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Annual report – 1999

The Department of Audit Methodology, Analysis and Development starts the operation
To improve the planning and methodology of audits, co-ordinate the work, analyse the audit results and deal with the development issues of the State Audit Office, the Department of Audit Methodology, Analysis and Development was established and started the operation in January, 1999.
The main directions of activities of the Department of Audit Methodology, Analysis and Development are as follows:

  1. Implementation of the audit standards and co-operation with the EU Court of Auditors and other institutions.
  2. Processing and analysis of the results of audits and forwarding of good quality information to the Parliament.
  3. Planning of the audit work.
  4. Co-operation with the internal audit units, participation in the development of draft budget law, involvement in various working groups (on internal audit, quality assurance system, etc.).

The new department is working in close co-operation with the SIGMA programme, it takes into consideration the results of the analysis carried out by the experts and uses their recommendations in the preparation of the development strategy of the State Audit Office for the coming years.

 

The management control project implemented
During the reporting period the co-operation with the SIGMA programme continued on implementation of the “Management Control” project that requires certain changes in the overall operation of the State Audit Office.

SIGMA experts assessed the work of the State Audit Office during the period from December, 1998 till February, 1999. They evaluated the constitutional and legal status of the State Audit Office, types and scope of audits, including the application of the “Audit Handbook” in the actual work, planning of the audits, development and strengthening of the management and quality of audits, reporting on the completed audits, as well as the training and the use of the IT in the audit work.

In the evaluation report the experts emphasise that in the complicated situation of restoring of national independence the management and staff of the State Audit Office have developed the supreme control body of Latvia as an institution with good reputation because of its competence, integrity and fairness, however the report includes the recommendation to amend the laws regulating the operation of the State Audit Office.

SIGMA experts propose to give authority to the audit staff of the State Audit Office and the European Union to establish the trail of the EU funds in Latvia and to audit the utilisation of these funds down to the level of specific beneficiaries.

The changes and improvements in the regulatory documents are needed also to strengthen the independence of the State Audit Office.
The foreign experts paid much attention to the issues related to planning, management and quality assurance in the audit work.
The experts highlighted the need in the future to apply the information technologies in the management and control of the audit work, as well as to improve the technical capacity of the staff to enable them to audit computerised information systems.
For the purpose of implementing of the recommendations given by SIGMA experts a working group has been established at the State Audit Office.

 

The Strategic Development Plan of the State Audit Office has been developed for the period from January 2000 till December 2004.
Based on the evaluation of the State Audit Office made by SIGMA experts the Strategic Development Plan of the State Audit Office for the period from January 2000 till December 2004 has been developed and approved. This plan includes important measures to ensure the effectiveness of actions carried out by the State Audit Office.
The purpose of the strategic plan is to implement the most important SIGMA recommendations in the following areas: legal and regulatory basis, audit methodology and implementation of standards, competence development, administrative capacity of the management, information technologies. The plan identifies and describes the future development of the State Audit Office.
The goal of the State Audit Office is to provide good quality information and assurance to the Saeima (Parliament), the government, the Latvian society at large and, when time comes, also the European Union on financial control over public resources and the activities of the public administration.

The measures to develop the activities of the State Audit Office are carried out in the following main areas covering conclusions and recommendations from the evaluation report produced by SIGMA experts:

  • legal basis;
  • International Audit Standards and quality control;
  • staff development;
  • development of management and administration;
  • technology improvements.

To implement the strategy a detailed time-table has been developed, and the State Audit Office with the assistance of the SIGMA experts closely follows and monitors the achievement of the interim goals of each phase of the strategic development plan.

 

The training on financial audit methodology has started
The State Audit Office should lay a special focus on development of relationships with the Ministry of Finance, specifically in the field of control and management of the EU funds. SIGMA experts have proposed to the State Audit Office, when developing its work plans, to seek information at the Ministry of Finance on the areas and types of audits that present a particular interest to the Ministry of Finance regarding its work on the state budget and the expected accession to the EU.
Following the evaluation of the said recommendations and based on the “Audit Handbook”, the staff is learning the methodology for audit of annual accounts (financial statements).

 

Audit work
In the year 1999 the structure of the State Audit Office included 5 departments: the State Budget Audit Department, the State Economic Activities Audit Department, the Local Government Audit Department, the Privatisation Process Audit Department and the Department of Audit Methodology, Analysis and Development.
During the reporting period the State Audit Office has finalised 416 audit cases (of which 35 have been commenced in the previous years). In the year 1999 the State Audit Office has referred 25 cases to different law enforcement bodies.

Number of Audits                                                Materials submitted to judicial bodies

summary2           summary1

17 reports on audits carried out during the reporting period have been referred to the Saeima of the Republic of Latvia.
In 1999 the State Audit Office, based on the audit documents, has imposed fines for illegal transactions to the amount of Ls 878 367.

There are public institutions in which the audit has not identified essential drawbacks in handling with the public property and financial resources: the State Geology Service, the Securities Market Commission, the Lottery and Gambling Supervision Inspectorate.

A serious analysis has been carried out on audits of public procurement implemented during the reporting period. Out of 290 audits commenced and finalised in 1999 (not including the audits carried out by the Privatisation Process Audit Department) 25 or 8.6% were about the state and local government procurement.
The total amount spent for public procurement in 1999 was 346.6 mill. Ls. The amount reviewed by the staff of the State Audit Office was 14 mill. Ls or 4% of the total value of the state and local government procurement.
Out of the total number of audits of state and local government procurement 8 or 32% reached the thresholds above which the EU directives on public supplies are applicable.
During the reviews systematic breeches of the public procurement procedure have been identified.
In some case the only element of the procedure complied with has been the publishing of the advertisement on state and local government procurement. In other cases contracts have been awarded without going through the tender, competition or price quotation.
In awarding the contracts to the winning bidders the legal requirements have not been complied with, unjustified advance payments have been made for works or supplies covering a part or the whole of the contract value, the financial resources have not been spent according to the approved cost-estimate.
During its audits the State Audit Office has identified important breeches of legal requirements, but it has not been delegated the authority to suspend the process while the actual circumstances or facts discovered in a complaint are investigated.

Following the analysis of the results of audits the State Budget Audit Department has concluded that the main types of irregularities are no different from those identified during the previous years:

  • the state budget resources used inappropriately;
  • the state assets have been written off with no justifying documents;
  • irregularities in payments for the lease of fixed assets;
  • failure to comply with the legislation governing the pay to the staff members.

When carrying out audits of transactions with the financial resources granted from the State Property Privatisation Fund in the years 1995 to 1998 in the Ministries and other central public institutions, it has been identified that in some cases these resources have not been spent in accordance with the programmes for utilisation of the resources from the Privatisation Fund which have been approved by the Cabinet of Ministers.
By January 1, 1999 11.6% of the resources granted from the State Property Privatisation Fund were not utilised, although the money for implementation of specific programmes has been transferred to the institutions already in 1997. In the given cases, in fact, credit payments have been made from the Privatisation Fund to these public institutions, and such a practice is not stipulated in the Regulations of the Cabinet of Ministers.
Various drawbacks in the utilisation of the financial resources granted from the State Property Privatisation Fund have been caused by the failure of the Ministry of Economy to control and analyse the effectiveness of the use of these funds.

In 1998 the State Economic Activities Audit Department when carrying out the audit on use of donations in the non-government organisations identified that a considerable part of donations (in some cases up to 90%) has been paid out to natural entities. According to the law “On Personal Income Tax” this is a taxable income, however these persons have not paid the income tax and the State Revenue Service has not controlled this area.
The Collegium of the State Audit Office presented a proposal to the Ministry of Finance in conjunction with the State Revenue Service to develop regulatory documents that would enable more efficient and effective implementation of the law “On Personal Income Tax” and the monitoring thereof.
In November 25, 1999 the amendments to the law “On Personal Income Tax” were adopted which also stipulated the way of providing the information to the State Revenue Service on payments made to natural entities. The said amendments will help to improve the accounting and, consequently, the collection of the personal income tax at the State Revenue Service.

The most significant drawbacks identified when reviewing the legal aspects of establishing and operation of companies:

  • the reorganisation of the companies is not carried out in accordance with the laws and regulations of the Republic of Latvia;
  • the system for paying for services has not been set in order;
  • the ownership issues have not been properly established, etc.

In the Local Government Audit Department the number of audits during which no essential violations have been identified has increased (in 1998 – 4 audits, in 1999 – 64 audits). The reduction of the number of irregularities has been facilitated by the materials published in the newsletter “Latvijas Republikas Valsts Kontroles V?stis” (Messenger of the State Audit Office of the Republic of Latvia). The local government officials read the published information and try to eliminate or prevent the drawbacks similar to those identified in other local governments.
In November 25, 1999 the law “On Budget and Financial Management” was amended. Article 30 part 3 stipulates that “The Ministries, central state institutions and local governments shall submit their annual accounts to the State Treasury according to the time-table established thereof, along with the opinion issued by the State Audit Office on whether these accounts present a fair view.”
In view of the said amendments which will enter into force as of January 1, 2000, the Local Government Audit Department at the end of 1999 carried out a pilot-audit in Sigulda city Council with the purpose of acquiring a learning experience about audit of annual accounts.

During the reporting year the Privatisation Process Audit Department pursued the main directions of the audit work carried out in the previous years, as well as reviewed the compliance with the regulations on capitalisation of the tax debts to be transferred to the state budget and privatisation of the state share of the capital. The department has commenced the reviews of compliance with the laws and regulations in the privatisation of local government companies, as well as a thematic compliance review on handling of the housing fund in the companies privatised during the period from 1991 to 1994.

The main drawbacks (irregularities) identified during the audits:

  • the not-for-profit public joint stock company “Privatisation Agency” (hereinafter – Privatisation Agency) has not complied with the legal provisions, by changing the conditions of privatisation in the way that contradicts the privatisation project;
  • failure of the Privatisation Agency to fully comply with the Transition Provisions of the law “On Privatisation of State and Local Government Property” of February 17, 1994;
  • the subjects of privatisation have failed to observe the proportionality of payments for the privatised objects (companies) to be made into the state and local government privatisation funds;
  • certain violations have been identified in the way how the Privatisation Agency by the decision of its Board had changed the method of payment without any legal justification, since the set ratio between Lats and privatisation certificates (vouchers) for redeeming of the state property was not in accordance with the projects for privatising of these state companies;
  • since the legislation of the Republic of Latvia does not stipulate the concept of investment, the investment procedure, the methodology for evaluation of investment, the investment guarantees and other conditions related to investments, unprofitable and ineffective transactions have been allowed for in the privatisation of the state companies, causing real losses to the state, moreover, such type of investments do not contribute to the growth of the national economy.

The results of the audit carried out by the staff of the Privatisation process Audit Department (at the state company “Riga Jewellery Factory”) and the report submitted to the Cabinet of Ministers (the State Audit Office believes that the Regulations of the Cabinet of Ministers N. 48 “On Procedure for Financing of Privatisation Agency and Settlements with the Privatisation Funds and the State Budget” do not sufficiently clearly regulate the activities of the Privatisation Agency) has served as the basis for the initiative that the Ministry of Economy should commence the elaboration of the draft amendments to the said Cabinet Regulations.

 

International co-operation

The main areas of international co-operation in the year 1999 have been as follows:

  1. Participation in the international Consortium on financial management of the public sector.
  2. Organising of training of the staff of the SAO in the EU member States.
  3. Participation in the working group “The functions of the supreme control institutions in the context of the European integration”.
  4. Participation in the working group “The active role of the supreme control institutions in adoption and application of the acquis communautaire”.
  5. Participation in the INTOSAI working group on privatisation in a status of an observer.
  6. Involvement of the EUROSAI working group on environment audits.
  7. Participation in organising and the proceedings of the 4th Congress of the EUROSAI.
  8. Participation in the workshops for the supreme control institutions of the Baltic States (Lithuania, Latvia, Estonia) and organising of a workshop in Latvia.
  9. Regular work of SIGMA (Support for Improvement of Governance and management in Central and Eastern European Countries) experts at the State Audit Office throughout the year.
  10. Participation in the co-operation programmes between the Nordic countries and the Baltic States.

An important event was our participation in the second round of screening meetings in Brussels on financial and budgetary provisions and financial control.
The staff of the State Audit office (the members of the Council and the Collegia, senior state auditors) had a possibility to take part in a two-week training programme on financial and value-for-money audits in Copenhagen, at the State Audit Office of the Kingdom of Denmark and to acquire the knowledge so much needed for our future development.
In Norway our auditors could take part in a two-week workshop and learn about training methodology for auditors.
Within the framework of co-operation between the supreme control institutions of the Baltic States and with the support of the SIGMA programme a workshop was organised in Tallinn on training methodology according to the INTOSAI standards.
With the financial support of the TAIEX office (the office for technical assistance in the information exchange) of the European Commission a group of our auditors took part in a seminar in Brussels on issues concerning the activities of the supreme control institutions of the applicant countries in relation to the EU law and the financial procedures and financial control provisions for the pre-accession funds, namely, SAPARD and ISPA.

 

Information technologies and provision of information
The Information Division organises the provision of information, the information technologies, as well as the preparation and printing of informational publications of the State Audit Office.

The work of the Information Division follows the four main directions:

  1. Provision of different types of information
  2. Preparation, organisation of publishing and dissemination of informational publication of the State Audit Office.
  3. Editing of draft documents, audit materials and different publications prepared at the State Audit Office.
  4. Ensuring of computerisation and the IT development at the State Audit Office.

In view of the possible computer risk of the year 2000, the accounting and document registration software had to be replaced. A licensed accounting and multi-purpose filing software has been purchased.
Along with the procurement of the advanced filing software a new Lotus Notes technology will be introduced in the State Audit Office.
The internal and external electronic communication tools enabled those staff members of the State Audit Office who are working with the PCs of sufficient capacity to use the information stored in the local network as well as the information from other data-bases via the Internet. During the reporting year the number of auditors who have access to the data-base of the Register of Companies has increased. Since March, 1999 we publish regular information in the Home Page of the State Audit Office on the collegiate decisions taken in respect of the audits carried out by the SAO (decisions of the Collegia of the departments, the decisions of the Council of the State Audit Office, and the rulings of the Senate of the Supreme Court of the Republic of Latvia).
During this period when the staff of the State Audit Office are learning the new audit methodology, i.e., how to apply the international audit standards in their work, there is a very high need for an internal publication which would serve as an aid to introduce the INTOSAI audit standards in the audit work. In 1999 the Information Division in co-operation with the Department for Audit Methodology, Analysis and Development has issued one such bulletin.

 

The staff of the State Audit Office
The level of education of the staff of the SAO at the end of 1999 could be described with the following figures: out of 177 staff members 49 (27.7%) have finished secondary and specialised secondary education; 14 (7.9%) have the Bachelor`s degree, 12 (6.8%) have the Master`s degree, 98 (55.4%) have finished the higher professional education, 2 (1.1%) have finished two higher educational establishments, and 2 (1.1%) have the Ph.D. degree.
In 1999 the staff competence assessment working group started to develop the rules and procedures for assessment of the competence of the staff members of the State Audit Office. The assessment was planned for February, 2000. The purpose of assessment is to identify the training needs of the staff.