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Too little active follow-up of the State’s ownership policy

Several ministries have failed to follow up companies in accordance with the principles of the State’s ownership policy. This applies to guidelines for corporate social responsibility and the remuneration of executive personnel, and the fact that some ministries do not organise their follow-up in compliance with the intentions behind state ownership. Many of the companies have done very little to ensure that the elements of corporate social responsibility that they themselves consider relevant are an integrated part of their management. - It is a serious matter that key aspects of the State’s ownership policy are not followed up in practice, says Auditor General Jørgen Kosmo.
Published 11/11/2010 12:35 PM
Document No 3:2 (2010–2011) The Office of the Auditor General’s control of the management of state-owned companies for 2009 was submitted to the Storting on 11 November 2010. The goal of the control is to assess whether the State’s interests in companies have been managed in accordance with the decisions and intentions of the Storting.

Corporate social responsibility

The results in this area are not good enough seen in relation to the Government's ambitions and the Storting's intentions for corporate social responsibility. Many of the investigated companies have done very little to ensure that the elements of corporate social responsibility that they themselves consider relevant are an integrated part of their management. Several companies have fundamental deficiencies in relation to ethical guidelines and environmental management. In addition, many of the companies with suppliers outside the EEA area lack satisfactory systems for following up their supply chains. Incidents in the supply chain relating to poor workplace safety, pollution, child labour and corruption could entail a significant risk to the reputation of the companies in question and the Norwegian State. The owner ministries still do not know enough about how the companies’ exercise corporate social responsibility.

Remuneration of executive personnel

Wage growth for executive personnel does not appear to have been characterised by moderation since the Government implemented measures to promote moderation in 2007. The average wage growth for executive personnel in state-owned companies during the period 2007–2009 has been twice the general wage growth for executive personnel in Norwegian companies, and the annual wage growth for executive personnel in state-owned companies during this period was higher than during the period 2004–2007. In the period 2007–2009, the boards of the state-owned companies have not given sufficient emphasis to moderation when stipulating CEOs’ pay.

Follow-up of companies

The follow-up of individual companies is not well adapted to the purpose of state ownership. The Government has placed great emphasis on clarifying the purpose of ownership for each individual company. The Office of the Auditor General’s control shows that the companies and owner ministries fail to adequately tailor their follow-up to the distinct nature of the companies.

Profitability and cross-subsidies

Norsk Eiendomsinformasjon AS is engaged in both monopoly activities and activities exposed to competition, and the company is subject to a prohibition on cross-subsidies. This year’s control shows that the monopoly activities have produced a considerable profit, while the other activities do not seem to have produced a satisfactory return. The company and the Ministry of Justice and the Police have not submitted accounting information that substantiates that no cross-subsidisation has taken place.

The universities’ commercialisation companies are required to operate without subsidies from the universities. This year’s control shows that the commercialisation companies of the universities of Oslo, Bergen and Tromsø have had agreements for the sale of services to the universities that make it difficult to verify whether the purchase of services involves subsidisation. Moreover, the companies’ accounts do not give a correct picture of the financial dealings between the companies and the universities. In the Office of the Auditor General’s opinion, the Ministry of Education and Research should establish a more active supervision regime for the commercialisation companies.

Statskog SF is required to manage its property efficiently with a view to achieving a satisfactory financial return. The profitability of the enterprise's day-to-day management of its properties has been poor. Large one-off gains from compensation for areas subject to protection orders and from property sales are entered as operating revenue in the accounts, despite the fact that these gains were not the result of the enterprise's ordinary operations. The Ministry of Agriculture and Food and the board of Statskog have failed to adequately follow up that the enterprise organises its operations with a view to achieving a satisfactory financial return. The Minister of Agriculture and Food has stated that he will use the Office of the Auditor General's investigation in the further work on goal and performance management of Statskog's commercial operations.

Internal control in Norwegian State Railways (NSB)

The Ministry of Transport and Communication does not have sufficient knowledge to evaluate how the board of NSB discharges its responsibility for ensuring that satisfactory internal control systems are implemented in the company. In the Office of the Auditor General’s opinion, the company’s internal control in the area of traffic safety is not adequately aimed at ensuring compliance with the regulations in this area.

Specific targets for a company’s financial return are an important basis for corporate governance. The Office of the Auditor General's investigation shows that, for the whole period 2008–2012, the realised or expected return is below the stipulated target. Since the Ministry seems to have accepted this poor return, in the Office of the Auditor General’s view, this means that the return target is set aside as a management tool and as a basis for the company’s internal control.

Follow-up of Petoro’s contribution to added value

The Ministry of Petroleum and Energy’s follow-up of Petoro AS has not provided a basis for evaluating the extent to which the company has achieved its primary goal, which is to maximise the financial value from the State’s oil and gas portfolio. The follow-up is largely based on Petoro's activity reporting and overall information about the development of the State’s Direct Financial Interest (SDFI) portfolio. Petoro manages very large assets on behalf of the State. In the Office of the Auditor General’s opinion, the Ministry must establish a follow-up system that makes it possible to carry out a concrete evaluation of the extent to which Petoro contributes to creating the greatest possible financial value from the State's oil and gas portfolio.

Submission of the Minister’s reports from the Ministry of Finance

The Office of the Auditor General finds that it warrants criticism that the Ministry of Finance does not submit reports to the Office of the Auditor General about the management of the State's interests in companies under the Ministry of Finance and about Norges Bank. The Office of the Auditor General wishes to point out that the Minister thereby fails to comply with the provisions adopted by the Storting in the Auditor General Act and the instructions for the Office of the Auditor General.

The regional health authorities

The quality of the reporting in the regional health authorities’ annual reports is still not satisfactory, and the Ministry of Health and Social Care therefore does not receive adequate information about the situation in the health regions as regards several management requirements and quality indicators. Figures from the Norwegian Patient Register show that there are still great regional differences in the allocation of rights to necessary health care (defined rights patients), and that the waiting times for defined rights patients continue to increase. The challenge of increased waiting times is a key management task that must be given higher priority by the health authorities.

Norsk Helsenett’s practising of information security in the health network

Norsk Helsenett SF does not have satisfactory procedures and systems for ensuring uptime in the health network. There are also weaknesses relating to the enterprise's risk assessments and security measures before and after customers are connected to the network. Following the Office of the Auditor General's investigation, Norsk Helsenett SF has planned and implemented a number of security measures intended to reduce the identified weaknesses. The Office of the Auditor General would like to stress the importance of the enterprise implementing the measures so that information security in the health network is attended to in a satisfactory manner.

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