French solutions in auditing local government owned enterprises

2018-11-12 15:09   |   Author: Dr. Vargha Bálint Tamás

External audit has revealed that the fairly complex system of controls applicable to enterprises owned by local governments can be further improved (France).

Zian Roch (first counsellor, regional chamber of accounts, Ile de France) gave a glance at the vast variety of enterprises owned by French local governments. The speaker has pointed out that these companies are also manifold in terms of their activities - their scope encompassing various areas of public interest such as tourism, economic development, public housing.

 

 

Since 2013 in France an average of 50 companies are being founded by local authorities annually. This has resulted that by now more than 1200 local authority owned enterprises operate in the country their market capitalization amounting up to a 4.3 billion EUR. Within this group public assets may be present to a very different degree. In the meanwhile, relevant legislation only distinguishes based on the extent of shares held by public entities, establishing three legal categories. Control mechanisms applicable to these companies are on the other hand spread around different levels and several responsible entities. Shareholders’ control tools - besides traditional instruments under civil law - do also encompass the opportunity for local governments to request audits on the companies owned by them at the regional chamber of accounts. Besides conventional financial audits the chamber is also mandated to evaluate the financial risks of the company upon the call of the prefect of the department, whereas a further key body of external control is the court of budgetary discipline. It is characteristic for these audits that the draft report is not only communicated for the purposes of comments and validation for the management of the company, but also to the shareholders of the company – in this case the local governments.

 

A sensitive issue is the publication of reports on this domain, as requirements stemming from business confidentiality need also be taken into account. The presenter gave an overview on the typical shortcomings revealed through audits at nine companies. If a disproportionate amount of the revenues of the company comes from public subsidies constitutes a risk, in another case a waste management company has employed multiple intermediaries, in the meanwhile operating on higher cost levels. It also has been established that a district heating company has charged clients for higher prices than justified by the national average, while continuously making loss for the shareholders. Those companies also pose a risk for public funds that do not carry out any meaningful economic activity throughout years.

 

Altogether these audits suggest that some control mechanisms of the companies are by now outdated and can not fully live up to their roles. Recognition of this fact has triggered several reform initiatives, among these an important task is carried out by the working group designed to amend the controlling guidelines applicable for local government owned companies.

 

Balint Vargha

Auditor counsellor