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Annual report – 2000

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Dear reader!

You are holding a publication prepared by the staff of the State Audit Office to give a brief summary of the work carried out in 2000.

The year 2000 is an important benchmark in the life of the State Audit Office leading to the development of our organisation as an advanced and effective external financial control body. During the reporting year we started the implementation of the strategic development plan of the State Audit Office for the period from January 2000 till December 2004.

The plan stipulates that the State Audit Office will carry out its main task, i.e., supervision and control of collection and utilisation of the state and local government budget resources and operations with the state and local government property, in line with the international audit standards thus ensuring continuity and effectiveness of financial control and transparent use of the public funds, i.e., the tax-payers’ money.

Throughout the year 2000 the State Audit Office carried out the implementation of the international audit standards and was applying the main guidelines of the European Union.

I hope that this publication will help you to get an impression on the performance of the staff of the State Audit Office in the year 2000.

paraksts

Auditor General
of the Republic of Latvia
Raits Černajs

 

 

 

BRIEFLY ABOUT THE STATE AUDIT OFFICE

Legal status and legal basis for auditing
Article 87 of the Satversme (Constitution) of the Republic of Latvia stipulates that the State Audit Office is an independent collegiate body.

The following laws regulate the activities of the State Audit Office:

  • the Law “On State Audit Office” of 28 October 1993 which stipulates the structure, the legal status and the basic tasks of the State Audit Office;
  • the Law “The Rules of the State Audit Office” of 7 September 1995 which specifies the audit procedures, the rights and responsibilities of auditors during the audit and the rights and responsibilities of the auditees.

The task
To supervise that the collection and utilisation of the state and local government basic budget as well as special budget resources and the operations with the state and local government property are legal, effective and correct.

Achievements
210 audits completed by 30 December 2000.

Human resources
On 30 December 2000 the State Audit Office had 171 full-time employees.

Financial resources
Annual budget of 2000 – LVL 1 165 852

Further information available at:
State Audit Office
of the Republic of Latvia
Kr.Valdemāra Street 26
Riga LV-1937, Latvia
Working hours: 8:30 – 17:15
Telephone 2 371 7017500
Fax 2 371 7017673
E-mail lietvediba@lrvk.gov.lv
Web-site http://www.lrvk.gov.lv

 

MOST IMPORTANT EVENTS
AT THE STATE AUDIT OFFICE IN 2000

  1. Throughout the year regular work together with the SIGMA experts to implement the strategic development plan of the State Audit Office.
  2. Preparation of a new draft law “On State Audit Office”.
  3. Methodological work in the area of financial audits and value-for-money audits.
  4. Development of methodological guidelines on auditing of public procurement.
  5. Involvement in the EUROSAI Environment audit project group and participation in a parallel audit in 8 countries of the Baltic Sea region to review the implementation of the HELCOM Convention (Helsinki Convention – Convention on the Protection of the Marine Environment of the Baltic Sea Area) in Latvia.
  6. Analytical assessment and issuing of an opinion on the following thematic audits carried out at the State Audit Office:
    • audits of financial accounts (pilot-audits)
    • public procurement
    • utilisation of Phare funds for projects in Latvia
    • privatisation of food-processing companies.
  7. Approximately 1/5 of all audits started in 2000 are financial audits (pilot-audits) that were performed in accordance with the international audit standards.
  8. The experience gained during the pilot-audits has enabled the SAO staff to reduce the duration of audits three times at the end of 2000 compared to the time required for auditing in the beginning of 2000.
  9. Participation of the staff of the State Audit Office in the international task forces of the INTOSAI (International Organization of the Supreme Audit Institutions), EUROSAI (European Organization of the Supreme Audit Institutioons), SIGMA (Support for Improvement of Governance and Management in Central and Eastern European Countries) and the European Court of Auditors.
  10. The European Commission’s Steering Committee has granted the Phare (Public Administration Reform) funding for the implementation of the project “State Budget and Financial Management in Latvia”. Within the framework of the said project preparatory measures were taken at the end of 2000 to launch the twinning project between the State Audit Office and the United Kingdom.
  11. Organisational work carried out to prepare the State Audit Office for auditing of utilisation of the financial resources of the European Union Funds and other international organisations and funds in Latvia.
  12. Comprehensive explanatory work and preparations have been carried out among the state and local government officials and auditors in view of the amendments to the Law “On Budget and Financial management” under which the State Audit Office has been assigned the task as of 1 January 2001 to issue opinions on annual accounts of 27 central state institutions and 578 local governments.
  13. 110 employees of the State Audit Office have undergone competence appraisal.

 

INTRODUCTION

The year 2000 is an important benchmark in the life of the State Audit Office leading to the development of our organisation as an advanced and effective external financial control body. During the reporting year we started the implementation of the strategic development plan of the State Audit Office for the period from January 2000 till December 2004.
This basic document for the future development of the State Audit Office was prepared following the advice of SIGMA experts who evaluated our previous activities and the national legislation. The European Union experts examined the compliance of the audits carried out by the State Audit Office with the international audit standards, the European Union legislation and the international practice, as well as the practices of the supreme audit institutions in Europe. A stable financial system and adequate financial control is one of the pre-conditions for the existence and development of any country.
SIGMA experts identified the areas that have to be clarified and improved. One of the most important such areas is the legislation, since it is necessary to amend the Law “On State Audit Office” and other related laws, for example, the Law “On Public Procurement”, the Law “On Local Governments”, the Law “On Financial Accounts”, the Law “On Budget and Financial Management”, etc.
Equally important tasks are the implementation of the international audit standards and the quality assurance procedures, human resource development and building of administrative capacity of the management. The development in these areas will enable consistent management of the planned change, effective use of resources, introduction of new technologies and understanding about the communication with the clients.
And the last, but not the least development area is the application of advanced information technologies in the audit work.
The partnership documents for accession to the European Union stipulate numerous measures to be carried out in Latvia to achieve the compliance of the national legislation, the public administration, the internal control structure and the external audit system, as well as other areas, with the EU acquis communautaire.
To implement the tasks set in the pre-accession documents the Steering Committee of the European Commission granted Phare funding for the project “State Budget and Financial Management” in Latvia.
This project is aimed at improving the state budget process, strengthening of public procurement standards and procedures, development of internal control and strengthening of the external audit system, as well as reforming the state administrative structures. The parties involved in the implementation of the project are: the Ministry of Finance of the Republic of Latvia and its Public Procurement Supervision Department and the Internal Audit Department, the Public Administration Reform Department under the Minister of Special Assignment for Public Reforms, and the State Audit Office. The State Audit Office being the supreme audit institution of an EU applicant country must improve the audit methodology, extend the scope and type of audits and start the auditing of utilisation of the EU funds in Latvia.
The leading country of the partnership agreement and the country providing the pre-accession consulting is the United Kingdom (an European Union Member State) which co-ordinates the project implementation in Latvia. At the end of 2000 preparatory measures were carried out to launch the twinning project between the State Audit Office and the United Kingdom.
Also at the end of 2000 a seminar was organised with the support of SIGMA programme on implementation of the INTOSAI audit standards in Europe and application of the European Union guidelines. This event was a major contribution for both theoretical training on auditing techniques, as well as the future practical work of the SAO staff.

 

WORK OF THE AUDIT METHODOLOGY, ANALYSIS
AND DEVELOPMENT DEPARTMENT

The Audit Methodology, Analysis and Development Department is responsible for improvement of the audit planning and methodology issues, co-ordination of the audit work, analysis of the audit results and dealing with the overall development issues of the State Audit Office. The main direction of activities and the implemented measures:

  1. Regular involvement together with the SIGMA experts in the working groups of the State Audit Office and organisation of the implementation of the Strategic Development Plan of the State Audit Office;
  2. Methodological work in the area of financial audits and value-for-money audits;
  3. Organisational work to prepare the auditing of the utilisation of the European Union funds and other international assistance funds in Latvia;
  4. Co-operation with the European Integration Unit of the Ministry of Finance on financial control mechanisms related to public administration functions to enable Latvia’s accession to the European Union;
  5. Co-operation with the Internal Audit Department of the Ministry of Finance in the following directions:
  6. preparation of audits of the European Union assistance funds in Latvia;
    • negotiations with the European Commission services about the issues related to the financial control;
    • Phare 2000 project;
    • joint work of the State Audit Office and the internal audit units on planning and implementation of audits.
      Processing, analysis and presentation of the results of audits to the Saeima (Parliament).

The Department has prepared the information to the Supreme Control Chamber of the Republic of Poland in response to its questions about the IT development in the audit area in Latvia. This information will be included in the report of the Supreme Control Chamber of the Republic of Poland “On Issues Related to Information Technologies in the Countries of Central and Eastern Europe”.
The Department has also prepared the presentation for the Baltic seminar organised by the State Audit Office of Estonia on preparatory work carried out in Latvia to audit the financial resources granted from the pre-accession funds and other financial instruments of the European Union.
In addition, in co-operation with the State Budget Audit Department of the State Audit Office it has worked on issues related to environment audits at the Ministry of Environment Protection and Regional Development and its subordinated and supervised institutions financed from the state budget, as well as the use of public funds to ensure the implementation of the requirements of Helsinki Convention on environment protection in the Baltic Sea region.

 

AUDIT ACTIVITIES AT THE STATE AUDIT OFFICE

In 2000 four departments of the State Audit Office were involved in auditing activities: the State Budget Audit Department, the State Economic Activities Audit Department, the Local Government Audit Department and the Privatisation Process Audit Department.
210 audit cases were finalised during the reporting year (of which 13 were started in the preceding year, i.e., 1999).

Number of audits

2000gads1

The audit plan of the State Audit Office for the year 2000 includes new types of audits – issuing of opinion on financial accounts of the ministries, central state institutions and local governments. This type of audit has new quality requirements including compliance with the international audit standards. Because of this reason the number of audits carried out (248) and finalised (210) in the year 2000 is lower than in previous years.
The audit departments have started 49 pilot-audits, 46 of which were finalised, that constitute approximately 1/5 of all audits started and finalised in 2000.
The Local Government Audit Department was given the assignment in 2000 to carry out 37 pilot-audits of which 37 have been reviewed by the Collegium and closed.
The State Economic Activities Audit Department started 10 pilot-audits in 2000 of which 7 have been finalised and reviewed by the Collegium.
The State Budget Audit Department has finalised 2 pilot-audits – one at the Ministry of Economy and the other one at the Ministry of Culture.
During the pilot-audits the auditors understood and re-assessed the routine and stereotypes of previous work practices and evaluated the need for change in relation to the old practices and auditing procedures. The experienced gained during the pilot-audits has led to the threefold reduction of duration of audits at the end of 2000 compared to the time required for audits in the beginning of the year. This achievement has been made by investing a large amount of work in planning of audits as well as unifying and formalising the different stages of audits. Consequently, the results of audits are better comparable than the results obtained following the old work practices.
In the year 2000 the State Audit Office has imposed extra charges and fines to the amount of LVL 40 518.98. The performed audits have led to including the financial resources into the basic state budget as well as replenishment of financial resources in different funds in which the overspending had been identified.
Five reports have been produced based on the results of the audits.
Under Section 9 of the Law “The Rules of the State Audit Office” the audit departments have referred 17 audit cases to the Prosecutor General’s Office in the reporting year.

Cases referred to the law enforcement bodies

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Analytical assessment of material by audit themes

The staff of the State Audit Office have analysed, assessed and provided conclusions on the following audit themes:

  1. Audits of financial accounts (pilot-audits).
  2. Public procurement.
  3. Utilisation of Phare funds in Latvia.
  4. Privatisation of food-processing companies.

1. Audits of financial accounts (pilot-audits)
Throughout the year 2000 the State Audit Office was working on the implementation of the international audit standards and application of the European Union guidelines in the audit work. Pilot audits were analysed using the materials of the audits that had been completed and Collegiate decisions about which had been taken by December 30, 2000, i.e., 38 pilot-audits were carried out in line with the international audits standards and the Latvian legislation. The auditors have evaluated the experience gained during the audits of financial accounts, summarised the results and analysed the emerged problems in order to propose possible solutions to these problems.

The following audit areas presented certain difficulties to the auditors:

  • development of the overall audit plan and programmes;
  • identification of the materiality level and assessment of its adequacy;
  • assessment of inherent risks and control risks;
  • evaluation of audit evidence to decide on validity of the evidence;
  • evaluation of the automation degree of accounting procedures, the complex nature of the IT system;
  • lack of audit history of previous years;
  • intended or unintended negligence of the requirements of the State Audit Office from the part of the auditee;
  • lack of internal control or poor quality and unreliable internal control in the organisation of the auditee;
  • drafting of the report.

To resolve the identified difficulties it is necessary to implement the measures stipulated in the strategic development plan of the State Audit Office. The plan includes all most important elements that are needed to ensure effective operation of the State Audit Office.
The audit departments carry out organisational work to successfully continue the implementation of the tasks set in the strategic development plan of the State Audit Office.

2. Public procurement
The purpose of the Law “On Public Procurement” – to achieve rational use of state and local government financial resources, to facilitate the involvement of a broad range of suppliers and contractors in public procurement, to secure free competition and fair and equal treatment of suppliers and contractors, to achieve openness and publicity in the public procurement procedures and to enhance the trust of the general public to these procedures – has not been achieved in its broadest sense.
During the reviews systematic and highly material breaches of the public procurement procedure have been identified.
When procuring goods, services and works preference is given to local producers and contractors.
The effective laws and regulations on public procurement are incomplete.
The State Audit Office may only review the compliance of the public procurement procedures with the legal requirements, i.e, to identify the actual situation, however, it cannot effect it in any way.

3. The use of Phare funds for projects in Latvia
Latvia is receiving the Phare assistance within the framework of the national (only for Latvia) and the regional (for all Phare countries) programme. The Phare programmes provide non-refundable assistance to Latvia in the form of consulting services and know-how.
Purposeful and skilled activities on the Latvian side to attract the Phare funds would enable Latvia to receive assistance for dealing with various important problems, thus bringing us closer to meeting the requirements of the European Union.
When implementing the projects funded within the framework of the EU Phare programme Latvia has received real support in the agricultural and rural development sector which helps Latvia to comply with the legal requirements of the European Union and supports its integration to the EU.

4. Privatisation of food-processing companies
Privatisation of grain- processing companies
Privatisation of grain-processing companies has been carried out in line with the effective legislation. In many cases the privatisation has been very difficult.
397 094 privatisation vouchers amounting to LVL 11 118 646 have been used in the privatisation process, and the payment received amounts to LVL 924 893, however, the actual payment received was only LVL 628 477.

Privatisation of grain processing companies

2000gads3

If the privatisation process is evaluated from the perspective of the amount of the money paid to the state, then, compared to the total value of the companies 18.7 million LVL, the state has gained very little.
No state capital shares were envisaged in the privatised grain processing companies, and a part of the state shares in public companies were handed over to the Pension Fund.
The not-for-profit organisation public joint stock company “State Social Insurance Agency” as of 1 January 2000 owns the shares of 12 grain processing companies with the total value LVL 806 000. During the period from 1994 to 1999 the dividends to the amount of LVL 20 523 have been transferred to the Pension Fund.

Privatisation of bakeries
Compliance with legal requirements has been achieved in privatisation of the bakeries. No state capital shares were envisaged in the privatised bakeries, and a part of the capital was transferred to the Pension Fund. The Pension Fund received the shares in 9 companies undergoing privatisation with the total value of LVL 130 587. The initial plan was to sell the bakeries for Lats and the companies, when signing the acquisition agreements, confirmed their readiness to pay the price stated in the privatisation rules in Lats, however, later they used the permission granted by the Ministry of Economy and the Ministry of Agriculture and covered the major part of the relative price with the privatisation vouchers. From the sale of the bakeries the state received LVL 560 000 of the total value of LVL 3 million.

On size and use of state capital shares in the former dairies subordinated to the Ministry of Agriculture
In the privatisation projects of the companies the state capital shares were envisaged in 5 dairies undergoing privatisation, in each of them – 10% of the equity. At the time of privatisation of the dairies the Law “On Privatisation of Dairies” did not include the provision that a defined part of the shares must be handed over to the Pension Fund. The revenues of the state from the privatised dairies for the use of the state capital shares were LVL 43 676 in 1995 and LVL 0 over the period from 1996 till 1999, but in the final settlement the state will receive LVL 835 608 for the sale of the state capital share. Of 15 privatised dairies 14 were operational as on 1 January 1999, and their economic activities and development has been successful.

On size and use of state capital shares in the former meet-processing companies subordinated to the Ministry of Agriculture
The Ministry of Agriculture which under the law was responsible for privatisation of the meet-processing companies issued an order specifying the ratio of capital shares to be reserved for the state. In 8 companies the share of the capital reserved for the state was 10%, but in 5 companies – 15% of the equity. No provision was included that a defined part of the capital shares must be handed over to the Pension Fund.
When evaluating the use and sale of the state capital shares it must be concluded that the state has not benefited from this process, although legal compliance has been ensured. The state did not receive any cash payment, but, instead, 18 635 privatisation vouchers were used in this process.

 

WORK OF THE AUDIT DEPARTMENTS

At the State Budget Audit Department the audits were carried out in accordance with the budget development principle, i.e., the implementation of specific programmes and sub-programmes financed from the state budget.

When analysing the audits carried out by the staff of the State Audit Office, several drawbacks characteristic of many institutions were identified:

  • the accounting documents not always give a fair view on the financial standing of the auditee and its economic transactions;
  • several ministries (central state institutions) show the trend that the actual expenditure exceeds the actual revenue;
  • the material assets of the institutions are handed over to free use by companies (entrepreneurial societies);
  • in many institutions financed from the state budget the pay levels are set disregarding the requirements of the effective legislation;
  • still a large number of state institutions conclude the so-called management or performance contracts which in terms of their content should be regarded as additional payment for discharge of direct job responsibilities. The effective Regulations of the Cabinet of Ministers on management contracts permit unrestricted and – in most of the cases – ineffective use of state budget resources to finance the salaries;
  • the regulations on planning of the budget at state institutions do not specify the list of services the institution may plan for and receive to ensure the implementation of its tasks.

During the audit on the state of accounting of natural resources the auditors identified the lack of unified accounting and inventory of natural resources in the territory of Latvia, therefore it was not possible to assess whether the national wealth – the natural resources – are used in a rational way. There is no uniformity in establishing the ownership of natural resources. The data collected during the audit were used by the State Audit Office to take part in the international audit “On Environment Protection in the Baltic Sea Region” in the second half of the year 2000.
During the thematic audit on handling of the state property and financial assets related to the activities of the supervisory, controlling, audit and inspection bodies in the state institutions the auditors identified that no general principles governing the activities of the inspectorates have been established by laws or regulations. Sometimes various institutions have given different names to similar activities: supervision, control or inspection. Activities like supervision and control are not co-ordinated in Latvia. It is not defined what activities are meant by the terms “control” and “supervision” and no uniform principles have been established for supervision and control.
The State Budget Audit Department is continuing the review of annual accounts of central state institutions and jointly with the Ministry of Finance and the State Treasury is considering the issues related to submission of annual accounts and issuing of the opinion of the State Audit Office.

The State Economic Activities Audit Department has carried out 74 audits in the year 2000, of which 51 were planned audits, 22 were unplanned audits and one audit was started in the year 1999. Finalised were 68 audits, the material of 63 audits was discussed at the meetings of the Collegium and relevant decision were taken. One audit assignment was withdrawn, 3 audit cases were referred to the Prosecutor General’s Office of the Republic of Latvia. The audit material has been collated and published in two reports: on use of state capital shares in the former grain-processing companies of the Ministry of Agriculture and on the agricultural and rural development projects financed by the EU Phare programme.
The unplanned audits were carried out upon request of the public officials of the Republic of Latvia and in response to the complaints of the citizens. The audit sectors of the Department also prepared the replies to the applications and complaints of the citizens.

The following audits have been carried out during the reporting year:

  • on annual accounts of companies – to review whether they present a true and fair view on the financial standing of the company;
  • on tendering processes within the public procurement procedure;
  • on handling by companies of the state property assigned to them to carry out business activities.

Under the guidance of the SIGMA expert Phil Duncombe the staff of the Department started 10 pilot-audits of annual accounts of state and local government companies in line with the international audit standards and procedures 7 of which were finalised. All companies selected for this purpose were entrepreneurial societies providing health-care services. The objective of these audits was to provide an independent opinion on annual accounts of the auditees and to learn about and implement in the audit practice the procedures derived from the international audit standards, in fact, this objective was achieved towards the end of the year.
In 2000 the Department established a specialised audit unit for public procurement audits. In this type of audits the auditors follow the methodological guidelines for public procurement auditing developed at the State Audit Office based on the national legislation regulating the said area, the procedures stipulates by the international audit standards and the best practice in the European Union.
During the reporting year 8 audits on awarding of state procurement contracts and 4 audits on awarding of local government procurement contracts were carried out. In all audited cases the breaches of some provisions of the Law “On Public Procurement” and the related secondary legislation were identified.
Public procurement audits are very relevant, since large amounts of public funds are spent for procurement. Monitoring of this area improves the process of organising procurement and prevents possible conflicts of interest.
When performing the audits on handling by companies of the state property handed over to them to carry out business activities the auditors assessed the legality and effectiveness of activities of these companies. As the result one audit opinion and the decision of the Collegium were referred to the Prosecutor’s General Office to examine the legality of the activities of the company management. In several other audits the auditors identified ineffectiveness of activities and lack of control over the spending of the state budget resources or the profits of the company.

The Local Government Audit Department has launched financial audits in 2000 following which the State Audit Office issues qualified opinions on financial standing and performance outputs of local governments. The financial audits are planned and carried out in conformity with the international audit standards to gain sufficient assurance that the financial accounts do not contain any major discrepancies. The audit covers the final amount specified in the financial accounts and the review of validity of provided substantiation based on sampling principle, as well as the evaluation of the accounting and internal control principles applied in preparation of the financial accounts.
During the reporting year 37 financial audits (pilot-audits) were carried out in line with the international audit standards.
When performing these audits the Collegium of the Department did not issue its opinion on the financial standing and performance outputs of two local governments who had not accounted for assets of the total value amounting to LVL 1 699 025.
26 local governments received the opinion of the State Audit Office with a remark, since they had not included the following assets in the financial accounts: investments in local government companies and entrepreneurial societies, land, fixed assets, debtor’s payments and other data. In total these local governments had failed to account for the financial and other type of assets of the value of LVL 11 450 777 and 1 317.3 ha of land whose cadastre value has not been estimated.
In case of 8 local governments the opinion issued by the State Audit Office stated that the financial accounts in all material aspects present a true and fair view on the financial standing and the performance results of the respective local government Council.
When auditing the handling of the state and local government property (including financial assets) in 3 local government the auditors identified incorrect use of receipts from the natural resources tax. The Collegium of the Department imposed extra charges LVL 636 396 for the identified irregularities and ordered the respective local governments to return these resources to the natural resources tax account of the local government special budget. The auditors also notified the Ministry of Environment Protection and Regional Development on misuse of the revenues from the natural resources tax in the local governments.
On 25 November 1999 the amendments to the Law “On Budget and Financial Management” were adopted. These amendments stipulate that the provision of Section 30 of this Law comes into force as of 1 January 2001 stating that the local government shall submit the annual accounts to the State Treasury according to the set time-table and that these annual accounts shall enclose an opinion issued by the State Audit Office. To implement the new legal requirements the staff of the Local Government Audit Department carried out comprehensive preparations and explanatory work among the staff of the local governments and the Department.
Section 73 of the Local Government Act stipulates that the local government shall invite an audit company or a sworn auditor to carry out a financial audit no less than once in a year. The staff of the Department carried out a survey of all local government with the purpose to establish the actual situation in respect of complying with this provision. It turned out that by 1 November 2000 only 178 (31%) of 578 local governments had complied with the legal requirements. The Minister of Special Assignment for Public Reforms was notified about this extreme situation. The achieved result was that almost all local governments abode by law and invited audit companies or sworn auditors to carry out financial audits.
The staff of the Department have given presentations in various local government seminars, meetings and conferences and have explained what measures need to be carried out to comply with the provisions of Section 30 of the Law “On Budget and Financial Management”.
Jointly with the State Treasury the time-table was established for the local governments to present their annual accounts to the State Audit Office and, following that, to the State Treasury, and all local governments were notified about the time-table.
The Department developed standard procedures for its staff in view of the amendments to the Law “On Budget and Financial Management” coming into force, as well as standard letters and qualified opinions on the local government annual accounts in line with the international accounting standards.

The Privatisation Process Audit Department in co-operation with the staff of the State Budget Audit Department of the State Audit Office has prepared an opinion on social tax and mandatory social contribution debts to the not-for-profit public joint stock company “Privatisation Agency” and the capitalisation of these debts in companies and entrepreneurial association to be privatised. Comprehensive work was carried out to prepare these audits and to summarise the results, as well as to analyse the compliance with the legal provisions on capitalisation of basic tax debts to the state budget and privatisation of state capital shares, privatisation of state resorts in Latvia, changes in the ratio of the forms of payment in the privatised objects, as well as the handling of the residential buildings owned by the state.

In the course of auditing 20 companies which have concluded hire-purchase contracts on sale of the state capital share created as the result of tax capitalisation, the auditors made the following findings:

  • several buyers in whose case the term of payment set in the hire-purchase contract has not expired, fail to meet their commitments stipulated in the contract, fail to make irregular payments for the state capital shares and fail to meet the dead-lines set in the time-table for payments;
  • the Privatisation Agency has not controlled the compliance with the time-table for payments stipulated in the contract with the exception of calculating the fines and sending letters to some statutory societies on failure to meet the payment time-table, thus failing to abide by the provision of Section 8 paragraph 1 sub-paragraph 11 of the Law “On Privatisation of State and Local Government Property” of 17 February 1994 stating that “The Privatisation Agency shall control the implementation of the concluded contracts and shall carry out the activities specified in laws and contracts to ensure the implementation of contracts, and it may revoke the contract, if the privatisation subject fails to comply with the provisions thereof.”

When reviewing the privatisation of the Latvian resorts (sanatorium “Ķemeri”, sanatorium “Baldone” and the manufacturing company “Kurortoloģija”), the auditors came to the conclusion that the audit findings do not support any serious intentions of the subjects of privatisation to preserve these unique objects – sanatorium and resort/out-patient-hospital “Ķemeri” and sanatorium “Baldone”, as well as the privatised curing mineral water deposits in Jūrmala and Baldone – and to use them in accordance with the provisions governing the protection of historical monuments and the interests of the Latvian state.
As to the privatisation of residential buildings, the inclusion of these buildings in the assets of the companies undergoing privatisation was contrary to the laws of that time. The said is true in relation to the objects possessed by the Ministry of Agriculture and the Ministry of Transport and subject to privatisation.

When analysing the financial activities of 1999 of 153 state-own objects subject to privatisation in which the negotiable instrument has been changed, the auditors identified the following:

  • only 64 entrepreneurial societies (41.8%) operate with profits and the share to be paid in Lats in these companies has been reduced by 4.33 million which constitute only 27.9% of the total changed share to be paid in Lats;
  • in 73 entrepreneurial societies (47.7%) of which 5 have been liquidated, 12 are insolvent and 56 are unprofitable, the production activities or provision of expected services is at risk or has been terminated, and instead of the expected successful activities involving the private capital in the country the actual result is the reduction of tax revenues to the state budget. The share to be paid in Lats in these companies has been reduced by 10.95 million which constitute only 70.5% of the total changed share to be paid in Lats;
  • in 16 entrepreneurial societies (10.5) on whom no financial information can be found in the LURSOFT data-base, the share to be paid in Lats in these companies has been reduced by 0.26 million which constitute 1.6% of the total changed share to be paid in Lats.

When analysing these basic indicators it is necessary to consider the impact of both subjective and objective factors on the privatisation process in general.

 

INTERNATIONAL CO-OPERATION

The international co-operation in 2000 has led to new knowledge necessary for the audit work and adding to experience of auditors in areas related to methodology and competence. An important fact is our participation in the international task forces at the EUROSAI and INTOSAI, as well as the contribution of the SIGMA and the European Court of Auditors to our development issues.

The international co-operation of the State Audit Office in 2000 took the following three main directions:

  1. Participation of the Auditor General of the Republic of Latvia in various events organised abroad.
  2. Participation of the staff of the State Audit Office in international meetings, congresses and conferences, traineeships and training programmes in foreign supreme audit institutions.
  3. The international events organised by the State Audit Office of the Republic of Latvia in Riga.

The most important activities (events):

  • 14th annual international conference “Latest trends in the public sector financial management” in Miami (Florida, USA);
  • Co-operation between the State Audit Office and foreign supreme control institutions on issues related to environment protection;
  • Traineeship at the office of the Budget Commissioner of the European Commission Michaele Schreyer;
  • The first meeting of the task-force established by the heads of the supreme audit institutions of the countries of Central and Eastern Europe, Cyprus, Malta and the European Court of Auditors on implementation of 11 recommendations for the activities of the supreme audit institutions in the light of the European integration;
  • The second meeting of the task-force established by the heads of the supreme audit institutions of the countries of Central and Eastern Europe, Cyprus, Malta and the European Court of Auditors on issues related to the implementation of recommendations and strategies adopted by the heads of the supreme audit institutions;
  • Seminar on strategic planning organised by the EUROSAI and the IDI which was the first step in the Long-term Regional Training programme;
  • Meeting of the Auditor General of the Republic of Latvia Raits Černajs with the Commissioner for the Budget and Financial Issues of the European Union Michaele Schreyer and His Excellency Ambassador of the European Commission in Latvia Günther Weiss;
  • Seminar organised by SIGMA “Implementation of the INTOSAI standards in Europe and application of the EU guidelines”.

 

INFORMATIONAL PROVISION AND INFORMATION TECHNOLOGIES

During the reporting year the Information Section adjusted its activities to implement the measures stipulated by the Strategic Development Plan of the State Audit Office, i.e., with a special emphasis on information technologies and provision of information.

I. In the area related to information technologies we have carried out activities to develop and implement the following sub-systems of the information system of the State Audit Office:
1. Data-base on the auditees.
Information on the auditees of the State Audit Office was collected, collated and supplemented. It corresponds to the specifics of each department. The design of the sub-system will be developed in 2001.
2. Electronic library system.
The development of the electronic library system stipulated in the section “Management Information System” of the Strategic Development Plan of the State Audit Office has been completed. The entry of the materials available at the information centre was started in the reporting year and will be continued next year.
3. Filing system.
The implementation of the new multi-functional filing system was started, and it will become the basis for the information system of the State Audit Office.
4. Stock accounting system.
The stock accounting system is being re-designed due to the changes in the system of accounts.

II. One of the sections in the Strategic Development Plan sets the requirement to improve the library services. the library of the State Audit Office was computerised at the end of 2000. It enables access to the data-bases located within the local area network of our organisation and also to the Latvian and global Internet sites.
Since the level of computerisation at the State Audit Office was insufficient compared to that of the auditees, in 2000 our institution purchased 10 computers and a server within the limits of the budget and leased 48 computers and 10 printers for the period of 2 years.
On 1 November 2000 another measure set by the Strategic Development Plan was carried out – the Information Technologies Section was established at the Administrative Secretariate of the State Audit Office.

 

APPRAISAL OF THE STAFF OF THE STATE AUDIT OFFICE

In accordance with the Regulations “On Competence Appraisal of the Staff of the State Audit Office” and “On Competence Appraisal Commission” adopted by the Auditor General, in March and April 2000 the appraisal of competence of the staff of the State Audit Office was carried out; 112 employees were subject to the appraisal.
110 staff members of the State Audit Office took part in the appraisal and submitted written proposals or written analysis of the Audit Manual.

In line with the Regulations the Appraisal Commission evaluated the competence of the employees in three areas:

  1. Enhancement of the level of education, professional experience and qualifications.
  2. The quality (relevance) of the written proposals or analysis.
  3. Answers to the questions and analysis of the case-studies.

The results of the staff appraisal were used to develop qualification enhancement plans and to improve the professional skills of the employees.

To provide possibilities for our staff to add to their knowledge and to increase the effectiveness of the audit work it is necessary to organise the following training courses:

  • accounting,
  • assessment of the internal control system of the institution,
  • international audits standards,
  • risk assessment and planning,
  • systems of foreign assistance and state aid that must be audited,
  • audits in the electronic data-processing environment, and to carry out measures to improve
  • the information technologies.

 

STAFF OF THE STATE AUDIT OFFICE

The level of education of the staff of the State Audit Office in 2000 can be described by the following figures: 46 employees have completed secondary and secondary specialised education (26.9%) and 125 employees have completed higher education (73.1%), of which 18 employees (10.5%) have received bachelor’s degree, another 18 employees (10.5%) have received master’s degree, 87 employees (50,9%) have completed higher professional education, 2 employees (1.17%) have received doctor’s degree and 2 employees (1,17%) have two university grades each.
To develop an effective training system of the State Audit Office 6 experienced auditors were selected to take part in the training of trainers programme and later to share their experience and the obtained knowledge with other employees. The future trainers were trained also by the SIGMA experts during the seminar “Implementation of the INTOSAI audit standards and application of the EU guidelines”.

 

ORGANISATIONAL STRUCTURE OF THE STATE AUDIT OFFICE OF THE REPUBLIC OF LATVIA

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