SAO: proper receivables management can help avoid asset losses for SOEs

The State Audit Office of Hungary (SAO) carried out a targeted audit to assess whether the state owned enterprises (SOEs) concerned had taken the necessary measures to recover their receivables. Based on the deficiencies identified, the SAO made recommendations to the management of the audited SOEs.

State-owned companies provide the resources for the execution of their public duties essentially through the revenues they generate from their own activities, therefore, their actions and decisions regarding the collection of these revenues are of paramount importance for the proper performance of public tasks.

The audit of the SAO assessed, on the basis of selected sample items, the adequacy of the accounts receivables ledger, the management of the receivables portfolio and the accounting treatment of uncollectible accounts receivable in the case of five state-owned companies. The SAO revealed deficiencies in respect of all the companies audited.

The SAO identified a number of irregularities in the general ledger accounts, although the maintenance of proper analytical records is a fundamental element of sound management of receivables, thus proper accounts provide an opportunity to monitor the receivables portfolio and to select the most effective method of managing receivables.

Regarding the weaknesses identified in the measures taken to recover trade receivables, the SAO indicated that the proper application of adequate receivables management and enforcement measures contributes to avoiding the loss of assets of SOEs thus to securing the resources necessary for the performance of public tasks. Losses resulting from the write-off of irrecoverable receivables however lead to a reduction in the company’s equity, and thus in the state assets embodied in the shareholding, and it is therefore of paramount importance that the write-off of receivables as irrecoverable receivables is only carried out in justified cases, in a substantiated manner and in compliance with the legal requirements.

Taking into account the high importance of the audited activity, the State Audit Office of Hungary urged the managers of the audited SOEs to ensure the proper functioning of the control activities in the form of a proposal.

Full text report is available in Hungarian here.