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

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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

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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

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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

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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

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TABLE OF CONTENTS

Annex

I Municipality of Ferizaj

Financial Statements for the year ended 31 December 2007

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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

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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

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Financial Audit

Municipality of Ferizaj for the year ended 31 December 2007

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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

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Financial Audit

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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

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Financial Audit

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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

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

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Financial Audit

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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

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Financial Audit

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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

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Financial Audit

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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

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