 |
AGENCY OF THE REPUBLIC OF SLOVENIA |
ARHIVSKA STRAN |
SUMMARY OF THE ANNUAL REPORT ON THE AGENCY OF THE REPUBLIC OF SLOVENIA FOR THE AUDIT OF THE OWNERSHIP TRANSFORMATION OF COMPANIES COVERING THE PERIOD FROM 7 AUGUST 1996 UP UNTIL 31 DECEMBER 1998
The Agency of the Republic of Slovenia for the Audit of the Ownership Transformation of Companies (hereinafter referred to as the Agency for the Audit) was established on 7 August 1996 and performs the following tasks:
the audit of the ownership transformation of companies covering the period from 1 January 1990 up until 31 December 1992 (which was carried out by the Agency of the Republic of Slovenia for Payments) with a view to assuring the correct value of social capital for privatization as of 31 December 1992 without the impact of the effects of inadmissible property and capital transactions in that period,
the audit covering the period from 1 January 1993 until the entry of the ownership transformation of companies in the court register with a view to establishing whether property and capital had been diminished in an illegal way in that period so that on the basis of its findings, the owners of the transformed companies can file a charge for the recovery of property or the reimbursement of damage on behalf of the transformed company due to the alienated property and capital,
the audit on the basis of the Law on the Completion of the Ownership Transformation and Privatization of the Legal Persons Owned by the Slovenian Development Corporation with a view to tracing out the property that was not taken into account by the privatization process and that passes over to the Slovenian Development Corporation, and
control and supervision of the financial-material operations of the companies that have not been privatized yet as well as single actions of tax audit.
As of 31 December 1998, the Agency for the Audit employs 26 workers, of whom 85 % have university qualifications in the fields of economy and law.
On 30 March 1999, the Agency for the Audit submitted the Annual Report for 1998 to the National Assembly of the Republic of Slovenia; the report also includes cumulative numerical data on the results of the audit of the ownership transformation of companies covering the period from May 1993 up until 31 December 1998.
The following numerical data on performed tasks result from the report as of 31 December 1998:
Out of the 51 conducted audit procedures of the ownership transformation of companies covering the period from 1 January 1990 up until 31 December 1992, the Agency for the Audit completed 48 procedures by issuing either a decision or a notice on voluntary reconciliation or a resolution on terminating the procedure. Another three procedures are still underway.
The cumulative numerical data show that on the basis of the 1,098 completed audit reports submitted by all auditing bodies and made according to the criteria referred to in Article 48 (a) of the Law on the Ownership Transformation of Companies*, the assessment of the damage of social capital in 658 companies (or 60 % of all audited companies) amounts to SIT 86,174 million. This amount includes the damage representing outflows of funds from companies in the amount of SIT 10,028 million as well as the damage that could be eliminated by bookkeeping corrections.
The following graph shows the detailed dismemberment of the scope of the assessed damage of social capital referred to in Article 48 (a) of the Law on the Ownership Transformation of Companies as of 31 December 1992:
The audited companies voluntarily eliminated 61 % of all cases of damage and the auditing bodies issued 207 decisions to eliminate the remaining cases of damage. In 85 cases, the audited companies and other persons that have the legal right challenged the issued decision in civil proceedings and there are still 39 unsolved cases in civil proceedings as of 31 December 1998. The sentences of solved cases confirmed damage in the amount of SIT 6,195 million (93 %); as regards the amount of SIT 438 million (7 %), however, the court found that it does not indicate the damage of social capital.
Out of the 79 conducted audit procedures covering the period from 1 January 1993 until the entry of the ownership transformation of companies in the court register, the Agency for the Audit completed 51 procedures, whilst 28 procedures are still underway.
The Agency for the Audit completed all of the 23 conducted procedures of the control of the legality and the regularity of the implementation of regulations regulating the financial-material operations of the companies that have not been privatized yet, as well as the disposal of social ownership.
In the 55 completed audits (73 % of all completed procedures) covering the period from 1 January 1993 until the entry of the ownership transformation of companies in the court register and in completed procedures of the control and the supervision of the financial-material operations of companies covering the period from 1 January 1993 onwards, the Agency for the Audit established the diminishing of social capital and the company's properties respectively in the amount of SIT 4,538 million due to transactions conducted from 1 January 1993 onwards, namely:
transfer of business functions and effects to companies (by-pass companies) that are partially or completely owned by the employees in former companies (34 %);
detrimental contracts (25 %) concerning the sale of business premises, the encumbrance of the fixed property of the company with the liabilities of a private company towards third parties, the price reduction to the contract value of the sold fixed property without consent of the Agency of the Republic of Slovenia for the Restructuring and Privatization, the granting of loans on behalf of managerial employees under more favorable conditions than the conditions of financing those loans, the disclaimer of the right of recourse to the assumed (incurred) and settled debt of one's founder;
other type of damage referred to in Article 48 (a) of the Law on the Ownership Transformation of Companies (18 %), such as: undercharged interest on loans given to a by-pass company, unjustified financial expenses due to accounted exchange differences and interest from destroyed internal bonds, transfer of business premises to private ownership as a settlement of a non-existing liability, stock donation instead of the agreed physical investment;
diminishing of the company's properties (12 %) caused in the following ways: the sale of fixed assets at the selling price lower than bookkeeping value and without the assessment done by certified appraisers, payments of unnecessary expenses, illegal write-offs of the equipment value, shortage of equipment and material, set-off of seeming liabilities;
unjustified write-off of receivables (7 %), too low rents (3 %) and undocumented payments of expenses (1 %).
The Agency for the Audit furthermore stated that with 4 companies transactions were going on also after 1 January 1993, for which the audit of the ownership transformation for the period from 1 January 1990 up until 31 December 1992 had shown that they indicated the damage of social capital. However, judgements on whether the findings concerning damage are correct have not been brought to an end yet. Continued damage amounts to SIT 2,431 million and is derived from transfers of social capital and consecutively incorrect profit sharing as well as from detrimental contracts. The Agency for the Audit presents the amount of continued damage separately and will include it in the report after the final sentence is pronounced.
The extent of the established diminishing of social capital and the company's properties respectively referred to in Article 48 (a) and Article 48 of the Law on the Ownership Transformation of Companies after 1 January 1993 as of 31 December 1998:
| DIMINISHING OF CAPITAL AND PROPERTIES RESPECTIVELY REFERRED TO IN ARTICLE 48 (a) AND ARTICLE 48 OF THE LAW ON THE OWNERSHIP TRANSFORMATION OF COMPANIES | |||
Amounts in millions of SIT |
Share in % |
||
| I. | Resulting from legal transactions and legal acts referred to in Article 48 (a) of the Law on the Ownership Transformation of Companies (sum from 1 to 10) | 1,336 |
29.4 |
|
4 |
0.1 |
|
|
0 |
– |
|
|
131 |
2.9 |
|
|
0 |
– |
|
|
0 |
– |
|
|
56 |
1.2 |
|
|
308 |
6.8 |
|
|
0 |
– |
|
|
0 |
– |
|
|
837 |
18.4 |
|
| II. | Resulting from legal transactions and legal acts referred to in Article 48 of the Law on the Ownership Transformation of Companies (sum from 1 to 10) | 3,202 |
70.6 |
|
528 |
11.6 |
|
|
0 |
– |
|
|
1,553 |
34.2 |
|
|
0 |
– |
|
|
1,121 |
24.7 |
|
|
0 |
– |
|
|
0 |
– |
|
|
0 |
– |
|
|
0 |
– |
|
|
0 |
– |
|
| I.+II. | TOTAL diminishing of capital and properties respectively | 4,538 |
100.0 |
| III. | Resulting from continued legal transactions and legal acts referred to in Article 48 (a) and Article 48 of the Law on the Ownership Transformation of Companies | 2,431 |
|
In one audit procedure according to the Law on the Completion of the Ownership Transformation and Privatization of the Legal Persons Owned by the Slovenian Development Corporation (Official Gazette of the Republic of Slovenia, Nos. 30/98, 72/98 – Decision of the Constitutional Court and 12/99), the Agency for the Audit found that in the initial balance sheet as of 1 January 1993, the property in the value of SIT 72 million had not been presented, therefore that property had not been privatized either. In compliance with Article 6 of the Law on the Completion of the Ownership Transformation and Privatization of the Legal Persons Owned by the Slovenian Development Corporation, that property plus its increase up until 1 May 1998 in the total amount of SIT 128 million passed to the Slovenian Development Corporation.
On the basis of completed procedures, the Agency for the Audit filed 74 complaints in the reporting period (viz. 1998) on suspicion of commission of 120 criminal offences against 139 natural persons, 30 complaints on suspicion of commission of 46 economic offences against 24 legal persons and 39 persons in charge, and 2 proposals for instituting proceedings as regards 3 petty offences against 2 legal persons and 2 persons in charge. Since 10 March 1997, the Agency for the Audit has been forwarding complaints on suspicion of commission of a criminal offence to the agencies of the Ministry of the Interior to help speed up the proceedings in this way.
By the findings of the performed audit procedures and, above all, by actually eliminating the established damage or diminishing, the Agency for the Audit has been striving to exert positive influence on the public sector and business circles ever since the beginning of its operations.
For performing audit procedures after 1 January 1993, the Agency for the Audit acquired professional opinions on the possibility of carrying out an execution, issuing an administrative decision and forming a statement of claim according to the rules of the contract law on the basis of its findings by shareholders or business associates.
The Agency for the Audit also started to analyse the data on actual elimination (repairing) of the damage or diminishing of social capital and companies' properties, established both in the audit procedures of the ownership transformation and in the audit procedures after 1 January 1993.
In reviewing the enforcement of audit decisions as of 31 December 1992, the Agency for the Audit states that the audited companies carried out bookkeeping adjustments and took them into account in the privatization of social capital in compliance with the provisions of the Law on the Ownership Transformation of Companies, but – as a rule – they did not file any claims against beneficiaries for the repayment of the receivables imposed by the audit decision. However, in reviewing the effects of the findings of the audit covering the period from 1 January 1993 until the entry in the court register, the Agency for the Audit states that the handling of the audited companies is different from case to case and is dependent on the efficient supervision and business interests of the owners.
The companies have all the time, possibility and also the duty of a good master to actually collect the receivables imposed by the audit decision or to make sure that the receivables imposed by the audit decision cannot be collected. In the opinion of the Agency for the Audit, there are no scruples about uncollectable receivables at least what the audit findings and measures for the period from 1 January 1993 until the entry in the court register concerns, since those findings refer to the period in which – as a rule – the receivables had not been barred by limitation according to the rules of the contract law. For the shareholders and business associates in the companies where it was discovered that legal transactions and legal acts had caused the diminishing of social capital or the company's properties, the legislator extended the term to a period of ten years, during which they can file a claim for the recovery of an unjustified benefit or a damage claim against the beneficiaries on behalf and in favour of the company. The legislator gave that possibility because the privatization had been carried out according to the values as of 1 January 1993, yet the owners acquired their ownership entitlement only a few years later with the entry of the privatization in the court register.
On the basis of analysis the Agency for the Audit proposed system measures to the, which – in the opinion of the Agency for the Audit – could intensify the effects of the elimination of the established damage and diminishing. The measures are directed against the economic entities that have not done anything to collect the receivables, and against the economic entities that took advantage of social capital and social ownership; they include the ban on granting subsidies, the restrictive fiscal policy, an appeal to the Government of the Republic of Slovenia for exercising its right of a business associate or a shareholder in economic entities and its entitlement to create the business policy of the Slovenian Development Corporation in such a way that it ensures the actual collection of the receivables.
The proposal for the ban on granting subsidies is reasonably taken into account in Article 19 of the Law on Amendments and Supplements to the Law on the Implementation of the Budget of the Republic of Slovenia (Official Gazette of the Republic of Slovenia, No. 91/98).
The Agency for the Audit realized the proposal for the restrictive fiscal policy by proposing modifications of individual tax regulations and put the proposal forward to the Ministry of Finance in January 1999. The proposal was also supported by the Commission of the Republic of Slovenia for the Protection of Common and State Property Rights and Guardianship of Public Interests.
In order that the audited companies and their owners would proceed with the elimination of all consequences of the established damage and diminishing of social capital and property as intensely as possible, the Agency for the Audit:
presented the problems as regards the presentation of the established damage or diminishing of social capital and property in the business books of the audited companies to the Slovenian Institute of Auditors and agreed on assistance in the disclosure of these occurrences;
explained the importance of auditing tasks and owners' rights to the institutional owners of the audited companies (especially the Slovenian Development Corporation, the Privatization Investment Funds, the Pension Investment Fund, the Slovene Compensation Fund) at internal meetings and by participating in educational seminars;
informed the public about the results of its work on a regular basis.
The annual report of the Agency for the Audit covers two whole calendar years of its operations so that the data contained in this report can form the basis for the assessment of the necessity for performing the audit after 1 January 1993, of the effects of all audit procedures and of the performance of the auditing body. The Agency for the Audit thinks that the formal procedures are formulated and tested to such a degree that they mean a stable, usual and expected practice of the administrative body and that – by its measures and proposals in the field of eliminating the irregularities and the unlawfulness – it exhausted its authorization and responsibility as to ensuring the effects of the audit in the public sector and business circles. For this reason the Agency for the Audit suggests once again that the National Assembly – when discussing this report – should pay special attention to the audit covering the period from 1 January 1993 until the entry of the ownership transformation in the court register and that it should assess the importance of these occurrences and the efficiency of the procedures.
* On suspicion of damage of social capital according to the criteria referred to in Article 48 of the Law on the Ownership Transformation of Companies in the amount of SIT 25,000 million, actions were brought by the competent Social Attorney of the Republic of Slovenia. The Agency for the Audit was not competent to take measures.
