Public organisations and private activities
The Court of Audit has informed the House of Representatives of the main findings of its recent audit or public enterprise by means of a background study entitled Public Organisations and Private Activities and an accompanying letter. The audit was carried out at two educational institutions and three autonomous administrative authorities (ZBOs) that combine public duties and public funding with private activities and private funding. Our audit found that public enterprise requires a good deal of management skill and critical and committed internal supervision. The problem is that public organisations must not lose sight of the public interest. They must raise funds in the private sector but, as government organisations, may not distort the market. They must make creative use of the freedom they enjoy without breaking the rules. Our audit again found that the rules are not set out in a clear and straightforward framework. Striking the right balance between these two extremes within the setting of a complex framework makes business in the public sector a complex and risky undertaking.
Our audit found that public organisations are often unable to provide convincing evidence that their private activities help improve their performance of public duties. We found that this is not impossible, but it demands an extra effort from the organisations. The risks of public enterprise can be seen in practice: losses are incurred on private activities, there are integrity issues and complaints about unfair competition and lack of segregation between public and private funding. The organisations are also struggling with the operational management of their private activities. They have particular problems deciding whether an activity is liable to VAT or corporation tax or not.
Another important finding is that the ministries and public organisations have insufficient insight into the complaints made by entrepreneurs about unfair competition from the government. It can be assumed that the complaints that are known are just the tip of the iceberg.
Finally, we found that internal and external supervisors did not give priority to supervision and control of the performance of private activities. Supervision is not directed at all the main risks and control is not thorough.
In view of the spending cuts, public organisations will increasingly seek private sources of funding. This increases the risks they are exposed to. The House of Representatives can no longer rely on a supervisory system that reveals whether public enterprise is conducted correctly. The situation is aggravated by the uncertain and, as yet, nebulous regulatory framework. We are aware that it is not possible to erect a single framework that accommodates public enterprise but excludes risk. We think, though, that the government's expectations regarding public enterprise should be clear. To this end: 1) clear agreements should be made between ministers and the implementing bodies that report to them on their discretionary powers, added value and accountability for public enterprise, and 2) reliable information should be provided on the agreements to the House of Representatives.
Unfair competition is another issue. The government must understand the relationship between the private sector and public organisations. Complaints are an important signal of potential weaknesses in the system and can help rectify them. The Market and Government Act gives the Netherlands Competition Authority (NMa) the power to investigate complaints. It can use this power to carry out regular investigations so that the government, public organisations and the market can learn from them.
We would also refer to our survey, Scope and implementation of the Autonomous Administrative Authorities Framework Act. It considers a similar problem to that raised by the Market and Government Act regarding the use of abstract, general legal frameworks with many exceptions that are interpreted largely during implementation.
The Minister of Economic Affairs, Agriculture and Innovation (ELI) responded to our audit on behalf of the Minister of Education, Culture and Science (OCW) and the Minister of Infrastructure and the Environment (IM) and himself. He wrote that he had a more positive impression of the frameworks for private activities carried on by public organisations than the Court of Audit had. He thought the current rules were concrete enough. He also referred to the NMa's new role under the Market and Government Act as supervisor and contact point for complaints about the government made by private entrepreneurs. The minister intends to consider the Court's conclusions in the evaluation of the Act three years after its introduction.
The Minister of IM will introduce a modified supervision strategy and specific supervision arrangements in her field on 1 January 2013 to coincide with the implementation of the Autonomous Administrative Authorities Framework Act. The minister shares our opinion that public organisations should account for their private activities separately and transparently.