One of the most important issues for our Office in 1996 was work connected with amendments to the State Audit Office Act and State Audit Office Audit Regulations. Amendments to the Act on Renewal of the SAO Act of 2 August, 1923, which took effect from 22 November, 1996, have extended the scope of audit. From the above date, the SAO has to audit local government bodies, their enterprises and companies if they are in possession of local government assets or financed from local government budget resources. Several other sections of the Audit Act have been amended which refer to the composition and length of tenure of the Auditor General and members of the SAO Council.
The continuing structural development of the SAO resulted in the establishment of the Privatization Process Audit Department in the beginning of 1996. The necessity for this department was due to the rapidly expanding privatization process movement in Latvia as well as in Eastern European and other countries. If 20 years ago, emphasis was on nationalization process audits, then currently it is on privatization process audits. In Latvia privatization process audits are based on INTOSAI standards, methodology and experience. The first audits have proved their necessity. Reviewing privatization projects and carrying out audits during and after the privatization process has resulted in benefits to Latvia totaling several million lats.
1996 was productive in the field of international cooperation. The SAO’s representatives participated in INTOSAI meetings and the congress of European audit institutions held in Prague. A very significant meeting of Central and Eastern European Auditors General was arranged by the European Union Court of Audit in Luxembourg. The major issue was how the higher audit institutions should operate during the process of integration in the European Union. The Latvian delegation gained valuable insights of the many problems that may be encountered during the integration process.
The SAO also established a successful relationship with the Bavarian State Audit Office and the Munich AO of the German Federal Republic. As a result of this relationship the SAO has received a grant of DEM 15 000 which will be used to second selected staff members to Germany to improve their audit skills during 1997 and 1998.
The staff training project implemented by the SAO of Denmark and financed by the Danish government was extremely useful to the SAO of Latvia. Our Danish colleagues shared their experiences in the application of Danish and international auditing standards in theory and in practice to give our staff members a valuable insight in modern government auditing.
Following the initiative of OECD/CCET and EC/PHARE a 2 – day workshop was arranged by SIGMA for senior officers of public institutions on management control.
As in previous years the SAO’s auditors prepared and evaluated the materials on foreign debt. We have prepared and issued a special publication on external debt of the Republic of Latvia.
According to the Act on the State Audit Office the SAO has reviewed and given its opinion on the annual report of the Ministry of Finance on budget implementation. The SAO’s employees have been asked to help in the working out of the budget project for the next year. A positive factor is that the 1997 budget was prepared on a program basis which will enable better control of usage of resources.
1. In 1996 210 audits have been carried out by the State budget audit department, State economic activity audit department and Privatization process audit department ( comparatively: 1994 –166 audits, 1995 — 318 audits).
2. In 1996 the SAO imposed surcharges to auditable organizations in respect of illegal transactions totaling Ls 657 682, 68 (1994 — Ls 21007, 88, 1995 — Ls 222 872, 33). The surcharged amounts collected were Ls 176 638, 74 in 1996 (Ls 108 005, 40 in 1995).
3. In 1996 audit documentation and information on audit results was forwarded to judicial bodies in 24 cases ( in 1994 — 8, in 1995 — 20). As a result 12 criminal and 5 civil cases have been initiated.
Reviewing audit results for 1996 it can be said that most of the auditable bodies (public bodies, public enterprises and companies) contravene requirements in operations with government resources, as well as have not observed requirements of the Act on accounting. The worst error found by auditors is that basic principles of accounting are not followed.
Serious problems have been ascertained in the use and control of special budget resources by public bodies.
Reviewing audit results we can also say, that in our country there are many gaps in respect of taxation policy. Material problems were found in the work of State Income Agency, as the Agency does not ensure full and complete income tax collection as well as does not actively enforce collection of taxation debts from privatized, formally government owned, enterprises. Further, the Agency does not strictly enforce the submission of annual returns from taxpaying bodies.
In accordance with audit materials of the SAO there is an insufficient supervision over the granting and use of loans.
In accordance with audit findings some important public bodies do not carry out their functions effectively.
In many cases, problems with accounting and use of government resources are solved during audit. According to the State budget audit department, the Academy of Arts is the only institution where the accounting and use of government resources is in accordance with legislative requirements.
Sometimes problems discovered by audit can be prevented if existing legislation is amended or a new act is passed. For example, a new act was necessary, to enable the Privatization Agency to act as administrator in cases where a government owned enterprise had to be liquidated.
On the basis of audit materials of the SAO and by initiative of the Judicial Committee the Saeima has adopted and the State President has proclaimed the Act on insolvency of enterprises and companies on October 2, 1996. Thus the SAO has encouraged the preparation of appropriate legislation necessary for the privatization process.
To improve audit systems in Latvia, in 1996 the Saeima has adopted Cabinet’s regulations requiring the establishment of internal audit units in public bodies and enterprises.