FINANCIAL AUDIT ON THE FINANCIAL STATEMENTS KLINA MUNICIPALITY FOR THE YEAR ENDED 31 DECEMBER 2007 _part1 ppt

Republika e Kosovës
Republika Kosova-Republic of Kosovo

Zyra e Auditorit Gjeneral/Kancelarija Glavnog Revizora






FINANCIAL AUDIT

ON THE FINANCIAL STATEMENTS
KLINA MUNICIPALITY

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. Sokol Bashota


Dear Mr. Bashota,

This is our final report on the results of the Office of Auditor General’s audit of the Klina
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 Genera




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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 12

V. Audit Opinion 13

VI. Audit Approach 15

VII. Key Audit Findings and Recommendations 17


Annex

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

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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 Klina 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 Klina Municipality (further referred
to as “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 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 Klina 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 (further referred to as “OAG”) in Kosovo. According to Section 3.2 of this regulation,
the Auditor General (further referred to as “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.

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


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III. STATUS OF PRIOR YEARS AUDIT RECOMENDATIONS


The OAG’s audit of Municipality’s financial statements for the year ended 31 December 2006
resulted in 17 audit recommendations. Our current audit determined that Municipality has not

implemented 8 recommendations details of which are provided in the following table:
No. Findings Recommendation Implemented Yes / No
Financial Management

We have concluded that the revenue report
between Municipality's F/S and Municipality
accounting records have not been reconciled. We
have also noticed that Financial Statements were
not based on the Municipal rerecords; instead
of this they have used the Treasury General
Ledger. This is not incompliance with
Administrative Instructions that Financial
Statement has to be based on its own accounting
system of Budget Organization.
The OAG recommends that the
Municipality should to provide training for
its Finance staffs on proper accounting and
financial reporting of FS in compliance
with AI
Not implemented
Municipality own resource revenues.


a) There are differences between Municipality
Financial Statements and the Municipal
accounting records, since the revenues from
accounting are 817,006 Euro whereas in the F/S
are presented as 821,045 Euro, difference
between the data is in amount of 4,039 Euro.
Municipality dos not have any explanation

regarding the difference.
The OAG recommends that the
Municipality should conduct monthly
reconciliation between the data's in the
bank accounts, municipal records and
general ledger as well as ensure that all
the differences are identified, and
adequate corrective measures have been
undertaken.
Not implemented

b) Failure of revenue collection or with use of
collected funds. Audit conclusion is that there
are revenues collected and spent without being
processed through municipal financial records.
OAG recommends to the municipality to
identify all the municipal revenues in
compliance with the legislation and to
ensure revenue collections are properly
receipted, recorded and deposited timely
and intact. The municipality should
establish develop a comprehensive and
reliable monthly report to the
management. The municipality should
also act together with MEF in order to
ensure the creation of a standard reporting
form.
Not implemented

Supply with daily cash receipt journal is

processed through procurement office, invoice
received does not specify the type of cash
receipt journal and serial number, as well, is
not signed the receiving report from receiving
officer
Because cash is very susceptible to fraud
and irregularities, the OAG recommends
the Municipality should make sure that
effective controls over cash are in place
Supply with cash receipt journal, should
be under strict internal control
Municipality should insure that
collections, receipting, depositing and the
recording of cash is properly done and in
compliance with applicable regulations.
Implemented

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


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Transfer of funds from municipal bank
account to the main Treasury account is

done by financial officer, chief of budget
and revenue officer.
The OAG recommends that the
Municipality should exercise good
internal control and ensure that
authorized employee is solely
responsible for transfer of funds
form municipality account into
central Treasury accounts.
Implemented

Wages and salaries


One employee appointed without proper
qualification, Payment of one employee
for a three months period without
contract, Contract of one employee
(Directorate of Education) does not have
salary value in the contract, Unsigned
contract by the employee and Salary in
the contracts not reconciled with the
payroll list
The personnel file to be completed
for every change in payment
The OAG recommends to the
Municipality that good internal
control must be followed in the
administration of its personnel. The
Municipality should create and keep

files of all its employees. Such files
should contain all the important
personnel records such as personnel
actions, contracts and other relevant
information regarding its employees.
Not implemented
Asset Management


For assets less than 10 Euro did not have
any signed list into disposal; The
Commission for asset stocktaking has
been appointed by the CEO who has not
done the registration of the assets until
now.
Management of the vehicles in the
Municipal Administration, starting from
the usage as well as maintenance is at
the lowest possible level of internal
control
The OAG recommends that the
Municipality should account for its
assets in Accordance with Law on
Managing with Public Assets "The
asset managing policy should be
established for properly identifying
all assets and a schedule or a list of
those assets should be prepared and
updated periodically
Not implemented

1. Travel expenses
a) CPO 29060050- travel expenses -
amounting 176 Euro, in this case it have
been noted that the same person has also
committed the funds and approved them
from the department
The OAG recommends that the
Municipality should adequately
monitor its budget to ensure that
expenditures are kept and
administrated in compliance with AI
no??? Also to ensure that one
employee is solely responsible for
approving and another one is
responsible for committing the funds
as required by the legal framework.
Implemented
b) CPO 1020175 - Allowance given for
official travel- closing of allowance -
amounting 2000 Euro.
Detailed file testing has shown
uncertainties concerning the expenditures
and closing of the advance for official
travel. There are three officials that have
traveled to the same destination and
The OAG recommends that the

Municipality should be
knowledgeable of its responsibility
and train its employees on effective
controls relating to travel
expenditures and collection of
receipts in compliance with official
document issued by MEF
"Calculation of Travel Expenditures "
Implemented
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Municipality of Klina for the year ended 31 December 2007


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purpose, but with different calculation of
expenses. According to the cashier's
documents, the funds have been received
by the traveling party at the amount that
is not the same as the one calculated by
the finance section. Expenses for airplane
tickets have been paid by the advance, by
not respecting the procurement rules.
There is no agenda (invitation) for the
official trip, no clear evidence that the
expenditures (trip) have been spent by
any of the officials.

2. Telephone Services
a) CPO 29060022- Other telephone
expenses-amounting 600 Euro,
telephone expenses (scratch cards) have
not properly clarified destination of these
scratch cards, no valid list exists which
would show the users of these scratch
cards.

OAG recommends that the
Municipality should establish internal
policies and procedures relating to
phone card disbursements. Such a list
should contain only the names
foreseen by the internal policy and
the recipient signatures.
Not implemented

3.Fuel Expenses
a) CPO29060386- Supply with fuel
(petrol) -amounting 5000 Euro,
according to the checked file, the
purchase have been done by pre-invoice.
The OAG recommends that the
Municipality should be
knowledgeable of its responsibility
and train its employees on effective
controls relating to proper payments
of expenditures with original invoices
and receipts and the recordings of

such Payments should be
executed based on original
invoices.
Implemented
b) CPO 29060066 -Petrol- amounting
9250 Euro, the fuel price has not been
respected following the contract no. 322-
19/05 as noted the price per liter 0.76
Euro, while the supply has been provided
at the price 0.95 Euro. The quantity of
the supplied oil has been 9,737 liters. The
quality of the heating oil has not been
specified for oil and price.
The OAG recommends that the
Municipality should comply with its
responsibility over contract
executions; Contracted prices should
be respected. Contracted Prices and
conditions as it quality of supplies
should be incompliance with market
conditions and prices.
Not implemented

4. Capital Expenditures
a) Tender procurement number
06005121-Fuel supply. the contract
singed on 25.02.2005 for the year 2005,
there are three different forms of contract
which are signed for the same time
period and signed in the same date,

which presents an uncertainty and lack of
seriousness on drafting and signing of
contracts.
Based in these contracts, we have noted
that during the supply with goods the
procurement procedures have not been
respected for the following reasons:
-There is no decisions on establishing the
tender opening and evaluations
committees;
The OAG recommends that the
Municipality should comply with its
responsibilities over contract
executions:
- Contracts should be as foreseen
on standard procurement documents
- changes should not occur
- To have e decision on forming
the evaluating and opening
commissions.
- To respect the contracted prices
and not to have purchases' out of
foreseen specifications.
- To eliminate so called technical
mistakes
Not implemented
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Municipality of Klina for the year ended 31 December 2007

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-There are purchases not specified in the
contract;
-There are various technical errors during
the formulation of the contract.
-Purchases that have been done are with
different prices, not foreseen in the
contract (no notice has been made for
changing of prices).


b) Tender no. 06054121/34- supply
with tractors and other ea moment
amounting to 46.020.Euro -Testing of
the expenditures based in the
procurement files shows that the request
for initiation of procurement procedures
does not match the signed contract on
supplying with tractors and auxiliary
equipment. The Article 7 of the
Agreement on usage of the agricultural
machinery rely one the request dated
30/08/2006 which specifies the supply of
tractors and other spare parts. The
auditor has noted that such request does
not match the section of this agreement.
The OAG recommends that the

Municipality should comply with its
responsibilities over fulfillment of
procurement procedures
procurement procedures should be
fulfilled according to purchase
Implemented

c) Tender no. 06063136/36- supply of
the inventory amounting 4.134 Euro-
bv the Municipal procurement office are
identified and evaluated three bidders as
responsive, did not complete the required
documentations. The auditor has noted
that the bidders who were evaluated as to
be responsive did not bring a valid
document from the Tax Administration
as evidence that all tax obligations are
accomplished. Such evidences have been
presented, some tax forms that do not
present the evidence as required by the
standard procurement document.
The OAG recommends that the
Municipality should comply with its
responsibilities over fulfillment of
Tender procedures such are ;
Bidders should provide all requested
documentations, as required by the
legal framework
Evaluating commissions should be
aware and comply with all regular

procurement procedures
Implemented

d) Tender 06072136/36- supply with
domestic electrical equipment valued
to 2,982 Euro- The auditor has noted
that the procurement procedures have not
been fulfilled, since the tender has been
conducted without request for initiation
of the procurement procedures by the
responsible body.
The OAG recommends that the
Municipality should strengthen the
control over procurement and ensure
that Procurement procedures will not
start before or without proper
purchase request
Implemented

e) Tender no. 06006611/45-
construction of the building with
concession B+P+7+NK (24%) -
according to the procurement files the
land has been given for an undetermined
The OAG recommends to the
Municipality to comply with the
Regulation 2 0 / 4 5 (different with
regulation no.206/54) Municipality
Self-governance of the Kosova
Implemented

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