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07/04/2021   National Audit Office: State and municipally owned enterprises could bring greater benefits to the public, their functions should be clearer and their activities more transparent

When participating in the governance of enterprises and public bodies, the state and municipalities do not always ensure that their activities are based on the principles of good governance, are transparent, and oriented towards achievement of objectives. There are still areas for improvement in defining the expediency of their establishment and fulfilling special obligations, setting objectives for enterprises, formation of collegial bodies, and publishing information about enterprises and public bodies, as shown by the audit “Governance of state and municipally owned enterprises and public bodies” carried out by the National Audit Office of Lithuania.

In 2019, 1,007 state and municipally owned enterprises, subsidiaries of all levels of state-owned enterprises and public bodies operated in Lithuania, and 74 institutions represented the state and municipalities in their management. These enterprises and public bodies in major sectors of the economy, contribute to economic growth, employment, and supplement the budget with dividends and contributions.

“The restructuring of state-owned enterprises was aimed at optimising their portfolio, however, this was not achieved as planned. There are still some state-owned enterprises whose legal form does not allow for ensuring smart governance. Moreover, the validity of the functions performed by state-owned enterprises and public bodies not objectively assessed. As a result, conditions for clarifying their competence and determining which public services should be provided only by state institutions are not created,” says Sandra Ragėnaitė, Chief Advisor of the Economy Audit Department of the National Audit Office of Lithuania.

According to the auditors, the formation, requirements and duties of collegial bodies of state and municipal public bodies not regulated by legal acts. The implementation of good governance principles would enable the formation of strong collegial bodies contributing to better results. Furthermore, the authorities representing the state and the municipality are not obliged to prepare performance expectations for public bodies. These expectations would make it possible to clearly identify the needs of the institutions representing the state and municipalities and would encourage achievement of better performance indicators.

The audit detected that 84% of the assessed municipally owned enterprises did not allocate or allocated less dividends or profits to the municipal budgets than they could in accordance with their current return on equity and good practices of state-owned enterprises. This was influenced by the fact that the policy on the allocation and payment of dividends by municipall owned enterprises is not regulated by legal acts, the municipality itself decides on the allocation of dividends. In 2019 alone, 43% of the assessed municipall owned enterprises carried forward EUR 17.5 million of profits available for distribution, whereas 60%–85% of which could have been paid into municipal budgets.

Upon implementation of the recommendations of this audit, only the state-owned enterprises, whose functions are important for the fulfilment of the state tasks, would operate and benefit the public, and the governance of public bodies, in the management of which the state or municipalities participate, would comply with the principles of good governance and be oriented towards more effective and transparent activities.

 

Responsible for the information Communication Division
Last updated on 4 May 2021

National Audit Office of Lithuania

Pamėnkalnio St 27, LT-01113 Vilnius, Phone: +370 608 92 636, Email: nao@vkontrole.lt.