1. T HE DEBT OF THE LOCAL GOVERNMENT UNITS IN P OLAND T HE DEBT OF THE LOCAL GOVERNMENT UNITS IN P OLAND Iwona Zyman, Director of the Regional Branch in Opole SUPREME AUDIT OFFICE OF POLAND www.nik.gov.pl Vilnius, 9-11.09.2014

2. GOVERNMENT STRUCTURE Poland has a three-tier local government structure: The basic local government unit - commune (gmina) 2 commune self-governmentpoviat self-governmentvoivodeship self-government.

3. DIVISION Currently Poland is divided into: 2479 communes: 305 urban, 608 urban-rural and 1566 rural 3 2479 communes 314 poviats 16 voivodeships

4. L OCAL GOVERNMENT UNITS QUALITIES legal personality ownership right independence protected by the law not organized in a hierarchical manner the activity scopes of different local government levels are separated 4

5. LOCAL GOVERNMENT TASKS OWN fulfilment of the citizens’ needs COMMISSIONED government administration tasks such as: - conducting the elections - issuing vital records - paying out permanent benefits 5

6. LOCAL GOVERNMENT REVENUES Local government units execute their tasks on the basis of the budget plan The main sources of revenues: own income, including local taxes and fees general subsidies designated subsidies out of the state budget The share of local government units in the public revenues depends on their tasks 6

7. AUDIT AND SUPERVISION 7 LOCAL GOVERNMENT UNIT PRIME MINISTER VOIVODE REGIONAL ACCOUNTING CHAMBER

8. AUDIT AND SUPERVISION REGIONAL A CCOUNTING CHAMBERS The activity of local government units is supervised with regard to legality The audit of financial management of the local government units in the scope of government administration tasks is also conducted with regard to purposefulness, reliability and sound management At least once in four years carry out a complex audit of the financial management of local government units 8

9. The Supreme Audit Office (NIK) may audit, beside other entities, also the activity of local government units, communal legal persons and other communal organisational units with regard to legality, sound management and reliability 9

10. Due to the fact that the Supreme Audit Office presents to Parliament : 1) the analysis of the state budget execution and the monetary policy objectives, 2) opinion on the approval for the Council of Ministers, it is obliged to conduct annual audits of the state budget and the utilisation of financial resources designated to the execution of tasks commissioned by the local government units In the first quarter of each year all of the NIK organisational units, including regional branches, conduct budget audits, among others in local government units The regional branches conduct audits of all three local government levels 10

11. A budget audit in a local government unit encompasses among others: assessment of the internal control and management audit systems examination of the unit’s accounting documents with regard to completenessexamination of IT systems used to conduct accounting operationssettlement of (selected) subsidies designated for commissioned taskssettlement of subsidies for own tasks settlement of subventions examination of activity based budget markersexamination of public procurementexamination of selected investments financed out of the EU budgetselection of particular invoices out of the current expenses 11

12. SAO AUDIT Apart from typical financial audit of state budget execution and local government units NIK conducts audits of mixed character: during the typical compliance or performance audit the reliability of funds used to execute tasks is also audit 12

13. NIK conducted, among others, the below listed audits concerning the local government units and their debt: 13 Functioning of the selected units providing economic and administrative service to schools and education establishments Influence of projects co-financed within the Operational Programme of the Opole Voivodeship 2007-2013 on the increase of economic attractiveness of the Opole voivodeship Use of technical assistance by the local governments of voivodeships within the Rural Development Programme 2007-2013 Regularity and effectiveness in the execution of local taxes and property income by the local government units Execution of tasks by the regional accounting chambers aimed at the prevention of threats resulting from an excessive debt of the local government units

14. INCREASE OF THE POLISH DEBT Debt of the local government units, which is a part of the state public debt, has been increasing in the lasts years, especially rapidly in the years 2008-2011 14

15. INCREASE OF THE POLISH DEBT In comparison with the previous year, the debt increased by 3,7% in 2007, by 11,2% in 2008, by 40% in 2009, by 36,7% in 2010 and 19,4 % in 2011 The debt of local governments was increasing more rapidly than the whole state public debt 15

16. INCREASE OF THE POLISH DEBT In Poland the absorption of foreign funds within the financial perspective 2007- 2013 had the most significant influence on the increase of debt of the local government units 16

17. EU budget Unsatisfied needs in the scope of social and technical infrastructure forced the local government units to seek external financial sources, in particular those out of the EU budget, whereby the obligation of national input determined the decision on the incurring of debt liabilities. During two, three years local government units conducted investments that, considering their economic and financial potential, should have been executed in a time perspective twice or thrice longer. 17

18. Undertook activities: The local government units undertook activities aimed at the increase of the operational surplus (in particular by a more efficient use of the resources ascribed to them and expenses optimisation), however such activities were not adequate in relation to a rapid increase of the debt, as well as the costs connected with its service (discount, interest rates) 18

19. The audits connected with the debt of local government units revealed the following irregularities: 19 no compliance with the statutory set debt indicator financing deficit out of sources not allowed by the law non-reliable forecasting and planning of financial data no monitoring of the budget execution processes allowing for due liabilities to occur unreliable presentation of data concerning the debt and its repayment included in the financial statements lack of sufficient management audit procedures in the scope of operations connected with the incurring of debt and its repayment, lack of a proper monitoring of the financial situation,transfer of significant debt amounts to the following yearstransfer of debt to the subordinate units (communal companies).

20. Such situation in the local government units requires greater accuracy in the scope of local government activities connected with the incurring and repayment of debt. Financing expenses with debt liabilities should be connected with: 20

21. - restriction of the on-going expenditure, - search for new sources of own revenues - optimal use of the existing (or the preparation of new) efficient mechanisms used to monitor debt - reliable planning of financial values in the budget and multiannual financial forecasts - reliable presentation of data concerning the financial situation, including the debt and its repayment compliance with the legal determinants shaping the rules of the collection of financial resources by the local government units on the basis of debt instruments 21

22. Thank you 22