ANNUAL PERFORMANCE REPORT 2012

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4 ANNUAL PERFORMANCE REPORT 2012 TABLE OF CONTENTS ADDRESS BY THE AUDITOR GENERAL PERFORMANCE SUMMARY RESULT INDICATORS Audit Coverage Quality of our reports Impact External and Internal Assessments RESOURCES Resources from the Kosova Budget Donation of assets not any longer used Human Resources COOPERATION COMING FOCUS OAG ACCOUNTABILITY ANNEX 1: Short Introduction To Office of the Auditor General ANNEX 2: Annual Financial Statements for ANNEX 3: External Audit Opinion

5 OFFICE OF THE AUDITOR GENERAL OAG IN BRIEF Our mission is to Contribute to sound financial management in the public administration. We shall perform quality audits in line with internationally recognized public sector auditing standards and good European practices. We shall build confidence in spending of public funds. We shall play an active role in securing of taxpayers and other stakeholders interests in enhancing public accountability. Our vision is to have in place the Supreme Audit Institution (SAI), the National Audit Office of Kosova, entirely owned by Kosovars and being regarded by its international peers and national stakeholders as a Well Performing SAI. How we do it? With a special emphasis during the Strategic Planning Period (5 years) we enhance the skills of professionals engaged in a positive learning-oriented approach; improve close relationships with our stakeholders, local and international partners; participate in the international community of SAIs; and provide reliable assurance to the citizens of Kosova and their elected representatives regarding the economic, effective, and efficient use of public resources. We are dedicated not only to providing quality information on the use of public funds, but also assisting our audited bodies to improve their financial management systems adding value to their businesses. We are dedicated to assist in building good governance in the Kosova Public Administration and being responsive to expectations. 5

6 ANNUAL PERFORMANCE REPORT PERFORMANCE SUMMARY Audits in time, with quality and relevance The audit season 2011/12 ended by the end of August In total, we reported 101 different audits. In more detail we submitted: The Kosovo Budget (KB) audit Report; Eighty-six (86) regularity audit reports under the KB; One (1) system based audit; Two (2) performance audits; Eight (8) management audits; and Three (3) donor funds audits. The audit season 2012/13 started in September 2012 and we plan to report 113 audits: KB Audit Report; Eighty-eight (88) regularity audit reports under the KB; Two (2) regularity audit reports outside of KB; Two (2) donor funds regularity audits; One (1) system based audit; Nine (9) performance audits; and Ten (10) management audits. Assisting in the development of good governance and PFM We have further developed our cooperation with the Assembly. Besides the Committee for Oversight of Public Finances (COPF) which is using the OAG reports as an input for holding the managers to account, we have also started to work with other committees in different ways; and Based on our audit conclusions we have actively participated in different interventions with the executive branch and different projects within the PFM field creating a sound base for good governance, transparency and accountability. Holding into account We prepared the Annual Performance Reports on time and discussed it in the Committee for Oversight of Public Finances as a base for holding the Auditor General to account for the management the Office. 6

7 OFFICE OF THE AUDITOR GENERAL Corporate governance modernisation We have started to implement the Auditor Generals Exit Strategy aiming at securing sustainability and ownership. Amongst others this means a higher degree of internal delegation; securing a higher understanding of the base, context and techniques of Supreme Audit Institutions amongst all our staff; initiated up dated certification schemes for public sector auditors; long term cooperation agreements with our international partners; and placed ourselves as partners in international and European cooperation amongst Supreme Audit Institutions; and We have continuously restructured our office to stimulate professionalism and efficiency as well as developing new tools and instruments ensuring a results oriented approach, focus, productivity, and good management control.. OAG Conference 2012 staff working in groups on the second day of the conference (11 July 2012) 7

8 ANNUAL PERFORMANCE REPORT RESULT INDICATORS We continue to use the following results indicators to measure and report on our performance. These are linked to our strategic priorities and based on our Corporate Development Strategy. 2.1 Audit coverage measured in terms of the regularity audits conducted under the Kosova Budget and the number of finalised audits; 2.2 Quality of our audits and reports continuous development of our Quality Management System; 2.3 Impact and effect number of meetings and public hearings held by Assembly committee COPF based on our reports and the number or percentage of recommendations addressed; and 2.4 External and internal assessments conclusions from external and internal assessments carried out during the year. 2.1 AUDIT COVERAGE To enable comparison with previous years, we measure audit coverage in terms of the size of the Kosova Budget covered by the statutory regularity audit, the number of finalised audit reports, and the audit opinions given. PERCENTAGE OF KOSOVO BUDGET COVERED BY THE AUDIT The regularity audit of the budget organisations for the financial year 2011 started in September In December of the same year an audit memo was produced for each organisation while the final audit reports were published in June The Annual Audit Report was finalised in August 2012 marking the close of the audit season. In September 2012 we started the new audit season by commencing with regularity audits for the financial year Audit memos were submitted to the audited organisations in December while the final reports will be delivered in June and August Over recent years we have increased the coverage of the Kosova budget in our regularity audits. In 2012 we covered 100% of the revenues and 99% of the expenditures. We audited all except for one of the first level budget organisations. The exception is the Kosova Intelligence Agency due to its legal framework. However, this function in western democracies is part of mandate of Supreme Audit Institutions and carried out in compliance with the principles on annual external audit. Besides carrying out regularity audit in each individual budgetary organisation, we have also done other types of audits and covered other organisations outside the budgetary system, especially within Publicly Owned Enterprises (see further below). 8

9 OFFICE OF THE AUDITOR GENERAL THE NUMBER OF AUDIT REPORTS At the end of the audit season 2011/2012 we published 101 audits: The KB audit Report; Eighty-six (86) regularity audit reports under the KB; One (1) system based audit: Public Investment Program; Two (2) performance audits: Awarding of supply contracts and Economy and Efficiency in procuring IT equipment; Eight (8) management audits: management Audit Reports: Efficiency in managing water companies; KEK Revenue collection process; Oversight of the Capital Investment Projects: Ministry of Infrastructure; Trepca follow up of previous recommendations; FM/C Systems in RTK; Waste company Deponimi ; Water Company Mitrovica and Cadastral Agency of Kosova; and Three (3) donor funds audits: the regularity audit of the Program Employment Promotion through business and skill development (DANIDA); the final audits of the projects Reconstruction of Skenderbeu Square Peja (UNHABITAT) and Sustainable return in Prizren town (UK Embassy). The audit season 2012/13 started in September 2012 and we plan to report 113 audits: KB Audit Report; Eighty-eight (88) regularity audit reports under the KB; Two (2) regularity audit reports outside of KB; Two (2) donor funds regularity audit: Program Employment Promotion through business and skill development (DANIDA); One (1) system based audit: SIGTAS System used by Tax Administration; Nine (9) performance audits: Use of official vehicles, Scholarships for higher education and Hospital waste management; Regional Waste Companies Ambienti Sh.Peja, Çabrati Gjakova, Ekoregjioni Prizren, Pastrimi Prishtina, TrainKos as well as a report on Waste Management in Kosova; and Ten (10) management audits: Infra Kos; Kosova Food and Veterinary Agency; Kosova Forestry Agency; License Management in the Ministry of Trade and Industry; Procurement management of Capital Investments in the Mitrovica and Shtime Municipality; Kosovo Police; Kosovo Clinical University Centre; road maintenance Infrastructure Ministry; and Kosovo Agency for Medical Products. As in previous audit seasons, we have continued to increase the overall number of audits conducted. The number has grown both in statutory and other types of non statutory audits. At the same time we have reduced the number of municipality audits outsourced to private audit firms due to our higher staff number. We will continue this trend in the coming season as we intend to employ additional staff. Earlier capacity constraints are gradually being resolved but we will keep outsourcing some of the municipality audits for quality and benchmarking purposes. 9

10 ANNUAL PERFORMANCE REPORT 2012 Table 1: Audits carried out Audit season 2012/2013 Audit season 2011/2012 Audit season 2010/2011 Audit season 2009/2010 Regularity Audit KB State Authorities¹ Municipalities Contracted out)² Independent Institutions Outside KB Non Statutory Audit Donor funds audit Management Audits Performance Audits System Audits Total Health Checks Table 1 shows the trend of each type of audits throughout four audit seasons while table 2 shows the number of audits contracted out and the cost of these audits.. Table 2: Audits contracted out to private audit firms Audit season 2012/2013 Audit season 2011/2012 Audit season 2010/2011 Audit season 2009/2010 Number of audits Number of audit firms Cost ¹ , , ,528 The final audit of 11 municipalities' Annual Financial Statements 2012 is outsourced; compared to 18 last year. This demonstrates both the reduction in the level of outsourced audits and the reduction of costs to a certain degree balancing the costs for additional staff. In addition to the annual regularity audit we have also carried out other types of audits as showed in the table above. An overview of the wide range of audits undertaken allows us to present a comprehensive picture of overall budget execution and the quality of the public administrative systems. In this way we provide extensive information on state affairs and are better positioned to inform the Assembly 10 ¹ At the time of this report, procurement process for outsourcing audits of 11 municipalities for AFS 2012 was ongoing. Though, 60,000 is an estimated cost for final audits for 2012 without interim stage. For full audit of 2013 the cost is estimated to be around 90,000.

11 OFFICE OF THE AUDITOR GENERAL and other stakeholders about the reliability of Government reports and the efficiency, effectiveness, legality and transparency of budget execution. We actively seek to identify opportunities for upgrading public administration systems and processes to secure better quality and lower cost and recommend options to achieve these. AUDIT OPINIONS ISSUED Each of our regularity audits results in an audit opinion on the Annual Financial Statements (AFS). The opinion is our conclusion whether the audited financial statements presents the financial activities and results in a true and fair way. Thus we also conclude whether or not the AFS have been prepared in accordance with the applicable accounting standards and Government instructions; are comprehensive; and underlying transactions in all major respects have been carried out in compliance with the applicable legal framework and other set criteria. The audit opinions we give are based on the ISSAI's reporting standards. We give unqualified opinion for the financial statements which, in all material respects terms, present a true and fair view. If there are issues which require additional reporting to ensure that the reader of the AFS gains a proper understanding of significant issues related to the accounts but which are not of sufficient concern to result in a qualification, we can add an 'Emphasis of Matter'. When AFS' have significant deficiencies in terms of the compliance with the reporting framework or in the quality and accuracy of information included we apply a different form of opinion which may take a variety of forms but essentially reflects a qualification of the accounts. The audit opinions given over the last three years reflect an increasing proportion of unqualified opinions. Table 3 highlights that other types of opinions have steadily decreased. Budget Organisations are improving their processes supporting the production of their AFS each year. This is to a certain extent the result of our audit advices and recommendations. 11

12 ANNUAL PERFORMANCE REPORT 2012 Table 3: Types of audit opinions given for the last three consecutive years Type of Audit Opinion AFS for the year ¹ AFS for the year 2010 AFS for the year 2009 Unqualified opinion Unqualified with emphasis of matter Qualified opinion Qualified opinion with emphasis of matter Adverse opinion Disclaimer of opinion Total: QUALITY OF OUR REPORTS One of OAG's strategic objectives is to produce high quality audit reports. A continuous development of our Quality Management System (QMS) is a key goal. We seek to achieve a high level of professionalism in our audits to ensure that our audits are comprehensive, well documented, effectively focused and always completed on time. To ensure quality, we apply quality review to the work undertaken at each stage of the audit. We do this using our most experienced, professionally qualified staff. We have developed policies and procedures to embed the understanding of quality as a basic requirement. The QMS contains three different layers: a) Quality Control, b) Quality Monitoring and c) Quality Assurance. Quality Control is the control operated for the individual audit assignment. This includes supervisory review of audit plans, the use of standard documentation for recording the audits, supervisory review of audit working papers and of draft audit reports, etc. Each of the audits conducted during the audit season 2011/12 were subject to quality control procedures. Supervision and reviews were done at all levels starting from the team leader, audit director, through Assistant Auditors General to the Auditor General. In addition, language and legal reviews were also part of the process. 12 ¹ In the total number of 89 audit opinions is included: the audit opinion for DANIDA program (a donor fund audit). The audit report for Kosovo Privatisation Agency includes two audit opinions, the audit opinion for Kosovo Privatisation Agency and the audit opinion for Privatisation Fund.

13 OFFICE OF THE AUDITOR GENERAL Quality Monitoring is the process whereby our Audit quality function carries out an independent review of individual audits. This is a corporate review of the audit before it is finalised carried though over the planning-, execution-, reporting- and follow up stages to ensure that the audit has been conducted in accordance with our policies and practices. For the audit season 2011/12, Audit quality function has monitored 19 audits. Out of them, 17 were regularity and two managerial audits. In addition to this, for the same period four other regularity audits were mentored by our international partners. When it comes to the interim stage of the audit season 2012/13, six other audits were subject to the mentoring jointly undertaken by our quality function and UK twinning partners. Quality Assurance is an ex post review involving either internal or external independent assessment of our quality control and quality monitoring systems and practices. This is done periodically. Last time we internally had such a review was in May During the coming months we will address quality assurance again. Our Quality Management System has helped develop the quality of our audits, audit documentation and reports produced. Readability and understandability of our reports is now much better. Improvements in the audit approach, its implementation and the issuance of audit opinions is securing better adherence to international public sector auditing standards and good European practices. The professionalism of our staff has been further strengthened. Progress achieved to date is a positive development but we recognise that further developments are required to reach the standards we wish to achieve. We need to do more to close the gap. Our priority is both to secure quality in the regularity audits and at the same time developing performance audits. External expectations for performance audit are continuously increasing and we have prioritised development of this area. Cooperation with the Swedish NAO is ongoing to support it. 2.3 IMPACT We assess the effectiveness of our audit activities, reports produced and their actual impact based on the views held by the parliamentarians on the quality of reports, the number of public hearings and the level of audit recommendations addressed. Our professional cooperation with the Assembly's Committee on Oversight of Public Finances (COPF) has been further developed. The public trust in OAG professionalism continuous to be enhanced. In 2012, OAG have submitted to the Assembly 103 reports, this figure includes the Auditor Generals Annual Performance Report. These reports have provided the MP's with a solid base for decision making, monitoring and holding public managers to account. Our annual working plan has been thoroughly discussed with COPF on a timely basis ensuring that our mutual concerns and expectations are properly addressed. Over the year, 31 regular meetings and one public hearing were held by the COPF. 13

14 ANNUAL PERFORMANCE REPORT 2012 In those meetings, COPF has handled 20 individual audit reports where the highest priority was given to following up the process of implementation of audit recommendations. Important findings and recommendations were discussed with the most senior accountable managers of the related audited organizations. In addition, two workshops and a specific public hearing were organised for all 37 municipalities. In these events the most significant administrative challenges faced by Local Government and opportunities for improvement identified in municipality audit reports were discussed. In all these events, OAG representatives have contributed by providing professional expertise and advice to MP's and others thereby helping to foster public accountability and transparency. For the first time, the Auditor General presented the Annual Audit Report for 2011 before an Assembly plenary session. Another important development was that the Auditor Generals Annual Performance Report, included for the first time its audited Annual Financial Statements and the same was discussed by the Assembly in a plenary session. The number and percentage of recommendations addressed In each of our individual audits we analyse the implementation of our previous recommendations. In 2012, we undertook this analysis in (77) audited organisations covering both Central and Local Government levels. Summary results are shown in the following table: 14

15 OFFICE OF THE AUDITOR GENERAL Table 4: Implementation of audit recommendations given for 2010 Audited Entities Recommendations for 2010 Recommendations fully addressed Partially addressed (in process) Not addressed Central level organisation Local level organisations Total Nr % Nr % Nr % Compared to previous years, the implementation of recommendations by the municipalities has slightly improved although much remains to be done. When it comes to the Central Government level the situation with the audit recommendations is much better Indications exist on better measures taken related to recommendations given for We will come back to this in the Annual Audit Report later this year. Besides the above recommendations given in our final reports, we also provided advices during the audit process. A significant proportion of advice given is addressed immediately therefore improving the quality of information in the AFS. However, despite this, the number of recommendations not addressed is a concern for us. The reasons for this vary. In some cases our recommendations have been too general and/or not specific enough. In many cases we believe that there is a lack of willingness or ability to properly address shortcomings. The accountability mechanisms need to be strengthened to support improving financial management. In the current year we will focus on ensuring clear and constructive recommendations. 2.4 EXTERNAL AND INTERNAL ASSESSMENTS In many instances, the COPF MP's have expressed their satisfaction with the way in which they have been interacting with the OAG and the way it has submitted information such as AAR, APR and the individual audit reports. Fair and objective assessment is vital to promote development as a means of improving organisational performance. In order to maximise effectiveness and credibility we should be subject to annual independent financial audits, external peer reviews and other national assessments. In 2012 OAG has been assessed both internally and externally. In order to set the priorities for cooperation under the new twinning project with the UK NAO and the Court of Audit Netherlands, they assessed our current operational focus. The project will support us in further enhancement of our operative and support processes. The World Bank (WB) in its Country Fiduciary report published on March 2012 appreciates OAG's increasing effectiveness and considers it as one of the key strengths of the Kosova PFM system. At the same time the report shows the need for strengthening OAG's independence. 15

16 ANNUAL PERFORMANCE REPORT 2012 Similar to the WB report, the Government Action Plan on negotiation of the Stabilisation and Association Agreement published on December 2012 highlights the importance of strengthening the functional independence of the OAG and that this should be done through the adoption of a new law. The Sigma Report published on March 2012 notes that OAG has a relatively good reputation among the general public. While some of the independent oversight bodies have limited time and opportunities to discuss their findings with the Parliament and their annual reports are treated very formally by the Parliament, the Sigma Report recognises that the OAG is becoming an exception in this regard. The Commission Communication on a Feasibility Study for SAA 2012 expresses its concerns as the OAG is part of the civil service, and the implementing legislation of the civil service law is too prescriptive and limits in practice functional independence of the OAG regarding the implementation of the legislation of the civil service law. It recommends strengthening the role of external audit and specifically emphasizes the need to improve capacity in delivering performance audits. The audit of our 2012 AFS resulted in an unqualified opinion while recommendations were given in a management letter. Our external auditors, appointed by the Assembly, placed rather much emphasis on compliance in our administrative processes. Some minor errors from our side was noted at the same time as an issue of general interest was noted related to an inconsistency regarding depreciations as required by the Administrative instruction and how depreciations are calculated in the Treasury system. We will address these recommendations in a timely manner. 16 OAG Fourth Annual Conference in Peja, summer 2012

17 OFFICE OF THE AUDITOR GENERAL As part of our internal assessment we have applied different tools addressing measures that we as a SAI need to undertake in order to operate effectively in a challenging and constantly changing environment. This means that we have to continually re-evaluate and reassess how we carry out our constitutional and legal mandate. We should make sure that our activities consistently meet the highest professional standards remaining relevant to the environment in which we operate. Furthermore, our internal auditor evaluates the functionality and effectiveness of our internal systems and advises us of their upgrading. Furthermore, in workshops organised during our annual conference our processes are analysed and evaluated by our staff and our partners. Based on lessons learned, actions were identified which will contribute to addressing future challenges. The input from our partners present in the conference was of paramount value. OAG Fourth Annual Conference in Peja, summer

18 ANNUAL PERFORMANCE REPORT RESOURCES During 2012 our funding came from several sources. The main source of funding was the Kosova budget. The limited fees we earned were transferred to the MoF. Other resources were the assistance financed by the European Union and the Swedish National Audit Office. In addition the salaries for the Auditor General and his Head of Cabinet were paid through a donor fund partly financed by the Government. Since the closure of the ICO in September 2012 this fund is managed by the International Management Group. 3.1 RESOURCES FROM THE KOSOVA BUDGET As an independent institution financed by taxpayers' money our budget should be spent with great responsibility and prudency. Under the Budget Law of 2012, OAG's approved budget was 2,009,879. This budget is allocated in five economic categories: Wages and Salaries, Goods and Services, Utilities, Capital Investments and Subsidies and Transfers. During the fiscal year the following changes were made: In the budget review the ceiling for the staff number was raised from 130 to 136. To finance this the amount of 20,000 were transferred from Subsidies and Transfers, 16,500 were transferred to Wages and Salaries and 3,500 to Goods and Services covering additional equipment needed; Under the Budget Law of 2012, to the OAG was appropriated the amount of 50,000 for purchase of new servers. During the procurement process the need for additional 10,000 was identified and after a request, the Ministry of Finance transferred this amount from Goods and Services to Capital Investments; Under the decision of the Government No. 04/101 of date , the OAG's budget for Subsidies and Transfers has decreased to zero, and our budget was reduced by 80,000; and The Swedish National Audit Office, in order to co-finance the Annual Conference which was held on 10th and 11th of July in Peja, has provided a donation in the amount of 7,315. After these changes our budget in the end of the year was 1,937,

19 OFFICE OF THE AUDITOR GENERAL Table 5: OAG Budget (in Euro 000) Budget Report Overall budget Wages and Salaries Goods and Services Utilities Transfers Capital Investments Overall budget Wages and Salaries Goods and Services Utilities Transfers Capital Investments Overall budget Wages and Salaries Goods and Services Utilities Initial Budget Final Budget Spent Budget % 2,010 1, ,810 1, , ,937 1, ,866 1, , ,822 1, ,728 1, , % 96.6% 90.1% 80.0% 0.0% 91.7% 92.6% 94.3% 88.7% 92.1% 100.0% 100.0% 98.5% 99.0% 98.9% 80.0% In the last three years our budget has increased. The final 2012 budget was 3.8% higher compared to The difference between 2011 and 2010 was 18.78%. These increases were mainly related to higher costs for staff; professional development via the certification scheme; and the increase in number of the Team Leaders. We scaled down our budget request regarding Goods and Services below the ceiling proposed by the Ministry of Finance in the first Budget Circular. We have also had a prudent approach in general and postponed some investments due to the scarce budget situation. The effect of this is an accumulated need of investments in the ICT field paving the way for higher efficiency in both operative and support activity. As a reflection of the above, the highest cost is in the category of Wages and Salaries (64%), or 4% more than in Graph 1. Budget spending in economic categories Expenditures in Economic Categories Wages and salaries Goods and services Utilities Capital Investments 19

20 ANNUAL PERFORMANCE REPORT 2012 Graph 2. Budget spending in the category of Goods and Services Travel expenses outside and inside Proffesional trainings Contracted audits Maintenaces and Insurance Fuel(vehicles,heating,generator) Equipment and supplies Rent Other (publications, printing, Z-Mobile) The highest cost in Goods and Services is rental costs of 168,000, or 27%. 16% is related to stationery, mobile phones, office furniture, IT equipment, food and beverage and expenses for organising the Annual Conference. 15% is related to the hiring external audit companies to audit a certain number of municipalities. In 2011, these expenses presented 17% of expenditures in this category and in 2010 they were 33%. Graph 3. Budget spending of categories over the years Wages & Salaries Goods and Services Utilities Capital Investments Transfers & Subsidies Graph 3 shows the trend of expenditures within the five budget categories in a three year perspective. The costs in Wages and Salaries have increased whilst the costs in Goods and Services constantly are decreasing over the years. Capital Investments went up due to the need for more licenses of the software IDEA used by auditors for analysis of data. 20

21 OFFICE OF THE AUDITOR GENERAL 3.2 DONATION OF ASSETS NOT ANY LONGER USED A number of our economically depreciated assets were assessed by our professional committee as incompatible with our new technology. These were removed from further use and were stored in warehouse located within OAG premises. We decided to donate these assets to some schools which with a little investment could make these assets usable. Continuing with the practice started in 2011, we in 2012 donated to: Secondary School Gjin Gazulli (MoU No. 155/2012), Elementary School Faik Konica (MoU, No. 152/2012), Elementary School Zenel Hajdini (MoU, no. 153/2012), Elementary School Mihal Grameno (MoU, no. 156/2012), School Perparimi Resource Center-Prishtina (MoU no. 154/2012) as well as to Malisheva Municipality - Health and Social Welfare Directorate (MoU no. 157/2012). 3.3 HUMAN RESOURCES We are a continuously growing institution and at year-end 2012 we employed a total of 142 staff, including substitutes and our two staff outside the budget. During 2012 we recruited (18) employees. Out of these eight were hired as substitutes replacing staff on maternity leave. Included in the figure is also the recruitment of a Deputy Auditor General, who took up office in September During the peak audit season we also brought in four translators for a short period to help us prepare our reports in time. We believe in professionalism. Staff working in our office must be well educated, striving to achieve professional certification and upgrading their professionalism continuously. We believe in mobilising our own resources securing ownership of our own future. We believe in transparency as fundamental in building a professional institution. This cannot be achieved without committed and curious staff striving for continuous learning in an institution evolving in meeting new expectations and requirements from national and international stakeholders. In the table below we present some basic information regarding our staff. Table 6: Basic information regarding our staff Years Staff ceiling Number minorities Percentage females Number of Directors (females) Average age Number of Team Leaders Staff turnover¹ Experience in office longer than two years % 24.7% 38.6% 43.7% 45.8% N/A² % 13% 5.2% 3.2% 0.7% ¹ The proportion of employees who resign during the year out of the total number of employees at year-end ² During 2008 a system was not in place and the role of team leader rotated among auditors. 21

22 ANNUAL PERFORMANCE REPORT 2012 During the period: The overall number of staff has grown steadily; We have encouraged potential candidates from different communities, but the results are not good enough; We have placed significant effort on establishing a good gender balance in our institution. In this we have been successful; We have increased the number of females into managerial positions. Further initiatives are required for a better gender balance at these levels; The average age shows a stable situation with no major fluctuations; We have increased the number of audit team leaders gradually in order to carry out more audits and reduce the number of audits contracted out and subsequently reduce the costs for this; The employee turnover has gone down from 12% to less than 1%; and The continuous increase of audit experiences with each year coupled with improved result in certification (see figures in Table 9) indicates a good base for the future. All in all this indicates that we have taken very good steps towards reaching our objectives. We also annually make adjustments in the organisation in order to meet new requirements (see Annex 1) At the same time such rapid changes in an organisation of course have some impact on how the organisation must be organised and managed. Especially in an environment steadily changing the prerequisites for the handling of Human Resources, at the same time as the internationally recognised public sector auditing standards and good European practices should be guiding the development. Our staff, if meeting the new requirements must have: Capabilities; Curiosity; Commitment; Communicative abilities; Competitiveness; and Compassion. The adjustment to these attributes take longer time for some than others, changes in attributes needs time and must be organised stepwise getting results. A base for this is created, but much remains to be done in securing that everyone thoroughly understands the concepts of modern public audit in addition to the audit techniques. Measures in this direction will be of high priority during the coming year. 22

23 OFFICE OF THE AUDITOR GENERAL The table below presents the overall staff number in post on 31 December over the last three years. Table 7 Categories of staff (in post on end year) Category Audit staff Administrative staff Total Actual figure ¹ Positions Actual figure Positions Actual figure Positions RECRUITMENT PROCESSES Our recruitment processes are carefully designed, fair to everyone and are based on merit. Currently, candidates their interests to a specific address dedicated to recruitment. During 2012 we had eight recruitment processes candidates expressed an interest in our advertisement campaigns. We invited 431 candidates to be tested, 41.6% of the total number of candidates. Out of these 99 were interviewed. A number of candidates have also made regularity inquiries to our processes, where most of them have been in the office and checked their performance. Two cases were addressed to the Independent Oversight Board Civil Service of Kosova. In both cases the requests was turned down in favour of the OAG. The table below provides statistics on the number of recruitments the last three years. Table 8: Recruitment Categories/Years Audit staff Administrative staff Total Recruitment To improve the efficiency of existing processes we are (with assistance provided by our twinning partners) considering a web based application system where candidates can fill in their details directly. This will be part of our Human Resource Information System which is planned to be installed during the 2013/14. ¹ The number of staff as per the end year is 142. The number is higher then the approved number of positions for the year This is due to the recruitment of substitutes replacing staff on maternity leave. This increase of posts is in line with the European Partnership Action Plan 23

24 ANNUAL PERFORMANCE REPORT 2012 TRAINING AND DEVELOPMENT We have trained all of our mangers in Quality management system, trained a number of our staff as trainers so that we have sufficient capacities to support our internal training and external new certification scheme operated through SCAKK¹. All staff have attended different internal training activities. 33 auditors have attended lectures in different levels of the SCAAK programme. This resulted with 14,670 hours of training, an average of 97 training hours per staff. Qualifications achieved by staff may be found in the table below. Besides the total number of hours provided for trainings, a certain time was invested also by international peers in mentoring of our staff in different fields. We have also signed a cooperation agreement with the University of Pristina, providing internship programme to students for a certain period of time. Table 9: Levels/Professional Grades Category Certified Auditor Certified Accountant Accountant Technician Trainee Auditor Performance Auditors² Internal Auditor Total: auditors entered into SCAAK exams, the pass rate was 32.3%. 12 auditors have managed to complete different professional exams and approximately 2500 hours of leave absence have been granted for preparations. At year-end 2012, the situation of auditors' certification process was as follows: 51.9% licensed as Certified Auditors and Certified Accountants, 26.9% have finished the first level; and 13.5 % are preparing the first level, and 7.7 % are Performance Auditors Our internal auditor is licensed as per the certification scheme for Internal Auditors in Kosova and is certified by CIPFA as a trainer for this particular subject. 24 ¹ Society for Chartered Accountants and Auditors of Kosova ² The number of performance auditors is higher than shown in the table above, this due to the fact that several of my auditors are enrolled into the certification program for regularity auditors.

25 OFFICE OF THE AUDITOR GENERAL HR FOCUS AREAS New HR Strategy: The introduction of a Human Resource Strategy is expected to be implemented in 2013 after the new law introducing the National Audit Office of Kosovo will be in place. This will incorporate HR, Learning and Development and Staff deployment and utilisation. Human Resource Information System: We are in the process of building a system which shall merge all activities associated to with human resource management into one common database through the use of enterprise resource planning (ERP) software. Time Recording: a new Time Recording and project costing system is in development to support our activities. We plan to have this system in place in mid Staff Appraisals: We are in the process of reviewing the current staff appraisal system in order to strengthen the quality of assessments with the purpose of providing a better support to staff. New Certification Scheme for Auditors: The new audit certification scheme for regularity auditors in the public sector will be implemented during It will be based on ISSAI standards and be divided in different stages. The formal technical certification scheme will be delivered by SCAAK. 25

26 ANNUAL PERFORMANCE REPORT COOPERATION Effective cooperation with our stakeholders is a prerequisite for the qualitative development of our outputs and for our activity having the appropriate and necessary impact. We are focused on further developing our cooperation with stakeholders at both local and international level. The cooperation with the Kosovo Assembly, foremost the Committee for the Oversight of Public Finances is a mechanism for improving accountability related to how public money is managed and used. Furthermore, cooperation with the local and central level institutions that we advise, support and audit is an integrated approach. The approach used ensures a common view on facts and a perspective focused on continuously enhancing good governance, in system design, process implementation and corrective measures. Clear and concise recommendations in our audit reports are a key element of this. Our approach directed at being e pro active in strengthening Public Financial Management requires a well-developed cooperation with, in particular, the Ministry of Finance. From a wider perspective we are focused on supporting developments promoted by the EU such as IPA and will work with the EU to ensure that we can support the Government in addressing the governance challenges associated with this. A strengthened cooperation with Investigation Authorities and Justice Bodies has resulted with clarification of roles and timely exchange of information. We recognise Public and Media Relations as one of the pivotal parts of our policies and strategies. Our cooperation with Non-Governmental Organisations; Civil Society; professional associations; private audit firms, national training providers and donors is continuously developing. We consider that, by being perceived as transparent and fair to the public when providing information, the level of cooperation would increase even more as will the level of understanding of the focus, benefits and impact of our work. We have a strong focus on professional development supported through cooperation with our partners from the Supreme Audit Institutions of, Sweden, England, Netherlands; Estonia and Scotland. Bi-lateral cooperation relations are steadily built up. The cooperation with the Albanian Supreme Audit Institution is the most developed up till now. 26

27 OFFICE OF THE AUDITOR GENERAL Mr. Leskaj and Lage Olofsson signing the cooperation agreement We have not managed yet to become a member of INTOSAI, as Kosova is not yet a member of the United Nations. However, we are able to participate at working level in various networks, conferences and seminars of regional and European character. In these meetings, we share experiences with colleagues of other countries. Projects The cooperation with the Swedish National Audit Office Together with the Swedish National Audit Office, we have a signed Memorandum of Understanding. We have agreed to have a project of cooperation that will last until summer This project aims developing the OAG capacities, particularly in the performance audit, in order to fulfil its mandate. SNAO will also contribute in other aspects that will contribute to institutional sustainability. The timing of the end of this project allows a flexible approach around the end of the twinning project. Twinning Project The European Union has awarded a grant for a twinning project to further support our office. The UK NAO is the lead partner and the Netherlands Court of Audit the Junior Partner. Support is also provided by Audit Scotland and the NAO of Estonia. The overall objective is to contribute to proper stewardship of public funds; transparency and effectiveness in public spending through the improvement of the public financial management system; and the creation of an effective public governance framework and building confidence in public spending by enhancing public accountability. A 30 months project, ending in March 2015, is supporting the development of enhanced operational activity across all forms of audit as well as core support activities and support for the management team in preparation for the appointment of a new Auditor General. 27

28 ANNUAL PERFORMANCE REPORT COMING FOCUS The current achievements are numerous and indicate that we are rapidly creating a strong profile securing the interest of tax payers' money. More emphasis is required on strategic thinking at all organisational levels, thus ensuring that the targeted long term objectives are clear to everyone in our institution. An external public audit institution performing fully in compliance with the internationally recognised public sector auditing standards and good European practice is our permanent strategic objective. Our stakeholders' expectations are increasing and that will certainly be followed by many challenges which will require planning of adequate measures to overcome them. The implementation of the Auditor Generals Exit strategy is a particular challenge to the OAG securing independence, sustainability and ability of change management. The Auditor General's mandate will end in the second half of In order to execute our mandate we, in the mid-term period, plan to meet the following objectives: Secure local ownership and institutional sustainability Contribute in strengthening good governance Develop and keep corporate and audit quality When it comes to the first objective Secure local ownership and institutional sustainability we plan to carry out the following actions: Support in getting the new law on AG and OAG in accordance with internationally recognised public sector auditing standards; Develop internal guidelines related to the new law and implement them; Amend the Corporate Development Strategy; Prepare and contribute to a swift and mature shift of the Auditor General in August 2014 without losing the momentum of enhancing good governance; Further develop the long term and well functioning relationship with our partners; Secure the implementation of a result oriented culture in which we fulfil our operational and administrative objectives through professional, ethical, motivated employees at all levels; Secure peer assistance to the Trade Union in developing role and approaches in accordance with good European practices; Further develop the regional cooperation amongst sister organisations and a higher degree of participation in international networks exchanging and learning from experiences gained; and Continuously strengthen and develop the internal organisational capacities in meeting changing requirements and managing change. In order to meet the second objective Contribute in strengthening good governance we plan to carry out these actions: Consolidate the quality of Regularity Audit and improve Management and Performance Audit; 28

29 OFFICE OF THE AUDITOR GENERAL Develop the audit relevance further by gradually carrying out more Performance Audit; Develop our fee based audit of donor funds paving the way for new financial relations between Kosova and the donor community. As such we plan to carry out 3 4 donor fund audits; Putting additional focus on areas of interest for decentralised management of IPA funds; Further develop IT system audit; Address new audit areas and introduce a more focused approach on the procurement system and how public services in other forms are carried out (PPP, POE, privatisation); Continue to produce the AAR in time with increased quality and effective recommendations based on higher audit relevance and readable reports; Introduce new approaches, forms and measures aiming at developing and improving good governance; Develop the support to the Assembly oversight function; Develop the cooperation with the executive in the area of Public Administrative Reform; and Extend the external cooperation and communication with civic society, media and projects. In order to meet the third objective Develop and keep quality we plan to carry out these actions: Enhance the quality function; Implement the new ISSAI compatible certification scheme now basically in place starting from July 2013; Introduce more efficiency in the audit via new ICT solutions; Introduce better managerial and administrative tools; Increase the number of licensed and certified auditors along new auditors employed during ; and Find a feasible solution for remuneration keeping the highly professional staff developed in our office. 29

30 ANNUAL PERFORMANCE REPORT OAG ACCOUNTABILITY Integrity assurance I hereby assure that the information in the Annual Performance Report, including the financial statements, are accurate, reliable and objective. Lars Lage Olofsson, Auditor General Declaration of Transparency We hereby assure that our business during 2012 has been carried out in accordance with Public Service Charter and the OAG Code of Conduct Artan Venhari, Deputy Auditor General Qerkin Morina, Assistant Auditor General; Ibrahim Gjylderen, Assistant Auditor General; Ilire Daija-Buza, Head AG Cabinet/Public Relations 30

31 OFFICE OF THE AUDITOR GENERAL ANNEXES 31

32 ANNUAL PERFORMANCE REPORT 2012 ANNEX 1: SHORT INTRODUCTION TO OFFICE OF THE AUDITOR GENERAL ROLE The Auditor General is an independent constitutional institution and reports directly to the Assembly. The OAG is assisting the Auditor General whose mandate and duties are defined by the Constitution and the Law no. 03/L-75 on the Establishment of the Office of the Auditor General and Audit Office in Kosova. In the beginning of 2009 the current Auditor General was appointed by the International Civil Representative (ICR). He will end his mandate in August In exercising and fulfilling his obligations the Auditor General is free to undertake all the needed actions in function of his mandate. He is accountable to the Assembly. Ensuring our objectivity and independence from the organisations which we audit is crucial. Our objectivity and independence should be assured by a proper execution of a broad, sustainable, and lawful mandate; compliance with internationally recognised public sector auditing standards; and a strong internal Code of Professional Conduct. OUR ACTIVITY Annually we are carrying out statutory regularity audits of the Kosova Budget and Budget Organisations that includes the Assembly, the Office of the President, each Ministry and executive agency, municipalities, independent bodies and other entities. We also carry out Performance, Management and System Audits. This is within our scope, but not an annual statutory requirement. These audits are carried out in order to assess whether the governmental programs are being managed properly, cost-effectively and efficiently, and whether systems for measuring and reporting their efficiency are in place. We report on our audits to the audited entities and to the Assembly (COPF) and these reports are published. Our reports contain recommendations in order to foster change and better practices. In doing this, we want to provide to the Assembly, Government and taxpayers a fact based professional and integrated audit service. For the purpose of assisting in the implementation, development, and sustainability of Public Finance Management, we intend to assure the taxpayers and international donors that public funds are used economically, effectively and efficiently. We do this by ensuring that public funds are reported, administrated, and used wisely and properly. ACCOUNTABILITY PROCESS 32 Our Annual Financial Statements (AFS) are prepared in accordance with the Law on Public Financial Management and Accountability. They are in compliance with the Cash Basis International Public

33 OFFICE OF THE AUDITOR GENERAL Sector Accounting Standards and applicable modifications as decided by the Government. In order to enable us to prove our accountability and objectivity, the Assembly should, each year, appoint an external auditor to carry out the audit of our AFS. The Assembly appoints our external auditors. The audit opinion on the AFS for 2012 is included in the included in Annual Performance Report, together with the AFS. Recommendations from the external auditors management letter are also included in short form, as our comments to them. This way we allow the readers to get a audited picture of how we have handles our finances together with a picture of how we used resources given and the results hereof. The reports are published on our website¹. Apart from external audits, the internal audits carried out by the Internal Audit Unit ensure that the Office performs in compliance with laws and its policies. WHO SHALL ASSESS OUR AUDITING METHODOLOGIES? We have done much to ensure that we follow good practice audit methodologies. We have a quality management framework in place. Good methodologies and a quality framework provide assurance that our audit work is in compliance with established standards² of professional practice. We follows the standardised international system of checks in our audit work; our audits exist within a framework of rigorous audit standards, which staff learn to use through our training programme. The audit findings are then agreed with the audited body in a clearance process. Management review is inbuilt in our system and further monitoring is done by a specific function within the office. Our reports are then published and made public for open scrutiny. Afterwards, deliberations and discussions on audit recommendations are made in the Assembly together with the Executive. WHO SHALL REVIEW OUR FUNDING? As the Auditor General, I shall besides this Annual Performance Report focusing on how the budget of the Audit Office has been spent annually prepare and submit budget requests to the Assembly. The COPF as well as the Budget and Finance Committee may call on me to explain the budget request for the office and to discuss our report on plans and priorities, performance targets, our Annual Performance Report, and our management practices. The Government shall incorporate my budget request as proposed by the Budget and Finance Committee in the draft Kosova Budget tabled in the Assembly. The budget of the office shall be approved by the Assembly. In practice, current processes are not designed well and the practices leave room for improvement. ¹ ² ISSAI, International Standards of Supreme Audit Institutions set forth the key prerequisites for the proper functioning and professional performance of such institutions: 33

34 ANNUAL PERFORMANCE REPORT 2012 OAG ORGANISATION FOR 2012/13 AUDITOR GENERAL Cabinet Internal Audit Deputy Auditor General Legal Support Information Technology and Communication AUDIT DIVISION A AUDIT DIVISION B Human Resources Translation Services Foreign Affairs, Justice and Security Central Governance Administrative Support Local Governance Independent Institutions Procurement Systems Infrastructure Labour, Education, Culture and Health Audit Support Performance Public Enterprises Privatisation and Public-Private Partnership 34

35 OFFICE OF THE AUDITOR GENERAL ANNEX 2: Annual Financial Statements for

36 36 ANNUAL PERFORMANCE REPORT 2012

37 OFFICE OF THE AUDITOR GENERAL 37

38 38 ANNUAL PERFORMANCE REPORT 2012

39 OFFICE OF THE AUDITOR GENERAL 39

40 40 ANNUAL PERFORMANCE REPORT 2012

41 OFFICE OF THE AUDITOR GENERAL ANNEX 3: External Audit Opinion

42 42 ANNUAL PERFORMANCE REPORT 2012

43 Për informata të mëtutjeshme, ju lutem kontaktoni: Za vise informacija, molimo vas kontaktirajte: For further information, please contact: Ilire Daija - Buza ilire.daija@oagks.org +381 (0) Qëndresa Mulaj qendresa.mulaj@oagks.org +381 (0) ZYRA E AUDITORIT TË PËRGJITHSHËM Adresa: Rr. Musine Kokollari, nr Prishtinë, Kosovë Telefon: +381 (0) Faks: +381 (0)