Latvian State Audit’s report shows State Real Estate is an «inefficient» institution

In the audit performed at Latvian state company State Real Estate (VNI), State Audit (VK) uncovered numerous major problem with policy-making and property management.
In Latvia the Ministry of Finance is responsible for the development of state real estate management policy. The ministry’s subordinate institution VNI is the most well-known, but not the only state real estate manager in the country, VK explains.
«Implementation of the unified real estate management concept adopted in 2006 concluded in 2020. However, only a small portion of tasks listen there have been accomplished so far.

The way in which VNI manages real estate property puts into question if national interests are put above state capital association’s interests,» VK stresses in its report.

The audit focused on the state real estate property intended for office use managed by VNI. VK notes that the primary objectives of the concept adopted in 2006 included movement towards centralisation of real estate management, optimisation of the structure of real estate of ministries and state institutions, introduction of a market rent fee principle.
«Without a doubt, the Ministry of Finance has worked hard on the implementation of the concept adopted in 2006 – numerous different regulations have adopted and the ministry has taken over many pieces of real estate from other institutions.
VNI continues disposing of real estate properties unnecessary to the state. It has also taken over part of existing state properties, has constructed new ones and has developed the State Real Estate Information System,» notes VK Control Council member Inga Vilka.
She said it was concluded during the audit that in 16 years after the adoption of the concept provision of necessary premises for state institutions remains an uncoordinated process. On top of that, state real estate property and other special property is managed in an unfocused manner without long-term planning. «This is not the first audit that casts light on partial or insufficient cooperation between state institutions. This audit also outlined a lack of complete, comparative and aggregated data and analysis,» Vilka says.

VK also concluded that the calculation of rent fees lacks consistency. There were also problems observed with the internal control system.

Rent contracts with state institutions do not list profitability. The fees paid for rent of state capital associations may even turn out higher than cost-based estimates. According to VK, the state indirectly owns the real estate of its own capital associations. This means the company is to serve the interests of state institutions and provide them with appropriate real estate in an efficient and economic manner.
VNI’s revenue from rent and management reached EUR 36 million in 2021. 87% of this amount comes from payments from public persons.
«The transition towards rent fees was performed only partially. Because of the state budget’s limited financing options, not all real estate properties received proper financing for planned repair work,» as noted by VK representatives, adding that repair work not done in time will cause larger costs for the state in the future.
In the audit VK also uncovered numerous mistakes in calculations of rent fees, which implies VNI has a weak internal control environment. As a result of this, tenants pay inappropriate rent. VK also stresses that in order to ensure a unified approach towards management of state real estate, it is necessary to create an appropriate information space that will provide objective conditions for data analysis, comparison and state real estate planning.
Although the Ministry of Finance and VNI have ensured creation of such an information system, the data kept therein is incomplete. This makes it difficult to perform a complete data analysis.
As for the management of VNI, VK turns attention towards the way the council was composed, as well as the general review of the quality of work done by members of the board. The law permits appointing council members without a selection process for a period of up to 12 months. Three out of four VNI council members were appointed for a temporary term. On top of that, two of them, the chairman of the council included, have been in their posts for four years, because they were appointed a couple of days couple of days before the section of them law on temporary duration restrictions came into force.
One council member was later reinstated again after the end of the temporary term. This was done despite the Cross-Sectoral Coordination Centre’s objections and without a selection process.
Despite the fact that the Ministry of Finance sees nothing wrong or illegal in its actions, VK believes such behaviour can be considered legal nihilism. This practice only weakens public trust in state administration and should not be used at all.
Additionally, VK also outlines that all three council members that were appointed for temporary terms also work full-time in ministries: VNI council chairman, for example, is also the state secretary to the Ministry of Defence; one of the council members is also the head of the Administration of the Ministry of Finances. Another member of the council is the assistant of the state secretary to the Ministry of Finances and a board member in Liepaja Special Economic Zone.
VK had previously voiced concerns about the ability of officials to combine posts with high amounts of workload and important posts.
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