The Spanish Court of Auditors: proceedings that may affect you if you manage public funds

Let us imagine that a mayor authorizes payments to suppliers without documentary justification, that a civil servant diverts funds earmarked for a grant, or that a public-sector manager cannot explain a shortfall in the accounts of an autonomous agency. Before whom must they answer?

Attention is usually directed to the Criminal Code. However, in the context of public-funds management, there is an institution that, despite its enormous importance, remains unknown to a large part of the public: the Court of Auditors.

This article explains what the Court of Auditors is, what its functions are and, above all, what types of proceedings it may initiate and how they may affect those who manage or receive public funds.

1. What is the Spanish Court of Auditors?

Article 136 of the Spanish Constitution defines it as «the supreme audit body for the accounts and economic management of the State and the public sector». Organic Law 2/1982, of 12 May, on the Court of Auditors (hereinafter, “LOTCu”), develops that constitutional mandate and assigns it two principal functions (art. 2):

• External audit of the economic and financial activity of the public sector, and
• Adjudication of the accounting liability of persons entrusted with the management of public funds or public assets.

The nature and basis of this jurisdiction are pecuniary and restorative—its purpose is to secure the reimbursement of public funds that have been diminished, not to punish the person responsible—(art. 59.1 Law 7/1988, of 5 April, on the Functioning of the Court of Auditors (“LFTcu”)). Accordingly, it is not a criminal court: it does not declare that offences have been committed or impose penalties; it exercises its own jurisdiction, with evidence, adversarial proceedings and res judicata effect within its sphere, which may result in an order to reimburse amounts, plus interest, and in asset-preservation measures.

In other words, the Court of Auditors not only audits and reviews the State’s accounts—the audit function—but also has its own jurisdiction to adjudicate and enforce liability where public money has been mismanaged—the jurisdictional function. As the Constitutional Court has held, «the accounting adjudication conducted by the Court of Auditors constitutes the exercise of a full and exclusive judicial function in a special process by reason of its subject matter» (STC 215/2000, de 18 de septiembre).

2. The audit function: oversight of public accounts

Audit is the first of the Court’s functions. It is described as external—because it is carried out by a body separate from the audited entity—, permanent—because it is exercised on an ongoing basis—and ex post—because it constitutes final and conclusive oversight.

It consists of examining whether the economic and financial activity of the public sector complies with the principles of legality, efficiency, economy, transparency, environmental sustainability and gender equality (art. 9 LOTCu). The results are generally set out in audit reports submitted to the Spanish Parliament and published in the Official State Gazette. In those reports, the Court shall record «any infringements, abuses or irregular practices it has observed, indicating the liability that, in its view, may have been incurred» (art. 12 LOTCu).

The LFTCu sets out the various audit procedures: examination of the State’s General Account, targeted audits of contracts, grants or public assets, and the reports, motions and notes that the Court may submit to the Chambers. Although these procedures do not directly impose sanctions, they frequently constitute the prelude to judicial proceedings, since the audit may reveal indications of accounting liability that trigger adjudicatory proceedings.

3. The jurisdictional function: the three proceedings for enforcing accounting liability

Through its Adjudication Division, the Court of Auditors has its own jurisdiction—mandatory, non-extendable, exclusive and full (art. 17 LOTCu)—to enforce accounting liability against those who, with intent, serious fault or gross negligence, cause a loss to public funds or assets (art. 49.1 LFTCu).

It should be noted that between the audit and the judicial proceedings there is an intermediate investigative phase—the so-called preliminary proceedings—whose purpose is to determine the amount of the loss, identify the alleged liable parties and gather the necessary evidence (arts. 45 to 48 LFTCu). The precise conduct of this preliminary phase varies depending on the proceeding, as explained below.

Accounting liability is enforced through two judicial proceedings (art. 25 LOTCu):

1. a) Proceedings for reimbursement of an accounting shortfall (arts. 72 to 74 LFTCu)

This is, by far, the proceeding most frequently used in practice by the Court of Auditors. It applies when an accounting shortfall is detected in public funds or assets.

Article 72.1 LFTCu defines a shortfall as «the unjustified debit balance of an account or, in general terms, the absence of cash or supporting documentation from the accounts that persons entrusted with the management of public funds or assets are required to render». Case law has interpreted this concept broadly: «it is sufficient for publicly owned assets and rights to be put to a purpose other than that prescribed by law» (STCU 1/99, de 12 de febrero). Misappropriation of public funds or assets is also treated as a shortfall, that is, the taking of public funds or their application to one’s own or another’s uses (art. 72.2 LFTCu).

The proceeding is structured in several stages:

• Preliminary inquiries and investigation. The Governing Commission appoints an Investigating Delegate (art. 26 LOTCu), who carries out the necessary inquiries: provisionally determines the facts, identifies the alleged liable parties, quantifies the shortfall and adopts any appropriate asset-preservation measures. This stage culminates in a provisional liquidation record, which quantifies the loss and identifies the alleged liable parties.
• Judicial phase at first instance. Once the case file is received by the Adjudication Division, the Councillor of the Court of Auditors assigned to the matter issues public notices, summons the parties and the proceeding continues under the rules governing the declaratory proceedings appropriate to the amount of the shortfall pursuant to the Civil Procedure Act (arts. 1 and 73.2 LFTCu).

What determines whether the proceedings continue is the filing of a claim by any party with standing: the injured public administration, the Public Prosecutor or any citizen exercising the public action (art. 47 LOTCu). If no claim is filed, the Public Prosecutor is given notice; and if the Public Prosecutor likewise fails to file one, the proceedings are closed (arts. 73.3 and 73.4 LFTCu).

• The judgment bringing the proceedings to an end must rule on: the amount of the damage and loss caused, the identification of the direct or subsidiary liable parties, the order for reimbursement, statutory interest from the date of the loss and costs (art. 71.4 LFTCu).
• The judgment may be appealed to the Judicial Chamber of the Court of Auditors (art. 80.2 LFTCu) and, ultimately, an appeal on points of law may be brought before the Administrative Division of the Supreme Court (art. 81 LFTCu).

1. b) The accounts trial (arts. 68 to 71 LFTCu)

This proceeding is reserved for cases of accounting liability other than a shortfall. That is, for more complex irregularities identified during the audit that involve a loss to public funds, a breach of budgetary or accounting rules, etc., but do not fall within the specific category of a shortfall.

In practice, the accounts trial is far less common than proceedings for reimbursement of a shortfall, particularly because the case law of the Court of Auditors has progressively broadened the concept of a shortfall to the point that it can encompass most accounting infringements.

The principal difference from proceedings for reimbursement of a shortfall lies in the preliminary phase: no Investigating Delegate intervenes here; rather, the investigation is the responsibility of the Councillor who conducted the audit from which the indications of accounting liability arise (art. 68 LFTCu). In addition, this investigation is conducted as a separate section within the audit proceedings. Thereafter, the judicial phase follows the procedure for administrative litigation.

Finally, the judgment must contain the same rulings as in proceedings for reimbursement of a shortfall (art. 71.4 LFTCu) and is subject to the same regime of appeals.

4. Conclusion

The Court of Auditors is not merely a body that audits the State’s accounts. It is also a true court that adjudicates, enters judgments and orders reimbursement of public funds that have been diminished. Its proceedings are the means by which the accounting liability of those who manage public funds is established.

The scope of this liability is not limited to civil servants or public authorities: it extends to any person who handles, administers or receives public funds, including grant beneficiaries. The technical complexity of these proceedings, the specificity of their regulation and their compatibility with criminal proceedings make it essential to obtain specialist advice from the moment any action by the Court of Auditors comes to one’s attention.

At Ayuela Jiménez, we have lawyers specializing in Economic Criminal Law and proceedings before the Court of Auditors, prepared to analyze each situation rigorously and devise a coordinated defense strategy across the accounting and criminal proceedings. In the event of any investigation or proceeding relating to public funds, having an expert team from the outset makes all the difference.