Real estate properties of the justice sector, excluding prison infrastructure, is part of the main capital of Agency of Court Houses. However, the State Audit has concluded that Justice Ministry has not been all that active in monitoring activities of the agency and establishing long-term goals.
Agency of Court Houses is a state owned capital association. Its main function is to manage and maintain real estate properties of the justice sector. One important function of this capital association is to develop new projects, attract finances, create savings and use them to develop real estate properties. This model helps relieve justice institutions of carrying out functions uncharacteristic to them. Justice Ministry is the owner of this capital association and its main client.
State Audit has uncovered that the Agency of Court Houses had managed to save up a considerable amount of EUR 2 million. Unfortunately, it seems that the agency has no clear plan to use this money. Because of that, this fortune simply remains on the agency’s account.
No long-term activities to help develop real estate properties of the justice ministry are planned. The agency had previously carried out construction of three new court houses by using attracted capital for this goal. However, only one of those projects had been covered in the Justice System Development Strategy in advance.
In 2009, the Courts Administration developed regulations regarding requirements for furnishings and equipment in court houses and premises. However, neither the Justice Ministry nor the Agency of Court Houses has a plan of actions to secure even minimal compliance with those requirements. Many requirements for court houses related to providing access for residents, convoys and other aspects have yet to be implemented.
There are 60 objects under supervision by the Prison Administration. All of those objects are currently not being used for the main functions of the administration. By not delegating management over those objects to the Agency of Court Houses, the ministry has failed to achieve its goal – delegate real estate management functions to its capital association.
State Auditor Elita Krumina notes: «State expenditure has only increased in some areas after the adoption of this model. For example, expenditure of the State Land Service on maintenance of four real estate objects has increased two times. Nevertheless, neither Justice Ministry nor Agency of Court Houses have done sufficient work to compensate the increase of maintenance expenditure with increased maintenance efficiency and gradual reduction of state investments into the agency’s capital.»
SA believes the agency has certain accomplishments in areas that are often problematic for other capital associations – justification behind spent funds, procurement procedures, documentation validity of using transport, etc. Nevertheless, there are also certain aspects in activities of the agency that require a more in-depth assessment.
Costs stated in contracts signed by the agency are not always based on specific calculations, which goes against regulations. Costs are also not viewed in relation to actual real estate maintenance costs.
As a result, 67% of leased properties are unprofitable. In some cases maintenance costs exceed the revenue received from lease by 60%. Losses are then covered by unjustifiably high rent prices established at the remaining one-third of real estate properties. Because properties of the Agency of Court houses are most often leased to state institutions and 95% of revenue of the agency comes from the state budget, this leads to the principle of conjoined vessels – losses suffered by the state by overpaying for rent of real estate objects are covered by revenue from low price for others.
The Agency of Court Houses should increase the profitability of problematic buildings by carrying out investments that would help reduce maintenance costs. Prices should be calculated in accordance with regulations without artificial inflation of costs for the state budget.
State Audit has also noticed the agency’s practice of selling properties. In 2012, the capital association sold two valuable pieces of property in Jurmala – office premises located on Jomas Street 46 and a piece of land located on Pilsonu Street 12. The reason behind the sale of those properties lies in too high maintenance costs. Both pieces of real estate were sold on an auction. The price was also lower than the one initially announced. At least one piece of property was later sold for a price that exceeded the one the property was sold for at the auction. With that, the state lost more than EUR 1 million from those transactions.
It should be added that the sale properties goes against the decision of the Cabinet of Ministers in regards to properties managed by the agency are to be used for the sake of the state. The decision of Justice Ministry to allow the sale of properties a mere six months after investing the agency’s capital into them demonstrates that the justice sector has no need for properties and that investments into said properties is only an excuse to avoid offering them to other budget institutions. State Audit plans to inform law enforcement authorities and request a proper assessment of actions made by officials in those deals.