REPUBLIC OF KOSOVA
OFFICE OF THE AUDITOR GENERAL
Document No: 21.6.1-2014-08
AUDIT REPORT
ON THE FINANCIAL STATEMENTS OF THE MINISTRY OF
ENVIRONMENT AND SPATIAL PLANNING
The Office of the Auditor General undertakes both Regularity and
Performance Audits. The Acting Auditor General is the head of the
Office of the Auditor General which employs around 145 staff. The
Auditor General and the Office of the Auditor General shall be
independent and certifies around 90 Annual Financial Statements
each year, while undertaking other forms of audits.
Our Mission is to “Contribute to sound financial management in
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 the spending
of public funds. We shall play an active role in securing taxpayers‟
and other stakeholders‟ interests in enhancing public accountability‟
The reports produced by the Office of the Auditor General directly
promote accountability as they provide a base for holding managers‟
of individual budget organisations to account.
The Acting Auditor General has decided on the audit opinion and
report on the Annual Financial Statements of the Ministry of
Environment and Spatial Planning in consultation with the Assistant
Auditor General, Ibrahim Gjylderen, who supervised the audit.
The draft report is as a result of the audit carried out under the
management of the Audit Director, Zukë Zuka, supported by
Fejzullah Fejza (Team Leader), Refiqe Morina and Valbona Tolaj
(team members).
TABLE OF CONTENTS
Executive Summary ... 4
1
Audit Scope and Methodology ... 7
2
Annual Financial Statements and other External Reporting Obligations ... 9
3
Prior Year Recommendations ... 12
4
Governance ... 13
Annex I: Explanation of the different types of opinion applied by the OAG ... 28
Executive Summary
Introduction
This report summarises the key findings from our audit of the 2014 Annual Financial Statements of the Ministry of Environment and Spatial Planning which determine the Opinion given by the Auditor General. We would like to thank the Minister and his staff for their assistance during the audit process.
The examination of the 2014 financial statements was undertaken in accordance with the internationally recognised Public Sector auditing standards (ISSAIs). Our approach included such tests and procedures as we deemed necessary to arrive at an opinion on the financial statements. The approach taken is set out in our Audit Planning Memorandum dated 7th of October 2014.
Our audit focus has been on:
The level of work undertaken by the Office of the Auditor General to complete the 2014 audit is a direct reflection of the quality of the internal controls implemented by management.
Opinion
Annex I explains the different types of Opinions applied by the Office of the Auditor General. The Auditor General‟s opinion is:
In our opinion the financial statements present a true and fair view in all material aspects.
As an Emphasis of Matter - We would like to draw your attention to the fact that the disclosure of Fixed Assets is not yet fully reliable. In addition, the outstanding liabilities, mainly relating to
The Annual Financial Statements including reporting requirements
and significant audit risks
The response to prior year and earlier recommendations
Governance issues particularly financial
management and control
Overall conclusion
We were able to obtain assurance on effective functioning of management controls and overall governance in most areas, but we have identified some insignificant weaknesses in areas of financial management. Weaknesses identified have been described in more detail within this report, and are given practical recommendations to address these weaknesses.
Assets owned are not fully recorded. In addition,
delays were recorded in assets inventory
The Minister should identify the appropriate action to address this weakness in order to ensure
a true and fair presentation of assets in 2015.
See issue 1 page 10, and issue 13 page 22
Failure to fully implement prior year
recommendations
The Minister should ensure that a revised action plan clearly sets out a timetable for addressing audit recommendations made, with accountable staff members identified and with initial focus
on those areas of greatest significance.
See issue 2 page 12
Shortcomings relating to reporting/reconciliation of
revenues and procedures ineffectiveness in their collection with impact on
increase of the Accounts Receivable
The Minister should analyse the review of controls over their reporting/reconciliation, and to review the processes that relate to collection of revenues, so that the processes are more effective
See issue 6, 7 and 15 page 17-18
and 24
Weaknesses in controls over procurement processes
The Minister should conduct an internal review to determine why
procurement requirements were not addressed in all procurement
cases. See issue 8 page 19, and issue 9 page 20 Shortcomings relating to remunerations for overtime
work.
The Minister should ensure that overtime work is planned
effectively and that
remunerations for overtime work are justified based on real needs,
and documented properly.
See issue 12 page 22
1
Audit Scope and Methodology
It is the responsibility of the Ministry of Environment and Spatial Planning (MESP) to prepare Annual Financial Statements (AFS) under the International Public Sector Accounting Standards (IPSAS) for „Financial Reporting under the Cash Basis for Accounting‟ and other specific requirements. The Office of the Auditor General (OAG) is responsible for carrying out a Regularity Audit which involves the examination and evaluation of the AFS and other financial records and expression of:
whether the AFS give a true and fair view of the accounts and financial affairs for the audit period;
whether the financial records, systems and transactions comply with applicable laws and regulations;
the appropriateness of internal controls and internal audit functions; and all matters arising from or relating to the audit.
We have considered the extent to which management controls can be relied upon when determining the overall testing required to provide the necessary level of evidence to support the Auditor General‟s (AG) opinion. Management activity also determines the focus of our compliance audit and good governance audit which do not directly impact on the opinion.
Our audit approach to governance is focused on evaluating the actions taken by management to secure effective financial management and control and the results of this action in efficiently delivering high quality operational outputs. For individual financial systems we seek to identify the level at which actual controls operate. This may, for example, be monitoring activity undertaken by senior management or lower level operational controls. We consider whether controls are well designed, have been implemented as planned and operate effectively. This requires an assessment of structures, processes and accountability lines introduced by management including the role undertaken by Internal Audit and Audit Committees as well as inbuilt system controls.
The following sections provide a more detailed summary of our audit finding with emphasis on observations and recommendations in each area of review. An assessment of how the Management have addressed recommendations made in the report on 2013 may be found in Annex II.
Our findings are defined as:
High Priority - issues which may result in a material weakness in internal control and where action will offer the potential for improvements to the efficiency and effectiveness of internal controls; and
Medium Priority - issues which may not result in a material weakness but where action will also offer the potential for improvements to the efficiency and effectiveness of internal controls.
Findings considered low priority will be reported separately to finance staff.
Our procedures included a review of the internal controls and accounting systems and associated substantive testing only to the extent considered necessary for the effective performance of the audit. Audit findings should not be regarded as representing a comprehensive statement of all the weaknesses which exist, or all improvements which could be made to the systems and procedures operated.
2
Annual Financial Statements and other External
Reporting Obligations
Introduction
Our review of the AFS considers both compliance with the reporting framework and the accuracy of the information recorded in the financial statements. We also consider the Declaration made by the Chief Administrative Officer (CAO) and Chief Financial Officer (CFO) when the draft AFS are submitted to the Government.
The declaration regarding presentation of the AFS incorporates a number of assertions relating to compliance with the reporting framework and the quality of information within the financial statements. A number of the declarations are intended to provide assurance to the Government that all relevant information has been provided to ensure that a comprehensive audit can be undertaken.
Overall Conclusion
MESP did not address material errors in assets recorded in the AFS. Notwithstanding this, the quality of AFS was generally good, wherein we identified only a small number of immaterial errors, while all reporting requirements were met. All other external reporting obligations that do not relate to the AFS were fully met.
2.1
Audit Opinion
In our opinion the financial statements present a true and fair view in all material aspects.
As an Emphasis of Matter –We would like to draw your attention to the fact that the disclosure of Fixed Assets is not yet fully reliable. In addition, the outstanding liabilities, mainly relating to expropriations, have reached a value over 100 million Euros. This will be quite challenging for the budget process for the following years.
2.2
Significant Risks to the Annual Financial Statements
Description
In our audit planning memo dated 7th of October 2014, we have identified a significant risk to the
AFS related to exclusion of expropriation transactions in the accounting register and consequently in the AFS. During the audit we have identified another risk which also relates to non-recording of assets. These are risks of material misstatement that as a consequence would have impact in unfair presentation of assets, which could result in a Modified Opinion, including Emphasis of Matter. The risk of misstatements that we identified in the planning stage relating to exclusion of expropriation transactions in the AFS and in the accounting register has not occurred, as the management of MESP had taken actions to record expropriation transactions. While the risk of material misstatements that we have identified relating to the completeness of assets of the Kosovo Cadastral Agency (KCA) has occurred as the management had not taken actions to address risks encountered.
Identified risk
Issue 1 – Assets owned by the MESP (KCA) are not fully recorded, thus resulting in material misstatements in the Notes of assets to the AFS.
Response and audit findings
We have assessed controls implemented by the management to prove completeness of data on assets in the context of capital expenditures for 2014 and earlier. In the interim audit memo we have given advices to management on the actions needed to ensure that assets figure in the AFS is correct. However, the risk identified has materialised because the management did not make necessary improvements in the internal control, and we have confirmed that assets values recorded in the AFS are materially inaccurate with a value that exceeds €1,354,195. As such, the Emphasis of Matter has been applied on the AFS for 2014.
Recommendation 1 The Minister should ensure that the appropriate measures to address the flaws in asset reporting are identified in order to ensure a true and fair presentation of assets in the 2015 AFS.
2.3
Compliance with AFS and other reporting requirements
Description
The AFS are required to comply with a specified reporting framework and other reporting requirements. We considered:
Compliance with FR no. 03/2013; Requirements of LPFMA no. 03/ L-048;
Reports on internal controls, including the self-assessment report; The Action Plan on addressing of recommendations;
Progress reports on capital projects with value over €10,000; Draft and final procurement plan; and
Other relevant regulations.
In the context of the AFS we have no issues to raise on these matters. Issues raised in our interim audit memo relating to the reporting framework in our memo dated 01/12/2014 have been addressed by the management.
3
Prior Year Recommendations
Overall Conclusion
The MESP did not fully implement the Action Plan for addressing earlier given recommendations, and due to this the same weaknesses occured in 2014 as well.
Description
Our Audit Report on the MESP 2013 AFS resulted in 13 key recommendations. The MESP had prepared an Action Plan stating how all recommendations should be addressed.
At the end of our 2014 audit, four recommendations were fully addressed; six were partially addressed; and three have not been addressed yet. For a more thorough description of the recommendations and how they are addressed, see Annex II.
Issue 2 - Addressing Prior Year Audit Recommendations – High Priority
Finding Only a proportion of prior year recommendations have been implemented because the Ministry failed to sufficiently monitor the implementation plan for recommendations, due to which in some cases earlier recommendations have been repeated.
Risk The continued weakness of management controls and other controls in key financial systems have resulted in:
Poor consolidation processes;
Inadequate practices in the procurement process; and Inadequate management over the collection of revenues.
Recommendation 2 The Minister should ensure that a revised action plan clearly sets out a timetable for addressing the recommendations made by the AG with accountable staff members identified and with initial focus on those of greatest significance.
4
Governance
Overall Conclusion
The management implemented a number of internal controls to ensure that financial systems operate as intended. It is important that they include an appropriate reporting to the senior management, in order to enable effective and timely response to operational problems identified. The key aspects of governance framework have been addressed by MESP. The Self-assessment has been submitted in time and the risk register has been presented in the assessment. The self-assessment questionnaire foresees different matters and actions for the organisation. The Internal Audit system was in place and provided recommendations to the management, and external reporting obligations were timely met.
We have also found that while the controls over revenues and receivables are not yet implemented effectively, a number of expenditure areas require further improvement so that the MESP obtains sufficient budget. The main areas where more improvements are needed are procurement so that projects are effective and effective controls relating to assets management. Another challenge that remains is outstanding liabilities particularly on expropriation of properties that mainly relate to construction of roads/motorways.
4.1
Good Governance
Description
The MESP is responsible for a range of activities in key areas on environment protection, water, regularising, and development of spatial planning, housing and construction, cadastre and expropriation at a national level.
The MESP has two agencies: the Kosovo Cadastral Agency (KCA) and the Kosovo Environmental Protection Agency (KEPA). KCA is the highest authority of Cadastre, Geodesy, and Cartography in Kosovo. Now, KCA is implementing the Land and Cadastre Information System as well as Registry of Immovable Property Rights in Kosovo.
Up to now, only the KCA prepared financial statements which are consolidated in the Annual Financial Statements of the MESP. We have noticed that the AFS consolidation process was not
Issue 3 - The AFS consolidation process - Medium Priority
Finding The consolidation process of Ministry‟s AFS was challenging. The Information presented in the AFS of the KCA contained errors in main tables and in the disclosure part. However, the AFS of the MESP were prepared based on data obtained from the KFMIS, excluding the mentioned errors.
Risk Weaknesses in the consolidation, accountability and financial reporting processes between the Ministry and the KCA are reducing the effectiveness of the financial management within MESP. This can result in weaknesses of the budgetary cycle process and its spending, and diminish management‟s ability to timely respond to financial and operational challenges.
Recommendation 3 The Minister should handle existing accountability arrangements for KCA on reporting, and the same are advanced in order to improve the quality of the financial management and control in terms of having complete consolidation.
4.2
Budget Planning and Execution
Description
We have considered the sources of budgetary funds for MESP, spending of funds by economic categories and revenues collected. This is highlighted in the following tables:
Table 1 Sources of budgetary Funds - outturn against the budget (in €)
Description Initial Budget Final Budget1 2014 Outturn 2013 Outturn 2012 Outturn Sources of Funds 47,785,026 47,933,404 44,967,148 46,079,254 51,139,225 Government Grant -Budget 44,870,026 43,874,013 42,501,820 44,236,542 50,007,529
Financings from
Table 2 Spending of funds by economic categories - outturn against the budget (in €)
Description Initial
Budget Budget Final Outturn 2014 Outturn 2013 Outturn 2012 Spending of funds broken
down by economic categories 47,785,026 47,933,404 44,967,148 46,079,254 51,139,227 Wages and Salaries 1,442,857 1,619,319 1,613,389 1,464,098 1,487,571 Goods and Services 1,287,008 2,030,677 1,607,834 1,633,197 1,684,633
Utilities 97,906 69,051 48,063 76,562 56,149
Capital Investments 44,957,255 44,214,357 41,697,861 42,905,397 47,910,874 Explanations for changes in budget categories are given below:
The budget for Wages and Salaries increased by €176,462 as a result of Government‟s decision to increase salaries. In addition, there was an increase of the budget for Goods and Services and Utilities by €714,814, while the budget cuts had an impact on the category of Capital Investments by €742,898.
According to initial budget tables, and the Public Investment Program (PIP), the MESP had 35 on-going projects from previous year and 31 new projects for the current year. However, six projects which were included in the budget tables and PIP did not start to be implemented due to the difficulties3 in their implementation. Upon budget review, a new
project was included which initially was not foreseen. The PIP was not applied by the MESP as it should, as in most cases the reports generated by the PIP did not have a correlation with data from KFMIS/Free Balance. For many projects, the data entered into the PIP were not appropriate and in time.
MESP also received grants from external donors in the amount of €1,144,391. These were allocated to finance mainly projects of KCA and the Environment Department in the MESP. The level of spending for 2014 was €519,959. The reasons for this low level of spending (46%) was firstly a lack of support capacities provided by the MESP and secondly due to cumbersome donor procedures applied by the World Bank and other donors. Table 3 Own Source Revenues collected for the Kosova budget – outturn against budget (in €)
expansion of its services. MESP during 2014 took the Gadime Cave under its administration. The Administration of Sharr and Cursed Mountains National Park was better. In addition, other sectors were also more efficient in collecting revenues for services provided. The revenues are not used directly by the MESP.
Issue 4 - Budget execution - Medium Priority
Finding Although budget execution was good, the budget was not administered in a way which addresses year-end challenges. Taking into account the part of the liabilities reported in the AFS, the structure, time and their categories, the execution could have been more effective. Other expenditures could have been incurred at the end of the year, particularly in the category of Goods and Services. According to the Ministry, this did not happen due to late reporting by MESP Agencies on their liabilities. The issue related to inadequate use of PIP is handled under Chapter 4.3.
Risk Insufficient comprehensive budget planning and execution resulted in lack of flexibility that would take execution of some year-end transactions into consideration and make possible an adequate response to the challenges. Recommendation 4 The Minister should initiate a systematic monitoring of the budget
performance on monthly basis and identify and address barriers in order to better plan budget implementation levels. In addition, both agencies should timely report on their challenges and liabilities.
Issue 5 - Classification of expenditures - Medium Priority
Finding The payment in the amount of €14,700 for “Super Expertise” services was executed out of the category of Goods and Services and not in the category of Capitals.
Risk Paying for expenditures out of the category of Goods and Services which relates to the account of expropriation, handled as a capital investment, results in overstatement/understatement of economic categories. At the same time, this creates difficulties in terms of paying from respective categories.
Recommendation 5 The Minister should ensure fair identification of purchase needs, their reflection in the budget plan by classifying them in line with the chart of accounts. To serve this purpose, internal controls should be put in place to ensure that payments approved are planned correctly and in accordance with the budget and the chart of accounts.
4.3
Revenues (including own source revenues)
Description
The revenues generated by the MESP in 2014 totalled €616,742. They consist of; Construction licenses, Licenses (two types by the KCA), Cadastral Service, Forest License, revenues from Gadime Cave, etc.
The MESP reconciled revenues with the Free Balance. Despite the fact that the Assets Officer reconciles data with departments generating revenues, some shortcomings were noticed that need to be addressed at the most optimal time:
Issue 6 – Challenges in reporting, reconciliation and collection of revenues – High Priority Finding The documentation indicates reporting differences for September and
October between the Directorate of the National Park Cursed Mountain and the revenues coordinator in the MESP.
On the other hand, the funds collected from the “Gadime Cave” were not deposited on daily basis in commercial banks as required under the regulation on revenues. Revenues are collected in cash from the sale of tickets to visitors, while the depositing into the bank account is done randomly as money is collected and not on daily basis, In addition, for reporting purposes, all tickets for sale should have serial numbers.
Risk The Information provided by the revenue generating units should be adequate, complete and consistent with the evidence provided and collected in time, otherwise the risk for misuse of public funds increases.
Recommendation 6 The Minister should ensure that the reporting from the revenue generating units in the MESP is accurate, reconciled and complete with relevant evidence. In addition, collected funds should be deposited in the bank accounts within the foreseen timeframe.
Issue 7 – Failure to make mandatory reporting to the MESP and Economic Operators operating without a license – High Priority
Finding Economic Operators (EO) who exercise e business activity for packaging and sale of surface water, underground and mineral waters under the AI 06/2006 are obligated to pay an administrative fee to the MESP based on the quantity/litre of water sold. The majority of EOs in this business did not submit reports to the Ministry, thus not meeting their obligations. The MESP during 2014 undertook various activities to inspect these entities, and filed lawsuits to relevant courts. However, there is still no impact from these activities. This may also be due to inadequate fees applied by the Ministry or the negligence of EOs to meet their obligations.
In other processes, based on the report for water permits to water packagers, prepared by the Department of Waters, licenses of some of the companies have expired, and that these companies were not subject to control of the MESP Inspectorate.
Risk Continuous increase of receivables relating to water use fee by the EOs increases the risk for potential financial losses. Since companies operate without valid licenses, they do not meet the standards set out by the Ministry.
Recommendation 7 The Minister should establish and ensure the implementation of adequate and more efficient mechanisms making the commercial companies to meet their obligations towards the Ministry. An alternative could be the reprogramming of debts by the EOs, or even review of fees for payment set out under the Ministry‟s Administrative Instruction. On the other hand, all companies that have expired licenses should be subject of inspection.
4.4
Expenditures
4.4.1
Procurement
Description
The MESP prepared the procurement plan for 2014 in time, and submitted it to the Central Procurement Agency (CPA). The procurement processes in the MESP are carried out by three spending units (Central Administration, KCA and KEPA). We noticed some aspects of the procurement process over which controls were not applied effectively.
Weaknesses in the area of procurement have been presented in the following:
Issue 8 – Shortcomings of procurement processes associated with co-financing - High Priority Finding Under the procurement law, the Contracting Authority is a public entity
that if it finances over 50% of the value of public contracts, it develops procurement procedures and their management. Regarding this, we noticed that:
Four projects4 that relate to renovation of riverbeds with a contract value of
€1,585,773 were contracted by municipalities. While the MESP has fully financed these projects and had not participated in the procurement processes and their management;
On the other hand, MESP made two payments in the amount of €100,000 for “Revitalisation of the Prizren League Square”, while the budget was dedicated for the project “Cleaning of Bistrica River.” The Municipality of Prizren signed the contract while the financing was done by the MESP; and The payment of €53,318 for the sewage project in the village of Hade was carried out in disagreement with the Annex Amendment and Supplement to the Memorandum no. 1846 signed between MESP, Ministry of Economic Development (MED) and Kosova Energy Cooperation (KEK) dated 01.08.2012. The Annex sets out that financial obligations should be
Risk Lack of adequate controls over the co-financing with municipalities, even though the Ministry funded the entire project, the municipalities have developed all other processes. Financing projects not foreseen in the budget, has an impact on the plans of the Ministry and risks implementation of other projects, or may lead to other budgetary implications.
Recommendation 8 The Minister should ensure that when co-financing projects over 50% the procurement processes and management of projects are taken over. On the other hand, the budget should be spent for the projects it is planned for and when changes occur they should be approved, in order to avoid possible budget implications.
Issue 9 - Payments made in absence of receiving reports on works/services - High Priority Finding In the project “Development of module applications of the address system”
in the value of €6,960, the payment made by the KCA exposed that services received for this payment do not include the entire period of two months as foreseen.
Risk Paying for works/services which do not have complete reports by the relevant committees, poses a risk of making payments for works that have not been delivered or are in process.
Recommendation 9 The Minister should ensure that all payments for works and services are supported by receiving reports of works or services.
Issue 10 - Contracting additional works and invoicing of payments in advance - High Medium Finding In six Annex contracts for “Reconstruction of homes for repatriated
persons”, the Ministry has accepted the EOs pre-invoice for advance payment in the amount of €13,225 before the Annex contract was signed. . However, advances were paid after contracts were signed.
Risk Receipt of pro-invoice for advance payment before contract signatore may result in incorrect payments and it indicates weak internal controls over financial management process.
Issue - 11 Delays in execution of works – Medium Priority
Finding The contract for renovation of one repatriate‟s house from Germany was signed on 25.7.2014. The contract stipulated that the renovation should be completed within 30 days. Until the completion of the audit the contract was not implemented.
In the project “Expansion of the Road Stazhe-Kaqanik-Phase II”, there were implementation delays. According to the agreement, the EO should have completed the works (under the dynamic plan) within 34 calendar days from the signing of the contract, but works were not completed after six months.
Risk Delays in completion of works result in setbacks for Ministry‟s activities, and at the same time the interests of society and of the respective beneficiaries are jeopardised.
Recommendation 11 The Minister should ensure that all contracted projects are managed timely , otherwise penalties should be applied.
4.4.2
Non Procurement Expenditure
Description
In the category of other expenditures, we tested payments which were not subject to procurement procedures. Our tests in this area revealed that the internal control systems in this area operated well.
We have no recommendations in this area.
In the following are presented some of the weaknesses identified. Issue 12 – Remunerations for overtime work - High Priority
Finding Our testing of samples for overtime work remuneration revealed insufficient transparency and insufficient controls system. The reports/supporting evidence for the overtime work were missing, electronically or in other forms.
Risk Payments for overtime work result in payments that may not have been performed, or are carried out double payments for works that in fact should have been completed during the regular working hours.
Recommendation 12 The Minister should ensure that overtime work is planned effectively and the overtime work remunerations are justified based on real needs and documented properly.
4.5
Assets and Liabilities
4.5.1
Capital and Non Capital Assets
Description
Assets register in the KFMIS is in net value of €130,809,476, which was presented in AFS for 2014. This included capital payments from Government‟ decisions for expropriations made in earlier years. Despite the efforts shown by the MESP for more adequate administration, it did not manage yet to ensure effective management of assets available.
In addition, the KCA was also unsuccessful to record a share of assets acquired during the year. Issues encountered from auditing assets are as follows:
Issue 13 - Delays in inventorying and evaluation of assets - High Priority
Finding The MESP did not manage to carry through assets inventory on time. We have noticed that the MESP took a decision to establish the inventory committee for evaluation of assets in February 2015, at the time when the AFS were finalised and the same were submitted to the Treasury.
Risk Failure to carry out asset inventory in time may weaken the quality of information disclosed in the AFS, risks decision making based on insufficient information and asset lost.
Recommendation 13 The Minister should take adequate and timely measures to establish respective committees, and at the same time to ensure that inventory reports are produced.
Issue 14 – Vehicle management – Medium Priority
Finding Four vehicles which belonged to the Ministry were still kept with no official plates as per The Administrative Instruction AI) 31/20125. Three of them,
were given to MESP from Municipality of Peja as part of the transfer of responsibilities for managing national park “Bjeshkët e Nemuna”. But the ownership over these vehicles has not been transferred to the Ministry yet. Risk Failure to manage Ministry‟s vehicles as per respective AI poses a risk of
4.5.2
Handling of Receivables
Description
Accounts Receivable for revenues of 2014 disclosed in the AFS are €542,627. These funds are from fees that service providers have to pay mainly for water. Until a decision by the MESP, such funds should be kept in the balances of the Ministry. Up to now, the MESP did not manage to establish adequate controls in this segment.
Issue 15 - Administration of receivables - High Priority
Finding Challenges in collection of receivables continue to exist. Although the MESP took some specific actions to settle debts over the years, they have not shown any results. Although in 2015 several actions were taken among which was a review of the Administrative Instruction, the results of these actions remain to be evaluated at the end of this year.
Risk Uncollected debts do not present an impressive performance by the Ministry, and pose a risk for financial losses, due to the debtors who may decide not to pay their obligations to MESP, despite the contractual agreements.
Recommendation 15 The Minister should consider immediate measures to be taken in the business relation with the water companies ensuring that the balance of accounts receivable is brought down. A possible alternative would be the reprogramming of debts.
4.5.3
Handling of Debts
Description
The statement of outstanding liabilities to suppliers presented in the AFS was €114,390,183. The main categories of liabilities are: Goods and Services, including Utilities €165,797, Capital Investments €421,729 and liabilities resulted from Government‟s decisions for property expropriation in total of €113,802,657.
The structures of liabilities deriving from Government‟s decisions are as follows: Private property6, outstanding liabilities are €50,662,994;
Public property, outstanding liabilities are €15,503,859;
Various social properties, outstanding liabilities are €31,029,934; and “Rilindja” palace, outstanding liabilities are €16,605,870.
These liabilities were not paid due to the fact that private beneficiaries from expropriation did not apply for payment and due to lack of budget. While in the majority of other cases, the ownership was disputed and there are no applications for payment of these properties.
Issue 16 – Difficulties in handling liabilities - High Priority
Finding Although the high value of liabilities is due to various reasons as presented above, the lack of budget was among the factors that have led to this situation.
In another case, we have found that the MESP did not record/disclose outstanding liabilities of €12,240 in the AFS 2013 not paid to the Kosovo Police for contractual expenditures/security services.
Risk The significant increase of outstanding liabilities creates difficulties in budget process and may have impact within the spending process of the Ministry in the following years. On the other hand, failure to report liabilities poses risks for timely identification and payment of invoices. In addition, failure to include all liabilities in the AFS creates a situation where the budget requests cannot cover future cash flows.
Recommendation 16 The Minister should consider the issue of outstanding liabilities and review all budget or other options, so that liabilities, at least for expropriations are paid. At the same time, effective controls should be established securing that other unrecorded liabilities are disclosed in the AFS, in order that they are included in complete amounts.
4.6
Internal Audit System
Description
The IAU prepared an annual audit and strategic plan for a three-year period (2013-2015) which was approved by the Ministry‟s management.
The IAU planned to carry out six regular audits and others as requested by the management. During 2014 it carried out all audits foreseen by the annual plan. By the end of the year, the Internal Auditor finalised and reported on all audits, including the reporting to the Central Harmonisation Unit of the Internal Audit.
The IAU produced audit reports in areas such as: Audit on addressing recommendations from 2013 reports; Logistics Sector Activities 2014; Capital project for 2013 and first half of 2014; procurement activities; Expenditures of 2014 and personnel.
The Audit Committee held three meetings within March-September during a nine-month period of 2014. Addressing recommendations given by the AG and the IAU, and the adherence of the action plan for implementation of AG‟s recommendations were discussed in meetings held.
The Internal Audit is operating relatively well when it comes to implementing the audit plan, the reports are of good quality with clear findings and recommendations for the management.
Recommendation 17 The Minister should ensure that additional measures have been taken by the Audit Committee in terms of delaying the implementation of internal and external audit recommendations, by the management of the ministry.
Annex I: Explanation of the different types of opinion
applied by the OAG
(extract from ISSAI 200) Form of opinion
147. The auditor should express an unmodified opinion if it is concluded that the financial statements are prepared, in all material respects, in accordance with the applicable financial framework.
If the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement, the auditor should modify the opinion in the auditor‟s report in accordance with the section on “Determining the type of modification to the auditor‟s opinion”.
148. If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor should discuss the matter with the management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, determine whether it is necessary to modify the audit opinion. Modifications to the opinion in the auditor’s report
151. The auditor should modify the opinion in the auditor's report if it is concluded that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or if the auditor was unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement. Auditors may issue three types of modified opinions: a qualified opinion, an adverse opinion and a disclaimer of opinion.
Determining the type of modification to the auditor’s opinion
material, but not pervasive, to the financial statements; or (2) the auditor was unable to obtain sufficient appropriate audit evidence on which to base an opinion, but concludes that the effects on the financial statements of any undetected misstatements could be material but not pervasive. 154. The auditor should express an adverse opinion if, having obtained sufficient appropriate audit evidence, the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.
155. The auditor should disclaim an opinion if, having been unable to obtain sufficient appropriate audit evidence on which to base the opinion, the auditor concludes that the effects on the financial statements of any undetected misstatements could be both material and pervasive. If, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the audit scope that the auditor considers likely to result in the need to express a qualified opinion or to disclaim an opinion on the financial statements, the auditor should request that management remove the limitation.
156. If expressing a modified audit opinion, the auditor should also modify the heading to correspond with the type of opinion expressed. ISSAI 170519 provides additional guidance on the
specific language to use when expressing a modified opinion and describing the auditor‟s responsibility. It also includes illustrative examples of reports.
Emphasis of Matter paragraphs and Other Matters paragraphs in the auditor’s report
157. If the auditor considers it necessary to draw users‟ attention to a matter presented or disclosed in the financial statements that is of such importance that it is fundamental to their understanding of the financial statements, but there is sufficient appropriate evidence that the matter is not materially misstated in the financial statements, the auditor should include an Emphasis of Matter paragraph in the auditor‟s report. Emphasis of Matter paragraphs should only refer to information presented or disclosed in the financial statements.
158. An Emphasis of Matter paragraph should: be included immediately after the opinion;
use the Heading “Emphasis of Matter” or another appropriate heading;
include a clear reference to the matter being emphasised and indicate where the relevant disclosures that fully describe the matter can be found in the financial statements; and
Annex II: Prior Year Recommendations
Audit Component Recommendation given Recommendation
fully addressed
Partly addressed Not
addressed 2.2 Significant
Risks to the Annual Financial Statements
The Minister should analyse the reasons behind the errors in initial disclosure of assets and in applying the advice of the OAG to address this error. Adequate processes should be implemented in 2014 in order to ensure a fair
presentation of assets in the AFS.
Yes
3 Prior Year
Recommendations The Minister should ensure that a revised action plan clearly sets out a timetable for addressing the recommendations made by the AG with accountable staff members identified and with initial focus on those of greatest significance.
Partially, a part of
recommendations were not addressed.
4.2 Financial Statements
The Minister should review the existing accountability arrangements and reporting requirements to the KCA as well as improve these arrangements to achieve objectives for consolidation of financial reporting until the
4.4 Revenues (including own source revenues)
The Minister should ensure that reporting measures are put in place by revenues generating departments.
Complete reports both for the number of cases processed and for the ongoing ones should be prepared as well as for financial records on fees paid for every environment licence, permit, or consent and for services provided.
No
4.5 Expenditures The Minister should review why specific Procurement requirements are not consistently addressed in the cases such as project planning, price quoting procedures and making the co-financing memorandum clearer. At the same time internal controls should be enhanced in order to avoid future problems.
Partially eliminated
4.5 Expenditures The Minister should conduct an assessment in order to ensure that evaluation commissions work in an adequate way.
Yes
4.5.2 Non Procurement Expenditure
The Minister should enhance controls over payments for all contracted supplies and services in order to ensure that contracts regular deadline is adhered to. In the meantime, procedures for an upcoming contractor should be initiated prior to the expiry of the current contract.
Partially, the issue of
classification of expenditures continues being a challenge.
4.5.3
Remunerations (Wages and Salaries)
The Minister should timely and formally appoint responsible officers according to every position in the Ministry and based on the Regulation of Systematisation of Job Positions issued in August 2013.
Yes
4.6.1 Capital and
Non Capital Assets The Minister should ensure that the decision on the use of vehicles is reviewed in order to ensure that the use of official vehicles is effectively managed for official
services/tasks only.
Partially, while the
expropriation transactions have been recorded in registers, in the KCA we noticed that there are still shortcomings.
4.6.2 Handling of
Receivables The Minister should ensure that concrete actions for the collection of accounts receivable are undertaken in order to reduce them and increase the public funds.
No
4.6.3 Handling of Debts
The Minister should ensure effective and efficient controls with necessary information related to identification, recording, processing and reporting of liabilities.
Partially, even though improvement measures have been taken for improvement of this area, debts remain unsettled.
