FINANCIAL AUDIT ON THE FINANCIAL STATEMENTS KLINA MUNICIPALITY FOR THE YEAR ENDED 31 DECEMBER 2007 _part1 ppt

Republika e Kosovës Republika Kosova-Republic of Kosovo Zyra e Auditorit Gjeneral/Kancelarija Glavnog Revizora FINANCIAL AUDIT ON THE FINANCIAL STATEMENTS KLINA MUNICIPALITY FOR THE

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Republika e Kosovës Republika Kosova-Republic of Kosovo

Zyra e Auditorit Gjeneral/Kancelarija Glavnog Revizora

FINANCIAL AUDIT

ON THE FINANCIAL STATEMENTS

KLINA MUNICIPALITY

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 Sokol Bashota

Dear Mr Bashota,

This is our final report on the results of the Office of Auditor General’s audit of the Klina 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 Genera

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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

Financial Statements for the year ended 31 December 2007

3

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4

List of Abbreviations and Acronyms

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Financial Audit

Municipality of Klina for the year ended 31 December 2007

5

The Office of the Auditor General has performed an audit of 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 were unable to give and we do not give opinion on financial statements as of 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 (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 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

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Financial Audit

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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 that Municipality has not implemented 8 recommendations details of which are provided in the following table:

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 Financial Statements were

not based on the 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 the Municipality 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 Municipality

Financial Statements 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 the Municipality 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 the municipality 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 The municipality should establish develop a comprehensive and reliable monthly report to the

management The municipality 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 the Municipality 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

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Financial Audit

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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 the Municipality 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 the Municipality that good internal control must be followed in the administration of its personnel The Municipality 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 the Municipality 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 the Municipality 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 the Municipality 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

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Financial Audit

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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) for the

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 the Municipality 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 the Municipality 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 the Municipality 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 for the year 2005,

there are three different forms of contract

which are signed for the 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 for the following reasons:

-There is no decisions on establishing the

tender opening and evaluations

committees;

The OAG recommends that the Municipality 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

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Financial Audit

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-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 the Municipality 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 the Municipality 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 the Municipality 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 the Municipality to comply with the Regulation 2 0 / 4 5 (different with regulation no.206/54) Municipality Self-governance of the Kosova

Implemented

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