EXCERPT FROM AUDIT REPORT ON 2015 ANNUAL FINANCIAL STATEMENT OF PUBLIC PROCUREMENT ADMINISTRATION

Transcription

1 EXCERPT FROM AUDIT REPORT ON 2015 ANNUAL FINANCIAL STATEMENT OF PUBLIC PROCUREMENT ADMINISTRATION Type of audit: Audited entity: Subject-matter of audit: Audit duration: Auditing Board Members: Financial audit and regularity audit Public Procurement Administration Annual Financial Report of the Public Procurement Administration for auditing days Mr Milan Dabović, PhD, President of Senate - Head of Auditing Board Mr Nikola N. Kovačević, Member of Senate - member of Auditing Board 1

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3 I BASIC ELEMENTS 1. LEGAL BASIS FOR PERFORMING THE AUDIT Legal basis for performing the audit of Public Procurement Administration for 2015 is contained in the following: Constitution of Montenegro, Article 144 ( Official Gazette of MNE, No. 01/07); Law on State Audit Institution, Article 4 ( Official Gazette of the Republic of Montenegro, No. 28/04, 27/06, 78/06 and Official Gazette of MNE, No. 17/07, 73/10, 40/11 and 31/14); The State Audit Institution Annual Audit Plan for 2016 (No , dated 22 December 2015); Decision on Conducting Audit for the Public Procurement Administration for 2015 (Number dated 21 January 2016). Audit has been conducted in line with the following: The Rules of Procedure of the State Audit Institution ( Official Gazette of Montenegro, No. 3/15); Instruction on Methodology of Performing the Financial and Regularity Audit ( Official Gazette of MNE, No. 07/15); International Standards for Supreme Audit Institutions (ISSAI) and Guidelines for quality follow up audit. 2. GENERAL DATA ON THE AUDITED ENTITY Public Procurement Administration, as an independent administrative authority, operates in accordance with the Regulation on the functioning of the state administration. Rules on internal organization and systematization of jobs in 2013 was effective until the new Regulation adoption, which was established by the Government of Montenegro pursuant to the Conclusion number dated 5 November Consent to the Proposed Rules on internal organization and systematization of jobs, in accordance with Article 15 of the Law on Civil Servants and State Employees, given by the Ministry of Finance (document No /1 dated 26 September 2015) and the Human Resources Administration (Opinion No. 02/2 011/ /2 dated 14 October 2015). 3. AUDIT OBJECTIVE, SUBJECT-MATTER, TYPE AND SCOPE The objective of the audit The objective on the financial audit is to express an opinion on whether: 1. the financial statements, in all material respects, are prepared in accordance with the applicable financial reporting framework; or 2. the financial statements, in all material respects, are given a fair and objective view in accordance with the given framework. The objective of the regularity audit is to express an opinion on whether the financial and other operations of the audited entity, in all material respects, comply with the laws, other regulations and acts that have been identified as criteria for a given audit. The subject-matter of the audit was the Annual Financial Statement of the Public Procurement Administration for 2015, which includes the Cash Flow Statement III, Statement of Arrears, Statement on the manner of expenditure of funds after the end of the fiscal year and Statement on the manner of expenditure of funds from the current budget reserve, as well as the harmonization of business performance with legal and other regulations. 3

4 Type of Audit - State Audit Institution has performed a financial audit and regularity audit for the period from January 1 to 31 December The scope of the audit - The audit included a control of cash flows, the legality of funds spending, the accuracy of disclosed data and the extent of their disclosure, the functioning of the system of internal control, treasury operations, assets and procurement. Coverage, i.e. a scope of checks is determined depending on the determination of the degree of materiality (significance) and the established audit risk. 4. AUDIT METHODS The audit was planned and carried out in accordance with International Standards on Auditing ISSAI, in a way that allows it to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether the business activities, financial transactions and information comply with legal, bylaws and other regulations. In the preparatory phase of the audit, it was carried out an identification and risk assessment, through an understanding of the audited entity and its environment, including internal controls. Also, there was determined the materiality at the planning stage of financial audit for financial statements as a whole (0,98 % of total expenditures or expressed in the absolute amount of 2.787,07 ), i.e. the assessment of the extent to which it can be tolerated a misstatement in the financial statements, which will not significantly affect their fairness and objectivity. 5. ACCOUNTING SYSTEM The system of accounting records of the Public Procurement Administration is based on a cash basis and is linked to the information system SAP (software of the State Treasury in which the treasury operations are recorded). II OPINION AND RECOMMENDATIONS The State Audit Institution, pursuant to Article 4 and Article 12 of the Law on State Audit Institution and the Decision of the Auditing Board number dated 21 January 2016, conducted a financial audit of the Annual Financial Statements and the regularity audit of the Public Procurement Administration for The audit was performed in accordance with the Rules of Procedure of the State Audit Institution and the Instruction on the methodology of financial and regularity audit. The audit was conducted in accordance with International Standards on Auditing in the Public Sector (ISSAI). These standards require that we plan and perform the audit in a way that allows us to obtain reasonable assurance whether the financial statements are free of materially significant error. Based on the conducted audit and established factual findings, the Auditing Board comprised of Mr Milan Dabović, PhD, the Head of the Auditing Board - President of the Senate and Mr Nikola Kovacevic, member of the Auditing Board - a member of the Senate, at its session held on 13 June 2016, adopted the: Report on the Audit of the Annual Financial Statement of the Public Procurement Administration for 2015 During the FINANCIAL AUDIT, it was found that the financial statement for 2015, in all material respects, is compiled and presented in a fair and objective manner in accordance with the applicable financial reporting framework and competent Auditing Board expressed AN UNQUALIFIED OPINION WITH THE EMPHASIS OF MATTER. The following matter is hereby emphasized: 1. Pursuant to the expenditures control, it was found the following: 4

5 The invoice number 14 dated 25 June 2015 in the amount of , issued by Publishing Company "Prosveta", was paid by cash from the petty cash, from the account expenditures for official travel. The above expenditure should have been charged to expense of the account Material for special purposes. The expenditure in the amount of , based on several invoices relating to the costs of entertainment, was paid by cash from the petty cash, from the account expenditures for official travel. The above expenditure should have been charged to expense of the account entertainment expenses. Pursuant to the decisions (number and /1 dated 30 April 2015), the Public Procurement Administration made the payments from the item 4191-expenditure for payment of service contracts of the fees in the amount of for two employees, hired to maintain the training of officers for public procurement and for monitoring and preparation of activities in the Committee on government procurement with the WTO. Those fees should have been paid from the account Other personal income. Public Procurement Administration paid the fees to the employees due to increased workload in the amount of 3,000.00, from the account Other, without accrued taxes and contributions, while those should have been recorded as personal income at the expense of the account Other personal income. The Public Procurement Administration is recommended to pay and record the costs in accordance with the Regulation on Uniform Classification for the State Budget, Extra- Budgetary Funds and Municipal Budgets and to adhere to the limits of consumption in accordance with Article 40 of the Law on Budget and Fiscal Responsibility. Through the REGULARITY AUDIT it was found that the Public Procurement Administration has not put their business activities, financial trasactions and information in all material aspects in compliance with the laws and other regulation that were identified as criteria. Therefore, the relevant Auditing Board expresses its QUALIFIED OPINION. The basis for expressing qualified opinion: 2. Public Procurement Administration has no accounting records of liabilities in the accounts of class 2. In this way, no conditions were created for the application of the Rulebook on the method of preparation and presentation of financial statements of the budget, state funds and local governments, which stipulates that the Report on outstanding liabilities comprises the entries of data recorded in the accounts of class 2 - Liabilities (categories 21, 22, 23, 24, 25, 26 and 27). Public Procurement Administration should provide a record of liabilities in the accounts of class 2 and to prepare the Report on outstanding liabilities in accordance with the Instructions for completing the report on outstanding liabilities. 3. In 2015, the Public Procurement Administration paid the variable portion of salaries paid to employees for eight months (February, March, April, May, July, October, November and December), but for four months, those were paid by the amount of 1, more than defined by the decisions on the payment of the variable salary part number: , , and and decisions of variable part of the salary, signed by the Ministry of Finance, which indicates inadequate established system of internal controls. Control of expenses must be carried out in accordance with the Instruction for the State Treasury Operations, Chapter II - Control of expenses, item 25 d, which stipulates that the 5

6 authorizing officer verifies the request for payment if he finds that all amounts and calculations are correct. 4. Public Procurement Administration has not, within the legal deadline, submitted the reports on calculated and paid taxes and contributions to the Tax Administration (IOPPD forms). After examining the submitted IOPPD forms, it was found that there were not reported the payments of fees of commissions and working groups, which is not in accordance with the Law on integrated registration and reporting system of calculation and collection of taxes and contributions and the Rulebook on the form, content, manner of filling of a unified form of reports on calculated and paid tax on personal income and contributions for compulsory social insurance. The Public Procurement Administration is recommended to submit the IOPPD by the 15th of each month for the previous month and to provide the calculation of taxes and contributions for all personal income in the previous month in accordance with the Law on Tax on personal income. 5. Public Procurement Administration has paid the fees from the account 412 Other personal income for which it did not calculate the tax and contributions i.e. as follows: a) Fees to members of the Working Group for drafting bylaws in the amount of 1,270.00, according to the Decision of the Public Procurement Code dated 18 December 2015 and the Ministry of Finance's Decision No /1 dated 9 February 2015, and in accordance with the Articles 163, 166 and 167 of the Labour Law. b) Financial awards in the amount of 1,250.00, based on a special contribution to the achievement of program tasks, pursuant to the Decision No /1 dated 8 July 2015 and the decision of the Public Procurement number dated 8 July 2015, in accordance with Articles 3, 4 and 6 of the Regulation on the type of an award and the procedure of their awarding to a civil servant or state employee. The Public Procurement Administration is recommended to calculate the taxes and contributions on the paid fees the in accordance with Article 14 of the Law on Personal Income Tax, which stipulates that the income from fees shall be treated as personal income. 6. Expenditures for payment of service contracts - Public Procurement Administration has concluded Contract No dated 26 February 2015 with the person who signed a work contract for an indefinite period. The basis for the conclusion of such a contract was an increased workload, which is not in accordance with the Law on Civil Servants and Stated Employees and the Labour Law. Public Procurement Administration concluded the contracts (number dated 2 October 2015, No dated 8 July 2015, number dated 3 November 2015, number dated 1 September 2015) for tasks that are stipulated in the Rulebook on internal organization and systematization of jobs, which is not in accordance with the Law on Civil Servants and State Employees. Contracts were made with reference to the Labour Law (Articles 163, 166 and 167), which stipulate the areas of the agreements on temporary and occasional jobs. The audit has found that the Public Procurement Administration in 2015 engaged pursuant to the contracts the persons to carry out the activities under the competence of the Administration, which are contained in the description of the systematized job, which is not in accordance with the Law on Civil Servants and State Employees and the Labour Law. 6

7 7. The system of internal financial controls - in accordance with the Law on internal financial controls in the public sector, the Public Procurement Administration adopted the Book of Procedures (FMS) number dated 14 September 2015, which includes the internal documents which regulate the financial management and control. It was prepared the annual report on the implementation of planned activities in the establishment and development of financial management and control system (Form G-FMS). The audit has found that control activities were not applied in all processes, and duties were not segregated, and the audited entity did not fully implement all activities aimed at establishing an adequate system of internal controls. The audited entity is obliged to carry out all activities and actions in order to establish a system of financial management and control in accordance with the Law on internal financial controls in the public sector. 8. The records of state property the audit of state property records identified the following: The inventory of state property was not prepared on the PL form. The inventory lists were entered neither all the necessary data such as inventory numbers, the location of the item, unit of measure, balances determined by the accounting records, nor the possible differences in quantities and values determined through the list and accounting balance. Also, it was found that the list of assets did not cover all movable items, i.e. the inventory lists did not recorded the vehicle Opel Vectra 1.9. The Commission for inventory of property entered in the inventory lists the write-off value. However, it was found that the calculation of depreciation has not been conducted on Form OA, that it was not signed and verified by the head of accounting and head of the authority. Also, the depreciation calculation did not include all movable and immovable property which is subject to annual accounts, so that one business vehicle, projector and other items were measured at the same values at the beginning and end of the accounting period. For inventory of assets, the Commission is required to perform an inventory on Form PL and to enter in the inventory lists all data in accordance with the instructions on the detailed manner of carrying out the inventory of movable and immovable property owned by the state, as well as all movable and immovable property. Calculation of depreciation of tangible and intangible values should be carried out in accordance with the Regulation on classification of fixed assets by groups and methods for determination of depreciation of budgetary and extra-budgetary users. 9. The audit of the system and compliance of conducted public procurement procedures identified the following: There were not prepared the Minutes on negotiations during the implementation of the negotiation procedure without prior publication of the invitation to tender for the procurement of services of repair and maintenance of motor vehicles, Invitation No dated 20 February The data in Form C (direct agreement), in column IV (the subject of public procurement) were not entered in accordance with the Common Procurement Vocabulary (CPV), in accordance with the Regulations on records of public procurement procedures. Public Procurement Administration is obliged to ensure full implementation of the Law on Public Procurement and by-laws regulating the procedure of procurement of goods, services and works, in order to lawfully spend the budget funds, so that the procurement process is transparent and cost-effective. 7