Republika e Kosovës Republika Kosova-Republic of Kosovo Zyra e Auditorit Gjeneral/Kancelarija Glavnog Revizora FINANCIAL AUDIT ONTHE FINANCIAL STATEMENTSKLINAMUNICIPALITYFORTHEYEARENDED31DECEMBER2007 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. Sokol Bashota Dear Mr. Bashota, This is our final report onthe results of the Office of Auditor General’s audit of theKlinaMunicipalityfinancialstatementsfortheyearended31December2007. 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 Genera This is trial version www.adultpdf.com TABLE OF CONTENTS I. Executive Summary 5 II. Introduction 6 III. Status of Prior Years Audit Recommendations 7 IV. Audit Scope 12 V. Audit Opinion 13 VI. Audit Approach 15 VII. Key Audit Findings and Recommendations 17 Annex I. Municipality of KlinaFinancialStatementsfortheyearended31December2007 3 This is trial version www.adultpdf.com 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 FinancialAuditMunicipality of Klinafortheyearended31December2007 5 I. EXECUTIVE SUMMARY The Office of the Auditor General has performed an audit of KlinaMunicipality (further referred to as “Municipality”) financialstatements as of and fortheyearended31December2007. Due to the matters discussed in the Section V: Audit opinion we were unable to give and we do not give opinion onfinancialstatements as of 31December2007.The findings and associated recommendation are presented within the Section VII of the report. The OAG would urge the Senior Management of theMunicipality 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 FinancialAuditMunicipality of Klinafortheyearended31December2007 6 II. INTRODUCTION UNMIK Regulation 2002/18, dated 4 October 2002, established the Office of the Auditor General (further referred to as “OAG”) in Kosovo. According to Section 3.2 of this regulation, the Auditor General (further referred to as “AG”) is required to conduct an annual regularity audit of all institutions in Kosovo to determine: • Whether thefinancialstatements give a true and fair view; • Whether thefinancial 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 onthefinancialstatements of budget organizations forthe previous year providing the AG’s opinion on whether or not thefinancialstatements give a true and fair view of the finances of such budget organizations. This is trial version www.adultpdf.com FinancialAuditMunicipality of Klinafortheyearended31December2007 7 III. STATUS OF PRIOR YEARS AUDIT RECOMENDATIONS The OAG’s audit of Municipality’s financialstatementsfortheyearended31December 2006 resulted in 17 audit recommendations. Our current audit determined that Municipality has not implemented 8 recommendations details of which are provided in the following table: No. Findings Recommendation Implemented Yes / No Financial Management We have concluded that the revenue report between Municipality's F/S and Municipality accounting records have not been reconciled. We have also noticed that FinancialStatements were not based onthe Municipal rerecords; instead of this they have used the Treasury General Ledger. This is not incompliance with Administrative Instructions that Financial Statement has to be based on its own accounting system of Budget Organization. The OAG recommends that theMunicipality should to provide training for its Finance staffs on proper accounting and financial reporting of FS in compliance with AI Not implemented Municipality own resource revenues. a) There are differences between MunicipalityFinancialStatements and the Municipal accounting records, since the revenues from accounting are 817,006 Euro whereas in the F/S are presented as 821,045 Euro, difference between the data is in amount of 4,039 Euro. Municipality dos not have any explanation regarding the difference. The OAG recommends that theMunicipality should conduct monthly reconciliation between the data's in the bank accounts, municipal records and general ledger as well as ensure that all the differences are identified, and adequate corrective measures have been undertaken. Not implemented b) Failure of revenue collection or with use of collected funds. Audit conclusion is that there are revenues collected and spent without being processed through municipal financial records. OAG recommends to themunicipality to identify all the municipal revenues in compliance with the legislation and to ensure revenue collections are properly receipted, recorded and deposited timely and intact. Themunicipality should establish develop a comprehensive and reliable monthly report to the management. Themunicipality should also act together with MEF in order to ensure the creation of a standard reporting form. Not implemented Supply with daily cash receipt journal is processed through procurement office, invoice received does not specify the type of cash receipt journal and serial number, as well, is not signed the receiving report from receiving officer Because cash is very susceptible to fraud and irregularities, the OAG recommends theMunicipality should make sure that effective controls over cash are in place Supply with cash receipt journal, should be under strict internal control Municipality should insure that collections, receipting, depositing and the recording of cash is properly done and in compliance with applicable regulations. Implemented This is trial version www.adultpdf.com FinancialAuditMunicipality of Klinafortheyearended31December2007 8 Transfer of funds from municipal bank account to the main Treasury account is done by financial officer, chief of budget and revenue officer. The OAG recommends that theMunicipality should exercise good internal control and ensure that authorized employee is solely responsible for transfer of funds form municipality account into central Treasury accounts. Implemented Wages and salaries One employee appointed without proper qualification, Payment of one employee for a three months period without contract, Contract of one employee (Directorate of Education) does not have salary value in the contract, Unsigned contract by the employee and Salary in the contracts not reconciled with the payroll list The personnel file to be completed for every change in payment The OAG recommends to theMunicipality that good internal control must be followed in the administration of its personnel. TheMunicipality should create and keep files of all its employees. Such files should contain all the important personnel records such as personnel actions, contracts and other relevant information regarding its employees. Not implemented Asset Management For assets less than 10 Euro did not have any signed list into disposal; The Commission for asset stocktaking has been appointed by the CEO who has not done the registration of the assets until now. Management of the vehicles in the Municipal Administration, starting from the usage as well as maintenance is at the lowest possible level of internal control The OAG recommends that theMunicipality should account for its assets in Accordance with Law on Managing with Public Assets "The asset managing policy should be established for properly identifying all assets and a schedule or a list of those assets should be prepared and updated periodically Not implemented 1. Travel expenses a) CPO 29060050- travel expenses - amounting 176 Euro, in this case it have been noted that the same person has also committed the funds and approved them from the department The OAG recommends that theMunicipality should adequately monitor its budget to ensure that expenditures are kept and administrated in compliance with AI no??? Also to ensure that one employee is solely responsible for approving and another one is responsible for committing the funds as required by the legal framework. Implemented b) CPO 1020175 - Allowance given for official travel- closing of allowance - amounting 2000 Euro. Detailed file testing has shown uncertainties concerning the expenditures and closing of the advance for official travel. There are three officials that have traveled to the same destination and The OAG recommends that theMunicipality should be knowledgeable of its responsibility and train its employees on effective controls relating to travel expenditures and collection of receipts in compliance with official document issued by MEF "Calculation of Travel Expenditures " Implemented This is trial version www.adultpdf.com FinancialAuditMunicipality of Klinafortheyearended31December2007 9 purpose, but with different calculation of expenses. According to the cashier's documents, the funds have been received by the traveling party at the amount that is not the same as the one calculated by the finance section. Expenses for airplane tickets have been paid by the advance, by not respecting the procurement rules. There is no agenda (invitation) forthe official trip, no clear evidence that the expenditures (trip) have been spent by any of the officials. 2. Telephone Services a) CPO 29060022- Other telephone expenses-amounting 600 Euro, telephone expenses (scratch cards) have not properly clarified destination of these scratch cards, no valid list exists which would show the users of these scratch cards. OAG recommends that theMunicipality should establish internal policies and procedures relating to phone card disbursements. Such a list should contain only the names foreseen by the internal policy and the recipient signatures. Not implemented 3.Fuel Expenses a) CPO29060386- Supply with fuel (petrol) -amounting 5000 Euro, according to the checked file, the purchase have been done by pre-invoice. The OAG recommends that theMunicipality should be knowledgeable of its responsibility and train its employees on effective controls relating to proper payments of expenditures with original invoices and receipts and the recordings of such Payments should be executed based on original invoices. Implemented b) CPO 29060066 -Petrol- amounting 9250 Euro, the fuel price has not been respected following the contract no. 322- 19/05 as noted the price per liter 0.76 Euro, while the supply has been provided at the price 0.95 Euro. The quantity of the supplied oil has been 9,737 liters. The quality of the heating oil has not been specified for oil and price. The OAG recommends that theMunicipality should comply with its responsibility over contract executions; Contracted prices should be respected. Contracted Prices and conditions as it quality of supplies should be incompliance with market conditions and prices. Not implemented 4. Capital Expenditures a) Tender procurement number 06005121-Fuel supply. the contract singed on 25.02.2005 fortheyear 2005, there are three different forms of contract which are signed forthe same time period and signed in the same date, which presents an uncertainty and lack of seriousness on drafting and signing of contracts. Based in these contracts, we have noted that during the supply with goods the procurement procedures have not been respected forthe following reasons: -There is no decisions on establishing the tender opening and evaluations committees; The OAG recommends that theMunicipality should comply with its responsibilities over contract executions: - Contracts should be as foreseen on standard procurement documents - changes should not occur - To have e decision on forming the evaluating and opening commissions. - To respect the contracted prices and not to have purchases' out of foreseen specifications. - To eliminate so called technical mistakes Not implemented This is trial version www.adultpdf.com FinancialAuditMunicipality of Klinafortheyearended31December2007 10 -There are purchases not specified in the contract; -There are various technical errors during the formulation of the contract. -Purchases that have been done are with different prices, not foreseen in the contract (no notice has been made for changing of prices). b) Tender no. 06054121/34- supply with tractors and other ea moment amounting to 46.020.Euro -Testing of the expenditures based in the procurement files shows that the request for initiation of procurement procedures does not match the signed contract on supplying with tractors and auxiliary equipment. The Article 7 of the Agreement on usage of the agricultural machinery rely one the request dated 30/08/2006 which specifies the supply of tractors and other spare parts. The auditor has noted that such request does not match the section of this agreement. The OAG recommends that theMunicipality should comply with its responsibilities over fulfillment of procurement procedures procurement procedures should be fulfilled according to purchase Implemented c) Tender no. 06063136/36- supply of the inventory amounting 4.134 Euro- bv the Municipal procurement office are identified and evaluated three bidders as responsive, did not complete the required documentations. The auditor has noted that the bidders who were evaluated as to be responsive did not bring a valid document from the Tax Administration as evidence that all tax obligations are accomplished. Such evidences have been presented, some tax forms that do not present the evidence as required by the standard procurement document. The OAG recommends that theMunicipality should comply with its responsibilities over fulfillment of Tender procedures such are ; Bidders should provide all requested documentations, as required by the legal framework Evaluating commissions should be aware and comply with all regular procurement procedures Implemented d) Tender 06072136/36- supply with domestic electrical equipment valued to 2,982 Euro- The auditor has noted that the procurement procedures have not been fulfilled, since the tender has been conducted without request for initiation of the procurement procedures by the responsible body. The OAG recommends that theMunicipality should strengthen the control over procurement and ensure that Procurement procedures will not start before or without proper purchase request Implemented e) Tender no. 06006611/45- construction of the building with concession B+P+7+NK (24%) - according to the procurement files the land has been given for an undetermined The OAG recommends to theMunicipality to comply with the Regulation 2 0 / 4 5 (different with regulation no.206/54) Municipality Self-governance of the Kosova Implemented This is trial version www.adultpdf.com . version www.adultpdf.com Financial Audit Municipality of Klina for the year ended 31 December 2007 5 I. EXECUTIVE SUMMARY The Office of the Auditor General has performed an audit of Klina. Klina Municipality (further referred to as 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. OF PRIOR YEARS AUDIT RECOMENDATIONS The OAG’s audit of Municipality s financial statements for the year ended 31 December 2006 resulted in 17 audit recommendations. Our current audit determined