Paper by Hungary
Dr. Árpád Kovács
Emil Kemény
Hungary has had an opportunity to participate in the formulation of the guidelines assisting the process of privatisation, in the preparation of the manual as a member of the INTOSAI Working Group on the Audit of Privatisation - however, the lion’s share of the work was undertaken by NAO, for which we hereby express our thanks.
Following the completion of the manual we considered it as our responsibility and obligation to assess the possibilities of the utilisation of the manual, to take the necessary steps and to inform the working group of our results and any failures since we are convinced that both may carry lessons for future exploitation.
In the first step we translated the manual into Hungarian so that the lack of language proficiency does not restrict the group of users. In the second step we assessed the institutions that could utilise the questions, thoughts and the well- built, well-structured approach comprised in the manual. One such institution was found: the State Privatisation and Holding Company (ÁPV Rt.). We assumed that the majority of the recommendations contained in the manual could be expediently utilised by the Supervisory Board performing the tasks of supervision on behalf of the owner of the organisation, along with the Internal Controlling Directorate, subordinated to the SoB.
The following is a summary in two points of our wealth of experience relating to the manual:
The first point is a description of the detailed evaluation and opinion of the manual by the Supervisory Board. For the sake of economy we shall reference only the number and title of the guideline in the manual and we shall outline the opinion in a breakdown by guideline.
In the second point we shall present the key issues of our programme in year 2000 of our audit of ÁPV Rt. indicating the guideline(s) whose considerations were drawn on by our experts in formulating the various questions. It should be noted in advance that besides privatisation ÁPV Rt. performs tasks of property management and carries out the owner’s functions, i.e. the controlling (auditing) programme we have put together covers a wider range of issues than does the privatisation manual. Despite the fact that some of our questions are outside the range of the recommendations included in the manual, we have decided to present the entirety list of questions for the sake of completeness, presenting the approach and structure of the audit performed by the Hungarian State Audit Office.
(in italics, following the structure of the manual)
Guideline 1
SAI Requirements
The SAI should identify what are its audit responsibilities in relation to privatisations and decide how to carry these out. The specialist skills needed to carry out privatisation audits are likely to range wider than the traditional audit skills available. The SAI needs to identify these specialist skills.
Of course not only the supreme audit institution (the SAO) needs to have auditing capabilities but also the organisation carrying out the task of privatisation (State Property Holding Agency /ÁVÜ/, State Privatisation and Holding Company /ÁPV Rt./) require such capabilities. The organisations carrying out privatisation (their own internal audit) and the SAI equally need to have substantial financial, accounting and extensive market-related knowledge concerning the given entity (company) to be sold and they also need to have thorough knowledge of the legislative environment of privatisation.
Guideline 2
How to acquire the skills
The SAI should identify and secure the core in-house skills it needs to enable it to carry out authoritative studies of privatisations, having regard to the expected nature and time scale of the government’s privatisation programme, and supplement these skills with expert external support as necessary.
This chapter assumes the privatisation practice of countries where only one or two entities are in for privatisation for the market is already characterised by the operation of private businesses.
The situation is different in cases where there are still numerous companies to be privatised (mass privatisation). Of course in such cases even the employees of the controlling organisation need to be experts of the performance of the tasks of privatisation in order to carry out their controlling function (e.g. the specialist unit of SAO in charge of controlling privatisation, the controlling organisations of ÁVÜ and ÁPV Rt.).
Guideline 3
Involvement of the SAI in the privatisation
The SAI should become involved in the privatisation process as soon as constitutionally possible, consistent with maintaining its independence.
The issues discussed here are different from the Hungarian practice for the SAI (the State Audit Office) does not frequently express its position concerning the privatisation of a company before its sale and it does not often provide information to potential buyer(s) concerning the financial position of the company to be sold, as a sort of an advisor.
The authors have clearly relied on the EUROSAI recognised practice where the privatisation (or re-privatisation) of some state-owned entities is carried out with a view to the concepts formulated by government, with active involvement of the SAI - and not by an organisation established for the specific task of privatisation.
In the Hungarian practice the SAI does not directly interfere with the privatisation of state-held businesses, instead, it audits the process after its completion. Auditing throughout the process of privatisation is a responsibility of the organisation carrying out privatisation - it has to establish an internal decision making structure that provides for the necessary audits, where decisions made at lower levels have to be checked by higher ranking officials (decision makers) of the organisation. In order to provide for auditing at a higher level the privatising organisation operates an independent internal auditing organisation - to ensure the transparency of transactions effected in the privatisation process. In the case of ÁPV Rt. this is a supervisory board, prescribed by law, comprised of members delegated by the parliamentary fractions of parties, the government and organs having a representation of interest, directing the operation of the independent internal audit organisation. The Hungarian SAI is involved in privatisation processes only in exceptional cases (for instance if it is invited to do so by Government). Otherwise, the SAO audits privatisation transactions on an ex-post basis.
Guideline 4
Access by bidders to the SAI’s audit papers
Where the SAI is the auditor of the business before sale, the SAI should consider developing explicit guidelines relating to the right of bidders to obtain access to the SAI’s audit working papers.
No such question may emerge in the Hungarian practice for the SAI cannot be an auditor of a business to be sold.
Privatisation organisations (vendors) have businesses to be sold audited by their own experts or by independent auditors primarily in order to establish the target sale price and formulate the sale strategy. Such appraisals (valuations) are not accessible by potential buyers in order to ensure equality of opportunity and in order to ensure the operation of the sale policy of the vendor.
Bidders may get informed on the state-held property to be sold from the so called ‘information memoranda’, these provide detailed information on the operation of the company, without, of course, information whose disclosure would be against its fundamental business interests. Further information may be acquired at the premises of the company to be sold.
Guideline 5
Planning privatisation audit
In planning the audit of a privatisation the SAI should plan to cover all major aspects of the sale that have a bearing on propriety and value for money, to identify key parties to the sale and to take evidence from them, and to be alert to identifying lessons from the sale, including the procedures followed and the outcome of the sale, together with the extent to which the sale objectives were achieved.
In preparing the annual work plan for auditing privatisation organisations (vendors) the State Audit Office carefully considers the events of privatisation that it intends to analyse in detail. At the same time, the SAO plans a comprehensive audit covering several privatisation transactions - primarily from the aspect of legal compliance, the application of the privatisation concepts completed and the propriety of concepts.
ÁPV Rt. prepares and carries out privatisation and conducts internal controlling of privatisation transactions, based on similar criteria and considerations.
Guideline 6
Pre-sale restructuring of the business
The SAI should ensure it understands the vendor’s objectives in carrying out any pre-sale restructuring and what the vendor did in pursuit of those objectives.
Privatisation in Hungary has taken place in five forms as regards the transformation of state-owned businesses:
1. „Spontaneous" privatisation: Under the act on transformation, by contributing the assets of the business concerned to the prospective private company or by its transformation in its entirety into company, with the involvement of external capital, the new, already privatised company is formed. The state-owned - self-governing business - is transformed into a market-based company on the basis of its own decision and in this new company there is already an external owner as well. The process took place in a quasi uncontrolled ‘spontaneous’ way;
2. „Pre-privatisation": This was a solution applied characteristically by trading companies - this was not so much a transformation of a company, rather, a ‘disintegration’. The commercial units comprising the elements of the business concerned were sold separately and found their way to private owners;
3. „Self-privatisation": A state-owned business was sold upon its transformation into a market based company with the involvement of an external expert under the decision by the business itself and an external buyer, i.e. the transformation and privatisation take place simultaneously;
4. „Forced transformation": Within the statutory deadline, the state-held business is transformed into a company (Co. Ltd. or Ltd) on its own accord or after the expiry of the deadline, the privatisation agency directs the transformation. Thereafter, the business is in operated in one of the above forms of company and participations or shares of the company are sold at a later stage.
5. „Decentralised privatisation": In the course of the sale of the business the buyer undertakes an obligation to ensure that after privatisation the asset elements prescribed by the privatisation agency be transferred to new owners through sale.
This last form of transformation fell within the mandate of directing and controlling by the privatisation agency (ÁVÜ, ÁPV Rt.). Thus the supreme audit institution exercised comprehensive control of the process but the details of the process were analysed only through a sampling process, through certain randomly selected examples.
Guideline 7
Sale objectives
At the beginning of the audit the SAI should insure it has a clear understanding of all the vendor’s objectives in a privatisation and how these relate to the wider objectives for the economy.
In Hungary the SAI is aware of the key economic policy objectives in any given phase as formulated by the Government and the Parliament (for instance in the form of privatisation guidelines). One of the tasks of controlling is to check how these guidelines are observed in the course of the various concrete transactions and in the entirety of the privatisation processes.
Guideline 8
Timing of the sale
The SAI should establish what objectives the vendor had as regards the timing of the sale, and whether the pursuit of this objective had any impact, positive or negative, on the sale.
The assumptions of the manual are logical: quick sale must not undermine the fairness of competition. In order to ensure the fairness of competition (tenders) based on the initial experience of privatisation ÁPV Rt. developed the rules of sale the elements of which had already been formulated by Act XXXIX of 1995 on privatisation (e.g. in what cases may the privatisation organisation privatise without a tendering process, what forms of sale may be applied, or that after two unsuccessful tendering processes direct negotiation may also be conducted with the prospective buyer).
Guideline 9
Pre-sale valuation of the business
The SAI should ascertain whether the vendor obtained a pre-sale valuation of the business. If not, the SAI should review the reasons for not doing so and, in carrying out any study after the sale has taken place, should consider commissioning its own valuation. If a pre-valuation was done by the vendor, the SAI should establish whether it was:
- based on appropriate assumptions;
- arrived at independently of the buyer and of the
management of the business;
- founded on accepted principles of business valuation;
and
- a useful guide to the vendor in appraising bids and in
negotiations leading to the final sale.
Already at the outset the Hungarian privatisation practice clearly established that privatisation sale may be based only on valuation not older than 6 months up to the date of the sale. The transformation of state-owned companies had to be based on valuation in all cases.
Guideline 10
Sale methods
The SAI should examine what options the vendor considered before deciding on the sale method used and what criteria the vendor applied in deciding on the chosen sale method, including the pursuit of any wider objectives of the privatisation programme.
The Hungarian practice is in line with the recommendation comprised in the guideline: (e.g. in the framework of pre-privatisation commercial units employing less than 10 staff were sold through public auctions, the oil industry and the communication company awaited floatation to the exchange in its sale (applying a delaying tactic), achieving a significant sale price increase).
Guideline 11
Vendor integrity in conducting the sale
The SAI should examine whether adequate safeguards were in place to secure that the sale was properly and honestly carried out, and investigate allegations of improper practice, and establish whether there were any lapses in procedures.
The appropriate booking of state revenues and expenditures is regulated by laws and internal rules checked on by the SAO on an annual basis.
The performance of the commitments and obligations undertaken by new owners is monitored as part of contract management within ÁPV Rt.
The payment of the income from privatisation is checked by the SAO in accordance with the provisions of the state budget and the annual budget act.
The ex-post assessment of incompatibility or conflicts of interests of the management and the company is possible in principle, but the law and the business circumstances have not enabled this in practice as yet. The appropriate booking of state revenues and expenditures is regulated by laws and internal rules checked on by the SAO on an annual basis.
The performance of the commitments and obligations undertaken by new owners is monitored as part of contract management within ÁPV Rt.
Guideline 12
Residual management issues
The SAI should assess the adequacy of the state’s structural arrangements to manage any residual issues and ascertain whether the public or national accounts adequately reflect (including quantification where possible) any residual assets and liabilities, actual or contingent.
Following the sale of a company managed or owned by the state long term obligations are retained by the state most frequently with respect to environment protection and the employment of labour.
One peculiar obligation under the Hungarian practice is that 20 percent of the privatisation revenue has to be returned to local governments on account of their shares of land within their respective administrative territories.
In the sale of agricultural enterprises, land use is provided for in the form of lease contracts.
Guideline 13
External advice required by the vendor
The SAI should examine the process followed by the vendor in identifying what specialist and impartial external advice they needed to carry out the sale and what steps they took to secure such advice cost effectively.
The involvement of a significant number of external advisors in the sale transactions was an important feature of privatisation in Hungary. Their technical/professional expertise helped the successful implementation of privatisation transactions. Tendering was a widely adopted method to select advisors.
Guideline 14
Management of the business
The SAI should ascertain whether the management and employees of the state business which was to be sold acted competently and in a manner which effectively supported the integrity of the sale process and served the best interests of the vendor.
Although the concepts comprised in the guideline are justified, direct assessment of the behaviour of management or employees was not possible in the Hungarian practice of privatisation. The SAO could assess only the integrity of the process of privatisation and - within that process - the roles of the management teams and employees of businesses to be sold, from the aspect of the extent to which they performed their obligations.
Risks threatening the process of sale and its result as well as problems with the permitted communication between employees and bidders emerged in the case of Hungarian businesses as well. Privatisation organisations consistently analysed whether the management did really promote privatisation and whether they did provide the required information for bidders. (In order to win the support by chief executives the quality of the preparation of privatisation was in a number of cases among the conditions to be met for bonuses or premiums to be allocated.)
Guideline 15
Marketing the business
The SAI should examine the extent to which the vendor succeeded in drawing to the attention of potential purchasers the business opportunities represented by the business offered for sale.
The guideline is fully in line with the Hungarian practice - the key aspects of internal control include whether competition was really fair, whether the organisations implementing privatisation did use their best efforts in the course of the sale process to ensure the sale at the higher price, whether they provided all requisites for the involvement of the widest possible circle of bidders.
Guideline 16
Information for potential bidders
The SAI should review where the vendor considered the balance of advantage to lie in providing information to potential bidders and whether the vendor ensured that these details were provided equally to all potential bidders.
The provision of complete information to potential bidders is a justified requirement. In some instances it occurred even in the practice of privatisation in Hungary that the vendor had to perform its guarantee obligation because the buyer had not been fully informed of the actual economic position of the entity to be purchased and therefore it had to be paid compensation.
Guideline 17
Bid evaluation
The SAI should review the vendor’s criteria for evaluating bids by reference to the objectives of the sale, and examine how successfully the vendor applied these criteria in evaluating the bids received.
Doubts may be raised in respect of the aspects of evaluation concerning the propriety of the decisions made in the process of privatisation in Hungary as well.
Guideline 18
Shortlisting bidders
The SAI should examine whether the vendor’s criteria and processes for shortlisting bidders were well thought through and explicable in the context of the sale objectives and how the vendor struck a balance between negotiating with too few bidders and negotiating with too many.
The considerations contained in the guideline is restricted to the method of sale through competitive bidding - it does not take account of another practice introduced in Hungary that gives preference to procedures based on (public) bidding based on announcement and tendering (for the acquiring of assets), and ÁPV Rt. has been applying this procedure only following to failed competitive bidding procedures (based on the privatisation laws). In this case the rules of bidding procedures meet the requirements of Guideline 27. The lessons learnt from using this technique will be discussed in the course of the presentation.
Guideline 19
Preferred bidder
The SAI should examine whether the vendor had criteria for selecting a preferred bidder which were consistent with the sale objectives and whether these criteria were applied
In the Hungarian practice the SAO analyses the process of contracting following the announcement of the result of open tendering: whether each detail of the offer of the bidder and the harmony between the invitation of bids was reflected in the concrete contract concluded.
Guideline 20
Final negotiations
The SAI should examine what steps the vendor took to guard against the risk that a preferred bidder might seek, in the crucial final stage, significant reductions in the value of the bid and that the final terms of the transaction were no worse than those which any other bidder could have offered.
(The above also apply to this point).
Guideline 21
Securing fair competition
The SAI should examine how the vendor sought to secure fair play, including the provision of information, between the management buy-out team and external bidders.
The Hungarian practice which, in general, gives preference to the mode of sale based on announcement and tendering, does of course not exclude the management of the business to be sold, from the group of potential buyers, indeed, it even provides them with preferential terms to promote the evolution of local ownership (preferential employee buy-out up to 10-15-20 percent of the nominal value of the business to be sold or the support of employee share ownership programmes based on law etc.). Consequently, it is true that the vendor and the supreme audit institution have to thoroughly analyse the activities of the management in the throughout the sale process.
Guideline 22
Incentives
The SAI should examine whether any incentives offered to management buy-out teams were well thought through, having regard to the sale objectives, assessed as to their likely impact on sale proceeds and whether the key details were explained to all bidders.
These questions are fully justified: the Hungarian privatisation organisations also analyse the extent to which the preference of management buy-out in the case of a given sale has promoted the future successful operation of the business, whether it has been in the interests of the state and how the requirements of fair competition were met etc.
Guideline 23
Securing the best possible price
The SAI should examine what steps the vendor took, having regard to the sale criteria, to offset the risk that the business might be acquired cheaply by the management buy-out team, for example because they obstructed rival bidders.
It should be recognised that the management team of a business to be sold is a dominant element of successful privatisation, for its interests are often contrary to the objectives of privatisation. For instance, if they intend to acquire the business they are managing, their interest is to obtain the lowest price i.e. by its activities it may reduce the value (for instance encumbering the business by its actions that will reduce its value or making it seem to have a low earning capability).
Guideline 24
Education of public investors
The SAI should examine the process of public education including public awareness campaigns and the mechanisms used to provide key information about the businesses being sold through the mass privatisation programme. The SAI should satisfy itself that both the process and the quality of information was sufficient to allow informed decision-making by potential investors.
It is the responsibility of the State Privatisation and Holding Company/ÁPV Rt./ to implement and manage the privatisation process as set up by law. They have to ensure the provision of information to the widest range of audience and to educate public (small) investors concerning the privatisation process in order to achieve mass-ownership. The supreme audit institution repeatedly checks how the privatisation organisation has met the requirements demanded by the process, but only as a posteriori audit.
Guideline 25
Intermediaries
The SAI should examine the legal and regulatory framework within which mass privatisation intermediaries are required to operate and satisfy itself that the regulatory framework is operating as intended.
In the Hungarian practice advisors and broker firms have participated in the sale process. The organisations controlling financial institutions and securities trade set up to oversee investment funds and broker firms tightly control the processes under the provisions of the relevant laws, i.e. the SAO has to carry out only a supervisory role.
Guideline 26
Sale process
The SAI should examine key stages of the sale process, including information dissemination, bidding procedures including submissions, collection, and clearing, post-sale registration of ownership, compliance with corporate governance requirements and procedures for the admission of the shares of the businesses to the stock market.
In the Hungarian practice based on the analysis of the experience of initial spontaneous privatisation sales the government recognised the flaws of the so called transformation act which enabled privatisation without supervision and controllability. Thereafter the Parliament adopted the laws on controlled privatisation which enabled the satisfaction of the requirements laid out in the guideline.
Guideline 27
Competitions
The SAI should review the methods for preparing the businesses for privatisation, and for gathering and publishing information on them. This will include announcing the auction, qualifying and registering bidders, calculating the opening bid price and any reserve price, ensuring that the auction processes are clearly defined and are legally correct, checking the fairness of the competition (including being alert to the risk of collusion between bidders), selecting the successful bidder and expeditiously completing the sale process.
The Hungarian practice applied auction as a sale technique only in respect of the sale of small commercial units, most of the rest of the state held business property was sold through primarily the public tendering (bid-invitation) technique.
Guideline 28
Sale process
The SAI should examine the registration and sale procedures of an auction from beginning to end, including whether there were adequate incentives for successful bidders to carry out their obligations, whether the transfer of ownership was in accordance with laws and regulatory provisions, and whether there were procedures for settling disputes between vendors and purchasers.
This chapter sums up in essence the tasks relating to the sale process - the auction techniques applied in the Hungarian practice are mixed with elements of sale techniques involving invitations of bids.
Guideline 29
The role of the vendor
The SAI should examine whether the vendor carefully developed a strategy for the floatation which took account of medium and long term privatisation objectives.
The Hungarian practice also confirms that the proposals are rightly made. The initial share sale, public floatation, carried a number of uncertainties, resulting from a lot of uncertainties in the determination of realistic prices as a result of low turnover on the exchange. With the development of the exchange and as a result of the increasing number of shares listed on the exchange, and because state-held shares already listed on the exchange were also sold, the process of share sales could be simplified significantly. ÁPV Rt. achieved a lot of success in the framework of the process of public flotations.
Guideline 30
The vendor’s management of the floatation
The SAI should examine how effectively the vendor carried out the floatation having regard to the objectives, and the basis for any discrepancy between the price at which the shares were sold, including any target premium, and the price at which the shares were traded in the aftermarket.
The Hungarian practice confirmed the phased technique of sales in tranches.
Guideline 31
Underwriting
Governments are usually best placed to assume risks. If however the issue was underwritten the SAI should examine the reasons and what was the effect on the net sale proceeds.
Hungarian privatisation organisations successfully sold shares through public flotations involving lead underwriters on a number of occasions.
Guideline 32
Management and employee incentives
The SAI should examine what incentives, such as shares allocated on favourable terms, were provided for the management and employees, how their interests were balanced against the interests of other investors in the privatised company, and those of the state, and whether the terms on which such privileged allocations were offered, especially those benefiting the mangers of the business, were publicly announced in advance.
The soundness of the above is proven by the Hungarian practice as well.
Guideline 33
Attracting potential investors
The SAI should examine how successfully the vendor identified the market for the shares and stimulated competition between the various groups of investors.
The Hungarian privatisation organisations had to co-ordinate with the rest of the owners - where they were known - before launching the public offer of a given portfolio of shares.
Guideline 34
The retail market
The SAI should examine whether the vendor had a strategy for marketing the shares to individual investors, whether the strategy was consistent with the sale objectives and how effectively the strategy was implemented.
Privatisation organisations made substantial efforts to provide complete information in public share sales to retail investors, which is proven by multiple over-subscriptions by retail investors. Where subscription was incomplete, the reasons were analysed.
Guideline 35
Pricing the shares
The SAI should examine what steps the vendor took to ascertain likely demand at different prices and to what extent, in the circumstances of the particular sale, account was taken of the best practice in deciding on the size of the issue and the sale price.
In the case of larger volume sales or flotations ÁPV Rt. prepared strategies which it co-ordinated with the Government.
Guideline 36
Allocating the shares
The SAI should examine whether the vendor retained control over the allocation of shares, what were the allocation criteria, whether the vendor enforced those criteria, and whether allocations were made on an impartial and systematic basis, in accordance with the criteria.
The extent of allocation depends on the economic policy considerations of the Government. ÁPV Rt. is obliged to comply with this and it is monitored by the Supervisory Board on a permanent basis as well as by the SAO through its annual audits.
Guideline 37
Market stabilisation
The SAI should establish the outcome of any market stabilisation activities and what consideration the vendor gave to the various market stabilisation options available, consistent with rules governing the regulation of the market, how any stabilisation trading was financed and how the risks and trading profits/losses were shared.
The implementation of the guideline is monitored by the Supervisory Board on a permanent basis and by the SAO through random checks.
Guideline 38
Appointing external contractors
The SAI should assess how thoroughly the vendor examined what external advice from specialist contractors was necessary and whether the vendor selected these advisers in a competitive process, taking into account both price and quality.
In cases where competition did not take place, or was limited, the SAI should assess whether the vendor established exceptional value for money grounds to justify the appointments made non-competitively.
The guideline highlights a very real problem. Expert and consultant tenders were won almost exclusively by West-European or US global companies despite their price offers being many times as high as those of their local competitors. Audits did criticise decisions but the answer was always that the foreign advisors could enable the achievement of higher sale prices.
Guideline 39
Setting and monitoring budget for external contractors
The SAI should assess how far the vendor set appropriate contract budgets based on careful planning, reviewed outcomes against budgets, in accordance with progress towards achieving the sale objectives, successfully negotiated with external advisers any changes to budgets arising from unforeseen events, and ensured that any special features, such as success fees paid to lead financial advisers, represented value for money.
In continuation of the above, the audits did not find direct relationship between sale prices and the operations of advisers. When assessing the role of advisers the main criteria should not be the given reward but the success of privatisation, because the losses of an unsuccessful transaction far outweigh the rewards of the advisers.
Guideline 40
Methodologies for quantifying overall costs
The SAI should seek to identify, analyse and report those costs which are directly attributable to the actual sale process.
The recommendation comprised in the guideline is included in the practice of both the Supervisory Board and the SAO, it is based on the annual report by ÁPV Rt. prepared for the Government.
(At the end of paragraphs you can see the number of the used guideline )
1 Development of revenues and expenditures relating to the assigned assets, the position of the portfolio of receivables.
1.1 Is the system of registration of the revenues and expenditures associated with the assets assigned to the PSHC in line with the relevant legal regulations, the resolutions passed by the Entity Exercising the Shareholders’ Rights (EESR) and the internal rules. Do the effective resolution by the EESR, the Directive issued by the CEO and the accounting policy cover all aspects of registration and evaluation in respect of the assigned assets. Does the registry system ensure compliance with the fiscal acts of law and controllability. (ad. 7, 11, 23, 26.)
1.2 How have revenues been developing in the area of sales or asset utilisation, what was the value of the assets sold on assignment and how it compares to the budget estimate - what were the relative proportions of sales for cash and other forms of payment. Was the dividend revenues collected in full, does the registry of dividend receivables reflect the actual situation.( ad. 23, 25, 26, 40.)
1.3 Was the revenue from the sale and utilisation of assigned assets used in compliance with relevant legal regulations, was the privatisation reserve created in accordance with the provisions. What was the revenue from instalment payments on sales effected in earlier years and how much is the amount originating from the year’s sales. (ad.7, 11.)
1.4 What amount of expenditure was booked for quantified goals prescribed in the privatisation act and the annual budget acts (with the exception of reorganisation and property management related expenditures). How was the amount separated for the organisation’s operation in 1999 spent.(ad. 7, 14, 15, 40.)
1.5 How did the company perform its obligations specified in a separate statute of law and how sound were the closing accounts and the preparation of the data to be supplied for the purposes of the budget for 2001.( ad. 12, 40.)
1.6 Is the registry of receivables complete, was the value of the gross receivable established in accordance with the principles of valuation, were the invoiced and other receivables properly documented. How did the portfolio of receivables develop and what steps were taken to ensure consistent collection of receivables. (ad. 40)
1.7 How did they perform the revenue and expenditure related tasks of the action plan prepared on the basis of the recommendations comprised in the SAO report on the controlling (auditing) of the activities related to the implementation of the central budget and the operation of PSHC in 1998. (ad. 7, 11, 40.)
2 Sales related activities
2.1 What types of transactions are comprised in the selling activities of PSHC How was privatisation divided between sales through the institution system of the capital market, investment funds and companies and direct sales. (ad. 9, 10, 13, 21.)
2.2 How much of assets were sold through tendering procedures, without tendering and through share swaps. (ad. 10.)
2.3 What share did the entities sold through preferential privatisation techniques account for within the total of privatisation. Did the implementation of such sales comply with legal regulations and internal rules. (ad. 24.)
2.4 In view of the assessment of concrete transactions - how were the requirements of the privatisation act satisfied in the course of sales (selling of shares, business participations and/or minority stakes of ownership). (ad. 26, 27, 28.)
2.5 Was the implementation of privatisation in full compliance with the statutory and governmental regulations and the internal rules of the organisation. (ad: 7, 8, 9, 10.)
2.6 How were the sales related tasks of the action plan drawn up based on the recommendations comprised in the SAO report on the 1997 operations of PSHC performed. (ad. 12.)
2.7 How did the settlement of the liabilities originating from the agreement between P
SHC and RWE proceed. (ad. 29, 40.)
3 Change of the assigned assets, the standards of the organisation of the property management activities, development of the costs of property management, reorganisation and crisis management. (This chapter deals with property management activities, therefore some of the questions are out of the scope of Guidebook)
3.1 How did the portfolio of assets assigned to PSHC develop, what were the key factors and techniques resulting in reductions/increases of the portfolio. How did they perform their obligations concerning asset transfers prescribed by the budget acts and how do they separate portfolios taken over for temporary property management. (ad. 6, 14, 15.)
3.2 How did they organise the activity under the statutory obligations concerning property management and what are the quality standards of its internal regulation like. (ad. 14, 15.)
How were the operational experience from earlier organisations and the work of external consultants involved in the operations under a tender put out concerning services to improve the operation been utilised. (ad. 39.)
3.3 Under what requirements have the technical executive directorates to proceed in events of property management and interventions (listed below) in the case of businesses operating with various percentages of state ownership - majority share, golden share, influential share, minority share:
3.3.1 Preparation of shareholders’ meetings, formulation and exercising of the behaviour of PSHC as owner,
3.3.2 IT and registry system of the property management activities of companies,
3.3.3 Formulation and implementation of human policy concept,
3.3.4 Enforcement of the dividend policy of PSHC,
3.3.5 Preparation and implementation of specific property management interventions with financial implications (e.g. disbursement of loans, effecting development grants, implementation of capital increase etc.),
3.3.6 Organisation of co-operation with bodies of sectoral governance,
3.3.7 Arrangement for reporting by the managing bodies of companies, processing of reports, taking into account the international standards of INTOSAI. How do they control the financial management of companies, what conditions/criteria do they impose on the income of the management teams of their companies.
3.3.8 Special property management actions of the various executive directorates in line with the technical/professional specifics of their portfolios, with special regard to the modes of management of minority portfolios.
3.4 How does the Board of Directors govern and monitor the property management activities of the various executive directorates and their results.
3.4.1 How is the implementation of the property management concept and the action plans evaluated,
3.4.2 Which directorates had to report and what actions has the Board of Directors taken on the basis of such report,
3.4.3 How have the companies' pre-tax profits and assets developed over the years under review and what is the evaluation of the performance of property management like.
3.5 How is the settlement of the expenditures relating to property management, reorganisation and crisis management regulated and are these properly separated.
3.5.1 What costs incurred in relation with the property management activities and what types of tasks - maintenance of the operation of the managed property, preservation of its condition/status, promotion of activities relating to the final settlement of accounts and/or liquidation etc - these related to. Development of actual spending relative to the annual budgetary estimates. (ad. 12, 40.)
2.5.2 Which of the annual reorganisation related expenditures were based on government resolutions and what interventions were decided on by PSHC at its discretion. (ad. 9, 10.)
How well prepared and well founded were the reorganisation decisions taken by PSHC and how did the annual budgetary estimates been met.
3.5.3 What interventions were taken to manage crises, what actions/measures these were based on nd what forms did they take.
4 Development of the liabilities to be effected from the privatisation reserve
4.1 What were the amounts of the portfolio of liabilities related to the privatisation reserve, by legal title, as at December 31 1998 and December 31 1999. What changes in value took place on the privatisation reserve account, what was the increment from the amount created by PSHC and from the asset received for other goals (e.g. gas utility, government bonds, MFB capital increase etc.) and under what legal titles did receivables increase or decrease in the various years. To what extent is the growth of liabilities related to the charging of interest on late performance and what were the reasons for this. ( ad. 12.)
4.2 Is the registry of the guarantee and warranty type liabilities originating from contract complete and has it been properly updated. What is the composition of the liabilities and what amounts of payment obligations are expected for the future. Has the methodology of calculation been reviewed. (ad. 11, 12.)
4.3 From among the liabilities under statutes of law, what payment and asset transfers did take place based on the value of land within municipal administrative territories, in the group of payables to local governments under the right of the founder and under the legal title of share of privatisation revenue for assets sold, what payments did take place in the case of debtor consolidation liabilities. Are these processes considered as completed - if not, why. ( ad. 12.)
4.4 How did they assess and how did they organise the tasks in the case of local governmental claims relating to the gas utility assets, what is the aggregate amount of this item and what is its composition. Is there coverage for the asset transfer. ( ad. 12.)
4.5 How were the liability-related tasks of the action plan drawn up based on the recommendations comprised in the SAO report on the 1997 operations of PSHC performed. ( ad. 12.)
5 The activities of the controlling organisations
5.1 How have the appropriate, legal compliance and regularity of the activities of PSHC been controlled since 1998 within the work of the controlling function.
5.2 Have the standards of quality and the efficiency of the work and management of the organisations performing controlling tasks improved and how is this activity evaluated in the wake of the reorganisation.
5.3 Are the implementation and the reporting on the implementation of the resolutions and measures taken based on the findings of audits (controlling) properly regulated.
5.4 Has the co-ordination of the various forms of controlling been improved between/among management, in-process and independent internal controlling.
5.5 Have the quality standards of the implementation of the resolutions passed by the Supervisory Board improved.
5.6 How has the co-ordination of the operations of the Supervisory Board and the Board of Directors been developing.
5.7 How does the internal control function monitor the implementation of the Privatisation Controlling Guidelines of the INTOSAI.
6 Implementation of the Public Procurements Act
6.1 How was the implementation of the Public Procurements Act regulated in PSHC.
6.2 Did they comply with the requirements prescribed by law and what practical obstacles did they encounter.