IN BRIEF
- The Port Development Fund does not finance the implementation of common port projects, although it was established for this very purpose in 1994.
- Most of the tasks financed by the Fund actually duplicate tasks under the responsibility of the Ministry of Transport. The funding of the Fund has rather served to provide additional remuneration for ministry employees, wider business travel opportunities and cover representation expenses.
- The amount of the Fund’s financing reaches an average of 231,000 euros per year, which is formed by contributions from the largest port authorities. From 2019 to 2023, 819,666 euros (68%) of the Fund’s budget was used for remuneration of the Secretariat of the Latvian Ports, Transit and Logistics Council.
- There are significant management deficiencies, including an unclear legal status of the Fund and insufficient monitoring of the use of funds.
- The performance audit found that at least 161,770 euros were spent uneconomically and illegally in some cases from 2019 to 2023.
The State Audit Office of Latvia has discovered in a performance audit that a significant part of the funds of the Port Development Fund (hereinafter referred to as the Fund) have been spent uneconomically and illegally in some cases. The majority of the tasks financed by the Fund essentially duplicate the functions and tasks of the Ministry of Transport, and the Fund’s budget has rather served for additional remuneration of the Ministry’s employees, wider business travel opportunities and covering representation expenses.
The Fund was established in 1994 based on the Ports Law. The current goal of the Fund is to manage financial resources to ensure the national interests in the development of ports and to raise the prestige of Latvian ports. Four tasks have been defined for the Fund: (1) implementation of common port projects; (2) maintenance of state property in small ports; (3) promotion and advertising of ports; (4) ensuring the activities of the Latvian Ports, Transit and Logistics Council. However, only two tasks are actually financed from the Fund’s budget. The Fund does not finance the implementation of common port projects and does not maintain state property in small ports.
The existing legal framework is incomplete; therefore, it is not possible to determine the legal status of the Fund precisely. This ambiguity makes ensuring the legality and transparency of the Fund’s activities and implementing effective supervision difficult. The Fund is not registered in any of the registers kept by the Register of Enterprises, but is registered with the State Revenue Service as a structural unit of state-owned Limited Liability Company “Latvijas Jūras administrācija” (Latvian Maritime Administration), although it does not correspond to such status. In the opinion of the State Audit Office of Latvia, the Fund is considered a public foundation, although it has no longer been a part of the state budget since 2010.
Mr Gatis Litvins, Council Member of the State Audit Office of Latvia, emphasizes, “Latvian ports are facing serious challenges currently, so it is particularly important to ensure that their resources are spent efficiently and purposefully. Unfortunately, during the audit, we found that the Port Development Fund was not integrated clearly into the development planning of national ports, it lacked specific achievable results, and a significant part of its funds were spent uneconomically and even illegally. The State Audit Office of Latvia will address these inconsistencies and violations of laws and regulations to law enforcement authorities. In its current status, with its current competence and performance of its activities, the Fund has no rational and meaningful basis for existence. If the Fund continues to exist, it must undergo significant reorganization because a clear legal status must be determined, management must be improved, and effective financial control must be introduced.”
The handling of the Fund’s resources in a significant part has not been such as to achieve the goal with the least use of financial resources.
The financial resources of the Fund are made up of contributions from the three largest port authorities, that is, the Riga Freeport Authority, the Liepāja Special Economic Zone Authority and the Ventspils Freeport Authority. Its annual funds amount to an average of 231,000 euros. The largest part of the Fund’s expenses, 819,666 euros (68%), was spent on remuneration for the Secretariat of the Latvian Ports, Transit and Logistics Council (hereinafter referred to as the Council) in 2019–2023, which employed an average of 16 employees of the Ministry of Transport in 2022 and 2023. This is an uncharacteristic practice, as similar high-level councils are operated by line ministries from their own funds and with significantly smaller resources in Latvia.
In accordance with the Fund’s regulations, its expenses are planned and further organized by the Council’s Secretariat. Although the Council approves the expenditure estimate for a year and the total use of funds at the end of a year, it does not exercise daily supervision over the use of the Fund’s financial resources. The Council’s Secretariat has broad discretion with the Fund’s resources within the total approved amounts for expenditure categories. Accordingly, a favourable environment has been created for uneconomic and also illegal actions with the Fund’s resources.
The audit has discovered that from 2019 to 2023:
- At least 97,644 euros were paid to employees of the Council’s Secretariat for the collection and analysis of information for the preparation of information reports for the Council, which, contrary to the law, were not actually prepared as final documents;
- At least 40,057 euros were spent on advertising activities, including business travel and representation expenses (gifts, gift cards, food baskets, incl. alcohol, lunches and dinners in restaurants, etc.), on which the Advertising Commission established by the Council did not make decisions;
- At least 23,562 euros were spent on expenses for which there was no legal basis and which were not related to the purpose and tasks of the Fund (individual English language lessons, use of road transport and purchase of fixed assets for the execution of orders specified in company contracts);
- No supporting documents were submitted for the use of 507 euros, and this amount was unlawfully recognized as expenses of the Fund.
“These are the consequences of deficiencies in the legal framework of the Fund’s activities and the lack of supervision over the use of funds. The main responsibility for this situation lies with the Ministry of Transport, which is responsible for regulating the sector and involving its employees in the Council’s Secretariat,” stated Mr Litvins.
The Ministry of Transport has not taken action to prevent the risks of double financing, as well as illegal actions with the ministry’s own financial resources.
By assigning representatives of the Ministry to work in the Council’s Secretariat, they allowed that tasks that fell within the tasks of the Transport Logistics Department and the International Cooperation Coordination Department of the Ministry of Transport were financed from the Fund’s budget for additional remuneration. In its turn, uneconomical actions have been allowed with the Fund’s resources by coordinating the business travels of its employees from the Fund’s budget when other representatives of the Ministry of Transport, whose business travels were paid for from the Ministry’s budget funds, also went to the same events at the same time.
During inspections at the Ministry of Transport, cases were found where employees of the Ministry were actually absent, on a business trip on behalf of the Council’s Secretariat, which was not recorded in the Ministry’s working time records properly but continued to receive a salary from the Ministry. As a result, the Ministry of Transport has committed illegal actions with the Ministry’s financial resources between 2022 and 2023 and has paid out at least 7,290 euros in compensation unreasonably. In addition, five cases were identified in which a ministry employee received per diem for the same business trip from both the Fund and the budget of the Ministry of Transport, resulting in unjustified expenses of 865 euros.
The Madame Prime Minister, who is also the Chairperson of the Council, was informed of the deficiencies identified during the audit. In a written response to the State Audit Office of Latvia, the Madam Prime Minister expressed the opinion that the functions of the Council’s Secretariat could be ensured by the Ministry of Transport within its own resources, thus freeing up the Fund’s resources for the implementation of common port projects or for port promotion and advertising expenses.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
After the audit, the State Audit Office of Latvia has issued a recommendation to find another, more cost-effective way to implement national interests in port development, which can be implemented within the framework of the state budget. By implementing the recommendation, (1) The Ministry of Transport will ensure the operation of the Council (Secretariat function and material and technical support) within its resources; (2) port authorities will be exempted from financing this function by reducing the risks of overlapping competencies and double financing.
More information – audit summary.
About 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. Upon discovering deficiencies, the State Audit Office of Latvia provides recommendations for their elimination, but it informs law enforcement authorities about potential infringements of the law.
Additional information
Ms Gunta Krevica
Head of PR and Internal Communication Division
Ph. 23282332 | E-mail: Gunta.Krevica@lrvk.gov.lv