EXCERPT FROM THE AUDIT REPORT ON THE GENERAL SECRETARIAT OF THE GOVERNMENT

Transcription

1 EXCERPT FROM THE AUDIT REPORT ON THE GENERAL SECRETARIAT OF THE GOVERNMENT Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit and regularity audit General Secretariat of the Government Annual financial statement of the Secretariat for 2013 and compliance of financial operations with current laws and other regulations 60 auditing days Mr Branislav Radulović, PhD, member of the Senate Head of the Auditing Board Mr Dragiša Pešić, member of the Senate member of the Auditing Board

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3 I BASIC ELEMENTS OF AUDIT 1. Legal basis for performing audit Legal basis for performing audit of the Annual Financial Statement of the General Secretariat of the Government for 2013 (hereinafter Auditee or Secretariat) is contained in the following documents: Constitution of Montenegro, Article 144 (OGM 01/07 and 38/13); Law on State Audit Institution, Article 4 (OGRM 28/04, 27/06, 78/06 and OGM 17/07, 73/10 and 40/11); The State Audit Institution Annual Audit Plan, passed by the Senate on 27 December 2013, number ; Audit Conducting Decision passed by SAI Auditing Board composing of Branislav Radulović, PhD, (Head of the Auditing Board) and Mr Dragiša Pešić (member of the Auditing Board) dated 16 January 2014, number The audit has been conducted in accordance with: The Rules of Procedure of the State Audit Institution (OGRM 50/07) and the basic principles of the International Organization of Supreme Audit Institutions INTOSAI Audit subject and scope The subject of the audit is the Annual Financial Statement of the General Secretariat of the Government 2013 and compliance of financial operations to the current legal and other regulations. According to the Rulebook on producing and submitting financial statements of the budget, state funds and local self government units 2, the Secretariat is obligated to submit to the Ministry of Finance annual financial statements on forms 3 and 5, as follows: Cash flow statement III Statement on outstanding liabilities. In addition to the Annual Financial Statements, for unspent funds in sub accounts or suspense accounts, which are recorded in the General Ledger as expenditure, the Secretariat is to submit the Statement on the manner of spending such funds after the expiry of the fiscal year, on Form 8. In addition to the Annual Financial Statements, spending units are to submit the Statement on the manner of spending funds from the current budgetary reserve on Form 9 for funds spent from the current budgetary reserves. The subject audit included the control of cash flows, legality of spending of funds, accuracy of presented data and degree of their disclosure, as well as functioning of the internal control system. The coverage, i.e. scope of verification, is determined depending on the identified level of materiality (significance) and identified audit risk. 3. Audit objective The objective of the audit of the Secretariat was to express an opinion on reliability and accuracy of the Annual Financial Statement of the General Secretariat of the Government 2013 and compliance of financial operations with the current legal and other regulations. In view of the audit objective, the following has been undertaken: - examination if financial statements are true and fair; 1 The International Organization of Supreme Audit Institutions 2 OGRM 32/10, 14/11 and 16/13 3

4 - examination of regularity of operations, i.e. financial transactions and decisions related to receipts and expenditures, for the purpose of identifying if the presented transactions have been made in accordance with the law, other regulations, delegated authorisations and for planned purposes. 4. Audit type The State Audit Institution has conducted financial audit and regularity audit, which implies a comprehensive review of financial operations of auditees as of 31 December Activity and organisation of the auditee 5.1. Activity of the General Secretariat of the Government of MNE - The auditee is a state authority Secretariat. - The head of the authority is the Secretary General of the Government, Mr Žarko Šturanović. - The seat of the General Secretariat of the Government is in Podgorica, addressed at Karađorđeva bb. The person responsible for keeping accounting and developing financial statements is Dragica Pavličić. The General Secretariat is a department of the Government of Montenegro that carries out professional, organisational, administrative and technical activities for the needs of the Government, the Prime Minister and Deputy Prime Ministers, the Minister without portfolio and working bodies of the Government. The General Secretariat of the Government carries out activities in line with the Decree on the Government of Montenegro, the Decree on the General Secretariat of the Government, the Rules of Procedure of the Government of Montenegro, the conclusions and other acts by the Government, as well as guidelines by the Prime Minister, Deputy Prime Ministers and the General Secretary of the Government. Based on the specimen signature card dated 6 July 2012, the funds approved by the Budget for the spending unit the General Secretariat of the Government MNE (account ) are disposed of by persons authorised with valid signatures if accompanied by use of a seal, and they are: Dragica Pavličić in the capacity of an approving officer and Milan Janinović in the capacity of an certifying officer. Art. 4 of the Decree on the General Secretariat of the Government specifies the scope of activities of the Secretariat related to: 1) preparation of expert bases for the decisions by the Prime Minister in managing and directing the work of the Government, as well as for directing the work of the ministries in ensuring integrated operations of the Government, 2) professional and organisational preparation for cooperation between the Prime Minister and the President of Montenegro, representatives of state authorities, representatives of other states, international organisations and other institutions, 3) professional and organisational support to the Deputy Ministers of the Government in performing activities related to execution of their functions, 4) participating of the Government, i.e. its representatives in the work of the Parliament of Montenegro and ensuring execution of obligations of the Government towards the Parliament of Montenegro, 5) professional and administrative preparation of materials for the sessions of the Government and working bodies, organisation and monitoring of the sessions of the Government and its working bodies and other sessions under the organisation of the Prime Minister and Deputy Prime Ministers, 4

5 6) development of minutes, conclusions and reports from the sessions of the Government and its working bodies, 7) monitoring of implementation of acts and conclusions by the Government and execution of obligations undertaken by the Government, 8) coordination of activities and participating in the preparation of the work program of the Government and monitoring its implementation, 8a) professional and administrative activities for the needs of representing Montenegro before the European Court for Human Rights, 9) protocol organisational activities for the needs of the President of Montenegro, the Speaker of the Parliament of Montenegro, the Prime Minister and other state authorities, in accordance with the act of the Government, 10) development of the cooperation between the Government and non governmental organisations, 10a) proposing, monitoring and applying mechanisms for efficient fight against human trafficking, 11) IT support to the Government and its working bodies, in cooperation with the authority of the state administration responsible for information society, 12) providing information to the public on the work of the Government, 13) carrying out other professional, administrative and technical activities for the needs of the Government, the Prime Minister and Deputy Prime Ministers, Minister without portfolio, working bodies and General Secretary of the Government. Other activities related to use and maintenance of aircrafts that the Government has at its disposal are also carried out within the General Secretariat Internal organisation The Rulebook on Internal Organisation and Systematisation of the General Secretariat of the Government establishes the internal organisation and job systematisation in the General Secretariat of the Government. The Rulebook was passed on 16 May 2013 and it systematised posts for two offices that used to be separate spending units or programs within other spending units: Office of Representatives of Montenegro before the European Court for Human Rights and Office for Fight against Human Trafficking. According to the Budget Law 2013, the Office of Representatives of MNE before the European Court for Human Rights was envisaged as a separate spending unit, while the Office for Fight against Human Trafficking was planned as a program within the Ministry of Internal Affairs. According to the Budget Law 2014 they were integrated as programs within the Secretariat. Amendments to the Decree on the General Secretariat 3 created preconditions for integrating these two offices in the Secretariat. Activities under the competence of the Secretariat are carried out within the internal organisational units, as follows: 1. Prime Minister s Office 1.1. Bureau for communication with citizens 2. Office of the Deputy Prime Minister for political system, internal and foreign policy 3. Office of the Deputy Prime Minister for economic policy and financial system 4. Office of the Deputy Prime Minister for European integration 5. Office of the Deputy Prime Minister for regional development 6. Office of the Minister without portfolio 7. Department for affairs of the Government 8. Department for planning, coordinating and monitoring of the policy of the Government 3 OGM 03/13 and 26/13 5

6 9. Department for protocol affairs 9.1. Division for protocol affairs 9.2. Division for translation/interpretation affairs 10. Unit Bureau for public relations 11. Unit for legal and general affairs and finances Registry office 12. IT support unit 13. Office for cooperation with non governmental organisations 14. Office of representatives of Montenegro before the European Court for Human Rights 15. Office for fight against human trafficking 16. Aviation service. For performance of activities under the competence of the Secretariat, the Rulebook envisages 130 posts with 182 staff. The number of employees as of 31 December 2013 amounted to 133. Out of this number 6 persons are officials (members of the Government), 30 persons are appointed by the Government, 92 are full time employees, 4 part time employees and 1 trainee. According to the Budget Law the Secretariat is envisaged as a separate spending unit and its activities were carried out within two programs: Providing professional and administrative support to exercise of constitutional powers of the Government and the State Protocol. 6. Audit methods The audit was planned and conducted in accordance with the basic principles of the International Organization of Supreme Audit Institutions (ISSAI), in the way that enables the SAI to obtain reasonable assurance if the financial statement of the auditee includes materially significant misstatements and if the operations of the auditee are compliant to the law and enabling acts and other regulations. The audit includes the application of audit methods and techniques for the purpose of obtaining audit evidence of amounts and information disclosed in financial statements. The selection of procedures is based on auditor s judgment, including risk assessment. According to the audit practice, the materiality at the level of 1% of the total auditee s expenditures or in the nominal amount of ,52 has been determined. Sampling for audit of expenditures has been carried out by the method of statistical and nonstatistical sampling, where the criteria for sampling of transactions are the value and materiality of transactions. It is a pragmatic approach where decisions are made based on clear audit criteria and implications on resources. Sampling has been carried out for each audit area individually. 7. Record keeping system The bookkeeping records of the Secretariat are maintained on modified basis, which envisages recording of assets and liabilities on accrual basis and recording of receipts and expenses at the moment of inflow or outflow of cash, i.e. on cash basis. The auditee records expenditures according to economic classification in line with the Rulebook on uniform classification of accounts for the state budget, the budgets of extra budgetary funds and municipal budgets. Cash transactions are carried out through the Consolidated Treasury Account. The auditee is connected with the information system SAP (software of the State Treasury where treasury operations are recorded) and makes payments in respect of expenditures through the payment request. 4 OGM 66/12 6

7 II OPINION, FOUND IRREGULARITIES AND RECOMMENDATIONS Based on the conducted audit and established facts, upon the consideration of the auditee s statements included in the auditee s Response to the Preliminary Audit Report of the SAI, and pursuant to Article 12 of the Law on SAI and Article 50 of the Rules of Procedure of the SAI, the competent Auditing Board of the SAI, consisting of Mr. Branislav Radulović, PhD (member of Senate Head of Auditing Board) and Mr. Dragiša Pešić (member of the Senate member of the Auditing Board), at its session held on 29 July 2014, adopted the following: FINAL AUDIT REPORT on the Annual Financial Statement of the General Secretariat of the Government of Montenegro 2013 Financial statements of the General Secretariat for 2013, according to all material aspects, fail to provide a fully true and fair view of expressed receipts and expenditures according to the accepted financial reporting framework. As for the second part of the financial reporting Report on outstanding liabilities there are relevant records based on which the state auditor might verify to what extent the liabilities presented in the Report match the actual liabilities of the auditee. The Secretariat does not keep records of liabilities on sub accounts of class 2, so it is not possible to form an opinion regarding the accuracy of the Report on outstanding liabilities. Activities, transactions and information presented in financial statements for 2013 in some material aspects were not compliant to the valid regulations. Material deviations and non compliance between the operations and regulations have been identified, and particularly with regard to the application of the Budget Law 2013, the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets, the Directions on State Treasury Operations, the Law on Compulsory Social Insurance Contributions, the Law on State Assets and the Law on Public Procurement. The competent auditing board is expressing qualified opinion regarding the financial statement and regularity of operations. RECOMMENDATIONS 1. Cash flow statement III produced by the auditee contains material misstatements. The misstatements are related to presentation of individual positions of expenditures in the statement, i.e. classification of expenditures on the level of the group of accounts which is not in line with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets. In the Cash flow statement III five positions are misstated (to material extent): Expenditures for material ( 67,906.00), Expenditures for services ( 60,173.73), Current repairs and maintenance ( 70,558.31), Other expenditures ( 782,899.46) and Capital expenditures ( 93,249.10). The Auditee is obliged to produce financial statements in accordance with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets and the Rulebook on the method of compiling and submitting financial statements of the Budget, state funds and local self government units. 7

8 2. The auditee does not keep records of liabilities in sub accounts of class 2 liabilities, so the state auditor could not verify the accuracy of the amount of outstanding liabilities presented in the Statement on outstanding liabilities produced by the General Secretariat of the Government. The Auditee is to record liabilities in sub accounts of class 2, given that the Instruction on filling out the Statements on Outstanding Liabilities that together with the Form 5 makes and integrated part of the Rulebook on the method of compiling and submitting financial statements of the Budget, state funds and local self government units, envisages that the Statement on Outstanding Liabilities should incorporate data recorded in sub accounts of class 2 liabilities. 3. Based on the review of the Requests for Payment in respect of which the spending of budgetary funds for the Program of providing professional and administrative support to exercise of constitutional powers of the Government has been executed, it has been found that the Requests for Payment were signed by certifying officers whose signature is not included in the specimen signature card of the General Secretariat of the Government (account ) but in the specimen signature card of the Office for fight against human trafficking (account ). The Ministry of Finance (Treasury) needs to ensure efficient application of the procedure carried out by the officer verifying requests for payment, who according to item 45 of the Directions on State Treasury Operations, prior to confirming the accuracy of the request for payment, should establish if the request for payment is filled out properly, i.e. if it is approved and certified by authorised finance officers of the spending unit. 4. The Auditee failed to pay out expenditures for contributions in the amounts and the structure as accrued. In calculating tax and contributions related to aviation allowance, the fees for membership in working bodies, commissions and teams of employees with the Secretariat, applied has been the method of calculation of tax and contributions for contracted fees (service contract), which resulted in the reduction of the taxation base by 30% which is not in accordance with the Law on Personal Income Tax and Article 3a of the Law on Contributions for Compulsory Social Insurance. The Auditee is to ensure, in the process of calculating and paying all personal income, consistent application of the Law on Personal Income Tax and the Law on Contributions for Compulsory Social Insurance. 5. Based on the verification of expenditures included in the sample, it has been found that the Auditee spent funds from the positions not envisaged for such type of expenditures and recorded expenditures in the account positions that are not in line with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets. The Auditee is to increase fiscal discipline in the coming period and make payments that correspond to the budget specified purposes. The Auditee is to dispose of the budgetary funds in accordance with the annual budget law and record the expenditures in accordance with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets. 8

9 6. The Commission for Inventory of Assets of the General Secretariat failed to produce an Inventory Report. The Secretariat fails to ensure analytical records of assets as envisaged by the International Accounting Standards for Public Sector, the Law on State Assets, the Rulebook amending the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets, the Rulebook on classification of tangible and intangible assets by groups and methods for establishing depreciation of budgetary and extra budgetary beneficiaries and Directions on State Treasury Operations. According to the regulations related to use of state assets, the Auditee is to form an analytical book of fixed assets to record all fixed assets including required data (inventory number, name of the asset, quantity, type, purchase value, adjusted value and current value) and ensure recording of liabilities and receivables, and to reconcile all analytical records with the general ledger records. 7. The audit has found weaknesses in the functioning of the internal control system of the Secretariat which has resulted in non compliance of operations to the current regulations: the Budget Law 2013, the Directions on State Treasury Operations, the Decree on the General Secretariat of the Government, the Law on State Assets, the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets, the Rulebook on the method of compiling and submitting financial statements of the Budget, state funds and local self government units, the Rulebook on classification of tangible and intangible assets by groups and methods for establishing depreciation of budgetary and extra budgetary beneficiaries, the Law on Personal Income Tax, the Law on Compulsory Contributions for Compulsory Social Insurance, the Law on Public Procurement. According to the Law on the Internal Financial Control System in Public Sector and the Directions on the State Treasury Operations, the Auditee is to undertake activities on establishing and developing internal controls and thus ensure compliance of financial operations to the regulations. In accordance with the concluded agreement, the Department for Internal Audit of the Ministry of Finance is to conduct internal audit of the General Secretariat and report on the audit results including findings and recommendations for improvement of operations, and prepare annual report on operations of internal audit and assessment of adequacy and effectiveness of the financial management and control system as to ensure full application of regulations relevant to the operations of budgetary beneficiaries. 8. The amount of executed public procurement of 1,827, which is by 41.64% higher in relation to the amount of 1,290, envisaged by the Public Procurement Plan for 2013 is not in accordance with Article 37 of the Public Procurement Law which stipulates that a contracting authority may initiate a public procurement procedure if such procurement is envisaged by the public procurement plan of the contracting authority. The budget for public procurement of the Secretariat, according to the Report on Awarded Public Contracts for 2012 amounted to 1,092,524.82, so in relation to this amount the percentage of public procurement executed through application of direct agreement ( 849,032.75) in 2013 amounted to 77.71%, which is not in accordance with Article 30 of the Public Procurement Law, which stipulates that annual value of public procurement executed through application of direct agreement may not exceed 7% of public procurement budget executed in the previous year, if the public procurement budget exceeds 800,

10 The report on completed public procurement procedures for 2013 produced by the Secretariat is not accurate, given that the part of the Report containing the data on public procurement executed through direct agreement (Form C) does not include all of the procurement procedures executed through this method (the Report indicates the amount of 201, while the amount executed by direct agreement is 849,032.75). The Auditee is to ensure full application of the Public Procurement Law which regulates the procedure of procuring goods, services and performance of works, in view of legal spending of budgetary funds so the procurement process would be transparent and costeffective. The Secretariat should undertake activities to improve its own public procurement system, which implies, inter alia, passing of written procedures and guidelines to additionally specify activities and tasks of the employees responsible for public procurement, in line with Art. 8, 9 and 10 of the Law on the Internal Financial Control System. The scope and nature of found irregularities and flaws with the auditee impose as follows: Within 6 months, the Auditee is to inform the State Audit Institution on the actions undertaken in respect of developed and delivered recommendations. The Ministry of Finance is to be presented the contents of the final SAI Report on conducted audit for informative purposes. 10