State owned enterprises spend money on donations, sponsorships and one-off social assistance: Millions are leaking without any rule and order

By spending the money which they mostly raise thanks to their monopolistic position in the market, state-owned enterprises support sports associations and federations, cultural and musical events, and also pay one-off social assistance to legal entities and individuals.

State-owned enterprises, including those which have been incurring losses for years, spend millions of euros a year on donations, sponsorships and one-off social assistances, without clearly defined criteria and procedures for allocating money for these purposes.

Government, or Ministry of Finance, does not have control over spending taxpayer’s money. Enterprises have the power to decide on their own how much and to whom they will give money, and only a few of them publish such information on their websites.

By spending the money which they mostly raise thanks to their monopolistic position in the market, state-owned enterprises support sports associations and federations, cultural and musical events, and also pay one-off social assistance to legal entities and individuals.

This is done outside the national systems established for financial support to development of sports, culture, art as well as the welfare system.

Non-existent state control

Ministry of Finance, which has a special department in charge of state-owned enterprises, does not have a clear answer to ‘’Vijesti’s’’ question on whether they control state-owned enterprises. They also did not answer the questions on why many years loss-making enterprises continue to allocate money for donations, sponsorships and one-off social assistance, and whether would it be more rational that all of these expenditures were under state’s jurisdiction.

In their responses they say that ‘’according to the provisions of Company Law, state-owned enterprises have their own governing and managing bodies and thus are fully responsible for the policy of social responsibility which is related to the allocation of funds for donations, sponsorships and one-off social assistance’’.

State Audit Institution (SAI) warns that this area needs to be regulates as soon as possible and that the biggest problem is that there is no unified regulatory system for this type of budget allocation.

‘’SAI’s recommendation is that the Ministry of Finance should make guidelines, which would be binding for all of the ministries, municipalities, state-owned enterprises and local enterprises owned by the state, in order to solve at once the allocation issue from all these budgets. Then, unified information system must be created. This system would import all these data and we would know how much money is being allocated for which purpose. Thus, we would have a very visible transparency and minimize the possibility of abuse’’ said SAI’s Senate member Zoran Jelić.

He explained that this is important because it often happens that some individuals receive money from various addresses, and the state has no information about that.

Jelić stressed that state funds must have a regulated system, because discretionary rights are often left to more persons, and more discretionary rights also mean greater possibility of abuse.

Money allocated, information hidden

It is impossible to obtain accurate information on the amount of money on annual basis, as most of the enterprises does not want to publish these information, even though this is regulated by Law on Free Access of Information. Based on responses from 24 enterprises, from which we requested information based on this Law, it can be concluded that the whole documentation on how much money and to whom they gave, can be obtained only from those enterprises which gave the lowest amounts of money, such as Post of Montenegro and Marina Bar.

Major ‘’donors’’ are not as generous when it comes to information. Some of them allow insight into information (such as Elektroprivreda Crne Gore), others decline request based on free access to information, while some of them do not even respond to the request (Airports of Montenegro, Plantaže, Montenegro Airlines..).

Based on responses received from surveyed enterprises, it is not possible to conclude on the basis of which criteria they gave money.

All of them are state that these are ‘’socially responsible activities’’.

EPCG stated that they are recognized for their socially responsible activities and that international and regional practices in area of allocation of money for sponsorship and socially responsible activities show that these enterprises for these purposes allocate not less than 1 percent of revenues.

‘’In the previous period, EPCG allocated approximately 500 thousands of euros annually for sponsorships. All sponsorships and donations are allocated in accordance with the decisions of the Board of Directors and the Rulebook on allocation of sponsorships and donations.’’

EPCG did not disclose the Rulebook, and they are among the rare state-owned enterprises whose websites have a section devoted to ‘’donations and sponsorships’’.

Port of Bar spent 130.000 euros for these purposes during last year, and this is less than half of what it spent in 2017, when the amount of allocated money reached 375,000 euros. Money that enterprise ‘’JP Morsko dobro’’ gives for donations, sponsorships and one-off assistances is recorded as ‘’expenditures for humanitarian, health, educational and sports purposes’’, for which purposes 130,000 euros were allocated in 2017, and 110,000 in the last year.

Port of Kotor allocated 100,000 euros on the same basis in past few years. Largest amount of individually allocated money received FC Bokelj, which twice got 30,000 euros in 2017. Club received 7,000 euros from Port of Kotor during last year.

This enterprise delivered Rulebook on sponsorships and donations in which is stated, among other things, that they support humanitarian, social, cultural, scientific, educational and sport activities for which there is social interest, but which cannot be financed by commercial activities. Rulebook does not say based on which criteria they will decide to whom and how much money will be allocated.

Enterprise ‘’Montenegro Bonus’’ says that they gave one-off social assistances during last two years to their employees, and that in 2017 they allocated 13,000 euros for donations as well as 20,000 euros one year later. Most of the money was given to health care institutions, sport clubs and kindergartens.

‘’When it comes to sponsorships, Montenegro Bonus has sponsorship contract singed with Handball team ‘’Lovćen’’, for period from 2018 to 2020 amounting 10,000 euros per year, on condition of positive result accomplished at the end of the business year.’’

Warnings from the World Bank

NGO sector stresses that sponsorships and donations that state-owned enterprises allocate are illustration of how much that part of public sector is left without any oversight.

“World Bank warned back in 2013 that Montenegrin state-owned enterprises are least transparent part of the public sector, with most significant lack of information on public finances. Nothing has changed for better since then regarding practice and legal framework. Law on Public Companies was abolished almost a decade ago and not replaced by any other law that would account for specifics of the work of this type of enterprises’’ said Marko Sošić from Institute Alternative.

He also said that state-owned enterprises request to be treated as independent companies in the market competition, until they need state aid to save themselves.

‘’If a state-owned enterprise is incurring losses, then it must be helped by all of the citizens. On the other hand, if it makes a profit only the chosen ones can benefit from it, while the rest of the citizens are not allowed to know to whom and how much money has been paid.’’

Boris Marić, former minister in the Government of Electoral Trust who while he was on this position initiated this topic, said that state-owned enterprises have no legal obstacles to direct subsidies, donations, one-offs and it should not be limited, but this area must be regulated better.

‘’Many of these enterprises have internal rules for allocating money, but there is no connected system. The public policy of allocation of subsidies or one-off assistance is split into a number of subjects, starting with administrative bodies to various forms of state-owned enterprises. There is no single, planned public policy for subsidies and one-off’s, based on precise records, recognized needs and in accordance with the principles of fairness, equity and transparency. This area should be further standardized and the obligations regarding planning, method of distribution, record keeping and transparency of these funds.’’

SAI has the same opinion, especially when it comes to one-off assistances. As they say, within the final budget there is data on how much money has been allocated from budget reserve and these data are exact, but there is no evidence beyond that.

Jelić stresses that many subjects do not have regulated rulebook or an act based on which they are allocating money.

‘’We do not have limits, is it 50 or 25 percent of average salary in state. It is different from subject to subject. The limit on how much can be allocated must be defined.

Marić pointed out that the question whether the state-owned enterprises are obliged to submit information to the public was open a long time ago and, according to him, it is encouraged practice in these companies.

‘’There is no doubt that companies most often do not respect the obligation to be transparent, and that legal solutions must be made clear and definite. We generally have backslide in the area of free access to information, and therefore it is easier for companies to hide information regarding the use of funds provided for subsidies and one-off assistances’’ Marić said.

Montenegro Airlines – Generous Loss-Making Enterprise

Regulating this area is of a great importance when it comes to enterprises which have been loss-making for years and do not pay taxes to the state, but do not give up on ‘’social responsibility’’ in form of sponsorships and donations. Such is the case with Montenegro Airlines (MA). This loss-making enterprise did not respond to request for free access to information regarding data on sponsorships and donations for previous two years. Montenegro Airlines has not even published its financial statements for few previous years. According to data from the audit reports on donations and sponsorships in 2016 that enterprise allocated 83,000 euros for that purpose, as well as 22,000 euros in 2017.

Football club ‘’Zeta’’ had MA logo on their jerseys both this and the last year.

‘’The intention of SAI is to prevent the state-owned enterprises and local authorities which have recorded negative financial result in their financial statements to give aid, donations and grants. Also, subjects that have outstanding tax liabilities or have tax debt reprogramming cannot be allowed to spend money on any of these forms of assistance’’, said Jelić.

Marić stresses that this must be solved with caution, as negative balances in accounting terms may be treated differently.

‘’However, Montenegro Airlines, enterprise which has both legally and illegally received state aid in order to survive, should not even think about subsidies, donations, one-off assistances’’, Marić said.

Plantaže, enterprise which has ignored request for free access to information, does not have ‘’donations and sponsorships’’ item in financial statements. However, they often appear as sponsors for various sports, cultural and musical events. A few days ago it was published that they were general sponsors of this year’s ‘’Fashion Week 2019’’.

Montenegrin Airports also did not respond to the request for free access to information. It is known that they sponsor of Montenegrin Olympic Committee, which receive around 50,000 euros a year.

‘’Novi Duvanski Kombinat’’, ‘’Plodovi Crne Gore’’, ‘’Crnogorska Plovidba’’, ‘’Kastelo’’ and ‘’Radoje Dakić’’ also did not respond to the request for free access to information.

Monteput Gave BC Budućnost One Million in Two Years

One of the biggest donors in the Montenegrin market is Monteput, which refused to provide information with explanation that it ‘’requires creating of new information, which is defined as a basis for rejecting request for free access to information’’.

Data on Monteput’s donations and sponsorships cannot be found in financial statements. However, this company is known as very generous when it comes to Basketball Club Budućnost, which received one million euros in last two years. From 2017 profit, 604,000 euros were paid on the account owned by this club from Podgorica, and from the last year’s profit 400,000.

‘’Rudnik uglja’’ also rejected request for free access to information, but according to SAI’s data in 2016 there were no sponsorships, although it is known that this enterprise has been main sponsor of the women’s HC Budućnost for years, while 120,000 euros were spent on donations. In 2017, ‘’Rudnik uglja’’ allocated 36,000 euros and almost twice as much for donations – 204,000 euros.

It is not clear based on what principle this enterprise makes decisions on sponsorships, and why it keeps allocating money for years to Podgorica’s handball players, and there is no sense of ‘’social responsibility’’ towards sports club in their city, such as HC Rudar which recently announced that would be forced to quit national competition because of lack of money.

Basketball Association Receives Money From Various Addresses

Due to the fact that donations, sponsorships and one-off assistances are not regulated at state level, money from multiple addresses is being given to the same subjects.

Thus, we have a situation that Basketball Association of Montenegro, until recently headed by President Milo Đukanović, received 100,000 euros from the EPCG, 54,000 euros from Port of Bar and 715,000 euros from Ministry of Sport. It is similar with all major sport association that receive money from Ministry of Sport, but also from multiple state-owned enterprises.

This is also the case with sports teams.

Of special concern is the fact that most of these state-owned enterprises provide one-off assistance to persons outside the companies. These enterprises do not inform Ministry of Labor and Social Welfare on how much money, to how and how many times in year they allocated money, so it remains unknown how many of them are beneficiaries of social aid from the state.

Authors: Danijela Lasica and Marija Mirjačić

This article was prepared within the project ‘’Money Watch – Civil Society Guarding the Budget!’’ that is implemented in partnership with Institute of Public Finance from Zagreb and NGO New Horizon from Ulcinj. The project is financially supported by the European Union and co-financed by the Ministry of Public Administration of Montenegro.

This article was originally published in daily newspaper Vijesti, and at Vijesti’s portal.

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