The Spanish Contingency Fund should be used to do what it says on the tin; provide funding in severe, extreme or emergency conditions. But there is a lack of clarity at regional and local government level about what that means

Spain's Contingency Fund has recently been extended to apply to regional and local government, with the aim of creating on a compulsory basis a provision to cover unforeseen and non-discretionary expenses.

This situation already applies to central government, in accordance with general budgetary law. The Fund has been endowed with a compulsory character by the state; and a voluntary one by some autonomous communities, such as Aragón, Cantabria, Cataluña, Galicia, Canarias and El País Vasco.

The problems in the regional and local government context arise from the vagueness of the law regarding the amount, conditions and purpose to which the Fund is put. It specifies only that it  'will be used where appropriate, to meet the needs of non-discretionary and non-scheduled expenses initially approved in the budget that can arise throughout the year.' This includes amongst other things: natural disasters, severe economic recession or extraordinary emergency situations.

The lack of clarity in the regulations means that there is a high risk of the autonomous regions registering accounts without a clearly defined purpose and amount, so that these funds may end up being used in a completely arbitrary way.

According to the Spanish press, some of these payments materialize as dinners and celebrations, or in millions being spent on unjustified compensation payments and remunerations.

Amongst the cases cited by the press are: 400,000 euros spent from Murcia's contingency fund on the integration of the town's railway; 1 million euros spent from Madrid's fund to meet the cost of adverse judgments against City Hall; in Zamora, payment of bills that were pending with the city's creditors, and interest arising from debt; and in Asturius, use of some of the fund for the improvement of school facilities. There are countless other examples.

So, given the dire economic situation in the country, what kind of measures should be taken to avoid misuse of the Contingency Fund?

The autonomous communities should regulate them with more precision and detail in their respective treasury laws. They should stipulate the amount and purpose of the funds, and make use of the expertise and professionalism of the Spanish watchdogs for the control and supervision of the Fund’s annual allocation.

In the worst case scenarios, where we cannot trust in control and regulation by the leaders of the autonomous communities, maybe we should consider more drastic measures. One possibility would be to remove the fund and replace it by 'payments to justify.'

These kind of payments are typically used in Spanish public accounting where, in very specific cases (such as natural disasters, emergencies and so on) the expenses do not require authorization, but can simply be made and later analysed by the appropriate treasurers and/or controllers.

In any case, reform of the contingency fund system is clearly overdue.

Marta Riera López is auditor of the auditing authority of the Principality of Asturias in Spain