The function and role of the Government Control Office (GCO) in the system of controls

1. The function and role of theGovernmentControl Office (GCO)inthesystem of controls dr. Hegedűs László 19 June,2012.

2. The subject of thepresentation • The presenting of the GCO • Changes of theauthority and function of the GCO 2010 – 2012 • New procedures of the GCO 2012 • The results of theworkofthe GCO over thepast 2 years • GCO controlprocedures

3. The presentingof the GCO

4. The Control System of the Public Finances • External (legislative) controlState Audit Office • Governmentlevelcontrol governmentcontrolorganization(GCO)organizationforthecontrol of europeanfundsStateTreasury • Internalcontrolsystem Realisedbytheinternalcontrolsystem of thebudgetaryinstitutions (includinginternal audit)

5. GovernmentControl: • Independent fromthecontrolledorganization, • Primarilyexaminingtheuse of publicfunds, the management and safekeeping of nationalwealth, theeffective, efficient and economicfulfillment of publictasks • objective, fact-finding, conclusion-drawingand proposal-making • Controllingorconsultativefunction. The GCO reportsoninvestigationsconducted.

6. The legal status of GCO • The GCO is thegovernmentcontrolorganizationappointedbytheGovernment • Centraloffice (establishedbythedecree of theGovernment, centraladministrativeorganizationfunctioningunderthecontroloftheminister) • ControledbytheMinister of Administration • The president of the GCO is appointed (ordismissed) bythePrimeMinisteron a proposal made bytheMinister of Administration

7. The legal status of theGCO II. • The fulfillment of thecontrolfunction is basedon an annualcontrolplanapprovedbytheGovernment. • The Government, thePrimeMinisterortheMinister of Administrationcanorderthe GCO toperformextraordinarycontrols. • The GCO reportsonitsactivityannually, viatheMinister • Licensedmanpower : 133 people

8. Structure of GCO President internalauditor Cabinet Economicdepartment Vice-president Controllingfunction Vice-president Controllingfunction Department Department Department Department Department Department Section Section Section Section Section Section Section Section Section Section Section Section

9. The connection of GCO and theinternalcontrolsystem Minister of Public Finances • Functions: • Coordinatingtheannualplanning and thefulfilling of thegovernmentcontrol and thecontrol of thechapters • Sharingthecontrolexperiences of the GCO and theMinistries, cooperation, • Recomendations, notionsregardingthegovernmentcontrol • Givingopiniononlaw-drafts, recomendationsregardingpublicfinancecontrols • Members: • GCO, Ministries and theCatatsropheDefenseDirectorat • GCO is thesecretariatfortheGovernmentControl Team. The prsident of GCO is thepresident of the GCT. Coordination and harmonization InternalControl of Public Finances Team GovernmentControl Team

10. The president of the GCO • Briefing of thecontrolmanagers of theministriesregularly • Has the right of objectionregardingtheappointment, exemptionand reassignment of thecontrolmanagersoftheministries • Organizingtheprofessionalconference of thecontrolmanagersoftheministriestwotimes a year • takescharge of advancedtrainingofthecomtrolmanagers

11. The changesin theauthority and functions of theGCO

12. The authority of the GCO from 1. January 2012. a) Thecontrol of theimplementationofGovernmentdecisions, b) GovernmentControl of thebudgetaryinstitutionssupervisedbytheGovernment, aswellasthatoftheusageofthecentralbudgetarychaptersand budgetappropriationshandledaschapterssupervisedbytheGovernment, that of extrabudgetaryfunds and funds of socialinsurance c) the control of budgetaryorothersupportallocated from the central subsystem of publicfinance- including support and aid received under international treaties - given to commercial entities, public foundations, public bodies, foundations, regional development councils and associations, and the control of the use of property granted by the State gratuitously to the above-mentioned organizations for special purposes, d) the control of business organisationswhich, with respect to national economy, form priority part of national property and are permanently in state ownership, and the control of commercial entities - other than the National Bank of Hungary - in which the Government is a majority shareholder,

13. e) the control of foundations and public foundations the founder rights of which are exercised by budgetary institutions under the direction or supervision of the Government, or which receive state support from the central subsystem of public finance, f) the control of the legitimacy of granting or drawing-down of public guarantees, including the control of the central budget and the compliance with the provisions of security documents both as regards the initial obligor and the obligee under the contract, g)the control of the operation and financial management of private pension funds and organizations defined by Act No. LXXXII of 1997 on private pensions and private pension funds before the transfer of their portfolios, including the control of portfolio assets directly or indirectly managed by these organizations - with the aim of control of the legitimacy of financial management concerning portfolios transferred to the Pension Reform and Debt Reduction Fund under Art. 24(11) of Act No. LXXXII of 1997 on private pensions and private pension funds, h) the control of legal relationships arising in connection with points a) - g), and of contracting parties who are directly or indirectly taking part in the fulfilment of the conditions of such a relationship, i) the control of the legitimacy of the financial management of the Fund Against National Debt. The authority of the GCO from 1. January2012. II.

14. The expansion of theauthority and functions of GCO 12 March2011 – 10 June 2011 Before 15 August 2010 15 August 2010– 12 March 2011 From 10 June2011 4 scopes of authority 7scopes of authority 8 scopes of authority 9 scopes of authority

15. GCO has no controllingauthority over: • theParliament • thePresidency of theRepublic • theConstitutionalCourt • the Office of theCommissionerforFundamentalRigths • theState Audit Office of Hungary • theCourts of Justice • theProsecution Service of Hungary • theHungarianCompetitionAuthority • theHungarianAcademy of Sciences • budgetaryinstitiutionsbelongingunderthechapter of theHungarianAcademyofArts • theCentral Bank of Hungary. Chapters of

16. Companies and privatepensionfunds budgetaryinstitutionsthatarenotsupervisedbytheGovernment • Central Bank, • PPF afterJune 2011 • Othercommercialentities BudgetaryInstitutions GCO Budgetaryinstitutions of local governments budgetaryinstitutionssupervisedbytheGovernment • companieswhichbelongtothenationalwealth, ownedbythestateand areparticularlysignificantforthenationaleconomy • companiesinwhichthestateis a majorityshareholder • Privatepensionfunds1998-June 2011 CooperationAgainstPublic DebtFund Use of supports and givenwealth Governmentdecisions • Business organizations • Public foundations • Public bodies • Foundations • Regionaldevelopementcouncils • Associations STATE WARRANTS FOUNDATIONS, PUBLIC FOUNDATIONS • therights of thefounderareexercisedbythebudgetaryinstitutionsupervisedbytheGovernmentor • receivesupportfromthecentralbudget Local governmental Public Foundations

17. New proceduresof the GCO 2012

18. Acton Public Finance(authorityrules) + • Before 1 January 2012 GovernmentDecree 193 of 2003 (XII. 26.) ontheinternalcontrol of budgetaryinstitutions(generalrulesofcontrol) GovernmentDecree 312 of 2006 (XII. 23.) ontheGovernmentControl Office (specialrules) • From 1 January 2012 GovernmentDecree 355 of 2011 (XII. 30.) ontheGovernmentControl Office

19. Administrativefine; • Means of lossprevention and reduction • Blocking of accounts, • Suspension of thedisbursementofbudgetarysupports, • Suspension of thedisbursementofofferingsfromthe 1% of PersonalIncomeTax, • Suspension of refundingofValueAddedTax; • Right of enforcementof civil lawclaims and directrepayment of budgetarysupports; • Jointcontrolbasedoncooperationagreement; • Consultantactivity. New functions Expandingtoolkit

20. 1. Administrativefine DuringthecontrolprocesstheGCO mayimpose a fineon: • theleaderortheemployee of thecontrolledorganizationorotherpersonality • whopossessesdata, facts, informationnecessaryforconductingthecontrol and • whowrongfullyviolatestheprinciple of co-operation, ofthesupplyingofdata, oranyobligationregardingthefacilitationoftheconductofthegovernmentcontrol. The penalty is imposed: • bythepresident of the GCO • Inaccordancewiththerules of administrativeprocedure • in a resolution. The amount of thepenaltyshall be a minimum of 5 000 and upto 500 000 HUF (17 – 1680 EUR)

21. 2. Lossprevention and reduction Incasethe GCO findsunlawful, improperorwastefulusage of publicfundsorofthewealthofstate, forthepurposeoflossprevention and reduction, the GCO mayrequest: • theblocking of treasury account and bank accounts (exceptforthat of wages and therelatingcommoncharges), • thesuspensionof thedisbursement of supportsallocatedfromthecentralbudget, • thesuspension of thedisbursementofofferingsfromthe 1% of PersonalIncomeTax • thesuspension of therefunding of ValueAddedTaxfortheorganization being controlled. The authorityororganizationwhich is askedtotaketheabovemeasures has toactwithin 15 days.

22. 3. Right of enforcementof civil lawclaims and directrepaymentof budgetarysupports The GCO canproceedwithout extra power of attorneyonbehalfoftheentitledpersonin front of thecourts and otherauthoritiesaswellasthirdpersonalitiesforthepurpose of: • enforcing civil lawclaims and rightsrelatingtothesubject of thecontrolor • therepayment of budgetarysupport • whichbehovesto a budgetaryinstitutionwhich, with respect to national economy, form priority part of national property and ispermanently in state ownership and in which the Government is a majority shareholder,

23. 4. Jointcontrolbasedonco-operationagreement • Basedonco-operationagreements, the GCO canperformjointcontrolsinco-operationwithsupervisory and officialcontrolorganizations. (ForexamplewiththeNational Tax and Customs Administrationorthe Financial SupervisoryAuthority.)

24. 5. Consultantactivity Bydecision of theGovernmentorpursuanttothemandatebythePrimeMinisterorthatoftheMinisterofAdministration, the GCO pursuesconsultantactivity. • The assignmentfortheconsultantactivity • must be inwrittenformifthepurpose is writtenconsultancy; • can be verbalifthepurpose is verbalconsultancy; • must containthesubject, tasks and goal of theconsultantactivity, aswellastheform and deadline of thereport. • Forthepurpose of fulfillingtheconsultantactivity, the GCO mayaskdataproviding, informationverifying, ordocumentsendingfromanyauthority, governmentalorselfgovernmentalorganization, business organizationorperson. • No report of control is made duringtheconsultantactivity.

25. The resultsof theworkofthe GCO over thepast 2 years

26. The results of theworkof GCO fromJune 2010 • 54 controlprocedures (25 ongoing) • 44 denuncations/accusations • 4,6 Billion HUF (15,4 Million EUR) budgetarysupportrepayedorrestrained • Proposalforrepayment of 8,3 Billion HUF (27,8 Million EUR) support (because of malpractice) • 8,01 Billion HUF (26,9 Million EUR) of civil lawclaimsdisclosedbehovingthestate • 31 Billion HUF (104 Million EUR) of financialdamagecausedbycriminalactivity

27. The influence of the GCO controlonthebudget (million EUR) Civil lawclaimsdisclosed Proposalforrepayment Operationalcosts of GCO June 2010 – 31. December 2011. Budgetarysupportrepayedorrestrained 70,1 improvementonthebalance of thebudget

28. Operationalcosts and influenceonbudget/person (thousand EUR) Operationalcostper person Influenceonbudget per person

29. GCO controlprocedures

30. Artists 18,3 Bill HUF =61,4 M EUR 21,3 Bill HUF = 71,4 M EUR Credits, assignments– unlawful 5,1 Bill HUF = 17,1 M EUR bank debt Ministry Supportcontract Public Fundation Banks 3,7 Bill HUF repayment of support, accusation of misappropriation, 3 M HUF publicprocurementfine Ministry: unfundedlongtermcommitments, acceptance of irregularpay-offs Public Fundation: supportsexceedingthebudget, overspendingoperationalcosts, causlesspayments of contracts, irregularlygiven art awards, irregular interest subsidy, irregularlygiven art supports, 1,3 Bill HUF (4,3 M EUR) assetsfromrefundablesupports, ignoringpublicprocurementprocedure The functioning of a publicfundation 2006 - 2010

31. Thankyouforyourattention.