FINANCIAL AUDIT THE MUNICIPALITY OF FERIZAJ FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007_part1 potx

Republika e Kosovës Republika Kosova-Republic of Kosovo Zyra e Auditorit Gjeneral/Kancelarija Glavnog Revizora FINANCIAL AUDIT THE MUNICIPALITY OF FERIZAJ FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 Prishtina, December 2008 This is trial version www.adultpdf.com OFFICE OF THE AUDITOR GENERAL GAZMEND ZAJMI No 59 PRISHTINA 10000 PHONE + 381 (0) 38 2535 121/217/221 FAX: + 381 (0) 38 2535 122 2 TRANSMITTAL LETTER Date: 29 December 2008 To: Mr. Bajrush Xhemajli Dear Mr. Xhemajli, This is our final report on the results of the Office of Auditor General’s audit of the Ferizaj Municipality financial statements for the year ended 31 December 2007. In accordance with UNMIK Regulation 2005/33, this audit report will be made public. Our report contains recommendations for your action. Regulation 2005/33, Section 1 B. (e) requires that within 30 days of publication of an audit report, you are required to submit a report indicating how your institution intends to implement these recommendations. Your report is due by 30 January 2009. I appreciate the cooperation and courtesies extended to my staff during the audit. The Office of the Auditor General looks forward t working with you on our audit of the 2008 financial statements. Sincerely, Linda Casella Auditor General This is trial version www.adultpdf.com OFFICE OF THE AUDITOR GENERAL GAZMEND ZAJMI No 59 PRISHTINA 10000 PHONE + 381 (0) 38 2535 121/217/221 FAX: + 381 (0) 38 2535 122 3 TABLE OF CONTENTS I. Executive Summary 5 II. Introduction 6 III. Status of Prior Years Audit Recommendations 7 IV. Audit Scope 11 V. Audit Opinion 12 VI. Audit Approach 14 VII. Key Audit Findings and Recommendations 16 Annex I. Municipality of Ferizaj Financial Statements for the year ended 31 December 2007 This is trial version www.adultpdf.com OFFICE OF THE AUDITOR GENERAL GAZMEND ZAJMI No 59 PRISHTINA 10000 PHONE + 381 (0) 38 2535 121/217/221 FAX: + 381 (0) 38 2535 122 4 List of Abbreviations and Acronyms AG Auditor General AI Administrative Instruction EO Economic Operator IFAC International Federation of Accountants IPSAS International Public Sector Accounting Standards MFE Ministry of Finance and Economy MPS Ministry of Public Services OAG Office of the Auditor General PPL Law on Public Procurement PS Performance Security SRSG Special Representative of the Secretary General UNMIK United Nations Mission in Kosovo This is trial version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 5 I. EXECUTIVE SUMMARY The Office of the Auditor General has performed an audit of the Municipality of Ferizaj (further referred “the Municipality”) financial statements as of and for the year ended 31 December 2007. Due to the matters discussed in the Section V: Audit opinion we were unable to give and we do not give opinion on financial statements as of and for the year ended 31 December 2007. The findings and associated recommendation are presented within the Section VII of the report. The OAG would urge the Senior Management of the Municipality to take corrective action on these recommendations and first of all present its Action Plan for dealing with the recommendations 30 days from receiving the Final Audit Report. This is trial version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 6 II. INTRODUCTION UNMIK Regulation 2002/18, dated 4 October 2002, established the Office of the Auditor General (OAG) in Kosovo. According to Section 3.2 of this regulation, the Auditor General (AG) is required to conduct an annual regularity audit of all institutions in Kosovo to determine: • Whether the financial statements give a true and fair view; • Whether the financial records, systems and transactions comply with applicable statutes and regulations; • The appropriateness of internal controls and internal audit functions; • The probity and propriety of administrative decisions taken within the audited institutions or entity; and • All matters arising from or relating to the audit. In March 2003, the Kosovo Assembly approved Law No. 2003/2 “Law on Public Financial Management and Accountability” which was formally promulgated by the Special Representative of the Secretary-General (SRSG) on 12 May 2003 in UNMIK Regulation 2003/17. Section 42 of the Law states that the AG will prepare and submit to the Assembly and the SRSG a report on the financial statements of budget organizations for the previous year providing the AG’s opinion on whether or not the financial statements give a true and fair view of the finances of such budget organizations. This report is to be submitted by 31 December 2008 following the close of the fiscal year to which the annual report relates. This is trial version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 7 III. STATUS OF PRIOR YEARS AUDIT RECOMMENDATIONS The OAG’s audit of Municipality financial statements for the year ended 31 December 2006 resulted in 28 audit recommendations. Our current audit determined that Municipality has implemented 11 of 28 recommendations and is in the process of developing policies and procedures for implementing the remaining 17 recommendations. No Findings Recommendations Implementation Internal Control System 1 The segregation of duties as a segment of internal control is not executed in an adequate manner in 2006. The hierarchic reporting system functions poorly. OAG recommend the Municipality’s Management to draft a better structure in order that the internal control system is more efficient, particularly in regard to the reporting aspect. Not implemented 2 The Department for Economy and Development has issued a lot of certificates allegedly the Economic Operators have settled all their obligations toward the Municipality. We have found that those issued certificates were not grounded. The Management of the Municipality and the Department for Economy and Development are recommended to take immediate actions for preventing these occurrences. Review the occurrences under what circumstances they have occurred. Not implemented 3 During our 2006 audit we have noticed that many Economic Operators were provided with work permits although they did not settle their Municipality obligations. The Department for Economy and Development is recommended to strictly comply with the Municipality Internal Regulation on Municipal Fees and charges. Not implemented 4 The geodesic experts in some cases provide services to the Municipal Court. Many times they are requested directly from the court to perform services rather than from the Director of Department for Geodesy, Cadastre and Planning. On performing these services Municipality is not invoicing the bill to Municipal Court. However geodesic experts enter service contracts with the Municipal Court for performing geodesic or cadastral services. OAG recommends to Municipal Management to specifically regulate relations with other entities. The services executed by the Municipality geodesic experts in favour of the Municipal Court shall be invoiced and the realized revenues shall be collected through the Municipality’s cash box. Not implemented 5 According to internal auditors’ reports for 2006, there were many findings and the respective recommendations were given. We could see however that a great deal of these recommendations was not implemented. Being that the internal auditor is a part of the internal control system which purpose serves the increase of Municipality’s effectiveness and efficiency and to follow on the observance of legal framework, thereby the Municipality’s Management is recommended to implement all internal auditor’s recommendations. Not implemented Revenues 6 The statements of the presented revenues are supported by bank reports. No good evidences are kept in regard to the generation of revenues based on the services provided by the Municipal Administration. Keep enhanced evidences on municipal own source revenues and perform reconciliations with bank statements and Treasury’s General Ledger. Not implemented 7 Municipal departments do not keep separate evidences on the realization of their own revenues, they report however their revenues by relying on Department for Budget and Finance data. This department records the revenues only based on the bank statements. Keep comprehensive evidences on the collected revenues from each department and report those revenues to Finance Office. Not implemented 8. The revenue maintained evidences are recorded in protocol book, where we have identified some empty spaces where the paid amounts have not been filled in. In addition, records are not kept based on the protocol book line order. The management of the Municipality is recommended to keep protocol books where different administrative items are easily recorded and which shall be compatible to the respective payments. Payments shall be made pursuant to Section 3 of Municipality Own Source Revenue Procedures, September 2003, according to which payments from 1 to 10 € shall be paid in the Municipality’s Implemented This is trial version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 8 cash box, whereas all payments above 10 € shall be paid in the commercial bank. 9. In the Municipality of Ferizaj nearly 66 % of the businesses entities operate without work permit. Work permits are distributed by the Department for Economy and Finance. OAG recommends the Inspection and Economy departments to undertake actions on supplying the businesses entities with work permits and to suspend all business activities working illegally. Implemented partially 10. There is no proper description of services provided by the Health Department for revenues collected from participations. Health Department is recommended that during the collection of revenues for the provided services, the receipts which are issued shall specify clearly the service which has been provided and the amount paid. Implemented 11. Revenues raised from health co-payments, according to Treasury financial reports are 211,062 €, whereas the figure given in the Municipality’s statements is 212,516 €. The difference of 1,454 € has not been explained. According to the report of the Department for Economy and Finance, property tax revenues are 501,589 €, whereas according to Municipality’s statements this revenue is 504,568 €. The difference is 2,979 €. The Department for Budget and Finance is recommended to perform regular reconciliations with other departments in regard to the collected revenues. Furthermore regular reconciliation of revenues shall be executed also with the Treasury and banks. Not implemented 12. In relation to rent revenues, Municipality has not drafted adequate policies and no actions were taken for collecting rent revenues pursuant to agreements entered with entities utilizing municipal property. Furthermore the penalties were not applied although they have been foreseen in the contract. OAG recommends the municipal management to draft clear policies in relation to renting the municipal property. The Municipality’s management must be more defiant in regard to collection of debts and observance of contracts. Not implemented 13. The children nursery "Ardhmëria Jonë” during 2006 has accommodated 257 children. There was no revenue collected throughout the year for many of them. The management of this nursery has not taken the necessary actions for collecting the debts. The management of the nursery is recommended to undertake immediate actions with the purpose of collecting the fee. Implemented Expenditures Salary Expenditures 14. Personnel files are incomplete. Staff qualification documents and other documents in regard to the recruitment and job appraisal are missing. The personnel management is recommended to fully observe the provisions of the Administrative Instruction No. MSHP/ DASHC 2003/11 on the personnel files procedures in order that files are properly organized and completed. Not implemented 15. In Health Department 11 staff members have been employed as replacements for a certain period of time whereas later they have been employed with regular contracts bypassing the recruitment procedures. They were recruited only with a decision from the Chief Executive. Each time new staff is recruited, the Regulation No. 2001/36 on the Civil Service in Kosovo must be followed. Not implemented Low value purchases 16. In two procurement items "supply with metal sheet for constructing church roof" in the amount of 9,000 € and "supply with two gym heating reversals” in the amount of 5,290 €, Work Acceptance Report was not prepared by the committee but only one person. The municipal management is recommended that during the acceptance of the completed works, it establishes professional teams to evaluate whether the completed works or services meet the technical criteria and contract provisions. Implemented 17. There are no three responsive bids in regard to the item "supply with roof renovation material" of 9,134 €. One of the economic operators lacks the Tax Administration document which serves as evidence to confirm that the EO is not behind in settling its obligations toward this entity. We recommend to the procurement department to cancel all procurement activities if at least three responsive bids have not been received as in accordance with the Section 30.3 of Law on Public Procurement 2003/17. Not implemented Long term service contracts 18. We have found that in regard to long term service contracts, the economic operators have Municipal management holds all the responsibility for managing the budget in Not implemented This is trial version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 9 invoiced positions outside of the original contract as well as increase prices up to 208%. In another case, with Board of Directors’ decision the economic operator was approved an increase of prices for 20%. compliance to Law on Public Financial Management and Accountability. We recommend that such cases are investigated and that during the acceptance of goods the prices are compared with the bid’s technical specification so the payments are made only for the contracted prices. The procurement activities are a responsibility of the procurement manager and that municipal management shall not intervene in such cases Medium and High Value Purchases 19. Capital investments outside the annual procurement plan are conducted in the following cases: - "The repair of the sewage system in the village of Surqine" in the amount of 105,355 €, and - "Vellezerit Gervalla road asphalting" in the amount of 351,698 €. OAG recommends to the management of the Municipality to strictly observe the provisions of the Law on Public Procurement. Such activities affect the transparency over the expenditures from public funds Implemented 20. Contracts for additional works are entered without PPA’s approval in the following items: - "The repair of the sewage system in the village of Surqine" in the amount of 7,852 €, - "Ferizaj-Varosh road asphalting" for 6,463.17 €, and - "The renovation of water supply system in the village Surqinë " in amount 5,611 €. Follow provisions of Section 34.2.d (i) of LPP in regard to obtaining the permission from PPA for implementing and executing additional works or services neither included in the initial concept of the project not in the respective contract, but which based on the unpredicted circumstances are found as necessary to be undertaken. Implemented 21. In the following four cases we have found that works have not been completed within the foreseen deadlines. There were no penalties applied for the delays: - "the arrangement of the infrastructure in ‘Vëllezërit Gërvalla street", 132,544 €, - “the repair of water supply tube" Pleshinë- Ferizaj ", 159,549 €, - "Ferizaj-Varosh road asphalting", 78,795 €, - "Vëllezërit Gërvalla road asphalting", 351,698 €. The Municipality’s management is recommended to follow contract’s terms of reference and also apply penalties in cases where works have not been completed in accordance with the dynamic plan. Not implemented 22. Funds were not committed on time in the following cases: - "construction of the sewage system for the village of Surqinë", - "construction of the sewage system in the village of Surqinë", - " Vëllezërit Gërvalla road aspahlting", We recommend to Municipality Procurement Unit to observe Section 8.2 of the Law on Public Procurement which specifies that: ‘the contracting authority shall formally guarantee that the funds allocated for the respective procurement are sufficient on meeting the obligations that may emerge during the respective fiscal year (year the respective procurement activity is exercised) as a consequence of such procurement.” Not implemented 23. Work performance security for the execution of the contract “Construction of water supply network in the village of Surqine" is missing. The Management of the Municipality shall follow Section 60 of LPP No. 2003/17 on the works performance security Implemented 24. There is a shortening of deadline for receiving tenders for high value contracts is made from 52 calendar days to 30 days, this without PPA’s approval. This was present in the item "Vëllezërit Gërvalla road asphalting" in the amount of 351,698 €. Procurement Department in cases like this shall strictly apply Section 44 of LPP No. 2003/17. Implemented Subsidies and Transfers 25. In regard to Municipality subsidizing 100 students with scholarships, we could not find the necessary evidences for 50 of them. The Board of Directors is recommended to distribute scholarships to students based upon the previously set criteria. Implemented This is trial version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 10 Asset Management 26. During physical examination of assets we have found that assets are recorded only based on their location and there is no information about who is using them. Roughly 49 % of assets are not provided with bar codes. In 2006 there was no assets depreciation calculated and their current value is unknown. OAG recommends the municipal management to fully observe the provisions of Treasury issued Administrative Instruction No. 2005/11 on the management and recording of government assets. Not implemented 27. The Municipality has no storage room for placing office expendable material (stationeries). There is however an officer assigned to receive this material and to distribute it. The municipal management is recommended to purchase and distribute goods and other expendable material through storage officer. The storage officer shall keep comprehensive and detailed evidences about from who the goods were received. Implemented Management of vehicles 28. The vehicles are managed in the best manner. We have found that there are no evidences kept for each vehicle in regard to the expenditures, servicing, their insurance etc. Monthly and annual reports on the driven kilometers are not in accordance to the instructions issued on the use of vehicles. It is necessary that Municipality keeps more detailed evidences on its vehicles. These evidences are: purchase invoices, insurance documents, invoices in regard to service and maintenance, fuel expense reports, travel ordinance applications etc. Not implemented This is trial version www.adultpdf.com . Municipality of Ferizaj for the year ended 31 December 2007 5 I. EXECUTIVE SUMMARY The Office of the Auditor General has performed an audit of the Municipality of Ferizaj (further referred the. ended 31 December 2007 7 III. STATUS OF PRIOR YEARS AUDIT RECOMMENDATIONS The OAG’s audit of Municipality financial statements for the year ended 31 December 2006 resulted in 28 audit. version www.adultpdf.com Financial Audit Municipality of Ferizaj for the year ended 31 December 2007 6 II. INTRODUCTION UNMIK Regulation 2002/18, dated 4 October 2002, established the Office of the Auditor