FINANCIAL AUDIT THE MUNICIPALITY OF FERIZAJ FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007_part1 potx

Republika e Kosovës
Republika Kosova-Republic of Kosovo

Zyra e Auditorit Gjeneral/Kancelarija Glavnog Revizora







FINANCIAL AUDIT

THE MUNICIPALITY OF FERIZAJ
FINANCIAL STATEMENTS

FOR THE YEAR ENDED
31 DECEMBER 2007

Prishtina, December 2008
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OFFICE OF THE AUDITOR GENERAL GAZMEND ZAJMI No 59 PRISHTINA 10000 PHONE + 381 (0)
38 2535 121/217/221 FAX: + 381 (0) 38 2535 122

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TRANSMITTAL LETTER


Date: 29 December 2008

To: Mr. Bajrush Xhemajli


Dear Mr. Xhemajli,


This is our final report on the results of the Office of Auditor General’s audit of the Ferizaj
Municipality financial statements for the year ended 31 December 2007. In accordance with UNMIK
Regulation 2005/33, this audit report will be made public.

Our report contains recommendations for your action. Regulation 2005/33, Section 1 B. (e) requires
that within 30 days of publication of an audit report, you are required to submit a report indicating
how your institution intends to implement these recommendations.
Your report is due by 30 January 2009.

I appreciate the cooperation and courtesies extended to my staff during the audit. The Office of the
Auditor General looks forward t working with you on our audit of the 2008 financial statements.


Sincerely,


Linda Casella
Auditor General

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OFFICE OF THE AUDITOR GENERAL GAZMEND ZAJMI No 59 PRISHTINA 10000 PHONE + 381 (0) 38
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TABLE OF CONTENTS

I. Executive Summary 5

II. Introduction 6

III. Status of Prior Years Audit Recommendations 7

IV. Audit Scope 11

V. Audit Opinion 12

VI. Audit Approach 14

VII. Key Audit Findings and Recommendations 16



Annex

I. Municipality of Ferizaj
Financial Statements for the year ended 31 December 2007

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OFFICE OF THE AUDITOR GENERAL GAZMEND ZAJMI No 59 PRISHTINA 10000 PHONE + 381 (0) 38
2535 121/217/221 FAX: + 381 (0) 38 2535 122

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List of Abbreviations and Acronyms


AG Auditor General
AI Administrative Instruction
EO Economic Operator
IFAC International Federation of Accountants
IPSAS International Public Sector Accounting Standards
MFE Ministry of Finance and Economy
MPS Ministry of Public Services
OAG Office of the Auditor General
PPL Law on Public Procurement
PS Performance Security
SRSG Special Representative of the Secretary General

UNMIK United Nations Mission in Kosovo





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Financial Audit
Municipality of Ferizaj for the year ended 31 December 2007


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I. EXECUTIVE SUMMARY


The Office of the Auditor General has performed an audit of the Municipality of Ferizaj
(further referred “the Municipality”) financial statements as of and for the year ended 31
December 2007.
Due to the matters discussed in the Section V: Audit opinion we were unable to give and we
do not give opinion on financial statements as of and for the year ended 31 December 2007.

The findings and associated recommendation are presented within the Section VII of the
report. The OAG would urge the Senior Management of the Municipality to take corrective
action on these recommendations and first of all present its Action Plan for dealing with the
recommendations 30 days from receiving the Final Audit Report.

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Financial Audit
Municipality of Ferizaj for the year ended 31 December 2007


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II. INTRODUCTION


UNMIK Regulation 2002/18, dated 4 October 2002, established the Office of the Auditor
General (OAG) in Kosovo. According to Section 3.2 of this regulation, the Auditor General
(AG) is required to conduct an annual regularity audit of all institutions in Kosovo to
determine:

• Whether the financial statements give a true and fair view;

• Whether the financial records, systems and transactions comply with applicable
statutes and regulations;
• The appropriateness of internal controls and internal audit functions;
• The probity and propriety of administrative decisions taken within the audited
institutions or entity; and
• All matters arising from or relating to the audit.

In March 2003, the Kosovo Assembly approved Law No. 2003/2 “Law on Public Financial
Management and Accountability” which was formally promulgated by the Special
Representative of the Secretary-General (SRSG) on 12 May 2003 in UNMIK Regulation
2003/17. Section 42 of the Law states that the AG will prepare and submit to the Assembly
and the SRSG a report on the financial statements of budget organizations for the previous
year providing the AG’s opinion on whether or not the financial statements give a true and
fair view of the finances of such budget organizations. This report is to be submitted by 31
December 2008 following the close of the fiscal year to which the annual report relates.

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Municipality of Ferizaj for the year ended 31 December 2007


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III. STATUS OF PRIOR YEARS AUDIT
RECOMMENDATIONS

The OAG’s audit of Municipality financial statements for the year ended 31 December 2006
resulted in 28 audit recommendations. Our current audit determined that Municipality has
implemented 11 of 28 recommendations and is in the process of developing policies and
procedures for implementing the remaining 17 recommendations.

No Findings Recommendations Implementation

Internal Control System
1 The segregation of duties as a segment of
internal control is not executed in an adequate

manner in 2006. The hierarchic reporting
system functions poorly.
OAG recommend the Municipality’s
Management to draft a better structure in order
that the internal control system is more efficient,
particularly in regard to the reporting aspect.
Not
implemented
2 The Department for Economy and
Development has issued a lot of certificates
allegedly the Economic Operators have settled
all their obligations toward the Municipality.
We have found that those issued certificates
were not grounded.
The Management of the Municipality and the
Department for Economy and Development are
recommended to take immediate actions for
preventing these occurrences. Review the
occurrences under what circumstances they
have occurred.
Not
implemented
3 During our 2006 audit we have noticed that
many Economic Operators were provided with
work permits although they did not settle their
Municipality obligations.
The Department for Economy and
Development is recommended to strictly
comply with the Municipality Internal
Regulation on Municipal Fees and charges.

Not
implemented
4 The geodesic experts in some cases provide
services to the Municipal Court. Many times
they are requested directly from the court to
perform services rather than from the Director of
Department for Geodesy, Cadastre and Planning.
On performing these services Municipality is not
invoicing the bill to Municipal Court. However
geodesic experts enter service contracts with the
Municipal Court for performing geodesic or
cadastral services.
OAG recommends to Municipal Management to
specifically regulate relations with other entities.
The services executed by the Municipality
geodesic experts in favour of the Municipal
Court shall be invoiced and the realized
revenues shall be collected through the
Municipality’s cash box.
Not
implemented
5 According to internal auditors’ reports for 2006,
there were many findings and the respective
recommendations were given. We could see
however that a great deal of these
recommendations was not implemented.
Being that the internal auditor is a part of the
internal control system which purpose serves the
increase of Municipality’s effectiveness and
efficiency and to follow on the observance of

legal framework, thereby the Municipality’s
Management is recommended to implement all
internal auditor’s recommendations.
Not
implemented

Revenues

6 The statements of the presented revenues are
supported by bank reports. No good evidences
are kept in regard to the generation of
revenues based on the services provided by the
Municipal Administration.
Keep enhanced evidences on municipal own
source revenues and perform reconciliations with
bank statements and Treasury’s General Ledger.
Not
implemented
7 Municipal departments do not keep separate
evidences on the realization of their own
revenues, they report however their revenues by
relying on Department for Budget and Finance
data. This department records the revenues only
based on the bank statements.
Keep comprehensive evidences on the collected
revenues from each department and report those
revenues to Finance Office.
Not
implemented
8. The revenue maintained evidences are

recorded in protocol book, where we have
identified some empty spaces where the paid
amounts have not been filled in. In addition,
records are not kept based on the protocol book
line order.
The management of the Municipality is
recommended to keep protocol books where
different administrative items are easily recorded
and which shall be compatible to the respective
payments.
Payments shall be made pursuant to Section 3 of
Municipality Own Source Revenue Procedures,
September 2003, according to which payments
from 1 to 10 € shall be paid in the Municipality’s
Implemented
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cash box, whereas all payments above 10 € shall
be paid in the commercial bank.
9. In the Municipality of Ferizaj nearly 66 % of
the businesses entities operate without work
permit. Work permits are distributed by the
Department for Economy and Finance.
OAG recommends the Inspection and Economy
departments to undertake actions on supplying

the businesses entities with work permits and to
suspend all business activities working illegally.
Implemented
partially
10. There is no proper description of services
provided by the Health Department for
revenues collected from participations.
Health Department is recommended that during
the collection of revenues for the provided
services, the receipts which are issued shall
specify clearly the service which has been
provided and the amount paid.
Implemented
11. Revenues raised from health co-payments,
according to Treasury financial reports are
211,062 €, whereas the figure given in the
Municipality’s statements is 212,516 €. The
difference of 1,454 € has not been explained.
According to the report of the Department for
Economy and Finance, property tax revenues
are 501,589 €, whereas according to
Municipality’s statements this revenue is
504,568 €. The difference is 2,979 €.
The Department for Budget and Finance is
recommended to perform regular reconciliations
with other departments in regard to the collected
revenues. Furthermore regular reconciliation of
revenues shall be executed also with the
Treasury and banks.
Not

implemented
12. In relation to rent revenues, Municipality has
not drafted adequate policies and no actions
were taken for collecting rent revenues pursuant
to agreements entered with entities utilizing
municipal property. Furthermore the penalties
were not applied although they have been
foreseen in the contract.
OAG recommends the municipal management to
draft clear policies in relation to renting the
municipal property. The Municipality’s
management must be more defiant in regard to
collection of debts and observance of contracts.
Not
implemented
13. The children nursery "Ardhmëria Jonë” during
2006 has accommodated 257 children. There
was no revenue collected throughout the year
for many of them. The management of this
nursery has not taken the necessary actions for
collecting the debts.
The management of the nursery is recommended
to undertake immediate actions with the purpose
of collecting the fee.
Implemented

Expenditures


Salary Expenditures

14. Personnel files are incomplete. Staff
qualification documents and other documents in
regard to the recruitment and job appraisal are
missing.
The personnel management is recommended to
fully observe the provisions of the
Administrative Instruction No. MSHP/ DASHC
2003/11 on the personnel files procedures in
order that files are properly organized and
completed.
Not
implemented
15. In Health Department 11 staff members have
been employed as replacements for a certain
period of time whereas later they have been
employed with regular contracts bypassing the
recruitment procedures. They were recruited
only with a decision from the Chief Executive.
Each time new staff is recruited, the Regulation
No. 2001/36 on the Civil Service in Kosovo
must be followed.
Not
implemented

Low value purchases

16. In two procurement items "supply with metal
sheet for constructing church roof" in the
amount of 9,000 € and "supply with two gym

heating reversals” in the amount of 5,290 €,
Work Acceptance Report was not prepared by
the committee but only one person.
The municipal management is recommended that
during the acceptance of the completed works, it
establishes professional teams to evaluate
whether the completed works or services meet
the technical criteria and contract provisions.
Implemented
17. There are no three responsive bids in regard to
the item "supply with roof renovation material"
of 9,134 €. One of the economic operators lacks
the Tax Administration document which
serves as evidence to confirm that the EO is not
behind in settling its obligations toward this
entity.
We recommend to the procurement department
to cancel all procurement activities if at least
three responsive bids have not been received as
in accordance with the Section 30.3 of Law on
Public Procurement 2003/17.
Not
implemented

Long term service contracts

18. We have found that in regard to long term
service contracts, the economic operators have
Municipal management holds all the
responsibility for managing the budget in

Not
implemented
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invoiced positions outside of the original
contract as well as increase prices up to 208%.
In another case, with Board of Directors’
decision the economic operator was approved
an increase of prices for 20%.



compliance to Law on Public Financial
Management and Accountability. We
recommend that such cases are investigated and
that during the acceptance of goods the prices
are compared with the bid’s technical
specification so the payments are made only for
the contracted prices. The procurement activities
are a responsibility of the procurement manager
and that municipal management shall not
intervene in such cases

Medium and High Value Purchases

19. Capital investments outside the annual
procurement plan are conducted in the
following cases:
- "The repair of the sewage system in the
village of Surqine" in the amount of 105,355 €,
and
- "Vellezerit Gervalla road asphalting" in the
amount of 351,698 €.
OAG recommends to the management of the
Municipality to strictly observe the provisions of
the Law on Public Procurement. Such activities
affect the transparency over the expenditures
from public funds
Implemented
20. Contracts for additional works are entered
without PPA’s approval in the following
items:
- "The repair of the sewage system in the
village of Surqine" in the amount of 7,852 €,
- "Ferizaj-Varosh road asphalting" for
6,463.17 €, and
- "The renovation of water supply system in
the village Surqinë " in amount 5,611 €.
Follow provisions of Section 34.2.d (i) of LPP in
regard to obtaining the permission from PPA for
implementing and executing additional works or
services neither included in the initial concept of
the project not in the respective contract, but
which based on the unpredicted circumstances
are found as necessary to be undertaken.

Implemented
21. In the following four cases we have found that
works have not been completed within the
foreseen deadlines. There were no penalties
applied for the delays:
- "the arrangement of the infrastructure in
‘Vëllezërit Gërvalla street", 132,544 €,
- “the repair of water supply tube" Pleshinë-
Ferizaj ", 159,549 €,
- "Ferizaj-Varosh road asphalting", 78,795 €,
- "Vëllezërit Gërvalla road asphalting",
351,698 €.
The Municipality’s management is
recommended to follow contract’s terms of
reference and also apply penalties in cases where
works have not been completed in accordance
with the dynamic plan.
Not
implemented
22. Funds were not committed on time in the
following cases:
- "construction of the sewage system for the
village of Surqinë",
- "construction of the sewage system in the
village of Surqinë",
- " Vëllezërit Gërvalla road aspahlting",
We recommend to Municipality Procurement
Unit to observe Section 8.2 of the Law on Public
Procurement which specifies that: ‘the
contracting authority shall formally guarantee

that the funds allocated for the respective
procurement are sufficient on meeting the
obligations that may emerge during the
respective fiscal year (year the respective
procurement activity is exercised) as a
consequence of such procurement.”
Not
implemented
23. Work performance security for the execution of
the contract “Construction of water supply
network in the village of Surqine" is missing.

The Management of the Municipality shall
follow Section 60 of LPP No. 2003/17 on the
works performance security
Implemented
24. There is a shortening of deadline for receiving
tenders for high value contracts is made from
52 calendar days to 30 days, this without PPA’s
approval.
This was present in the item "Vëllezërit
Gërvalla road asphalting" in the amount of
351,698 €.

Procurement Department in cases like this shall
strictly apply Section 44 of LPP No. 2003/17.
Implemented

Subsidies and Transfers

25. In regard to Municipality subsidizing 100
students with scholarships, we could not find
the necessary evidences for 50 of them.
The Board of Directors is recommended to
distribute scholarships to students based upon
the previously set criteria.
Implemented
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Asset Management

26. During physical examination of assets we have
found that assets are recorded only based on
their location and there is no information about
who is using them. Roughly 49 % of assets are
not provided with bar codes. In 2006 there
was no assets depreciation calculated and
their current value is unknown.
OAG recommends the municipal
management to fully observe the provisions of
Treasury issued Administrative Instruction No.
2005/11 on the management and recording
of government assets.
Not

implemented
27. The Municipality has no storage room for
placing office expendable material
(stationeries). There is however an officer
assigned to receive this material and to
distribute it.
The municipal management is recommended to
purchase and distribute goods and other
expendable material through storage officer. The
storage officer shall keep comprehensive and
detailed evidences about from who the goods
were received.
Implemented

Management of vehicles

28. The vehicles are managed in the best manner.
We have found that there are no evidences kept
for each vehicle in regard to the
expenditures, servicing, their insurance etc.
Monthly and annual reports on the driven
kilometers are not in accordance to the
instructions issued on the use of vehicles.
It is necessary that Municipality keeps more
detailed evidences on its vehicles. These
evidences are: purchase invoices, insurance
documents, invoices in regard to service and
maintenance, fuel expense reports, travel
ordinance applications etc.

Not
implemented




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