Local and regional governments do not manage the forest resources in their possession economically, without obtaining the greatest potential benefit from the management of these valuable public assets. Such a conclusion was made after the performance audit by the State Audit Office of Latvia on municipal management of forest resources.
BRIEFLY
- Local and regional governments do not have complete data on 63% or 5,451 ha of forest resources because not all forest inventory have been taken.
- When selling real estate and fellings, local and regional governments receive 19% less revenue on an average than other forest owners on the same market.
- In transactions included in the audit sample, the price difference between an evaluation and the auction result was found to be up to 268%, and the increase in the resale price of real estate which included a forest was up to 400%.
- Without a long-term strategy, local and regional governments lose an opportunity to earn significantly higher income in the future than if they performed all the activities of the forest management cycle.
- The audited local and regional governments could earn between 1,719,200 and 3,438,400 euros annually from forest resources in an area of 8,596 ha if they were properly managed and maintained.
- The audit assessed forest management processes in municipal economic forests.
- The audit did not assess the actions by local and regional governments with forests, the purpose of which was recreation, nature parks and reserves, specially protected natural areas, as well as with those forest areas that the local and regional governments determined to be important for the preservation of biological diversity.
“The audit evidence shows that in the audited Alūksne, Jelgava, Krāslava, Saldus and Sigulda Regional Governments, there is no information on 63% or 5,451 ha of forest resources, that is, no forest inventories have been taken. However, even in the inventoried forest areas of 5,072 ha, all the activities foreseen in the cycle of forest management are not properly carried out, for example, forest restoration after felling, care of young trees and growing stock, protection against damage by pests and animals, maintenance of drainage and forest infrastructure. Failure to do these actions by local and regional governments reduce the future value of the forest and the possibility of earning up to 3,438,400 euros annually. There is a popular and widely used saying that the forest is the green gold of Latvia, but forest turns gold only if it is properly managed,” indicated Mr Oskars Erdmanis, Council Member of the State Audit Office of Latvia.
Forests cover 3,305,000 ha in Latvia, of which the government manages and maintains 1,521,000 ha or 46%, while the rest, 1,784,000 ha or 54%, is managed and maintained by other forest owners, including local and regional governments. In general, all local and regional governments own or possess approximately 122,714 ha, or 4% of the total forest area in the country. The forest of the five local and regional governments included in the audit sample occupies 8,596 ha or 14% of the municipal forest (excluding Riga). Actions with forests and their management are regulated by the forest policy, the Forest Law and the Cabinet Regulation in Latvia, which apply to all forest owners equally. So far, the activities of local and regional governments in forest management are basically limited to the development of fellings or the sale of forest properties, and they have little or no assessment of the impact of forests on the environment, biological diversity and non-timber values of the forest.
The audit found inconsistencies in the forest inventory data
A forest inventory provides complete information about a forest, which is an essential prerequisite for a forest owner to be able to plan and ensure legal and efficient actions with the forest.
When analysing the data on all Latvian local and regional governments, one has concluded that they do not have current information on at least 27% of municipal forests. The audited local and regional governments have not carried out an inventory of forests in the area of 3,523.64 ha, and the inventory is no longer relevant for some forests, as it was carried out 20 or more years ago. For example, the amount of uninventorized forests in the Krāslava Regional Government is as much as 70%.
In addition, it was found in the audited local and regional governments that the actual amount of uninventorized forests was at least 1,191 ha larger and constituted approximately 4,715 ha, as the areas overgrown with "shrubs" were actually forest stands. Therefore, local and regional governments do not have any data on such forest volume.
The value of the growing stock in all the audited non-inventorized forest areas of local and regional governments was estimated to be worth at least 2,379,000 euros, assuming that the dominant tree species were soft deciduous trees in most of the areas.
In several cases, the audit found inconsistencies in the forest inventory data, as both the dominant tree species and their age did not match the composition of the forest stand found during the survey, which limited the ability to make sound decisions for forest management activities, as well as created a risk of fraud in forest property and felling expropriation transactions.
For example, it was found that the composition of the forest did not correspond to that indicated in the inventory in two properties of Krāslava Regional Government. In the property “Rubeņi”, a 60-year-old birch grove was actually found in nature on an area of 0.5 ha, and the uncounted growing stock was at least 110 m3 worth 6,050 euros, but it was unjustifiably presented as a low-value seven-year-old white alder sapling. In District No 13 of the same property, which occupied 2.62 ha, only white oak and aspen were shown according to the inventory data, but the auditors found a significant number of spruce trees in nature, which increased the value of the given plot significantly.
Municipal forest management is insufficient and lacks long-term strategy
The audited local and regional governments have not included the strategic vision of managing forests in their planning documents and have not provided complete forest management planning, preventing them from taking well-considered decisions in order to gain the maximum benefit from the management of forest resources. Only Alūksne and Saldus Regional Governments have developed management plans for the inventoried forests. In general, local and regional governments shall improve their activities in forest management significantly.
The audit observed a trend that shaped the image of “living for today” rightly, that is, the local and regional governments had left the majority (57%) of the total amount of forest restored to regenerate naturally, mainly with low-value deciduous tree species such as aspen and white alder. At the same time, the audited local and regional governments obtained an assortment of coniferous trees such as pines and firs mostly when logging (61%).
The audited local and regional governments do not ensure high-quality and timely care for all young trees; this is done only for half of the restored forest areas. Also, in cases where care of young forest stands has been carried out, it has not been carried out in the necessary volume and quality. Thus, over dense forest stands have formed in municipal forests, as a result of which there has been a negative, often even irreversible impact on the quality of the prevailing tree species, significantly extending the time of wood growth.
The audited local and regional governments have not taken care of the forest area in time, so overgrown forest stands form. Although the local and regional governments state the lack of funding as one of the reasons for not carrying out forest management activities, according to the State Audit Office’s estimate, by developing overgrown and felling-aged fellings (28,170 m3 in clear-cutting and 3,390 m3 in thinning), the audited local and regional governments would generate revenues of at least 1 million euros. With these funds, local and regional governments could perform the required forest management activities, including arranging borders, conducting inventory and maintaining forest infrastructure.
In the drained forest areas, local and regional governments have not identified and listed the drainage systems they own in the volume of at least 3.26 ha because they have not been surveyed and no actions have been taken to ensure the functionality of the existing drainage systems, for example, the elimination of beaver dams. Due to inadequately maintained drainage systems, local and regional governments risk losing forest stands in an area of 200 ha (in the properties surveyed as the audit sample). In addition, swamping and death of forests have been detected in several places.
In the protection of the forest against damage by beavers and even-toed ungulates, local and regional governments must start demanding responsibility from the lessees of hunting rights so that they perform the activities provided for in the hunting contracts properly.
O. Erdmanis stated, “Although good examples of individual forest management activities have been identified in the audited local and regional governments, the overall result can be characterized by the words “neither head nor tail”, and the return from this valuable public asset cannot be determined in the local and regional governments at the moment. Although five local and regional governments were included in the audit scope and recommendations for improving their actions are provided to them, I invite each local or regional government to evaluate its opportunities, costs and benefits to decide on the best future model of forest management and maintenance. The most important thing must be taken into account: if a local or regional government owns a forest, it must be managed efficiently. When regenerating a forest, maintaining a young forest stand and growing stock, preventing swamping, local and regional governments could earn net revenues from 200 to 400 euros/ha every year. Moreover, the benefit is not only measured in terms of money, it is also clean and green environment that we all get.”
When selling felled and forest properties, local and regional governments do not get the highest possible price
First of all, local and regional governments do not provide sufficient information about auctions to attract as many participants as possible. Secondly, local and regional governments do not control the actual amount of growing stocks and sales prices. Bidding prices at auctions are as much as 268% higher than the original appraisal, but the sold properties are re-sold for up to 400% more on an open market shortly after the transaction. In one case, a 28-ha sized property, which included 2.7 ha of forest, was resold even for 172,000 euros more; in in another case, 32.7 ha of forest property was resold for 100,480 euros more. In none of the felling area sale transactions, local and regional governments have carried out a survey of the actual felling area growing stock to verify the quality of an initial appraisal. For example, in one case, without verifying quality of the assessment and without even comparing it with the data of a newly conducted forest inventory, the entrepreneur was actually given 4,159 m³ of wood worth 163,477 euros free of charge. Thirdly, local and regional governments have allowed cases when an appropriate appraiser did not participate in the preparation of property valuations, while in no case of selling real estate that included a forest, callipering of growing trees was carried out, which allows determining the true value of the forest in the real estate for sale most accurately.
In addition, local and regional governments have not always prepared deeds of acceptance and transfer of felling areas, nor have they verified the condition of felling areas after logging.
In the country, there is no control over the amount of timber growing stock actually cut
When checking the information about the actual amount of wood obtained in fellings, it was concluded that only a logger of the relevant felling knew it, as local and regional governments do not measure the volume of felled wood after logging. Consequently, inaccurate information is submitted to the State Forest Service (SFS). In its turn, despite the fact that it requests the submission of this data, the SFS does not check it and does not use it in any way henceforth. Therefore, state institutions that are responsible for controlling the accounting of trees and round timber do not have real data on the actual composition and volume of the wood supplies obtained from felling areas. As a result, there are long-term high risks in this area for felling loggers to present a smaller amount of wood supplies harvested in a felling area, as it was found in several cases during the audit. The State Audit Office of Latvia will inform the State Forest Service, the State Revenue Service, the Ministry of Finance and the Ministry of Agriculture that this situation must be resolved urgently.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
After the audit, the State Audit Office of Latvia has provided 60 recommendations, implementation of whose shall result in local and regional governments (1) obtaining complete and reliable information about all forest resources in their ownership and legal possession; (2) planning the management of forest resources and the necessary financial flow strategically, as well as drafting a forest management plan; (3) performing the necessary activities in the forest management cycle according to the indicators characterizing a forest stand, increasing the efficiency of the managed forest stands, thus striving for the greatest possible future value; and (4) earning income in sales transactions of forest properties and felling areas that correspond the market situation.
The State Audit Office of Latvia
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General.
100 years of AUDIT STRENGTH
On 16 August 2023, the State Audit Law turned 100 years old. With the adoption of this Law, the State Audit Office from a formal de facto institution founded on 2 December 1918 became a de jure independent, collegial supreme audit institution of the Republic of Latvia. The State Audit Office is one of the independent state institutions enshrined in the Satversme (Constitution) of Latvia. The Constitution was signed by Roberts Ivanovs as the secretary of the Constitutional Assembly, who was then confirmed as the Auditor General. He worked as the first Auditor General for 12 years. His signature confirmed the text of our Constitution alongside that of Jānis Čakste.
Additional information
Ivo Valdovskis
Advisor to the Auditor General
Phone number: 29274446 | E-mail: ivo.valdovskis@lrvk.gov.lv