GEO

Corruption Risks and Management Practice in State-Founded LEPLs and N(N)LPs

29 September, 2017

The study of Legal Persons of Public Law (LEPLs) and Non-Entrepreneurial (Non-Commercial) Legal Persons (N(N)LPs) subordinated to the central and local government bodies has shown that the number of LEPLs and N(N)LPs as well as the number and remuneration of their employees has increased significantly between 2012 and present.

The study looks at the management practice and legal basis of LEPLs and N(N)LPs founded by the state, including the internal mechanisms for prevention of the conflict of interest and corruption, various aspects of compensation and staffing policies, criteria for appointing and dismissing their heads and guarantees of their independence; the prevailing state of affairs is then compared to the international best practice.

The study is based on the data for the 78 LEPLs and N(N)LPs which have provided us with the requested information. In some cases, when provided information was incomplete or was not provided at all, the data are approximate but, nevertheless, allow to identify general trends.

Main Findings:

  • In contrast to the international best practice, the Georgian legislation does not provide for clear and straightforward criteria for founding the organizations (LEPLs and N(N)LPs) that are separate from the bodies of the central and local executive authorities;
  • The legislative amendments that can be assessed as positive are the ones which require holding a simplified public competition for selecting candidates to be appointed to the positions of the head and deputy head of an LEPL, also directly consider working at LEPL as working for the civil service and make the law “On Civil Service” and “On Conflict of Interest and Corruption in Public Institutions” fully applicable to this kind of institutions;[1]
  • It is problematic that the principles of the laws “On Civil Service” and “On Conflict of Interest and Corruption in Public Institutions”[2], including the obligation to select their heads and employees based on competition, do not apply to N(N)LPs founded by the central or local government bodies;
  • The number of LEPLs and N(N)LPs founded by the central and local governments has increased between 2012 and present;
  • According to the information received from the bodies selected for the study, there were 8,870 permanent employees working at 40 LEPLs and N(N)LPs in 2012. By 2017, this number increased to up to 12,632 employees working for 74 LEPLs and N(N)LPs;[3]
  • In 2012, there were 1,077 non-staff employees working for 38 LEPLs and N(N)LPs. In 2017, their number amounted to 7,193 in 67 LEPLs and N(N)LPs:
  • In 2012-2017, the trend of increasing the number of non-staff employees is present only in those LEPLs and N(N)LPs which were founded before 2012;
  • In 2012, permanent employees of 45 LEPLs and N(N)LPs received almost GEL 77m in salaries; in 2016, this amount exceeds GEL 165m for 72 LEPLs and N(N)LPs;
  • In 2012, GEL 29.5m was paid in salaries to non-staff employees in 39 LEPLs and N(N)LPs; in 2016, this amount increased to almost GEL 51m for 62 LEPLs and N(N)LPs;
  • The issue of transparency and accountability in the public sector remains problematic. Unfortunately, this study does not cover the LEPLs that are part of the Ministry of Internal Affairs and the Ministry of Justice systems or the trends that are characteristic for them as these agencies have failed to provide us with information;
  • The Civil Service Bureau, the State Audit Office and the Government Administration do not have unified information about the total number and areas of activities of LEPLs and N(N)LPs under the executive central and local government bodies of Georgia, and we have not been able to receive public information we requested from the Ministry of Finance.

Recommendations:

  • In order to efficiently prevent conflict of interest, nepotism and corruption in the state-founded N(N)LPs, the regulating principles of civil service and anticorruption mechanisms must be applied to them, including competition-based appointment of their heads and employees, observation of the regulations stipulated in the law “On Civil Service” to non-staff employees and other issues;
  • With the aim of elaborating effective anticorruption mechanisms for the state-founded LEPLs and N(N)LPs, the internal anticorruption mechanisms need to be improved;
  • The criteria for creating LEPLs and N(N)LPs must be clearly stipulated by the law, in compliance with the good governance standards;
  • The problem of unjustifiably large share of contractors in LEPLs and N(N)LPs needs to be addressed;
  • The spending of public funds by LEPLs and N(N)LPs needs to be effectively controlled (by the parliament, State Audit Office, relevant bodies of the central and local government);
  • Relevant agencies must be collecting and proactively publishing comprehensive information about organizations that are part of the public sector, including their number, sphere of activity, structural subordination and other issues.
 

[1] Except for the work of Legal Entities of Public Law that are based on cultural, educational, scientific, research, sport and religious membership and which belong to categories determined by the laws of Georgia “On Civil Service” and “On Legal Entity of Public Law”.

[2] Applicable only with regard to the obligation to fill out income declaration by heads of N(N)LPs.

[3] The difference in the number of organizations is conditioned by the creation of new legal entities,  while some LEPLs and N(N)LPs that were functioning before 2012 and are still operational failed to provide us with requested information.