REPUBLIC OF KOSOVO NATIONAL AUDIT OFFICE

Transcription

1 REPUBLIC OF KOSOVO NATIONAL AUDIT OFFICE No. Document: 22x FINANCIAL PERFORMANCE AND SERVICE DELIVERY IN MUNICIPALITIES 2015 Comparative data and performance indicators - DISCUSSION PAPER - Prishtina, August 2016

2 1 Introduction Despite the development of the accounting system of financial transactions and maintenance of non-financial data, measurement of performance and accuracy of information remains a challenge for each country or institution that handles such reporting. NAO has started producing reports on financial and non-financial performance in certain areas of local governance as of Results from these analyses have served as a measurement and selfcriticising instrument on as rational as possible use of public funds in municipalities. The content of indicators has changed from year to year. This was done to further improve and adapt to the reporting needs and make comparisons between municipalities, in order to achieve progress in accountability of management of public money against services provided or expenses incurred. As a continuation of initiatives on improvement of transparency and accountability to taxpayers and stakeholders, this analysis strives to add a self-critical culture on the governance or even interdepartmental measurement of budget organisation, on effectiveness, efficiency and economy of economic transactions against services provided/received. This report presents a comparative analysis of indicators in areas: Capital Investments, Own Source Revenues, Financing from Donors, Representation Expenses, Mobile Telephony and Fuel, Contracts on deed, Liabilities and Accounts Receivable, Construction Permits and Subsidising of Students. The analysis aims to encourage a debate on how these key performance indicators can be used in Kosovo to promote overall improvement of performance. Currently, performance of municipal services is measured by the Ministry of Local Government Administration (MLGA), the Division for Municipal Performance. It conducts surveys on citizen satisfaction whereby getting their opinion on various elements of service delivery and municipal performance. In addition, projects of USAID and Swiss Agency for Development and Cooperation work with municipalities in Kosovo to improve the quality and quantity of municipal services and responsibility towards citizens. We would like to clarify that despite the fact that a number of information is provided by the Treasury General Ledger and Annual Financial Statements of municipalities, the collection of nonfinancial data is done manually and as such is subject to accuracy risks. Therefore, despite the verification of data by NAO auditors, we ask the reader to bear in mind the fact that the information produced outside the KFMIS (non-financial information) may contain errors as the number of indicators is very broad and the NAO was not able to confirm them entirely. Under the supervision of the Assistant Auditor General Qerkin Morina, the report was prepared by Ardita Salihu (team leader) and Valbona Pllana, and supported by the auditors of local governance. We thank all Mayors, their support staff and all our partners for their cooperation in this project. 2

3 1.1 Key findings Regarding the further development of this process, in the following have been presented some key findings and recommendations. A part of them is repeated from last year s report. Variations among municipalities of similar size/activity occur but do not get the proper attention by senior management, employees, legislation bodies, citizens and civil society; Due to the different size and complexity of municipalities, maintaining a consistency of data quality poses a continuous challenge for municipalities. Producing qualitative and reliable data is considered an important element of Good Governance in the public sector. As such having reliable data is a requirement for effective decision-making processes; While benchmarking needs to be tailored for individual municipalities depending on their operations, a number of common issues affect all municipalities. For example - although representation (hospitality) expenses count little toward overall budget expenses, this is a sensitive issue to citizens as such it requires further justification behind such expenditure. As such indicators on this behalf are welcomed by civil society, citizens and other interested stakeholders; Certain ranges of expenses are always difficult to measure and compare properly. For example, when it comes to fuel expenses, several factors cause big variations on fuel expenses such the geographical distance, the age and technical conditions of vehicles. Variations in performance are summarised below. Further details are provided in this discussion paper in the supporting appendices. 1.2 Key recommendations Following the publication of this report, we suggest that: The management of Municipalities to make appropriate comparisons with other Municipalities, analyse the findings of this report and take appropriate measures to improve performance in areas where indicators have identified weaknesses or are significantly below the sector s average; An improved process for reviewing and comparing individual performance and results should be developed which can be applied at all Municipalities. This process could be led by the Association of Kosovo Municipalities in order to initiate discussions and establish a ground for exchanging good practices and knowledge s between municipalities by randomly establishing work groups for unification of these practices; Further improvement in the quality control of data produced manually by the public sector organisations that could be supported by the development of interdepartmental indicators within municipalities. This falls under the responsibility of individual organizations; The development of a web based platform on real time basis allowing comparisons of performance indicators involving all key stakeholders and a wider audience; 3

4 Performance indicators should be used as a basis for setting standards within a framework of incentives and sanctions to promote good performance. For example financial benefits should be reflected in the budget cycle for good performance; To increase transparency of key performance indicators, consideration should be to include these as a separate section in the Consolidated Annual Financial Statements of municipalities, which would be a subject to audit. 4

5 2 Scope and audit of benchmarking data This report covers eight areas of local government activities. As such, it answers the following questions: Comparative indicators Capital investments Own Source Revenues 1 Financing of capital projects by donors Representation and mobile telephony expenses Contracts for special services Liabilities and Accounts Receivable (AR) Construction Licenses Comparative indicators Share of Capital investments (CI) in the overall structure of the expenditures Trend of CI compared to 2014 The degree of capital projects financed out of Own Source Revenues (OSR), compared to total expenditures financed by the OSR Unspent OSR in 2015 or carried forward into the following year The relation between the plan and collection of revenues from the property tax Receipt of cash from external donors for capital projects The level of expenses for official lunches against expenses for Goods and Services, their trend and comparison between Municipalities; The level of mobile telephony expenses against the overall expenses out of the category of Goods and Services The average of expenses for fuel Amounts paid to employees hired under contracts for special services Share of financial liabilities in relation to the overall expenditures of the Organization Ratio of uncollected euros compared to current collection Reviewing applications within the legal deadline The number of licenses reviewed per employee in the Department for Urbanism Subsidising of students Supporting of students with scholarships This list it is not meant to be comprehensive but provides topics for discussion where the Municipalities may review their performance against others. In order to support this comparison - detailed appendixes are attached at the end of this report. 1 The focus remains at the revenues from property tax as a dominating category of own source at local level 5

6 2.1 Auditing of data The information presented in this analysis was taken from the Annual Financial Statements, Treasury notes, and data that NAO has and the data owned by respective municipal departments. The data extracted from the AFS and KFMIS were verified by audit teams of Local Government, whilst the data compiled by municipal officials were not subject to audit. Audit teams verified data in order to reduce eventual inaccuracies. Part of the data not subject to audit, relate to: The quantity of fuel spent and kilometres travelled with official vehicles; Register of construction licenses and efficiency in reviewing applications. Therefore, stakeholders should consider limited level of assurance regarding the accuracy of the results concerning the performance indicators above. 2.2 Key findings and recommendations A considerable part of this report thoroughly presents maximum and minimum limits of the results from examined indicators with other explanations where appropriate. In addition, in the end is presented a summary of scoring per municipality, by rating all indicators with certain weight, where their weighting has brought results from 1 to 3. The closer to 3 the higher is the performance of a municipality (for more details refer to annex, page 29 for scoring of municipalities). Significant variations were noticed between the efficiency and cost of services between the Municipalities. These could result from the size and complexity of the Municipalities, the quality of services offered to citizens, municipal efforts in collection of OSR, the quality of planning and budget execution or current infrastructure developments throughout the Municipalities. Key findings are: Significant variations were noticed in all areas of indicators, even in the Municipalities with similar size; Compared to prior year, this year is noticed a progress in use of Own Source Revenues; It is important for OSR to be spent for capital projects so that the life of citizens is improved for the taxes paid to the Municipality, but were noticed many variations; Over-execution of budget for revenues from property tax as a result of poor planning, with an emphasis on the Municipality of Junik, Mitrovica, Ranillug, Lipjan, Fushë Kosova, Podujeva, Rahovec, Shterpce, Malisheva, Graqanica, Obiliq and Drenas; Most of municipalities strive to establish contractual relations with external donors; 6

7 Current spending on official lunches has decreased compared to the prior year, but cannot be said the same for the mobile telephony. In addition, variations in fuel expenditures signal possible misuses; There are reasons to consider as irregularity and misuse of the opportunity to apply the article for special service contracts; Poor performance in handling and collection of Accounts Receivable; and Numerous variations have been noticed in the efficiency of handling construction licenses; In the following table have been presented indicators based on the audited data. Table 1 Summary of indicators Indicators based on audited information Measurement Limits and median Conclusions Capital investments CI (Appendix 1) Share of Capital Investment in total expenditures of the Organization 4% to 40% Median 23% From a total of overall expenditures of the Municipalities (388 million), around 28% (114 million) were spent on capital investments. As an overall average is considered relatively good, but on the other hand, the variances between the municipalities were high. The trend of increasedecrease of participation of CI compared to % to 78% Median -6% The average declining of CI at first glance might seem not so alarming, but needs to be reminded that 2014 (as a comparative year) was not favourable at all for capital investments. The increase of salaries by 25% that had occurred in April 2014 has significantly reduced capital investments expenditures, where we see a decrease by 22% of capital expenditures compared to

8 The degree of spending of OSR in Capital Investments 0% to 100% Median 57% Out of 68,9 million of expenditures financed from OSR, the value of 48.1 million is designated for capital investments or 70% as a whole, as an absolute amount for 35 municipalities. Due to deficits in current expenditures, municipalities do not sufficiently convert the money of citizens into capital goods. Own Revenues (Appendix 2) Source The level of carrying forward OSR in the following year 14% to 57% Median 22% Progress was made in the current year in terms of use of OSR when compared to the prior year figures. However, improvement measures are needed in some of the municipalities regarding this. Implementation of the plan for collection out of the category of property tax 46% to 166% Median 92% There is an inconsistency between planning and collection. Overall planning was 21.2 million while collection was 19.8 million. Funding from donors for capital projects (Appendix 2) Funds received by external donors for capital projects 0 to 1,256,000 Median 74,158 Most of municipalities have created contractual relations with external donors. Representation, mobile telephony and fuel expenses (Appendix 3) Representation against expenditures of goods and services and their trend; 0.4% to 8% Median 2.4% Significant variations of the degree of representation have been identified. However, there was a decrease compared to the prior year by 13%. Mobile telephony against expenditures on goods and services and their trend; 0.3% to 7% Median 2% Significant variations were also in mobile telephony, while compared to the prior year there was an increase by 13%. 8

9 Average expenditures on fuel 6.6 to 15 Median 9 Some municipalities do not maintain adequate data on the rate of expenditures. Variations of expenditures incurred should be subject to rigorous reviews of the respective management. Special service contracts (Appendix 4) Amounts paid to employees engaged under special service contracts 0 to 463,849 Total 1,659,843 Attention should be given to municipalities that have paid significant amounts to a small number of employees. Liabilities and Account Receivables (Appendix 5) Share of liabilities in total expenses of the organisation 0.03% to 26.8% Median 3.4% Liabilities have a direct impact on future spending. Their management should be done at the drafting stage of the budget. The coefficient of uncollected revenues against current collection 1.2 to 6.01 Median 2.42 In general, amounts uncollected have remained almost at the same level with those of the prior year. Construction licenses (Appendix 6) Review of applications within the legal deadline Refer to chapter on construction licenses There are various results on numbers of similar size. Scholarships (Appendix 7) Stimulating students with study scholarships 0 to 50,000 Median 9,000 Most of the municipalities had included in their agenda of expenditures stimulating of scholarships for students. 9

10 Key recommendations are: Each Municipality should review its relative position against sister organizations and consider which actions should be taken to improve the performance indicators reported where appropriate; If current expenditures can be reduced, actions should be undertaken so that they are redesignated for capital projects; Making a realistic planning for property tax based on the trends in the last two years and the potential of collection; All Municipalities should produce policies/regulations for representation expenses, mobile telephony, and official vehicles; Cases where expenditures were made over the average for fuel should be subject to an independent review and the reasons why exceeding occurred is communicated to the Municipal Assembly and to the Mayor; Contracts for special services should be used only for a certain purpose, planned fairly and in line with the law; Consider the age and availability of accounts receivable and apply a systematic process of handling those debts which are considered as non-collectable. The same should considered during the process of budget planning; Developing policies and addressing them through appropriate mechanisms for settlement of liabilities. Further on, the Municipalities should not enter into any potential liabilities without accounting recognition within KFMIS2 (no commitment) and without budget appropriation; and Sufficient oversight should be placed in order to increase the efficiency in handling construction permits. 2 Kosovo Financial Management Information System 10

11 3 Capital Investments When it comes to the performance of Municipalities for capital projects, initially we have analysed the share of CI 3 in relation to the total costs of the Organization. The second part relates to how much do the Municipalities invest from OSR in road infrastructure, facilities, water, sanitation, recreational facilities and other capital projects, against overall expenditures that are financed by the OSR. Graph 1. Participation of CI against the overall expenditures 40% 39% 38% 34% 33%33% 30%30%29%29% 20%20% 18% 17% 15%10% 8% 5% 5% 4% The share of around 30% of CIs in total expenditures of Organization represents a good performance in executing of this category of expenditure, as averagely 50%-60% of current budget of a Municipality is spent on Wages and Salaries of the employees. The average median of the share of CI in total expenditures varies from 23% while the maximum and minimum limits are 40% (Prizren) and 4% (Kllokot). Spending of public money on Capital Investments means better services for the citizens of the Municipality; therefore, it is important that the above statement serves a model for other municipalities during the budgeting process, and be a model for other municipalities. In this regard we consider the degree of trend shifts of CI compared to In the overall level of municipalities, there is an average decline of 6% of capital projects compared to 2014, while the limits of increase/decline resulted in 78% (Mitrovica) and -73% (Kllokot). The average of decline of CI at first glance can seem not so alarming, but needs to be remembered that 2014 (as a comparative year) was not favourable at all for capital investments. The increase of salaries by 25% that had occurred in April 2014 has significantly reduced capital investments expenditures, where we see a decrease by 22% of capital expenditures compared to In some municipalities, there are expenses that were paid from the category of Capital Investments and some categories of expenses that by nature do not belong to this category. Such examples are misclassifications such as: road maintenance, agreements with donors, treatment of stray dogs and other expenses. For more information about the classification of expenses of an individual organization, audit reports refer to 2015 AFS. 11

12 26% 25% 24% 19% 13% 13% 9% Graph 2 The degree of increase/decrease of CI compared to % 44% 42% -12%-14%-15%-16%-17%-19%-25% -41%-43% -73% If we make a connection between the performances of municipalities that were part of the statistics of the Graphs above, we notice that only the municipality of Partesh, which spent only 5% in CI, appears to have increased the trend by 26% compared to the prior year. The connection of green bars shows that some of the municipalities like Prizren, Pristina, Gracanica Fushe Kosova and Sterpce, has increased CI, which were already at a a high degree of participation of CI in relation to overall costs. The connection of red bars shows that municipalities Hani i Elezit, Gjilan, Novoberde, Ranilug, Kamenica, Klokot and Mitrovica North, besides having the lowest degrees of CI alongside general expenses, they also represent a high decrease of CI compared to the previous year. The rest of the indicators for CI, try to show at what extent are municipalities presented in terms of designation of OSR in CI. Analyses have shown that there is an average of 57% of OSR that were spent on capital investments. However, there are significant variations in the degree of spending of OSR for capital projects. They range from 0% (Mitrovica North) to 100% (Mamusha 4 ). 4 This means progress for Mamusha particularly, which last year was among the municipalities with the lowest degree of designation of OSR for capital projects. 12

13 Graph 3 Municipalities with the highest/lowest degree of designation of OSR for capital projects 100% 89% 89% 82% 82% 78% 73% 68% 68% 63% 49% 46% 45% 43% 42% 42% 40% 36% 34% 0% Municipalities have flexibility in preparing the budget of Own Source Revenues their designation. While there are restrictions in interference of Municipalities categories of Wages and Salaries, and is recommended that Municipalities spend revenues collected by focusing on priorities of citizens, mainly in needs for capital investments. In particular, the revenues from property tax as a dominant part and the main source of revenues of a Municipality, should be returned by the Municipality to the citizens as public goods, mainly in infrastructure. The part of property tax is explained in the next section. 4 Own Source Revenues In order to cover their costs, the Municipalities main financing source is from Government s transfers. This includes General Grant, Grant for Education, Grant for Health, Grant for enhanced competences (if available for the particular the Municipality) and other financing. In addition to these transfers, the Municipalities are entitled, within the constraints of the economic policies and aiming to achieve fiscal sustainability, to have its own financial resources which can be spent where municipalities deems it is appropriate for executing municipal competencies. This part of the budget depends on the collecting capacity of own source revenues. The major sources are property tax, construction licenses and administrative fees. It is worth mentioning that maximum collection of Own Source Revenues as well as spending them in the respective year is equal in terms of importance. The following graphs show the level of (non) spending of revenues or carrying forward to be spent in the coming year. 13

14 Compared to last year s measurements 5 there is an overall improvement of average of OSR carried forward to the following year by approximately 22%, which in 2014 was about 27%. The limits resulted in 14% (Vitia) and 57% (Kllokot). Graph 4 Municipalities with the highest/lowest degree of OSR carried forward 28% 29% 30% 36% 43% 45% 52% 57% 46% 48% 14% 15% 16% 16% 16% 17% 17% 17% 18% 18% Property tax revenues represent the biggest part of Own Source Revenues. Property tax is a municipal tax applied on all property within a territory of a Municipality. These revenues should be designated mainly for improving of infrastructure in the respective territory. Below we presented the Municipalities, which have executed over 100% of the planned property tax revenues. Graph 4 Municipalities with the highest level of execution on property tax collection 166% 146% 138% 133% 133% 126% 123% 118% 118% 104% 103% 103% 100% Although at first glance, it seems that some municipalities had a successful performance, not by accident the first 12 municipalities in this graph were coloured red. We have noticed that the overexecution resulted from a poor and unambitious planning, where planning for collection of 5 Refer to 2014 report on similar indicators: 14

15 100%99%96%93%92%91%91%90%89%88% 83%82%82%82% 79% 75%74% property tax was much less than collection in previous year or even less than the previous years planning. Most significant cases were related to the following Municipalities: Juniku - for 2015 planned 24,000, although in 2014 it collected 40,228; Mitrovica - for 2015 planned 353,821 24,000, although in 2014 it collected 547,729; Ranillug - for 2015 planned 25,000, although in 2014 it collected 32,455; Lipjan - for 2015 planned 513,000, although in 2014 it collected 721,748. For Lipjan this remark was also given in the prior year; Fushë Kosova - for 2015 planned 400,000, although in 2014 it collected 542,027; Podujeva - for 2015 planned 312,000, although in 2014 it collected 363,990; Rahovec - for 2015 planned 248,000, although in 2014 it collected 301,698 6 ; Strepce - for 2015 planned 78,782, although in 2014 it collected 102,303; For Strepce this remark was also given in the prior year; Malisheva - for 2015 planned 170,000, although in 2014 it collected 246,633; For Malisheva this remark was also given in the prior year; Gracanica - for 2015 planned 420,000, although in 2014 it collected 437,027; Obilic - for 2015 planned 310,500, although in 2014 it collected 316,259; and Drenas - for 2015 planned 320,000, although in 2014 it collected 353,500; Figures from the chart below show the municipalities that have increased property tax collection, against an ambitious plan for collection of property tax. Graph 5 Collection of property tax against an ambitious collection plan 50% 46% 0% Property tax is the only tax that is decentralised at the municipal level, with some limitations by the Centre in terms of legislation and collection function. Different levels of performance in the collection have been caused by various factors. Despite the fact that it is municipalities obligation to regularly update the database on properties, a large number of municipalities continue to use 6 Although Rahovec Municipality planned the amount of 248,000 in the reviewed budget of 2015, the reference amount in their internal plan on property tax collection was 330,

16 the same database of initial estimates with some improvements over the years. The inefficiency upon recording new properties/or changes occurred creates room for inadequate performance upon their collection. Out of all comprehensive revenues that are under the jurisdiction of the municipality to be collected, the importance of the category of revenues from property tax has a special role, not only for the collection value, but their main aim is their investment in infrastructure in order to enhance the wellbeing of the community. Based on expected legislative and policy changes at the central level, the property tax will only become more important in the future. 5 External donors In addition to financial resources from Government Grants and the share of OSR, municipalities have the right to enter into agreements with other donors. We have collected data on expenditures which were funded by donors on behalf of capital projects, whether through funds that has been processed through the municipality, also the funds transferred directly by the donor to the operator that carried out the works. The figures have been taken from individual financial statements of municipalities. Graph 6 Municipalities with the highest donations for capital projects (expressed in 000) 1, The graph shows that out of all municipalities, the municipality of Kllokot, Partesh, Ranillug, Decan, Skenderaj and Prizren for 2015 have not financed any projects from external donors. 16

17 6 Representation, mobile telephony and Fuel Representation The representation cost implies to official lunches coded in account in KFMIS. It is important that as part of good governance, spending in this area to be justified on the basis of real needs assessment for these costs. While they are part of current expenditures within the overall government expenditures, it is worth to enhance attention to the trend of expenditures in this category. Since 2013, the overall level of costs for lunches has declined. In 2015, 35 municipalities have spent 648,771 or 13% less than in 2014 ( 741,595). In general, representation costs are not subject to adequate controls. It is not clear whether the municipalities sufficiently understand the nature and purpose of these costs. There is no limit determining to what extent these costs can be made. This is illustrated with the fact that the Municipality of Prishtina is the largest municipality and the capital of Kosovo, whilst it is ranked 6 th in the rankings for these costs. Ten municipalities that have spent THE most representation expenses are: Gjakova 46,746, Prizren 46,026, Fushe Kosova 33,423, Peja 32,059, Gracanica 31,866, Prishtina 31,777, Malisheva 30,414, Decan 27,995, Mitrovica 24,876 and Skenderaj 24,085. However, for a more accurate comparison due to different sizes of municipalities, we have analysed the degree of participation of representation against the total of the category of Goods and Services (excluding Utilities). The overall average is 2.4%, with limits 0.4% (Prishtina) and 8% (Hani i Elezit). Graph 7 Representation against the G&S for %0.5%0.5%0.7%0.7% 1.1% 1.3%1.4%1.4%1.5% 5.7% 4.5%4.5%4.7%4.7% 3.8%3.8% 4.1% 3.3% 8.0% Furthermore, when we look at the trend of the amount spent for representation from 2014, we notice: 17

18 Graph 8 Degree of increase/decrease of representation expenses compared to % 111% 104% 67% 71% 58%59% 44% 31%33% -23%-22% -46% -36%-24% -65%-61%-59%-51% -68% If we go back to last year s report, we notice a progress in some municipalities. Out of the five municipalities that had higher representation expenditures in 2014, a significant progress is noticed in Gjilan, Prizren, Vushtrri and Gjakova in terms of decreased spending for this category. Quite the opposite applies to municipalities like Hani i Elezit, Junik, and Decan. Despite the fact that last year they were categorised among municipalities with highest costs, even this year they had a growing trend. Mobile Telephony The rest of this indicator includes costs of mobile telephony by analysing the trend of decrease/increase compared to the prior year. Despite the fact that in recent years the competition in the mobile telephony industry has increased and progressive steps have been made towards providing more favourable conditions for the users of this service, at the municipal level there was an overall increase by 13% of mobile phone expenses 7. Ten following municipalities have spent the most in mobile telephony for 2015: Prishtina 63,749, Prizren 44,350, Gracanica 37,657, Peja 34,450, Vushtrria 27,652, Istog 24,693, Klina 24,606, Gjakova 23,606, Mitrovica 21,701 and Decan 20,910. Just as in representation also concerning mobile telephony expenses we have analysed the participation degree of mobile telephony against the total of the category of Goods and Services (excluding utilities). The overall average has resulted in 2%, while the limits were 0.3% (Gjilan) and 7% (Mamusha). 7 It is worth to clarify that in 2015 payments could be included invoices carried forward from the prior year. Similar thing can be applied to invoices that can be followed-up from 2013 at Therefore, the comparison is based on the condition of payments executed regardless to what year they belong to. 18

19 Graph 9 Mobile telephony expenses against G&S for %0.7%0.8%0.8%0.9%1.0%1.1%1.1%1.3% 0.3% 7.0% 5.9% 4.6% 4.8% 4.0%4.1%4.1% 3.4%3.5%3.5% From graph number 8 and 10 is noticed that municipalities Prishtina, Rahovec, Kacanik, Gjilan, Podujeva have lower expenses of mobile telephony and representation. While the opposite goes for municipalities Deçan, Novoberde and Kllokot. All three have incurred higher expenses of mobile telephony and representation. Graph 10 The trend of increase/decrease of mobile telephony compared to % 466% -50%-30%-28%-25%-24%-21%-19%-17%-13%-6% 73% 22% 33%41% 45%48%54% 136% 19

20 Fuel When it comes to fuel expenditures, we have analysed litters spent for every 100km for official transportation vehicles 8. Average fuel consumption in Municipalities was 9 for every 100 km. The lowest costs were 6.6 (Ferizaj) and the highest were around 15 (in Peja). Graph 11 Fuel costs for official vehicles /100km High differences in the average of fuel costs could be affected by numerous factors, including the age of vehicles, inadequate maintenance of records of official vehicles or increase the possibility of misuse. 7 Special service contracts The Kosovo legislation on expenses of the category of Wages and Salaries contains strict rules and restrictions for public administration, especially for the local level. In accordance with government strategic plans for categorization and limits of operational expenses, are defined the limits of employees in the municipal administration. At the same time, the law on civil service 9 allows municipalities to engage experts for a limited period, to develop simplified recruitment procedures, and that such contracts for special services are to be up to six months. While various individual audit reports have revealed a number of irregularities regarding the exercise of rights under this Article by a number of organizations, we have conducted an analysis on expenses and the number of those engaged under special service contracts. The following data do not show the reasons or irregularities made upon contracting 10, but only handle the problem in the context of payments and numbers. 8 Data on fuel spent compared to the kilometres travelled were collected manually by the Municipality s responsible persons and as such do not provide maximum assurance for their accuracy. The municipality of Decan, Dragash and Kllokot did not provide this information, while the municipality of Kacanik has provided disorienting information and was impossible to include it in the analysis. 9 Article 12, Clause 4 of Law 03/149 stipulates that: Fixed-term appointments of less than six (6) months shall be governed by contracts called Special Service Agreements and shall be regulated by the Law on Obligations and a simplified recruitment procedure shall be applied. 10 To see if the audit teams have reported on service contracts particularly, refer to individual audit reports. 20

21 In total, 35 municipalities have spent a total of 1,659,843 for around 1,029 people during Graph 12 Municipalities with the lowest number/payment (and zero) of special service contracts 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Shumat e paguara gjithsej për kontratat në vepër (2015) Numri i personave të angazhuar me kontratë në vepër (2015) Out of all municipalities, during 2015 only the municipality of Klina, Shtime, NovoBerde and Ranillug had not engaged employees under contracts for special services. The above graph shows the municipality of Partesh, Mitrovica South, Mitrovica North, Hani i Elezit, Skenderaj and Lipjan, which have not spent enormous budget in this regard. Graph 13 Municipalities with the highest number/payment of special service contracts 500, , , , , Shumat e paguara gjithsej për kontratat në vepër (2015) Numri i personave të angazhuar me kontratë në vepër (2015) 21

22 While there should be a close connection between the number and payments, as there are limitations on the duration of service contracts, municipalities not always respect that. The above graph leads to the following conclusions: Although the municipality of Prizren and Gjilan have an approximate number of those engaged under service contracts, payments on their behalf have significant difference. This means that Gjilan could have employed them with a higher compensation and/or had them engaged throughout the entire year; If we compare with Gjilan with Prishtina, we see that Prishtina had paid slightly more than Gjilan, but for a double number of employees; Although Kamenica had engaged a lower number under the service contracts, the amount paid is higher than what Gjakova paid, even though the latter had nearly three times more employees engaged; Podujeva and Prizren do not have many differences in payments compensated, but the number of those engaged varies. Therefore, Podujeva could have employed them with higher compensation and/or throughout the year. 8 Liabilities and Receivable Accounts Liabilities All municipalities have created liabilities throughout the years. Financial liabilities are invoices received by the Municipalities for works/services concluded by operators but which were not paid. Besides financial liabilities, some of the Municipalities have contractual liabilities for works that have already been completed and progress reports were delivered, but not invoiced by operators yet. We have shown the level of liabilities share into total expenditures of the Organization. The overall average resulted in 1.5%, while limits were 0.3% (Mitrovica North) up to 26.8% (Kllokot). The amount of liabilities in these 35 Municipalities reaches the value of 14,006,311, or 3.40% of total expenditures for these municipalities. 22

23 Graph 14 The degree of financial liabilities against the overall expenses of the organisation 26.8% 17.1% 8.2% 8.7% 5.5%5.6%6.0% 3.4% 3.9% 4.3% 0.0%0.0%0.4%0.6%0.6%0.7%0.7%0.8%0.8%0.9% Accounts receivable Accounts receivable are the opposite of liabilities. They represent uncollected debts over the years of several types of revenues which mainly relate to receivables from property tax, rent revenues, revenues from businesses and other fees. The failure of Budget Organizations to collect this money could have an impact on the Municipalities plans to meet its objectives and strategic plans. By the end of 20015, the total amount of receivables for the Municipalities was 157,638,011. We have analysed the share of receivables in revenues level of organisation. We will present the indicator of how much Euros remain uncollected for each euro collected. Total average of this indicator resulted in 2.42, while the limits were 6.01 (Podujeva) and 1.2 (Obilic) Mitrovica North had 0 Accounts Receivable, as it does not collect property tax, despite the fact that it is budgeted as a revenue category. 23

24 Graph 15 Municipalities with lowest/highest amounts of Accounts Receivable As we have mentioned the largest part of AR consist of uncollected debts from uncollected property tax. 9 Construction licences Revenues from licenses for construction works represent a very important part of the Municipality s activity, considering both the economic purpose of the collection of revenues, and the essence of being in compliance with the unique code of construction in the Republic of Kosovo. According to the Law on Construction, the silence of an institution against an application for a construction license represents an assertion. This guarantees a right to every person to undertake an activity or action of a certain type, business, without obtaining the approval of the competent authority, if an approval or rejection of the application is not provided within the time limits foreseen by the law. The following analysis presents the number of construction licenses reviewed per numbers of officials engaged in urban departments within municipalities The number of officials is presented based on the payroll system. Occasionally, municipalities could have engaged additional officials under special services contracts, which are not included in the calculation. 24

25 Graph 16 Reviewing of applications for construction licenses per officer/degree of review of within the legal deadlines % 100% 80% % % 20% 0.0 0% Leje ndërtimore për zyrtarë në Urbanizëm Shkalla e shqyrtimit të kërkesave ndërtimore brenda afatit Out of ten abovementioned municipalities, Gracanica and Malisheva despite the fact that they had a favourable degree of licenses reviewed per official, they have reviewed applications within the legal deadline only to the extent of 66%. While the opposite applies to the following municipalities Graph 17 Review of applications for construction licenses per number/degree of review within the legal deadline % 100% 80% 60% 40% 20% 0% Leje ndërtimore për zyrtarë në Urbanizëm Shkalla e shqyrtimit të kërkesave ndërtimore brenda afatit 25

26 Podujevë Ferizaj Mitrovicë Fushë Kosovë Viti Prizren Istog Obiliq Gjilan Gjakovë Drenas Rahovec Skënderaj Kaçanik Malishevë Pejë Vushtrri Hani i Elezit Shtime Suharekë Shtërpcë Lipjan 10 Subsidising of students While municipalities have flexibility to budget expenditures of the category of subsidies, it is important that their designation is consistent with the strategic objectives of the territory, or at least in areas where expenses leave room for redistribution of income. One way to achieve this may be scholarships to students, which can affect the quality of education and also present a redistribution of income. For 2015, the situation was as follows: Graph 18 Distribution of scholarships for ,000 50,000 40,000 30,000 20,000 10, Shuma e tërësishme dhënë për bursa studimit (2015) Numri i studentëve të subvencionuar me bursë studimit (2015) For 2015, the municipality of Prishtina, Klina, Kamenica, Decan, Dragash, Gracanica, Mitrovica North and Novoberde, Junik, Mamusha, Ranillug, Partesh and Kllokot have not subsidised their students. Excluding Kamenica and Novoberde, other municipalities had not either awarded scholarships in

27 Scoring of municipalities per weighted value Municipality CI against overall expenses (2015) Weight Increase of CI compared to the prior year Weight OSR in capital projects Weight Transfer of OSR in the following year Weight Collection of property tax Weight Donations for capital projects Weight Representation Weight The trend of representation Weight Mobile Telephony Weight The trend of mobile telephony Weight Fuel /100km Weight Service contracts Weight Financial Liabilities (2015) Weight AR (2015) Weight Construction licenses Weight Scholarships for students (2015) Weight Total Performance Drenas Prishtina Istog Prizren Rahovec Shtime Klina Vushtrri Lipjan Shterpce Suhareka Mitrovica Mamusha Fushe Kosove Ferizaj Gracanica Obilic Junik Gjakova Gjilan Peja Viti Novoberde Kacanik Partesh Dragash

28 Malisheva Podujeva Hani i Elezit Kamenica Skenderaj Ranillug Mitrovica North Decan Kllokot The legend of table and graphs in the main part of the report: Value 3, green = Good performance compared to other municipalities Value 2, orange = Average performance compared to other municipalities Value 1, red = Poor performance compared to other municipalities Weight of indicators First six indicators with weight 0.1=0.6 Second six indicators with weight 0.05=0.3 Last four indicators with weight 0.025~0.03=0.1 Total maximum scoring = 3 28

29 Appendix 1. Budget of Capital Investments No Municipality Final budget 2015 Total expenditures 2015 Total expenditures 2014 CI for 2015 CI for 2014 CI compared to overall expenses (2015) Difference of CI compared to the prior year Overall expenses financed by the OSR OSR spent on CI The degree of OSR spent on CI 1 Prishtina 81,335,971 64,525,481 56,801,207 24,411,616 16,916,696 38% 44% 28,649,340 23,626,328 82% 2 Prizren 41,947,836 36,316,641 33,265,428 14,523,467 11,635,326 40% 25% 5,599,921 4,364,916 78% 3 Ferizaj 27,059,441 25,128,033 24,438,363 8,518,165 8,283,697 34% 3% 3,363,989 1,858,296 55% 4 Peja 23,098,544 21,146,160 20,536,683 4,915,810 5,393,885 23% -9% 2,865,760 1,310,771 46% 5 Gjilan 23,194,382 21,768,114 21,127,253 3,270,515 3,831,717 15% -15% 3,464,444 2,000,003 58% 6 Gjakova 21,413,970 20,104,201 19,429,426 4,491,493 5,040,070 22% -11% 2,351,255 1,434,206 61% 7 Podujeva 19,220,813 17,924,829 17,609,542 4,767,312 5,568,333 27% -14% 1,068, ,353 34% 8 Mitrovica 18,528,235 17,422,833 15,051,980 3,605,637 2,025,417 21% 78% 1,486, ,302 52% 9 Vushtrri 15,801,289 14,941,592 14,103,855 3,716,732 3,964,920 25% -6% 1,435, ,144 59% 10 Suhareka 14,375,360 13,587,676 12,948,971 4,418,619 4,440,454 33% 0% 1,954,256 1,207,832 62% 11 Lipjan 13,775,572 13,186,023 12,035,270 3,121,342 2,858,763 24% 9% 1,913,768 1,210,831 63% 12 Drenas 12,828,040 12,246,369 11,356,778 3,180,174 2,811,208 26% 13% 1,102, ,901 60% 13 Malisheva 12,465,986 12,004,215 12,488,487 3,384,684 4,198,427 28% -19% 680, ,475 62% 14 Rahovec 12,024,398 11,473,317 10,463,702 3,460,406 3,268,937 30% 6% 1,003, ,978 82% 15 Skenderaj 11,636,860 11,234,620 11,279,618 2,705,925 3,080,269 24% -12% 670, ,870 53% 16 Viti 10,639,505 10,205,712 9,674,521 2,161,158 2,443,973 21% -12% 852, ,866 49% 17 Fushe Kosove 9,372,877 8,268,351 7,876,174 2,736,061 2,425,129 33% 13% 1,848,650 1,642,897 89% 18 Istog 9,212,022 8,878,415 8,176,752 2,059,623 2,206,726 23% -7% 1,134, ,669 50% 19 Klina 8,916,031 8,611,908 8,244,581 2,171,149 2,301,707 25% -6% 950, ,472 68% 20 Kamenica 8,399,219 7,816,036 7,680, , ,797 5% -43% 894, ,782 36% 21 Decan 7,600,356 7,314,434 7,128,226 1,427,447 1,592,737 20% -10% 527, ,649 57% 22 Dragash 7,527,130 6,974,453 6,607,016 2,122,459 2,163,471 30% -2% 389, ,732 59% 23 Kacanik 7,245,910 6,942,159 6,545,962 1,386,274 1,454,299 20% -5% 565, ,010 50% 24 Gracanica 6,633,128 6,153,879 5,536,661 2,380,630 1,677,159 39% 42% 1,573, ,003 57% 29

30 25 Shtime 5,998,279 5,794,106 5,628,991 1,333,967 1,490,419 23% -10% 320, ,890 42% 26 Mitrovica North 5,975,258 2,795,947 4,427, , ,017 17% -41% 20, % 27 Obilic 5,861,682 5,511,351 5,179,911 1,252,010 1,358,881 23% -8% 1,240, ,654 73% 28 Shterpce 3,615,249 3,455,073 2,984,538 1,006, ,048 29% 19% 262, ,758 42% 29 Hani i Elezit 2,268,600 2,094,367 1,902, , ,098 18% -17% 138,670 55,339 40% 30 Novoberde 2,199,435 2,095,488 2,114, , ,279 10% -25% 210, ,558 54% 31 Junik 1,963,355 1,785,539 1,340, , ,765 21% 24% 84,972 57,451 68% 32 Mamusha 1,446,056 1,359,737 1,301, , ,944 29% 4% 61,200 61, % 33 Ranillug 1,340,213 1,273,953 1,207, , ,277 8% -16% 130,815 56,133 43% 34 Partesh 1,040, , ,388 46,805 37,118 5% 26% 52,805 46,805 89% 35 Kllokot 967, , ,101 36, ,614 4% -73% 82,139 36,635 45% Total 456,928, ,173, ,105, ,953, ,524,578 28% 8% 68,951,015 48,136,709 70% Indicator Minimum 967, , ,388 36,635 37,118 4% -73% 20,182-0% Maximum 81,335,971 64,525,481 56,801,207 24,411,616 16,916,696 40% 78% 28,649,340 23,626, % Median 9,212,022 8,611,908 8,176,752 2,171,149 2,206,726 23% -6% 950, ,475 57% Average 13,055,104 11,776,372 11,088,726 3,284,386 3,043,559 23% -2% 1,970,029 1,375,335 58% 30