“The Audit Manual” of the State Audit Office
During the reporting year in cooperation with the audit company Coopers&Lybrandt – Latvia Ltd. “The Audit Manual” of the State Audit Office has been developed which is the first of the kind in the Baltic States and includes advanced and systematised methodology for internal audit and financial revision. The practical application of “The Audit Manual” in the audit work and the implementation of its requirements will serve as the basis for successful introduction of a new planning system in the audit work, thus ensuring high quality in the whole audit process – from planning to preparation of the audit opinion.
The anniversary of the State Audit Office
In August, 1998 the State Audit Office celebrated its 75th anniversary and the 5th anniversary since restoration of its activities. In view of these significant anniversaries comprehensive and serious work was carried out to study the history of the State Audit Office and to describe its activities since the restoration of the independence in 1991. Based on these historic studies and the unique set of materials entrusted or donated to the State Audit Office by the relatives of its former employees, the jubilee edition of “Valsts Kontroles Vestis” (The Messenger of the State Audit Office of the Republic of Latvia) was prepared and published, a permanent exhibition was developed and the archive album of the State Audit Office was arranged.
As a sign of appreciation of the whole work of the State Audit Office the President of State Guntis Ulmanis awarded the Auditor General Raits Černajs with the highest award of the Republic of Latvia – the Three Star Order of the Third Category.
Implementation of the Management Control project
In order to accede to the European Union Latvia has to arrange the work of public institutions in compliance with the EU requirements and basic principles and also to improve the control system over utilisation of public funds.
Following the initiative of the Auditor General Raits Černajs the cooperation with SIGMA programme was started in May, 1998 to implement the Management Control project in our institution which is planned to be completed in 1999. The management of the State Audit Office regarded it to be very important to obtain evaluation of the work of the institution and, based on the recommendations of the experts, to develop the highest controlling body of Latvia into an efficient public institution. SIGMA was providing assistance in three areas:
Within the framework of this project the working group will elaborate proposals for improvement of the audit work which will be summarised in four reports:
The audit work
In 1998 the State Audit Office had four audit departments: the State Budget Audit Department, the State Economic Activities Audit Department, the Privatisation Process Audit Department and the Local Government Audit Department.
During the reporting year the State Audit Office has carried out 333 audits.
In 1998 the State Audit Office has referred to the law enforcement bodies 24 cases with the results of audits out of which 13 audit cases were of the year 1997, but 11 cases – of the year 1998.
13 reports on audits carried out during the reporting period have been presented to the Saeima (Parliament) of the Republic of Latvia. In 1998 the State Audit Office, based on the audit findings, has imposed fines for illegal transactions to the total amount of 978 061,88 Ls.
There are also state institutions where no significant drawbacks in handling of the public property and funds have been identified:
Out of the audited local authorities and their institutions no significant drawbacks in handling of the public property and funds have been identified in the following local authorities:
In 1998 a new approach to the audit was introduced in the State Audit Office, namely, audits on the same subject were carried out in a complex way. While implementing such an approach the highest controlling body of the state is trying to identify the problems which are in common to the public bodies, and is not dealing with the internal issues of one ministry or institution. During the reporting year the audits on handling of the public funds in the implementation of the investment programme were carried out in the ministries and other central public bodies.
The utilisation of the investment funds envisaged for the year 1997 was audited by the staff of the State Budget Audit Department, the State Economic Activities Audit Department and the Local Government Audit Department. In total 34 audits were carried out during which 79.9% of the state budget funds spent for investments were reviewed.
Based on the results of the audits it can be concluded that the public institutions during the implementation of the investment programmes do not ensure sufficient control over the utilisation of the funds allocated for investments. When assessing the handling of the public property and funds in the implementation of the national investment programme it has been identified that in order to prevent inefficient utilisation of the public funds there should be provisions included in the legislative documents stipulating that the accounting of the utilisation of financing of any investment project shall be carried out for the whole project period, not closing the remainder of funds which have not been utilised by the end of the year for the respective project, but retaining these funds as transitory within the framework of the implementation of the whole project.
In the reporting year, when auditing the handling of the state budget resources in budgetary institutions within the framework of certain programmes and sub-programmes financed by state budget, it has been identified that, in fact, in the major part of all audits it has been impossible to evaluate the implementation of these programmes because when drafting the state budget the goals of these programmes have been set incompletely and formally.
Like in the preceding years, the results of the audits testify that the irregularities in the audited institutions are mostly related to spending of the state budget resources for other purposes than those for which the appropriations have been made, also to improper accounting, especially what concerns writing-off of public funds under the expenditures part without having justifying documents, also to errors in financial statements, improper payments for lease of fixed assets and the salaries to the employees by failing to consider the provisions of the effective legislation.
When reviewing the economic and financial activities of the public companies and entrepreneurial societies, the legality and value-for-money type of audits were performed.
When analysing the results of the audits the following practice was observed that the ministries attempt to reorganise its structural units into statutory societies (entrepreneurial societies) which is contrary to the provisions of the law “On Transformation of State and Local Government Companies into Statutory Societies (Entrepreneurial Societies)”. Moreover, the law “On Structure of the Ministries” and other regulatory documents do not provide that the entrepreneurial societies under the authority of the ministries may carry out the public administration functions such as, for example, supervision, control and punishment functions. These functions may only be discharged by the institutions which are under subordination or supervision of the ministries.
In 1998 the State Audit Office carried out comprehensive work in analysing the implementation of collegiate decisions taken in respect of auditing the economic activities of public companies and entrepreneurial societies. For the most part the accounting in the companies has been arranged in compliance with the provisions of the Latvian laws; the issues related to the formal arrangement of the land use rights, the registration of the land property into the Land Book, the conclusion of rent and cooperation contracts as well as other issues have been solved or are being actively dealt with.
When analysing the audit work, positive evaluation has to be given to the achievements in the field of the local government audit. In the reporting year after systematic reviews of the local governments and providing recommendations to them as to the possible ways to improve their work, the initially unfavourable attitude of the local governments to the audits carried out by the State Audit Office has changed. In the field of the local government auditing the supportive attitude of the public or the auditee towards the auditing institution has been achieved as stipulated in the international audit standards. The audit results reveal that the deficiencies in the local government work are not caused by malpractice but by the lack of knowledge and experience. In Latvia the local government institutions are comparatively young and they are in short of professional local government politicians and administrators.
To summarise the results of the local government auditing in 1998 it must be concluded that the main identified irregularities are the following:
When analysing the audits in the local governments it must be concluded that the State Audit Office during its audits has to a large extent carried out the work which pursuant to the law “On Local Governments” had to be performed by the local government Audit Commissions which are the basis of the internal control system. In future it shall not be accepted that the State Audit Office performs the work of the internal control. The State Audit Office has provided its opinion on the present work of the Audit Commissions in the local governments, and the Auditor General within the framework of his competence has presented the report to the Saeima, but, unfortunately, no activities geared to improvement of the work of the local government Audit Commissions can be observed.
In the area of privatisation the main directions of the audit work were as follows:
The audits in the privatisation area were also carried out according to the complex approach concerning issues of implementation of the privatisation projects and the supervisory role of the Privatisation Agency in these processes. When analysing the results of the audits it must be concluded that the Privatisation Agency not always has fulfilled its legal obligations and has not properly supervised the privatisation projects. The State Audit Office has identified many drawbacks in the privatisation of state companies. During the audits it has been discovered that a part of the audited companies, as the result of the change of their legal subordination, instead of being properly restructured have, in fact, terminated their economic activities.
In one case the audit materials on legality of privatisation of the state company “Etalons” were referred to the Senate of the Supreme Court of the Republic of Latvia, since the Privatisation Agency as the manager of the company undergoing privatisation disagreed to the collegiate decision of the Privatisation Process Audit Department and to the decision of the Board of the State Audit Office. The Senate of the Supreme Court ruled in support of the fine imposed to the Privatisation Agency by the State Audit Office.
In the field of international cooperation the year 1998 may be regarded as especially active and rich in events, since during the said period the cooperation took place in the three main directions:
The cooperation takes place on the level of the INTOSAI, the United Nations Development Programme, the EU Court of the Auditors, the OECD – SIGMA, the EUROSAI, the EURORAI, the Nordic countries and the Baltic States.
The main subject of cooperation among the Baltic States is the introduction and improvement of the internal audit (internal control) in the public sector.
In the field of cooperation between the Baltic States and the Nordic countries, as well as the European Court of Auditors the main emphasis was laid on issues concerning the changes in the functions of the highest controlling bodies of the applicant countries during the process of their integration into the European Union. The State Audit Office is cooperating with the European Court of Auditors both on the level of the working groups and the liaison officers, as well as on the level of the Chairmen.
On the level of the INTOSAI in 1998 the delegation of the State Audit Office of the Republic of Latvia participated in the XVI INCOSAI which took place in Montevideo (the Uruguay) and also was involved in the preparation process.
The main conclusions drawn from the international experience in 1998 indicate to the required changes in the organisation of the activities of the State Audit Office whose implementation has already partly started. The changes will concern the cooperation with the EU structures and the strengthening of the bilateral and multilateral cooperation with the highest controlling bodies of the Eastern European countries including the State Audit Offices of Lithuania and Estonia. Consequently, new tasks will emerge in the audit work; it will be necessary to strengthen cooperation with the internal audit structures, to acquire the specialised knowledge about the EU affairs and the skills for auditing of the EU Structural Funds and to have highly specialised staff.
The implementation of the World Bank assistance project
Considerable efforts were contributed to the implementation of the project of the International Bank of the Development and Reconstruction (the World Bank) “Assistance in Strategy Development to the State Audit Office of the Republic of Latvia”.
In the first half of the reporting year an advanced telephone exchange was installed in the State Audit Office and the main part of its costs was covered by the World Bank funding.
The dominant part of the World Bank grant was envisaged for training of the auditors both locally in Latvia, as well as abroad to acquire the international audit experience in the counterpart organisations of the State Audit Office.
With the World Bank financial support the improvement of the qualifications of the staff of the State Audit Office was carried out in two stages. Stage 1 – learning about the general audit principles and theories from the perspective of the international audit standards – was implemented in 1997, but Stage 2 involved specific training courses relevant to the work of different audit departments. In 1998 the auditors participated in the following training programmes: “The Local Government Law”, “The Local Government Audit”, “Some Aspects of the Audit of the Privatisation Process (Legal Issues)”, “The Audit of the Assessment of the Companies Undergoing Privatisation”.
In 1998, thanks to the World Bank financing, one auditor of the State Budget Audit Department participated in the international training course delivered by the UK State Audit Office, but four members of the collegium of the Local Government Audit Department had the possibility to add to their knowledge at the State Audit Office of the Denmark, as well as at the Danish Local Government Audit Department and the municipality of Slagelse.
The application of the CDA Fund
Thanks to the funding provided by Carl Duisberg Arbeitskreis Fund (the land of Bavaria, Germany), in 1998 two auditors – one from the State Budget Audit Department and the other – from the Privatisation Process Audit Department – acquired knowledge about specific audit areas at the State Audit Office of Bavaria.
The staff of the State Audit Office
The level of education of the auditing staff of the State Audit Office of Latvia can be described by the following figures: out of 128 staff members 25 employees (20%) have secondary and specialised secondary education, out of whom 12 are studing in order to acqure the bachelor’s degree. The rest have higher education (103 or 80%). 11 auditors have the master’s degree.
As of the year 1998, the State Audit Office has become involved in the activities of the Latvian Personnel Management Association and is represented in the international and national conferences. Already for a second year the Personnel Division of the State Audit Office is taking part in the work of the Interministerial Advisory and Cooperation Council.