1 Less internal control and no internal audit
Risk: unsound execution of proprietary rights
The summary of the results of the risk areas has revealed that the consolidated risk of large cities was significantly lower than that of other municipalities. While in the risk area ‘performance of public tasks,’ the proportion of at-risk local governments overall decreased, the risks related to the exercise of proprietary rights increased in the analysed period.
The proportion of small towns considered at-risk from the aspect of the exercise of proprietary rights more than doubled. The operation of internal controls and internal audits is only mandatory for companies in the governmental sector, and these are typically not implemented voluntarily.
The size of the population is inversely proportional to the number of risks regarding the operation of local governments and their companies, and thereby ultimately to the number of risks in the performance of public tasks.
Background
The hypothesis of the analysis was that the operation of local government-owned companies and the related risks are substantially determined by the operation of the owner local governments and the risks involved in their operation, which means that the risks of local governments directly affect the operation of the companies.
Four risk areas were defined for the analysis, taking 19 aspects and the specificities of Hungary’s settlement patterns into consideration. The four areas defined were the following: performance of public tasks, exercise of proprietary rights, financial stability of local governments, and short and medium-term stability of the financial management of companies.
The analysis is based on the audit reports of the SAO on the financial and property management of local governments and on the regularity audits of companies. Considering the audited periods, the analysis covers the financial management processes of the 2011–2014 period and is based, in total, on reports on 178 municipalities and 106 companies.
Objectives
To explore risks concerning the definition/organisation of public task performance, the exercise of proprietary rights by local governments, the financial stability of local governments, and the financial stability of companies.