Legal Risks and Compliance in Czech Hospital Management Audits

Management audits in Czech hospitals are not merely a formal check of figures. Their findings can have serious consequences—ranging from sanctions for breaching budgetary discipline and restrictions on service provision to the criminal liability of management and the healthcare facility itself. This article explains how audits function within the Czech healthcare system and how to avoid situations where an audit reveals violations that end up before Czech law enforcement authorities.

Quick Summary

• Financial audits are a key part of hospital oversight in the Czech Republic, verifying the management of public funds, compliance with the Public Procurement Act, and contract transparency. Their findings can lead to significant financial and legal consequences, including the obligation to return subsidies.
• Contract management and the Register of Contracts are not optional – failure to comply with publication obligations leads to contracts being void from the outset. Violations of the principles of economy, efficiency, and effectiveness (3E) or awarding contracts without a tender process have direct consequences in the form of fines and legal action under Czech law.
• Criminal liability of legal entities is a reality – a hospital as an entity can be criminally prosecuted in the Czech Republic for breach of duty in the administration of foreign property, subsidy fraud, or securing an advantage in public procurement.
• Preventive preparation and professional legal solutions minimize risks – a systematic approach to public procurement and functional compliance programs can protect hospital management.

What are financial audits for hospitals and why you must not overlook them

A financial audit is a systematic inspection that examines how a hospital handles public funds, complies with legal regulations, and manages entrusted or owned property in the Czech Republic. It is not a mere accounting review – the audit focuses on the overall financial management system, the functionality of the internal control system, public procurement processes, and compliance with the 3E principles (economy, efficiency, effectiveness) according to the Czech Financial Control Act.

Hospitals drawing public funds are subject to audits – whether they are contributory organizations of the state or regions, or business corporations with ownership participation by public entities. Inspections can be carried out by internal audit units, external auditing firms, the founder, tax authorities, the Office for the Protection of Competition (ÚOHS), or the Supreme Audit Office (NKÚ).

In practice, audits often reveal problematic areas that hospital management underestimates. Most commonly, these involve the so-called splitting of public contracts, purchasing services without a legal basis, incorrect warehouse management, or breach of obligations under the Czech Act on the Register of Contracts. Each of these violations has specific legal and financial impacts on the hospital.

Experience shows that problems can most often be prevented by high-quality preparation of tender procedures and a systematic approach to risk management (compliance). Our attorneys in Prague from the ARROWS law firm commonly handle situations where hospital management faces audit results that have brought serious findings.

microFAQ

1. Who in the hospital is responsible for audit preparation?
Responsibility lies with the statutory body (director, board of directors). In practice, the economic department, legal department, and public procurement department collaborate on preparation. However, deficiencies often arise at the level of individual clinical departments or operational units.

2. How long does a typical audit take?
A financial audit or inspection by the founder can last from several weeks to several months, depending on the size of the hospital and the scope of the period being reviewed.

3. What happens if an audit reveals a violation?
The hospital receives an inspection protocol (or auditor's report). It has the opportunity to file objections. If the findings are confirmed, corrective measures, levies for breach of budgetary discipline, and fines follow, and in case of suspicion of a criminal offense, a criminal complaint is filed with Czech authorities.

Contractual relations and public law obligations: where hospitals often err

Hospitals enter into specific legal relationships. On one hand, there are contracts with health insurance companies (governed by framework agreements and reimbursement decrees), and on the other hand, commercial contracts with suppliers of medicines, medical devices, and technologies.

These contracts are subject to a number of statutory regulations, with the main framework formed by the Act on Health Services, the Civil Code, and the Act on the Register of Contracts. For contributory organizations, Act No. 250/2000 Coll., on Budgetary Rules of Territorial Budgets, or Act No. 218/2000 Coll. (for state contributory organizations) also apply.

In practice, Czech hospitals most often err by performing based on oral agreements or orders that lack the requirements of a contract, or by concluding amendments retroactively, which is highly risky legally. A frequent problem is also the absence of preliminary management control before a commitment arises. These are violations that auditors easily identify.

Management must ensure that all contractual relationships are economically advantageous and legally perfect, which stems from the requirement to act with due managerial care. In Czech court or administrative proceedings, it is examined whether the statutory body acted in an informed manner, in the defensible interest of the hospital, and with the necessary loyalty.

Our Prague-based attorneys from the ARROWS law firm commonly handle audits where it is found that the hospital paid invoices without a valid contractual basis. A systematic review of contractual documentation is an essential preventive measure.

microFAQ

1. Must a hospital have a written contract with suppliers?
For public contracts and agreements over CZK 50,000 excluding VAT that are subject to publication in the Register of Contracts, a written form is essential for the validity of the legal act under Czech law.

2. How is contract archiving handled?
Contracts and related documents are kept for the period specified by the hospital's filing and shredding rules, in accordance with the Czech Archives Act and the Accounting Act (usually 5 to 10 years, or longer for EU projects).

3. What if the hospital discovers an error in an old contract?
It is necessary to legally remedy the situation, for example, through a settlement or by concluding a new contract (with future effect). Backdating contracts is impermissible and may be assessed as falsification of documents under Czech legislation.

Register of Contracts and transparency – sanctions for non-publication

Act No. 340/2015 Coll., on the Register of Contracts, imposes an obligation on hospitals (as legal entities in which the state or a self-governing unit has a majority stake, or as contributory organizations) to publish private law contracts in the central register.

The obligation to publish a contract applies to agreements where the value of the performance is higher than CZK 50,000 excluding VAT. The contract must be sent to the register administrator for publication without undue delay, but no later than 30 days after conclusion.

If a contract is not published in the Register of Contracts within 3 months of its conclusion, it is considered void from the beginning (invalid). If the hospital performed under such a contract (e.g., paid for cleaning), this constitutes unjust enrichment, which theoretically should be returned, causing enormous legal and accounting complications within the Czech legal system.

Audits in Czech hospitals frequently reveal that contracts were published late, in an unreadable format, or not published at all. This leads to situations where the hospital receives performance based on invalid legal titles.

Many hospitals do not realize that proper publication in the Register of Contracts is a prerequisite for a contract's effectiveness under Czech law. Without it, invoices cannot be legally paid. Experts from the ARROWS law firm in Prague perform reviews of the Register of Contracts and help remedy defects where still legally possible (e.g., by concluding a settlement agreement and its subsequent publication).

microFAQ

1. Are there exceptions to the publication requirement?
Yes, for example, contracts for the purchase of medicinal products or medical devices, where the publication of unit prices could reveal a trade secret, are published to a limited extent (without unit prices) or have a specific regime. However, full exemptions are strictly defined by Czech legislation.

2. Who is responsible for publication?
Responsibility lies with the statutory body, which delegates this duty to specific employees. However, an individual's failure does not relieve the hospital of the legal consequences of the contract's invalidity.

3. What if the failure to publish is only discovered during an audit?
If the 3-month statutory period has expired, the contract is considered void from the beginning. The auditor will include this finding in the report. Remediation requires a complex legal solution (settlement of unjust enrichment, reconciliation) to prevent further damages.

Public Procurement and Principles of Economy: Common Mistakes in the Czech Republic

Public procurement is one of the highest-risk areas for hospitals. Act No. 134/2016 Coll., on Public Procurement (ZZVZ), imposes strict obligations on Czech hospitals when purchasing supplies, services, and construction work.

In practice, audits most frequently reveal the following errors:

• Splitting of public contracts: The hospital purchases similar performance (e.g., IT equipment or medical supplies) in smaller parts to avoid the thresholds for open tender procedures.
• Option rights and negotiated procedures without prior publication (JŘBU): Hospitals extend contracts or award contracts "directly" to the original supplier without meeting the strict legal conditions for this procedure under Czech law.
• Illegal definition of the subject matter: Technical conditions are set so that they suit only one specific supplier (so-called "tailor-made" tenders), which contradicts the principle of equal treatment.

The principles of economy, efficiency, and effectiveness (3E) mean that hospitals must purchase in a way that achieves the best price-quality ratio. It is not enough to simply follow the procedural steps according to the Public Procurement Act; the purchase must make economic sense. The Supreme Audit Office (NKÚ) and other Czech supervisory bodies increasingly focus not only on legality but also on the actual economy of purchases.

Attorneys from the ARROWS law firm in Prague routinely handle defense against petitions at the Office for the Protection of Competition (ÚOHS) and assist hospitals with the administration of procurement procedures to ensure they are legally robust.

microFAQ

1. When must a hospital launch a tender?
The obligation to proceed according to the Public Procurement Act arises if the estimated value of the contract exceeds the limits for small-scale contracts (currently CZK 2 million excl. VAT for supplies and services, CZK 6 million excl. VAT for construction work). Even below these limits, hospitals must adhere to the principles of transparency, proportionality, and non-discrimination.

2. Can a hospital buy equipment directly from one supplier?
Only in exceptional cases (e.g., technical uniqueness, protection of exclusive rights), which must be strictly proven and defended. Subjective preferences of physicians are not a legal ground for a negotiated procedure without publication.

3. What are the sanctions?
The Czech Office for the Protection of Competition (ÚOHS) can impose a fine of up to 10% of the contract price or up to CZK 20 million, and additionally, it can ban the performance of the contract. This can lead to a halt in the supply of key materials.

Mgr. Antonín Hajdušek, LL.M.

associate

• hajdusek@arws.cz

Mgr. Dita Zbožínková, LL.M.

associate

• zbozinkova@arws.cz

Criminal Liability of Legal Entities – When an Audit Leads to Prosecution

Act No. 418/2011 Coll., on the Criminal Liability of Legal Entities, introduced the possibility of prosecuting the hospital itself in the Czech Republic. A hospital can be prosecuted concurrently with individuals (management).

The criminal liability of a legal entity arises if an unlawful act was committed by a statutory body or a senior employee in the interest of the hospital or within its activities. The most common crimes in this context include breach of duty in the administration of third-party property, negotiation of an advantage in public procurement, and subsidy fraud.

Criminal offenses most often relate to the uneconomical handling of the founder's or state property (Section 220, Section 221 of the Czech Criminal Code) or the manipulation of tenders. If a hospital provides false information when applying for subsidies, it risks prosecution for subsidy fraud (Section 212).

If an auditing body (e.g., a regional or ministerial inspection) finds facts suggesting the commission of a crime, it has a statutory duty to report this to the Czech law enforcement authorities. Our Czech legal team at ARROWS law firm has years of experience representing legal entities in criminal proceedings and setting up Criminal Compliance programs that can exonerate a hospital from criminal liability.

microFAQ

1. Is a hospital director criminally liable for the mistakes of subordinates?
A director is not automatically liable for every mistake, but is responsible for setting up the control and management system. If this system fails or does not exist at all, the director may be prosecuted for breach of duty in the administration of third-party property (e.g., in the form of negligence).

2. How can a hospital be exonerated from criminal liability?
A hospital can be relieved of liability if it proves it made every effort that could reasonably be required of it to prevent the commission of the unlawful act (Section 8(5) of the Act on Criminal Liability of Legal Entities). The key is a functional compliance program and a code of ethics that are not just "on paper."

3. What to do when criminal proceedings are initiated?
It is essential to immediately engage a defense attorney specializing in the criminal law of legal entities in the Czech Republic. Passivity or amateur defense in the initial phase can have fatal consequences.

How to prepare for an audit and minimize risks

The best defense against negative audit findings is prevention. A hospital that has functional processes in place and performs internal controls demonstrates due managerial care under the Czech Civil Code.

Preparation for an audit should include:

• Pre-audit check – Before an external inspection arrives, the hospital should conduct its own review of high-risk areas (public procurement, the register of contracts, handling of pharmaceuticals). This provides time to rectify errors.
• Compliance program – Hospitals should have a legal compliance system in place. This includes clear guidelines for the circulation of accounting documents, signing of contracts, and awarding of tenders under Czech legislation.
• Regular employee training – Staff in key positions (procurement, technical department) must be familiar with current Czech public procurement limits and contract publication rules.
• Thorough documentation – Every purchasing decision must have an audit trail (why it was purchased, why this supplier was chosen, how the price was determined).
• Professional communication with auditors – During an audit, it is crucial to cooperate while remaining aware of your legal rights. Misunderstandings or incorrect explanations of processes can lead to erroneous conclusions in the audit report.

Our attorneys in Prague at ARROWS assist hospitals with setting up these preventive measures, conducting staff training, and reviewing internal guidelines.

microFAQ

1. How far in advance should we prepare?
An internal control system must operate continuously. Before a scheduled inspection, it is advisable to designate a team to prepare documentation, usually over several weeks.

2. Must the hospital release all documents?
The hospital is obliged to cooperate within the scope defined by the Czech Financial Control Act or the Inspection Code. A specific regime applies to documents subject to confidentiality (medical records).

3. What should be done with the audit report?
Objections to the inspection report can be filed within the specified deadline (usually 15 days). It is essential that objections are argued factually and legally, ideally in cooperation with a Czech legal expert.

Case studies: Risks in Czech hospitals

The history of inspections in the Czech healthcare sector shows how serious the consequences of rule violations can be. Risks are not merely theoretical; they concern specific management decisions and daily operations.

Inspections in regional Czech hospitals repeatedly reveal errors in the purchase of medicines and materials "directly from the manufacturer" without a proper tender process. Market consultations to verify if a cheaper alternative exists are often missing. This results in fines from the Office for the Protection of Competition (ÚOHS) ranging from hundreds of thousands to millions of Czech koruna.

Past cases have involved cleaning or IT services being provided even after the original contract expired, with invoices continuing to be paid. Such conduct is a flagrant violation of the Financial Control Act and the Public Procurement Act. It often results in criminal complaints for breach of duty in the administration of foreign property.

The Office for the Protection of Competition regularly fines hospitals for "salami-slicing" contracts—for example, in renovations that are artificially divided into stages. The ÚOHS punishes such actions as circumvention of the law. These examples show that risks are real and affect specific individuals in leadership. Attorneys from the ARROWS law firm in Prague have extensive experience in resolving these specific situations.

microFAQ

1. What is the most common error in procurement?
"Customary practice" – a hospital buys from a supplier because "it has always been done that way," without regular competitive tendering. This is impermissible under Czech law.

2. How can a fine from the ÚOHS be reduced?
If a hospital identifies an error itself and takes corrective action before administrative proceedings begin, it may be considered a mitigating circumstance. Timely legal analysis is key.

3. How should we communicate with the police?
If the Czech police request documentation, the hospital must provide it. However, questioning of employees or management should always take place in the presence of a legal representative to prevent unintentional self-incrimination due to a lack of knowledge regarding legal qualification.

Conclusion

Financial audits of hospitals in the Czech Republic are not merely administrative processes – they are complex reviews of the legality and efficiency of public fund management. Audit results can lead to fines, levies for breaches of budgetary discipline, criminal prosecution of management, and in extreme cases, existential threats to the organization.

A hospital that has established proper processes, conducts its own internal controls, and consults complex cases with experts minimizes its risks. The most effective defense lies in prevention and professionalism.

Our Czech legal team at ARROWS law firm is ready to be your partner. We have extensive experience in preparing hospitals for audits, rectifying audit findings, defending against fines from the Czech Office for the Protection of Competition (ÚOHS), and providing representation in criminal proceedings.

If you are facing an audit, or if an audit is already underway and you have concerns about its outcome, contact us without delay. At office@arws.cz, we will provide you with an initial consultation. ARROWS law firm maintains professional liability insurance in a sufficient amount, which is your guarantee of a secure legal solution.

FAQ – Frequently Asked Legal Questions Regarding Hospital Financial Audits in the Czech Republic

1. Do all hospitals in the Czech Republic require a financial audit?
The scope of the audit obligation varies by legal form. Business companies (a.s., s.r.o.) must have an audit of their financial statements if they meet statutory criteria (turnover, assets, employees). Contributory organizations are subject to public administration inspections by their founder according to the Czech Financial Control Act and the Act on Budgetary Rules. For a detailed assessment of your obligations, please write to office@arws.cz.

2. What if the audit reveals a violation – must it always be reported to the police?
Not every violation constitutes a criminal offense. Administrative errors are resolved through corrective measures or administrative fines. However, if findings suggest a criminal offense has been committed (e.g., intentional overpricing of a contract, fictitious invoicing), public authorities have a reporting obligation under the Czech Code of Criminal Procedure (Section 8). ARROWS law firm helps manage the situation to prevent escalation whenever legally defensible.

3. What are the deadlines for a hospital to prepare a response to an audit report?
The deadline for filing objections against an inspection report is set by the Czech Inspection Code, typically 15 days from the delivery of the report. Do not underestimate this deadline – once it expires, the findings become the final basis for further proceedings. Our Prague-based attorneys will assist you with drafting objections – contact us at office@arws.cz.

4. What should a hospital do if criminal proceedings are initiated?
It should immediately contact an attorney specializing in Czech criminal law. The statutory body should avoid making ill-considered statements without legal counsel. ARROWS law firm provides a comprehensive defense – write to office@arws.cz.

5. How can a hospital defend itself against a fine from the Office for the Protection of Competition (ÚOHS)?
An appeal (remonstrance) can be filed against a ÚOHS decision to the Chairman of the Office. Subsequently, an administrative lawsuit can be filed at the Regional Court in Brno. There are both procedural and substantive legal arguments to overturn or reduce a fine. The attorneys at our Prague-based law firm have extensive experience with this agenda.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy, Czech legislation and its interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is essential to contact ARROWS law firm directly (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution; therefore, do not hesitate to contact us.

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