EXCERPTS FROM THE INDIVIDUAL AUDIT REPORTS ON 2012 ANNUAL FINANCIAL STATEMENTS OF POLITICAL PARTIES

Transcription

1 EXCERPTS FROM THE INDIVIDUAL AUDIT REPORTS ON 2012 ANNUAL FINANCIAL STATEMENTS OF POLITICAL PARTIES Audit type: Audited entity: Subject of audit: Audit duration: Collegium members: Financial Audit Parliamentary political parties: Social Democratic Party, Socialist People's Party, New Serbian Democracy, Democratic Party of Socialists, Positive Montenegro, Movement for Changes, New Democratic Forces (FORCA), NGO Perspective "Ana e Malit", Bosniak Party, NGO "Civic Initiative", Croatian Civic Initiative, Democratic League in Montenegro and Democratic Union of Albanians 2012 Annual financial statements of political parties 200 audit days Mr. Dragisa Pesic, member of Senate - Head of Collegium Mr. Branislav Radulovic, member of Senate - member of Collegium Page 273

2 I. GENERAL DATA 1. Legal Basis The following legal documents were used as the legal basis for conducting the audit of the annual financial statements and business operations of political parties: Law on State Audit Institution ( Official Gazette of Montenegro 28/04, 27/06 and 78/06 and Official Gazette of Montenegro 15/07, 73/10 40/11); Law on Financing Political Parties ( Official Gazette of Montenegro, 49/08, 49/10, 40/11, 42/11, 60/11, 01/12); Annual Audit Plan of the State Audit Institution for 2012 ( as of December 24 th, 2012); Decision passed by Collegium IV responsible for carrying out these audits ( as of 17 th, 2013) Audit procedures are carried out in accordance with: International Accounting Standards for public sector (INTOSAI); Instruction on Work Methodology of the State Audit Institution; Rules of Procedure of the State Audit Institution ( Official Gazette of Montenegro 50/07). 2. Subject of Audit The subject of performed audits is the Annual financial statements of political parties and compliance of their business operations with legal regulations. 3. Objective of Audit The objective of audit has been to verify the following: true and fairness of financial statements, enforcement of laws and other regulations related to the organization and financial and accounting operations, regularity in generating revenues, regularity of expenditures execution, i.e. verification whether the funds were used exclusively for the achievement of objectives set forth by the Programme and the Statute of the political party, regularity of the execution of other transactions Page 275

3 6. MOVEMENT FOR CHANGES Movement for Changes (PZP hereafter) was established as a political party (organization) on June 13 th, The Party entered the Register of Political Parties on August 8 th, 2006 by Decision /06. The abbreviated name of the political party (organization) is PzP. The Movement for Change is seated in Podgorica. The Movement for Changes is an independent political party (organization) of free and responsible members, which stands for: a rich and legitimate State of Montenegro, based on moral and spiritual values, status of Montenegro as an ecological oasis of Europe, termination of sales of the State property, new politicians, with new ideas and a clear vision, enhancing competitiveness, the introduction of new technology, the entry into the European Union, the better status and position of all society groups, especially pensioners and people with disabilities, as the most vulnerable groups in need of general help and support. The bodies of the Movement for Changes are: the Assembly, the Main Board, the Presidency, the President, Vice-Presidents, the Supervisory Board, the Court of Honour and Director. Members of all bodies are elected for a four-year term. The Assembly is the highest programmatic, statutory and electoral body of the Party. The President represents the Party. For its operation and activities, the Party is funded through membership fees, donations, property income, from the budget, legacies and other sources in accordance with the Law. The Main Board adopts financial plan on the proposal of the Presidency of the Party. The Presidency of the Party decides on the allocation of financial resources and their distribution to organizational units of the Party. The President of the Party and the Director under the authority of the President shall have orders for the use of financial resources of the Party. The Supervisory Board of the Party supervises the collection and disposition of funds. 6.6 Audit Methodology The audit was performed by combining the methods of documentary and field audits. After analytical procedures, evaluation and analysis of collected documents had been completed, detailed auditing techniques and methods were defined and their application was performed (e.g.: drawing up questionnaires, conducting conversations and interviews, the insight into documentation, inspection of business books and accounting documents that serve as evidence of created business events, verification of mathematical accuracy of financial transactions related to the recorded revenues and expenditures, etc.). Materiality is determined by applying the rate of 1.5% of the total expenditures in accordance with established methodology of the SAI. 6.2 Accounting Records The Party as a non-profit organization is obligated, pursuant to Article 23 of the Law on Financing of Political Parties, ("Off. Gazette", 49/08, 49/10, 40/11, 60/11, 01/12) to keep accounting records of revenues and expenditures by origin, amount and structure of revenues and expenditures, in accordance with the regulations of the Ministry. Pursuant to the Law on Accounting and Auditing, a Party with the status of a legal entity is obliged to keep business books according to the system of double-entry bookkeeping. Business records include: journal, general ledger and other supporting financial records. A legal entity is required to record all business transactions and keep records in its business books. Accounting records must be based on valid accounting documents. Page 298

4 The audit has found that in 2012, the Party kept the following books: journal, general ledger and subsidiary cash ledger. The Party based its accounting records on an accrual basis, and kept its business books in accordance with the Chart of Accounts for enterprises. The general ledger included records of assets (fixed and current), capital, liabilities, income and expenses. The treasury operations went through the treasury and the records were kept in the cash journal. The inventory book includes records of assets by ordinal number, the type of the fixed-asset items, but without a recognized purchase, written-off and current value. 6.3 Revenues The Law on Financing Political Parties prescribes the method of generating revenue. According to its business books, the Party generated aggregate operating revenue in the amount of EUR 310, in Generated revenue includes the resources from the State budget, amounting to EUR 231,308.46, out of which the sum of EUR 26, relates to revenues based on financing Deputies clubs, then from local government budgets in the amount of EUR 77,546.31, revenue generated from donations amounted to EUR , other income in the amount of EUR and the financial revenues of EUR The following Table shows a comparative overview of operating revenues of the Party generated in 2011 and Type of revenue 2011 (in EUR) Share % 2012 (in EUR) Share % 1 State budget revenues 191, % 204, % 2 Revenues for remuneration Deputy Club's fee 24, % 26, % 3 Municipal budget revenues 114, % 77, % 4 Donations % % 5 Other revenues % % 6 Financial revenues % % TOTAL 330, % 310, % The graphic presentation of operating revenues by their structure and share in the total revenue. 6.4 Expenditures The operating expenses of the Party incurred in 2012 totalled EUR 318,760.41, whereas in 2011 they reached the amount of EUR 206, Page 299

5 The following Table shows a comparative overview of operating expenses in 2011 and Type of expense 2011 (in EUR) Share % 2012 (in EUR) Share % 1 Other material costs % 2, % 2 Fuel and energy costs 7, % 4, % 3 Net wages 7, % 8, % 4 Taxes on wages and fees % 1, % 5 Contributions costs 3, % 4, % 6 Surtax costs % % 7 Author's fees and other remunerations expenses 99, % 203, % 8 Representation costs 5, % 10, % 9 Depreciation costs 30, % 29, % 10 Telephone and vehicle registration and insurance costs, transportation costs 6, % 13, % 11 Maintenance costs 1, % % 12 Rental costs 5, % 3, % 13 Advertising costs 1, % 11, % 14 Non-production services, intellectual services and printing costs 6, % 4, % 15 Payment system commissions 1, % 1, % 16 Utilities % 1, % 17 Costs of interest 19, % 2, % 18 Scholarship and other non-material expenses 6, % 1, % 19 Road fees (tax expenses) % % 20 Expenses from previous period % 14, % 21 Other expenses 1, % % TOTAL 206, % 318, % The following Graph shows operating expenses in 2012 by their structure and share in the total expenditure.. According to the presented tabular overview, the total expenses include: costs of material, fuel and energy, gross wages and contributions charged to employer, authors fees and other compensations, landline and mobile telephones costs, rental expenses, depreciation costs, representation expenses, promotion and advertising expenses, accounting, auditing and printing services, payment system commissions, school fees, utility costs and costs of interest on loans. The largest share in total expenditure belongs to authors fees and other compensations and they account for 63.80% of the total operating expenditures of the Party. Page 300

6 6.5 Implementation of 2011 Recommendations The audit of the 2011 Annual financial statements of the Movement for Changes, performed by the State Audit Institution, identified a certain number of irregularities and gave recommendations on their elimination. The audit of the Annual financial statements for 2012 has determined that the Party undertook a number of activities aimed at the implementation of the SAI recommendations relating to the calculation of tax liabilities payable to compensations, in a way that it calculated taxes on paid compensations, but it has been found that the Party did not settle all liabilities in this respect as of December 31 st, The Party implemented the recommendation relating to the performance of regular annual inventory and the provision of records of fixed assets in its books, in a way that it made the inventory list of assets and liabilities as of December 31 st.. The Party also provided the records of assets in excel files by type, quantity, location, purchase price, written-off and current value. Regarding the recommendation in respect of reduction of cash payments from the treasury on the basis of authors fees and other compensations, the audit has determined that the Party did not implement this recommendation, because in 2012 there was a total of EUR 179, cash outflow from the treasury, which is by 87% increased compared to The Party did not implement the recommendation on passing general and special acts and adoption of the Financial plan. 6.6 EVALUATION OF DETERMINED FACTS OPINION Based on performed audit, determined factual state and deliberation of audited entity s Opinion ( as of 14/08/2013) on Preliminary report of the SAI (No /24 as of 19/07/2013), and pursuant to Article 50 of the Rules of Procedure of the State Audit Institution the competent Collegium comprised of Mr Dragisa Pesic Head of Collegium - member of Senate and Mr Branislav Radulovic, PhD - member of Collegium - member of Senate, adopted the following: FINAL REPORT on Audit of the 2012 Annual Financial Statements of the Movement for Changes O P I N I O N WITH THE PROPOSAL OF RECOMMENDATIONS The audit has ascertained that there are no material misstatements or significant deviations in officially presented 2012 Financial Statements of the Movement for Changes, but certain irregularities and omissions have been determined in the recording of treasury operations and calculations, payments of tax liabilities in respect of compensations and lease agreement. The Party did not implement a significant number of recommendations given by the SAI in the audit report for 2011 and therefore, the competent Collegium, responsible for the respective audit, expresses a qualified opinion. Page 301

7 On the basis of determined state of facts, the following irregularities and omissions, with the impact to expressing qualified opinion, have been noted: 1. The Party carried out cash payment of compensations on the basis of authors fees and temporary service contracts from the treasury, in a total amount of EUR 151,020.00, according to concluded contracts, with the receipts on takeover of cash attached thereto. The contracts defined monthly payment of fee, in the agreed amounts and during the period of validity of the contract. The said receipts do not include the number of the contract against which the payment was made, the date of cash payment, as well as personal data (personal ID number) of a person who received the cash. By inspection of the treasury documentation (cash journal), it has been determined that all the cash payments were recorded as of December 31 st, 2012, indicating that chronological recording of payments from the treasury in this respect was not executed. It is deemed necessary to arrange for the chronological records of cash payments from the treasury and to transfer disbursements in respect of author s fees and compensations on temporary service contracts into the bank accounts of individuals engaged. It is also deemed necessary for the Party to clearly distinguish tasks and jobs compensated under the terms of author s fees and those compensated under the terms of temporary service contracted jobs. 2. Party did not pay taxes payable on author s fees and lease agreement, amounting to EUR 21,263.99, which is not in accordance with the provisions of the Law on Income Tax of Natural Persons. The Party is obliged to calculate, withhold and pay tax liabilities on author s fees and lease contracts, as stipulated by the Law on Income Tax of Natural Persons. 3. The Party did not implement the recommendation given in 2011, in respect of reduction of cash payments from the treasury on the basis of authors fees and other compensations, because in 2012 there was a total of EUR 179, cash outflow from the treasury in this respect, which is increased by 87% compared to The Party did not implement the recommendation on passing general and special acts and adoption of the Financial plan. Page 302