for the control of state accounts, the state budget and total public spending in the Republic of Slovenia. The Constitution also stipulates that the Court of Audit is independent in its work and bound by the Constitution and the law. According to the Court of Audit Act, by which it exercises its audit competence may not be challenged before courts or before other state bodies.” So, there is no doubt that in the Republic of Slovenia we have a body that offers professional and independent advice to users of public funds, and at the same time conducts a review of operations to protect taxpayers who contribute money to the budget from which public funds are then drawn. So far, so good. The question is, however, whether the Court of Audit really is carrying out its fundamental task?
To answer this question, we took a closer look at the audits carried out by the Court of Audit at the SD party in 2018. Why this particular year? Because the SD party borrowed heavily from Delavska hranilnica (DH) that year. DH is a bank that is predominantly owned by trade unions and the Republic of Slovenia, as they together have a share of more than 33%. It should also be remembered that 2018 was an election year – namely, there were preliminary parliamentary and local elections in the Republic of Slovenia. First of all, let’s take a closer look at the Court of Audit’s audit report Regularity of financing the election campaign of the list of Social Democrat candidates for early elections to the National Assembly of the Republic of Slovenia in 2018 of March 27th, 2019.
Why did the Court of Audit not investigate the origin of SD’s “own” funds?
The audit report has a total of 25 pages marked, up to the 14th only the theoretical starting points of the performed audit or introduction are written. The entry on page 11, under the item “Loans”, is important to us. The legal provision on the maturity of the loan is especially important here, as the maturity date of the loan must not be later than 30 days before the deadline for closing the account – so says the first paragraph of Article 16 of the Election and Referendum Campaign Act (ZVRK). After a closer examination of the Court’s findings, it becomes clear that the Court of Audit did not address this issue at all. On page 16, it is written that the SD party acquired 70.9 percent of the “collected” funds by transferring funds in the amount of 238,119.50 euros from its transaction account. Despite all the efforts, it is by no means possible to find information on the origin of the funds that SD transferred from its account. That these are not real own funds is clear from a cursory review of the SD statements, where it can be established that they do not have their own funds. However, they have loans and liabilities to suppliers. So, it is more than obvious that the funds on the electoral bank account that SD transferred from its bank account are the funds of the lender or the supplier. By no means are they classic own funds. Why has the Court of Audit not paid attention to this issue – even though it should investigate the origin of own resources according to the principle of priority of content over form?
Since SD’s party did not have 238,709.13 euros of its own funds, but these were obtained either from suppliers by late payment or by loan, it could also be concluded that SD bypassed the legal provision of ZVRK by transferring funds from its own bank account. If this has happened, the auditor should of course have checked it – which cannot be seen from the report. From SD’s operations and financial statements, it is possible to prove beyond doubt that SD does not have its own funds, which we have already pointed out. Since the auditor has not reviewed this, the credibility of the whole opinion is, of course, questionable.
The test was obviously substantive and not in the form as otherwise specified by the standard
It is interesting that, on the other hand, the Court of Audit tackled donations, which were shown in the amount of 29.1 percent, in terms of content and down to the last cent. In addition, it is also interesting that the Court of Audit, when auditing the SD party – apparently by testing – found that the SD showed contributions that were collected in violation of the ZVRK. It is supposedly free presentations of the party and an extraordinary discount in the total amount of 540.10 euros. This raises the question of where the Court of Audit obtained the information that the SD party received a free advertisement. It is highly unlikely that an advertiser would issue an invoice and SD would prove that invoice as an expense. The test was obviously substantive and not in the form as otherwise specified by the standard.
The SD party more than obviously has no own funds at all
However, the Court of Audit did not act in the same way with the alleged own funds, which the party more than obviously does not have at all – as the publicly published data show. Own funds can represent either operating or financial liabilities. The test is definitely necessary,– as stated in point 1.2.3, the loan must not fall due later than 30 days before the deadline for closing the electoral account. But SD only has business liabilities and long-term loans. The latter have a maturity of more than 12 months. As this could be a violation of the ZVRK, the auditor, i.e., the Court of Audit, should, in accordance with the regulations, also examine this fact. But it did not. Content before form, a fundamental principle, was not considered here. The Political Parties Act (ZPolS) states that loans granted are not considered to finance the party, but only under the ZPolS. Nowhere is it mentioned that a loan apparently intended to finance an election campaign should not be subject to review. A loan received or given is always considered to be an acquisition of funds for the entity’s operations. In an election year, when the subject does not have its own funds, it is, of course, more than obvious that the election campaign is being financed. Precisely in order to really dispel any doubts about the financing of the SD election campaign, the Court of Audit should, based on the caution of the content over the form and other guidelines, also check the source of the alleged own funds of the SD party.
The second complaint concerning the audit report certainly relates to the opinion itself. According to audit rules, which must also be complied with by the Court of Audit, the auditor may issue an unadjusted opinion or an adapted opinion. And any remarks that indicate irregularities found should lead the auditor to give an adapted opinion. However, despite the errors found, the Court of Audit issued an unadjusted, positive opinion on the campaign. Certainly, this is not a credible opinion – just what would happen if we also examined the source of SD’s ‘own’ funds, which the party transferred from its own account to the election account?
Did the Court of Audit uncritically copy the data from the SD annual report?
Finally, let us look at the audit report on the regularity of operations of the Social Democrats in 2018. This is the same year when the Court of Audit has already carried out a partial review of operations in the preliminary elections, which we described above. The first unusual entry in the report on the regularity of operations of the Social Democrats political party in 2018 of July 7th, 2020 (hereinafter the Business Report) is written on page 9. There, the Court of Audit wrote that the party had 8.85 employees on December 31st, 2018?! Here, the Court of Audit took a big slip, as it uncritically copied the data from the SD’s annual report, which states that it is data on the average number of employees based on working hours in the accounting period. The accounting period is the entire year 2018 and not December 31st, 2018, as they wrote in the Court of Audit. This is a major failure of the Court of Audit, which is supposed to prepare a professional and objective report.
There is no way to give a positive opinion on such business
The Court of Audit reviewed the operations of the SD party in 2018 and found a surplus of 359,952.33 euros over expenses – i.e., losses. But this clearly did not seem alarming to them. Although the Court of Audit is supposed to monitor the operations of budget users and also advise on how to improve their operations. Well, these worrying findings about business inefficiency and loss cannot be detected in the Business Report – regardless of the negative capital of 639,922.93 euros.
This means that SD has been operating at a loss for several years. Needless to say, every normal entity would receive a recommendation on financial restructuring or compulsory settlement. However, if this were not successful, the entity would be ripe for bankruptcy. And it is by no means possible to give a positive opinion on such business. The operation of the SD certainly raises concerns that should trigger all alarms for the auditor.
We have already wondered where at the end of 2018, 63,598 euros of long-term liabilities disappeared in the SD statements
The Court of Audit found some violations of the law, which they wrote on pages 12, 13 and 14 of the Business Report. But this was still not enough for the Court of Audit to take SD’s operations more seriously. Among the people who violated the law with their contribution, the Court of Audit cites former Prime Minister and Minister of Finance Anton Rop and his wife Matjaž Han, and Janez Prešiček is also mentioned. In point 2.4 of the Business Report, the Court of Auditors again “shot a goat”. Let us recall that we wrote in a previous article that the Court of Audit overlooked the 100,000 euros loan that SD took out from DH in 2018. Even if we proceed from the SD Annual Report, we can in no way come to the conclusion of the Court of Audit that the party has a loan of “only” 500,000 euros. On the contrary, with due diligence or a cursory glance, it can be seen that SD has 536,402 euros in long-term financial liabilities. Either way, there was another major error by the Court of Audit, as they recorded the wrong number in any case – even if they had merely copied it from the SD’s annual report, they had copied it wrong. Intentional or not, such an error is unacceptable to the institution allegedly represented by the Court of Audit.
Notwithstanding all the irregularities found, the Court of Audit nevertheless issued a favorable opinion
To all that we have written, we can only add that the Court of Audit nevertheless issued a favorable opinion on all the irregularities found. If we were to add to this all the irregularities that could be found in the Court of Audit, if we did our job carefully, we would not be able to come to the conclusion that the business of the SD party deserves a positive opinion. But an entity that would in fact be ripe for bankruptcy is clearly operating in an exemplary manner, according to the Court of Audit. It should be noted once again that such an opinion was issued by the body which, according to the Constitution, is the highest body for the control of state accounts, the state budget and total public spending in the Republic of Slovenia.