The Parliament Has Passed the Following Act of the Czech Republic
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ACT NO. 320/2001 COLLECTION of 24. August 2001 on Financial Control in Public Administration and Amendments to Some Acts (the Act on Financial Control)
The Parliament has passed the following act of the Czech Republic:
PART ONE GENERAL PROVISIONS
Section 1 Subject of Legislation
(1) This Act shall define the organisation and scope of financial control performed among the bodies of public administration, among the bodies of public administration and other applicants for or beneficiaries of public financial aid and within the bodies of public administration. It shall set out the subject, the fundamental objectives and principles of financial control performed pursuant to this Act and pursuant to special legal regulations if so stipulated by these regulations1. (2) The provisions of this Act shall apply also to the control of state enterprise as performed by the ministry which on the state’s behalf holds the function of the state enterprise’s founder pursuant to a special legal regulation2 and to the control of the Land Fund pursuant to a special legal regulation1. (3) The provisions of this Act shall not apply to the control performed by the Supreme Audit Office and to examination of the financial management of self-governing territorial units pursuant to special legal regulations3; moreover, it shall not apply to the control of legal entities for which the state or the self-governing territorial units hold the function of founder pursuant to special legal regulations4, with the exception of the control of provided public financial aid pursuant to this Act and pursuant to a special legal regulation.
Section 2
1 E.g. Act No. 219/2000 Coll., on the Assets of the Czech Republic and Its Acting in Legal Relationships, as amended by Act No. 492/2000 Coll. 2 Act No. 77/1997 Coll. , on the State Enterprise, as amended by Act No. 30/2000 Coll. , Act No. 220/2000 Coll. and Act No. 103/2001 Coll. 3 Act No. 166/1993 Coll. , on the Supreme Audit Office , as amended by Act No. 331/1993 Coll., Act No. 117/1994 Coll. , Act No. 224/1994 Coll. , Act No. 58/1995 Coll. , Act No. 236/1995 Coll. , Act No. 296/1995 Coll. , Act No. 148/1998 Coll. , Act No. 132/2000 Coll. , Act No. 220/2000 Coll. and Act No. 442/2000 Coll. , Act No. 128/2000 Coll. , on Municipalities (the Municipal Order) , Act No. 129/2000 Coll. , on Regions (the Reginal Order) , Act No. 131/2000 Coll. , on the Capital City of Prague, and Act No. 147/2000 Coll., on District Authorities. 4 E.g. Act No. 219/2000 Coll. , on the Assets of the Czech Republic and Its Acting in Legal Relationships, as amended and Act No. 250/2000 Coll., on Budgetary Rules of Territorial Budgets . 2
Definition of Terms
For the purposes of this Act the following definitions shall apply a) body of public administration shall mean a state organisational unit, which is an accounting unit pursuant to a special legal regulation5, a self-governing territorial unit, another legal entity established to perform the tasks of public administration under a special legal regulation6 and other state organisations7; b) controlled person shall mean a body of public administration as mentioned in letter a) and a legal entity or natural person that is an applicant for or beneficiary of public financial aid; controlled person shall also mean a foreign legal entity or natural person that does business in the Czech Republic and is a beneficiary of public financial aid; c) control body shall mean a body of public administration that shall be authorised to perform financial control of a controlled person pursuant to this Act or another act; d) head of a body of public administration shall mean a person or body authorised to act on behalf of the state, on behalf of a self-governing territorial unit or on behalf of a legal entity mentioned in letter a); in the region the head of a body of public administration shall mean the director of the regional authority; e) person obliged to co-operate in the performance of financial control shall mean a legal entity or natural person taking part in supplies of goods or services paid out of public expenditures or out of public financial aid; f) public finances shall mean public revenues and public expenditures; g) public funds shall mean public finances, things, property rights and other assets belonging to the state or another legal entity mentioned in letter a); h) public revenues shall mean revenues of the state or of a legal entity mentioned in letter a); i) public expenditures shall mean expenditures from the state budget, from the budgets of self-governing territorial units, from other financial funds of the state, of a self-governing territorial unit or of other legal entities mentioned in letter a), from finances concentrated in the National Fund8 and from other finances from abroad provided under international agreements or provided for the accomplishment of public administration tasks; j) public financial aid shall mean subsidies, contributions and repayable financial grants-in- aid and other means provided from the state budget, from the budget of a self-governing territorial unit or from the budget of other legal entities mentioned in letter a), from the State Fund, state financial assets; it shall also mean state guarantees, financial aid provided in the form of a tax relief or in the form of exemption from customs duty, funds provided from the National Fund and other funds from abroad provided under international agreements or for the accomplishment of public administration tasks; k) provider of public financial aid shall mean a body of public administration that pursuant to special legal regulations shall be authorised to provide such aid; l) correctness of a financial and property operation ( hereinafter “operation”) shall mean its compliance with legal regulations and attainment of the optimal balance among its economy, efficiency and effectiveness;
5 Section 1, paragraph 2 of Act No. 563/1991 Coll., on Accounting, as amended by Act No. 117/1994 Coll. and Act No. 227/1997 Coll. and Act No. 492/2000 Coll. 6 E.g. Act No. 551/1991 Coll. , on the General Health Insurance Company of the Czech Republic , as amended, Act No. 239/1992 Coll. , on the State Fund of Culture of the Czech Republic, and Act No. 113/1993 Coll., on the Fund of Childern and Youth, as amended by Act No. 220/2000 Coll. 7 Section 51 and the following of Act No. 219/2000 Sb., on the Assets of the Czech Republic and Its Acting in Legal Relationships, as amended. 8 Act No. 218/2000 Coll., on Budgetary Rules and on Amendments of Some Related Acts (Budgetary Rules), as amended by Act No. 493/2000 Coll. 3 m) economy shall mean such a use of public funds as shall ensure that designated tasks shall be performed with the lowest possible expenditure of such funds while maintaining the appropriate quality of the fulfilled tasks; n) effectiveness shall mean such a use of public funds as shall attain the highest possible scope, quality and benefit of the fulfilled tasks in comparison with the volume of the funds expended on performing them; o) efficiency shall mean such a use of public funds as shall ensure the optimum degree of attainment of the aims in performing the designated tasks.
Section 3Financial Control
1) Financial control performed pursuant to this Act shall be a part of a system of financial management securing the administration of public funds. It shall consist of
a) the system of financial controls performed by the control bodies pursuant to Sections 7 to 11,
b) the system of financial controls performed in accordance with international agreements pursuant to Section 24,
c) the internal control system within the public administration bodies pursuant to Sections 25 to 31.
2) The system pursuant to paragraph 1 let. a) shall comprise financial controls of the facts, which are decisive for the administration of public funds in particular the disposal of public expenditures including the public financial aid connected to the controlled persons, and that before their provision, during their use and subsequently after their use (hereinafter “public- administrative control”). 3) The system pursuant to paragraph 1) let. b) shall comprise financial controls of the foreign funds performed by international organisations pursuant to promulgated international agreements by which the Czech Republic is bound9.
4) The system pursuant to paragraph 1) let. c) shall comprise
a) financial controls ensured by responsible chief employees as a part of internal management of the public administration body during preparation of the operations before their approval, during on-going monitoring of the implemented operations until their final settlement, rendering of accounts and the subsequent checking of selected operations within the framework of the overall evaluation of achieved results and the correctness of the administration (hereinafter “managerial controls”);
b) organisationally separated and functionally independent checking and evaluation of adequacy and effectiveness of the managerial control including checking of the correctness of selected operations (hereinafter “internal audit”).
Section 4 Principal Aims of Financial Control
9 E. g. Communication No. 7/1995 Coll., on the Conclusion of the European Treaty on the Association between the Czech Republic, on the One Part, and the European Communities and Their Member States, on the Other Part, as amended by Communication No. 67/1997 Coll., Communication No. 251/1997 Coll., as amended by Communication No. 265/1998 Coll., as amended by Communication No. 75/1999 Coll. and Communication No. 16/2000 Coll. of International Agreements. 4
(1) The principal aims of financial control shall be to check a) the compliance with the legal regulations and measures adopted by bodies of public administration within the scope of these regulations in the use of public funds for ensuring designated tasks by such bodies; b) that public funds are safeguarded against risks, irregularities or other shortcomings caused in particular by breach of the legal regulations, by uneconomical, inefficient and ineffective disposal of public funds or by criminal activity; c) that the heads of bodies of public administration are informed in time and reliably about disposals of public funds, about the operations being performed and about their probative accounting treatment in order to regulate effectively the activity of bodies of public administration in accordance with designated tasks; d) that public administration is executed economically, efficiently and effectively.
(2) If the criteria for evaluation of the positions set out in paragraph 1d) are not laid down by legal regulations, by technical or other norms they must be laid down in advance by the head of the body of public administration, namely on the basis of objectively ascertained circumstances.
Section 5 Organisational Ensuring Financial Control
The heads of bodies of public administration within the framework of their managerial powers shall have the responsibility for organising, managing and ensuring the adequacy and effectiveness of financial control. When introducing and managing financial control in bodies of public administration, their heads shall be obliged to result from internationally recognised standards, at the same time they shall be obliged in particular a) to organise financial control in order to ensure that an adequate certainty, that this control provides timely and reliable information about the administration, which creates the basis for ensuring of the effective management of the public administration performance when fulfilling the approved objectives and aims. b) to ensure that financial control shall be performed by employees who posses the necessary qualification skills, who have at the same time a clean criminal record and with respect to whom no conflict of interests is threatening pursuant to special legal regulations10; as the employee with the clean criminal record is considered an employee who has not been sentenced in legitimate way to an intentional criminal offence, for a crime of neglect relating to property or a crime related to the exercise of public administration, unless the sentence has been nullified or by law the culprit is not regarded as having been sentenced; c) to ensure that undesirable interferences tended to influence employees performing the financial control shall be excluded; employees may not be given an instruction that would jeopardise or make objective performance of financial control impossible; where such an instruction has been issued the employee must not follow it; d) to set the concrete aims of financial control according to nature of the tasks being ensured by public administration and in accordance with its principal aims pursuant to Section 4;
10 E.g. Act No. 65/1965 Coll., Labour Code. 5 e) to monitor and evaluate the results of financial control and after identification of shortcomings to adopt concrete remedial measures without delay, as well as systemic measures designed to preclude and detect in time improper operations and their causes.
Section 6 Control Methods and Control Procedures
(1) The following control methods in particular shall be used in the performance of financial control : a) ascertaining the actual balance of use of public funds and its comparison with the relevant documentation; b) monitoring correctness of procedures in the use of public funds; c) investigating and verifying of facts related to the operations; d) control calculations; e) analysing the data given in financial statements or other information systems and evaluating their mutual relationships. (2) The following control procedures in particular shall be applied in the performance of financial control : a) approval procedures which shall ensure verifying the documentation for the planned operations and which shall suspend such operations if any shortcomings are identified until they are remedied ; b) operating procedures, which shall ensure the complete and precise course of the approved operations until final settlement and rendering of accounts, including control techniques for the verification of documentation and for the compilation of accounting, other financial and statistical statements, announcements and reports as well; c) evaluation procedures which shall ensure that evaluating data regarding performed operations, that have been effected and stored in the information systems and contained in accounting, other financial and statistical statements, announcements and reports, furthermore to ensure comparison of this data with the approved budgets and the evaluation of their consequences for the overall financial management; d) auditing procedures which shall ensure checking of the correctness of selected operations, as well auditing procedures for functionally and organisationally independent evaluation of adequacy and effectiveness of financial controls introduced within the managerial system. (3) Control methods and control procedures shall be possible to use only in accordance with the rules of performing financial control laid down by a special legal regulation 11 and by this Act. (4) More details on control methods and control procedures shall be laid down in the implementing legal regulation.
PART TWO
PUBLIC-ADMINISTRATIVE CONTROL
11 Part Three of Act No.552/1991 Coll., on State Control, as amended by Act No. 166/1993 Coll., Act No. 148/1998 Coll. and Act No. 132/2000 Coll. 6
Title I Competency of Control Bodies
Section 7 Competency of the Ministry of Finance
(1) The Ministry of Finance as the central administration authority for financial control shall methodologically regulate and co-ordinate the performance of financial control in public administration. (2) Unless a special legal regulation12shall state otherwise, the Ministry of Finance and territorial financial bodies shall perform public-administrative control of a) state organisational units, State Funds and other state organisations 7), and that including checking documents on the adequacy and effectiveness of the introduced systems of financial control pursuant to Section 3 par. 1 letter a) and c),; b) providers of public financial aid, with the exception of self-governing territorial units; c) applicants for public financial aid and beneficiaries of such aid, with the exception of those to whom public financial aid was provided from the budget of a self-governing territorial unit.
Section 8 Competency of the Administrators of State Budget Chapters
(1) Administrator of state budget chapter13 shall be obliged to create a system of financial control pursuant to this Act to ensure financial control of both its financial management and the financial management of the state organisational units and contributory organisations in its competency. At the same time it shall ensure checking the adequacy and effectiveness of this system and its evaluation of the system regularly at least once a year.
(2) Providers shall perform public-administrative control of applicants for or beneficiaries of public financial aid with the exception of those to whom public financial aid has been provided from the budget of a self-governing territorial unit.
Section 9 Competency of Self-Governing Territorial Units
(1) Pursuant to this Act self-governing territorial units shall control the financial management of public funds in contributory organisations within their competency. (2) Self-governing territorial units shall perform public-administrative control of applicants for and beneficiaries of public financial aid, which is provided to them. (3) Self-governing territorial units shall be obliged to create a system of financial control pursuant to this Act in order to ensure that there shall be financial control of both their financial management and the financial management of their organisational units and the contributory organisations within their competency. At the same time they shall ensure that the adequacy and effectiveness of this system shall be checked
12 E.g. Section 33 of Act No. 166/1993 Coll., on the Supreme Audit Office, as amended 13 E.g. Section 33 of Act No. 166/1993 Coll., on the Supreme Audit Office, as amended 7
and that the system shall be evaluated regularly at least once a year.
§ 10 Competency of District Authorities
(1) District authorities shall perform public-administrative control in their administrative districts of the state organisational units and contributory organisations within their competency and of state enterprises for which they hold the function of founder pursuant to a special legal regulation. (2) When performing public-administrative control of municipalities and organisations set up by municipalities District authorities shall control only the following: a) facts decisive for the provision of means from the state budget or of other state financial means or from the State Fund or the National Fund; b) compliance with the legal regulations, the economy, efficiency and effectiveness of disposal of means from the state budget or of other state financial means or of means provided from the state budget, from the State Fund, from state financial assets or the National Fund; c) facts decisive for the provision of state guarantee.
Section 11 Joint Provisions on the Competency of Control Bodies
(1) When performing public-administrative control that precede a decision on approval of use of public funds the control bodies shall check the documents submitted by the controlled persons for the planned operations before the operation takes place. This control shall focus mainly on the period before the adoption of the decision or conclusion of the agreement, which is bounding the public administration body to public expenditures or other fulfilment of the property nature and is focused in particular on checking of the facts that are decisive for disposal of these expenditures or other above mentioned fulfilment.
(2) When performing the ex-ante public-administrative control the control bodies shall assess whether the operations being planned and prepared correspond to the designated tasks of public administration and whether they are in compliance with legal regulations, approved budgets, programmes, projects, contracts signed or other decisions made on disposal of public funds.
(3) When performing ongoing public-administrative control of controlled persons administration the control bodies shall check in particular whether these persons: a) keep the stated terms and procedures when implementing, settling and rendering of account approved operations; b) adapt implementation of the operations to new risks in the event of changes in economic, legal, operational and other conditions; c) make timely and precisely records of implemented operations in the introduced files and automated information systems and whether they in time ensure preparation of the stated financial, accounting and other statements, announcements and reports.
(4) When performing ex-post public-administrative control after rendering the operations, the control bodies shall check, examine and evaluate on the selected sample of these operations in particular the following: 8 a) whether the data on the financial management of public funds give a faithful picture of the sources, state and movement of public funds and whether these data correspond to the facts decisive for realising public revenues and expenditures and for disposal of public funds; b) whether the examined operations are in compliance with legal regulations, approved budgets, programmes, projects, contracts signed and other management decisions made and whether they satisfy the criteria of economy, efficiency and effectiveness; c) whether the measures adopted by the relevant bodies of public administration including measures to eliminate, mitigate or preclude risks are fulfilled by the controlled persons .
Title II Procedural Rules
Section 12 Exclusion of Conflict of Interests
On the grounds of exclusion of conflict of public interests with personal ones the heads of control bodies shall be obliged to ensure that neither employees performing public-administrative control nor persons close to them14 have ever had a legal or other relationship with the controlled persons or the subject of this control that arouses justified suspicion about the objectivity of its performance.
Section 13 Rules for Performance of Public-Administrative Control performed on the Spot
(1) Mutual relations between the control bodies and controlled persons during the performance of on-the-spot public-administrative control shall be governed by Part Three of the Act on State Control10, unless this Act stipulates otherwise.
(2) During on-the-spot public administrative control at the legal entity or natural person that is the applicant for or the beneficiary of the public financial aid, employees of the control body shall be able to use control authorisation pursuant to this Act and pursuant the Part Three of the Act on State Control only within the scope necessary for fulfilment of the purpose of this control.
(3) If a control body finds discrepancies in a controlled persons documents regarding supplies of goods or services paid out of public expenditures or out of public financial aid, it shall proceed in the performance of on-the-spot public-administrative control of persons obliged to co-operate in the performance of this control pursuant to paragraph 1.
(4) If a person, being obliged to co-operate pursuant to paragraph 3), has not been already in advance bound to the control in the agreement on supplies of goods or services, the control body shall be entitled to ask documents in the scope that is necessary to verify corresponding operation.
Section 14 Commencement of Public-Administrative Control performed ontheSpot
14 E.g. Section 33 of Act No. 166/1993 Coll., on the Supreme Audit Office, as amended 9
(1) Public-administrative control performed on the spot shall be commenced upon presentation of the written authorisation of the control body to the controlled person . (2) The controlled person shall be obliged at the request of the control body to submit the results of previous controls that are related to the subject of control pursuant to the paragraph 1).
Section 15 Conclusion of on-the-Spot Public-administrative Control
Public-administrative control performed on the spot shall be concluded a) upon the elapse of the period for the filling of objections or appeals pursuant to the Act on State Control15; b) upon the day of delivery of a decision of the control body against which there is no appeal pursuant to a special legal regulation16.
Section 16 Invited Persons
(1) In the interests of an expert assessment of a matter in the performance of on-the-spot public-administrative control other persons, such as experts and interpreters or specialists17, may be invited to take part. The provisions of this Act and Part Three of the Act on State Control shall be applied to invited persons mutatis mutandis. (2) In selecting an invited person the control body shall be obliged to take into consideration the rights and legally safeguarded interests of the controlled person. (3) The head of the control body shall be responsible for the selection of an invited person. The head of the control body shall make out an authorisation for the invited person in the necessary scope and for the time needed. At the same time he/she shall ensure that the invited person shall be given suitable information on his/her rights and obligations when participating in control pursuant to paragraph 1).
Section 17 Fines for Frustrating on-the-Spot Public-administrative Control
(1) If controlled persons has failed to ensure the discharge of obligations pursuant to aspecial legal regulation18, even within an additional period granted and this has not been achieved even with the repeated imposition of disciplinary fines on natural persons pursuant a special legal regulation19, control bodies may impose on the controlled persons a fine for the frustration of the public-administrative control up to the amount of CZK 1,000,000. When imposing a fine for frustration of this control, the seriousness, the duration and the consequences of the illegal conduct shall be taken into consideration in particular.
15 E.g. Section 33 of Act No. 166/1993 Coll., on the Supreme Audit Office, as amended 16 E.g. Section 33 of Act No. 166/1993 Coll., on the Supreme Audit Office, as amended 17 17 Act No. 36/1967 Coll., on Experts and Interpreters 18 Section 14 of Act No. 552/1991 Coll., on State Control. 19 Section 19 of Act No. 552/1991 Coll., on State Control. 10
(2) The fine pursuant to paragraph 1 shall be possible to impose up to 6 months from the day of the failure to discharge the obligations of the controlled person within the additional period granted.
Section 18 Remedial Measures
(1) Controlled person shall be obliged to adopt measures to remedy shortcomings found during the public-administrative control without undue delay and no later than within the term set by the control body. (2) Control bodies shall impose remedial measures on controlled persons, if a special legal regulation so stipulates20, or shall pass on their control findings to the bodies of public administration that are authorised to impose remedial measures on the controlled persons. In such an event the duty to maintain confidentiality pursuant to this Act or a special act21shall apply to the bodies of public administration and their employees.
Section 19 Information on Imposition of Remedial Measures
(1) Bodies of public administration, that shall be authorised to impose remedial measures on a control person, shall be obliged in writing to notify the control body of its imposition and of the fulfilment of such measures, namely within the terms of 3 months from the imposition and fulfilment of the measures. (2) Controlled persons shall be obliged to notify in writing the control body of adoption of measures to remedy shortcomings and of fulfilment of such measures within the term set by the control body . (3) Control bodies shall be authorised to check at the controlled persons that shall be obliged to adopt measures to remedy shortcomings that such measures have been fulfilled. In so doing they shall proceed pursuant to Section 13 (1).
Section 20 Fines for Non-adoption or Non-fulfilment of Adopted Measures to Remedy Shortcomings
(1) In the event that controlled persons, that shall be obliged to adopt measures to remedy shortcomings, do not adopt such measures or fail to perform them by the set deadlines, control bodies may impose on them a fine of up to CZK 1,000,000 for the failure to adopt measures or failure to fulfil adopted measures to remedy shortcomings. (2) A fine pursuant to paragraph 1 may be imposed within 6 months from the day on which the control bodies learnt that the controlled persons have failed to adopt measures or failed to fulfil adopted measures to remedy shortcomings. Such fines may be imposed no later than three years after the conclusion of on-the-spot public-administrative control.
Section 21
20 E.g. Act No. 129/2000 Coll., on Regions (the Regional Order). 21 E. g. Act No. 148/1998 Coll., on the Protection of Confidential Information and Amendments to Some Laws, as amended by Act No. 164/1999 Coll., Act No. 18/2000 Coll., Act No. 29/2000 Coll., Act No. 30/2000 Coll. and Act No. 363/2000 Coll. 11
Joint Provisions on Fines
(1) Fines imposed pursuant to the a special legal regulation19 and pursuant to Sections 17 and 20 of this Act shall be collected and recovered by the control bodies that imposed them. In the proceedings on imposition of such fines it shall be proceeded pursuant to the Administrative Code22and their payment and recovery shall be proceeded pursuant to a special legal regulation23. (2) Fines pursuant to paragraph 1 shall be the budget revenue for the body that imposed them. If a control body financed from the state budget imposes them, such fines shall be the state budget revenue.
Section 22 Reporting on the Results of Financial Controls
(1) The Ministry of Finance shall submit to the Government an annual report on the results of financial controls together with the proposal for the state final account. At the same time it shall pass this report to the Supreme Audit Office. (2) Administrators of budget chapters performing financial control pursuant to this Act, regions and the Capital City of Prague shall submit to the Ministry of Finance annual reports on the results of financial controls. (3) State organisational units and legal entities managing public funds shall submit annual reports on the results of financial controls to the appropriate administrators of budget chapters. Municipalities shall submit such reports to the regions and town parts shall submit them to the Capital City of Prague. The reports of statutory towns shall include the results of financial controls of the self-government bodies of the town districts or the town parts24. (4) Reports pursuant to paragraphs 1 to 3 shall also contain a part about assessment of the adequacy and effectiveness of the introduced system of financial control, including a summary of control findings passed on for further proceedings pursuant to special legal regulations25. In case the Act refers to the obligation of the public administration body the system of financial control shall be introduced at other public administration bodies, the body obligated to introduce the system, shall submit annual reports also for these bodies. (5) The structure and scope of reports on the results of financial controls and the procedure and deadlines for their submission shall be stipulated by an implementing legal regulation. (6) Control bodies shall inform the Ministry of Finance of material findings of implemented financial controls no later than 1 month after the conclusion of the financial control. As material finding shall be considered:
22 Act No. 71/1967 Coll., on Administrative Procedure (the Administrative Code), as amended. 23 E.g. Act No. 337/1992 Coll., on Administration of Taxes and Fees, as amended by Act No. 35/1993 Coll., Act No. 157/1993 Coll., Act No. 302/1993 Coll., Act No. 315/1993 Coll., Act No. 323/1993 Coll., Act No. 85/1994 Coll., Act No. 255/1994 Coll., Act No. 59/1995 Coll., Act No. 118/1995 Coll., Act No. 323/1996 Coll., Act 61/1997 Coll., Act No. 91/1998 Coll., Act No. 168/1998 Coll., Act No. 29/2000 Coll., Act No. 159/2000 Coll., Act No. 218/2000 Coll., Act No. 227/2000 Coll., Act No. 367/2000 Coll. and Act No. 492/2000 Coll.
24 Section 4 of Act No. 128/2000 Coll., on Municipalities (the Municipal Order) . 25 E. g. Act No. 337/1992 Coll., on Administration of Taxes and Fees, as amended and the Criminal Code. 12 a) finding based on which the control body pursuant to a special legal regulation 26announced to the state prosecutor or police authorities the facts indicating that a criminal offence has been committed; b) finding of unauthorised use, withholding, loss or damage of public funds in the amount over CZK 300,000. (7) Fulfilment of the duty pursuant to paragraph 6b) shall not affect the control body’s duty to notify the appropriate tax administrator of findings indicating breach of budgetary or tax discipline pursuant to a special legal regulation23.
Section 23 Co-operation in the Area of Financial Control
(1) The bodies of public administration shall co-operate with each other to assure an adequate and effective system of financial control in public administration. (2) As part of this co-operation the bodies of public administration shall, when so requested, inform each other of programmes and other objectives of their financial controls and of the performance and results of financial controls, if this is not in violation of a special legal regulation21. (3) Bodies of public administration shall co-operate with the Supreme Audit Office in assuring an adequate and effective system of financial control. When so requested, bodies of public administration shall furnish the Supreme Audit Office with the information pursuant to paragraph 2 for the elaboration of the plan of audit activity of the Supreme Audit Office.
PART THREE FINANCIAL CONTROL PURSUANT TO INTERNATIONAL AGREEMENTS
Section 24 Rules for the Performance of Financial Control pursuant to International Agreements
(1) If so stipulated by a promulgated international agreement by which the Czech Republic is bound9, international organisations, through their control bodies or designated agents, may perform financial control pursuant to this Act in the scope and on the terms stipulated by this agreement. (2) If so stipulated by an agreement mentioned in paragraph 1), international organisations shall be authorised, in the scope and on the terms stipulated by the this agreement, to request co-operation of bodies of public administration in the Czech Republic in financial control or in ensuring performance of financial control. The body of public administration being requested shall be obliged to comply with the request. As part of this co-operation the affected bodies shall inform each other of the subject, purpose and results of financial control, shall co-ordinate performance of financial control and shall proceed in financial control in mutual collaboration. (3) Bodies of public administration as controlled persons and persons obliged to co-operate in the performance of financial control shall be obliged in the cases mentioned in paragraphs 1 and 2 to make the performance of financial control possible. (4) If the agreement stipulated in paragraph 1) so allows, the appropriate bodies of public administration of the Czech Republic shall demand from international
26 Section 24 of Act No. 552/1991 Coll., on State Control, as amended and Section 8 of the Criminal Code. 13
organisations reports on the financial control that such organisations have performed. (5) Bodies of public administration shall be obliged to furnish the Ministry of Finance with information on financial control and the results thereof which it provided to international organisations upon request therefrom.
PART FOUR INTERNAL CONTROL SYSTEM
TITLE I Introduction, maintenance and checking effectiveness of the internal control system
Section 25 Duties of the Head of a Body of Public Administration and chief employees
(1) The head of public administration body shall be within his/her responsibility obligated to introduce and maintain in this body the internal control system, which: a) shall create conditions for economic, effective and efficient performance of public administration, b) shall be competent to identify, evaluate and minimalize in time operational, financial, legal and other risks arising in connection with the fulfilment of approved objectives and aims, c) shall comprise the procedures for timely reporting of information to appropriate managerial levels and on occurrence of serious shortcomings and on adopted and fulfilled remedial measures.
(2) In order to fulfil the duties pursuant to paragraph 1) the head of public administration body shall define in compliance with Section 5 status and competency organisational state units, which are not accounting units pursuant to a special legal regulation, organisational sections of self-governing territorial units, organisational units, heads and other employees in order to ensure functioning of managerial control and internal audit. In order to in particular:
a) shall define the scope of corresponding powers and responsibilities of the heads and other employees when disposing of public funds including entire and precise definition of the duties in relation to their tasks being fulfilled, b) shall ensure separation of the power and responsibility when preparing, approving, implementing and controlling operations in particular in relation to a tender, concluding contracts, arising obligations, payments and collecting claims, c) shall ensure, that the record on all operations and controls is carried out and appropriate documentation is kept, d) shall adopt all necessary measures to protect public funds, e) shall ensure economic, effective and efficient use of public funds in compliance with the principles of sound management stipulated in paragraph 1), f) shall monitor and ensure the fulfilment of decisive tasks of the public administration body to achieve approved objectives and aims.
3) In case of serious finding the head of public administration body shall proceed pursuant to Section 22 paragraph 6 mutatis mutandis.
4) All chief employees of the public administration body shall be obligated to ensure 14
functioning of internal control system within the defined duties, competencies and responsibilities. At the same time, they shall be obligated to submit timely and reliable information to the head of public administration body of the results achieved when fulfilling the stipulated tasks, of arising significant risks, of serious shortcomings in the functioning of public administration body, and of adopted and fulfilled remedial measures.
5) The procedural rules pursuant to paragraphs 12 to 21 shall not be applied for the performance of financial control within the internal control system of public administration body.
TITLE II Managerial Control
Section 26 Ex-ante Control
(1) Within a body of public administration ex-ante control of operations being planned and prepared shall be ensured by a) head of this body or chief employees authorised by him/her to use public funds of the body of public administration as the party ordering operations; b) chief employee of organisational unit responsible for administering the budget of the body of public administration or other employee authorised to it by the head of such body as budget administrator; c) chief employee of organisational unit responsible for keeping the accounts of the body of public administration or other employee authorised to it by the head of such body as the chief accountant. (2) Mergence of the functions pursuant to paragraph 1 shall be inadmissible, unless stipulated otherwise. (3) Mergence of the functions pursuant to paragraph 1b) and 1c) shall be possible in cases where it is justified by a small probability of occurrence of unequal risks for the financial management of public funds in particular in respect to the nature of the functioning of the public administration body, set tasks, level of difficulty of the financial management, the structure and number of employees. (4) The provision of Section 11 (1) shall be applied mutatis mutandis for the orientation of ex-ante control and for its performance the control procedures pursuant to Section 6 (2)(a) in particular shall be applied. (5) If the persons mentioned in paragraph 1b) and 1c) find that operation has been performed without ex-ante control, they shall report in writing their findings to the head of the body of public administration. He/she shall be obliged to adopt measures to check this uncontrolled operation and measures to assure the due performance of ex-ante control.
Section 27 Ongoing and Ex-post Control
(1) Within a body of public administration ongoing and ex-post control shall be ensured by its head through the chief employees of organisational units or employees authorised to it who shall ensure directly the performance of operations where public funds are used. 15
(2) The provision of Section 11 (2) and 11 (3) shall be applied mutatis mutandis for the orientation of ongoing and ex-post control and the control procedures pursuant to Section 6 (2)(b)to (d) in particular shall be applied for its performance. (3) If the persons mentioned in paragraph 1 learn during the performance of ongoing and ex-post control that the public funds are being used uneconomically, inefficiently and ineffectively or at variance with the legal regulations, they shall report their findings in writing to the head of the body of public administration. He/she shall be obliged to adopt measures to remedy shortcomings found and measures to assure the due performance of the these controls.
TITLE III Internal Audit
Section 28 Functional Independence of Internal Audit
(1) Within a body of public administration internal audit shall be ensured by an functionally independent unit or as the case may be by an employee especially authorised to it, organisationally separated from managerial executive structures (hereinafter “internal audit unit”). (2) Internal audit shall be independent and objective checking and evaluation of operations and of public administration body internal control system, which identifies whether:
a) legal regulations, adopted measures and set procedures in functioning of the public administration body are being complied with, b) risks, related to functioning of the public administration body are being recognised in time and whether are being adopted corresponding measures for their exclusion or diminution, c) managerial controls provide reliable and timely operational, financial and other information to the head of public administration body, d) operational and financial criteria are being fulfilled pursuant to Section 4 e) introduced internal control system is sufficiently efficient, react in time to the changes of economic, legal, operational and other conditions, f) achieved results when fulfilling decisive tasks of the public administration body provide sufficient assuring that approved objectives and aims of this body will be fulfilled.
(3) On the basis of its findings, the internal audit unit shall submit recommendation to improvement of quality of internal control system, to prevention or diminution of risks and to adoption of measures to remedy identified shortcomings, to the head of public administration body. At the same time this unit shall ensure consulting activity within the public administration body. (4) Internal audit shall comprise in particular: a) financial audits verifying the data reported in financial, accounting and other statements faithfully describing the property, financial resources and its management, b) system audits checking and evaluating the systems of ensuring of revenues of public administration body including collecting claims, financing its activity and ensuring administration of public funds, 16
c) performance audits examining economy, effectiveness and efficiency of operations and adequacy and effectiveness of the internal control system, on the basis of samples.
Section 29 Status of Internal Audit Unit
(1) Internal audit unit shall be directly subordinated to the head of public administration body that shall ensure its functional independence and organisational separation from managerial executive structures. (2) The head of internal audit unit respectively employee stipulated in Section 28 paragraph 1) shall be appointed and repealed by the head of public administration body. (3) Internal audit unit shall not be able to be delegated tasks, which shall be in contradiction with independent fulfilment of the tasks set out to it. (4) In cases with a low probability of occurrence of inadequate risks when managing public funds, namely in particular in relation to the nature of ensured tasks, structure and level of the difficulty of internal management, public administration bodies pursuant to Section 8 paragraph 1) at organisational state units and contributory organisations in the scope of their competency, self-governing territorial units pursuant to Section 9 paragraph 3) at their organisational units and contributory organisations, shall be able to substitute the function of internal audit unit in the scope of their competency, by performance of public-administrative control pursuant to Part two of this Act. (5) The municipalities having less than 15 000 inhabitants shall be able to substitute the function of internal audit unit by the adoption of other sufficient measures. In such case they shall ensure ongoing monitoring and evaluation of effectiveness of these measures and at the same time they shall consider introduction of internal audit unit. As far as this evaluation is concerned, it finds out, that adopted measures are not sufficiently effective, the municipalities are obligated to establish an internal audit unit without undue delay.
Section 30 Planning of Internal Audit
1) Internal audit shall be performed within the public administration body in compliance with a middle-term plan and annual plans of individual audits. 2) The middle-term plan shall stipulate priorities and shall reflect needs of the public administration body from the point of view of hitherto results of its functioning and expected objectives and aims for a period of more than one year. 3) Annual plan shall precise the scope, factual orientation and type of audits, their aims, scheduling and staffing, on the basis of middle-term plan. 4) Internal audit plans shall be elaborated by the internal audit unit on the basis of objective evaluation of risks arising from set tasks of the public administration body with respect to the results of public-administrative and other control, implemented within this body, and to findings of internal control system. 5) The head of the internal audit unit shall discuss the preparation of plans with the head of the public administration body, which shall approve these plans. While he/she shall take into account his/her recommendations. 6) In extra-justified cases the internal audit unit shall be able to arrange operatively the performance of concrete audit apart from approved annual plan. 17
7) The head of the public administration body shall ensure at least once a year checking of the effectiveness of internal control system, which shall include all controlling activities within internal operational and financial management of this body. In cases, where there has not been introduced a function of internal audit yet, the need of its introduction shall be examined within this body.
Section 31 Reporting
1) The internal audit unit shall report its findings from performed audits, without undue delay, to the head of the public administration body with a recommendation to adoption of measures pursuant to Section 28 paragraph 3. 2) If the internal audit unit finds out, that on the basis of an announcement of managerial control or on the basis its own proposal appropriate measures have not been adopted, it shall be obligated to report this finding in writing to the head of the public administration body. 3) Internal audit results shall be comprehensively given in the annual report submitted to the head of the public administration body, which in particular:
a) shall evaluate overall quality of internal control system, b) shall analyse the occurrence of serious shortcomings, which unfavourably influenced the activity of public administration body including shortcomings in functioning of internal control system, and which were the reason for diminution of financial performance in activity of the public administration body, c) shall submit recommendations for improvement of operational management and financial activity of the public administration body and its internal control system.
4) On the basis of internal audit unit recommendations given in the report pursuant to paragraph 3) the head of the public administration body shall adopt corresponding measures. 5) The report pursuant to paragraph 3) and adopted measures pursuant to paragraph 4) shall be the basis for elaboration of annual report to the public administration body pursuant to Section 22, which includes the data and information of the results of financial controls within this body.
TITLE V TRANSITORY AND ENABELING PROVISIONS
Section 32 Transitory Provisions
(1) Financial controls and controls that have the nature of financial controls within the meaning of this Act and that where commenced prior to the effective date of this Act shall be concluded pursuant to the hitherto existing legal regulations. 18
(2) Upon the date of entry into effect and force of this Act pursuant to paragraph 1 financial revisions and controls of purpose-earmarked subsidies, refundable financial assistance, loans and contributions provided from the state budget of the Czech Republic and from the State Funds of the Czech Republic pursuant to a special legal regulation 27 shall be deemed to be controls pursuant to this Act and shall be henceforth governed by this Act. (3) The head of the body of public administration shall ensure that a system of financial control pursuant to this Act shall be introduced within 6 months of this Act´s entry into effectiveness.
Section 33 Enabling Provision
A decree implementing Section 6 (4) and Section 22 (5) shall be issued by the Ministry of Finance.
PART VI AMENDMENT OF ACT ON BUDGETARY RULES
Section 34
Act No. 218/2000 Coll., on Budgetary Rules and on Amendments of Some Related Acts (Budgetary Rules), as amended by Act No. 493/2000 Coll., Act No. … and Act No. ……Coll. is amended as follows:
1) Section 39 including the footnote No. 22 shall be worded as follows:
“Section 39 (1) The chapter administrator shall be responsible for the financial management of state budget means and other state financial means within its chapter. (2) The Ministry of Finance, territorial financial bodies, chapter administrators and District authorities shall ensure the control of the financial management of state budget means and other state financial means and finances of the National Fund (hereinafter “financial control”) pursuant to a special legal regulation22.
------22 Act No. ……Coll., on Financial Control in Public Administration and on Amendments to Some Acts (Act on Financial Control)”
2) Sections 40, 41 and 42 shall be repealed.
3) Section 43 shall be worded as follows:
“Section 43
27 Act No. 531/1990 Coll., on Territorial Financial Bodies, as amended by Act No. 337/1992 Coll., Act No. 35/1993 Coll., Act No. 325/1993 Coll., Act. No. 85/1994 Coll., Act No. 311/1999 Coll., Act No. 132/2000 Coll., Act No. 218/2000 Coll., Act. No 253/2000 Coll. and Act No. 58/2001 Coll. 19
If funds from abroad are provided via the state budget, financial control of such funds shall be proceeded pursuant to a special legal regulation22.”
4) In Section 44 paragraph 6 the wording “after exhaustion of regular remedial measures pursuant to a special legal regulation22” shall be repealed.
PART VII AMENDMENT OF BUDGETARY RULES OF TERRITORIAL BUDGETS
Section 35
In Act No. 250/2000 Coll., on Budgetary Rules of Territorial Budgets, the current wording in the Section 15 shall be marked as paragraph 1 and the paragraph 2 including the footnote No 10a) shall be worded as follows “Self-governing territorial units shall ensure the performance of financial control pursuant to a special legal regulation10a.
------10a Act No. …… Coll., on Financial Control in Public Administration and on Amendments of Some Acts (Act on Financial Control).”
PART VIII AMENDMENT OF ACT ON CAPITAL CITY OF PRAGUE
Section 36
Act No. 131/2000 Coll., on the Capital City of Prague, as amended by Act No. 145/2001 Coll., shall be amended as follows: 1) In the Section 2 the paragraph 4 shall be inserted and shall be worded including the footnote No. 1a as follows: “(4) The Capital City of Prague shall ensure the performance of financial control pursuant to a special legal regulation1a.
1a Act No. …..Coll., on Financial Control in Public Administration and on Amendments of Some Acts (Act on Financial Control)”.
2) In Section 3 the paragraph 4 shall be inserted and shall be worded as follows: “(4) Town parts shall ensure the performance of financial control pursuant to a special legal regulation.1a”
PART IX AMENDMENT OF ACT ON MUNICIPALITIES (THE MUNICIPAL ORDER)
Section 37 20
In Act No. 128/2000 Coll., on Municipalities (the Municipal Order) the new Section 9a shall be inserted after Section 9 and shall be worded including the footnote No. 2a as follows:
“Section 9a
Municipalities shall ensure the performance of financial control pursuant to a special legal regulation.2a
2a Act No. ……..Coll., on Financial Control in Public Administration and on Amendments of Some Acts (Act on Financial Control).”
PART X AMENDMENT OF ACT ON REGIONS (THE REGIONAL ORDER)
Section 38
In Act No. 129/2000 Coll., on Regions (the Regional Order) in Section 2 the paragraph 3 shall be inserted and shall be worded including the footnote No. 1a as follows: “ (4) Regions shall ensure the performance of financial control pursuant to the Budgetary Rules of Territorial Budgets and pursuant to a special legal regulation.1a
1a Act No. ……Coll., on Financial Control in Public Administration and on Amendments of Some Acts (Act on Financial Control).”
PART XI AMENDMET OF ACT ON DISTRICT AUTHORITIES
Section 39
In Act No. 147/2000 Coll., on District Authorities, in Section 9 the current text shall be marked as paragraph 1 and paragraph 2 shall be inserted and shall be worded including the footnote No. 7a as follows: “(2) District authority shall ensure the performance of financial control at its organisational units and contributory organisations and at municipalities and organisations established by municipalities pursuant to a special legal regulation.7a 7a Act No. ……Coll., on Financial Control in Public Administration and on Amendments of Some Acts (Act on Financial Control).”
PART XII AMENDMENT OF ACT ON ADMINISTRATION OF TAXES AND FEES
Section 40
In Act No. 337/1992 Coll., on Administration of Taxes and Fees, as amended by Act No. 255/1994 Coll., Act No. 59/1995 Coll., Act No. 118/1995 Coll., Act No. 242/1997 Coll., Act No. 91/1998 Coll., Act No. 168/1998 Coll. and Act No. 159/2000 Coll. in the Section 24 21 paragraph 6 at the end of letter i) a full stop shall be substituted by a coma and a letter j) shall be inserted and shall be worded including the footnote No. 12a as follows: “ j) The Ministry of Finance shall be provided with information on the amount of the designated transfer of unauthorised use or withhold means of the state budget or State Funds on the basis of a special legal regulation.12a
12a Section 18 of Act No. …….Coll., on Financial Control in Public Administration and on Amendments of Some Acts (Act on Financial Control).”
PART XIII AMENDMENT OF ACT ON THE ASSETS OF THE CZECH REPUBLIC AND ITS ACTING IN LEGAL RELATIONSHIPS
Section 41
Act No. 219/2000 Coll., on the Assets of the Czech Republic and Its Acting in Legal Relationships, as amended by Act No. 492/2000 Coll. and Act No. …../2001 Coll. shall be substituted as follows:
1. In Section 48 paragraph 1 the word “Internal” and the words “(hereinafter “control”)” shall be repealed. 2. In Section 49 paragraph 1 including the footnote No. 65a) shall be worded as follows: “ (1) The control methods, control procedures and mutual relations of control bodies and controlled organisational units when performing control shall be governed by special legal regulations65a settling financial control and its performance and rules contained in the internal regulations issued by the control bodies.
65a E.g. Act No. ………Col., on Financial Control in Public Administration and on Amendments of Some Acts (Act Financial Control).”
PART XIV EFFECTIVE DATE
Section 42
This Act shall enter into effectiveness on 1 January 2002.