- State Audit Office of Latvia - http://www.lrvk.gov.lv/en/ -

The State Audit Office Focuses on Auditing of Infrastructure Objects in Local Governments

The appeal of the State Audit Office addressed to the public to engage in the identification of audit objects has received a great deal of response and has led the auditors to expand the scope of the planned audit, wherefore the State Audit Office is grateful to every provider of information.

In the specific audit, the State Audit Office focuses on the objects built at the expense of the financing of the EU funds and the loan provided by the State Treasury. Such infrastructure objects refer to stadiums, swimming pools, schools, and other facilities that were clearly not considered sustainable at an early stage. In total, the State Audit Office has received more than 200 proposals resulting in the inclusion of two more local governments in the scope of local governments be audited.

While preparing for the audit and assessing the documents on planning and construction of infrastructure objects between 2014 and 2019, the State Audit Office has identified several risks related to the prioritisation of projects and targeted solving of more acute issues for local governments by probably not taking into account the real situation in the municipality subject to the priorities and needs of the population, as well as impartial forecasts of declining population. Likewise, risks have been identified about the need for coherent and coordinated infrastructure development in local governments, as well as the justification of the expediency, economy, and efficiency of projects. Therefore, the issues to be examined in the audit will address the definition of infrastructure development priorities and consistency with the development planning documents at different levels. The research and calculations carried out by local government are important to identify potential financial flows of the infrastructure object under construction, as well as to control and mitigate potential risks during the implementation of the project and operation of the facility.

When planning the audit, the State Audit Office paid attention to the fact that local governments should submit only a short description of the project to obtain permission to borrow from the State Treasury, which does not require justifying the necessity and expediency of the selected project. In addition, the laws and regulations did not have enough criteria to assess the economic rationale and sustainability of such projects until recently. It was not required which indicators and to what extent they would be achieved when implementing the project. Thus, when deciding that the local government may borrow, it was not assessed whether the funding would be used expediently. Such objects initiate long-term liabilities for local governments in terms of both repaying the loans and maintaining, managing these facilities after commissioning. The Control and Supervision Board for Municipal Borrowing and Guarantees decides on the right of a local government to receive a loan.

Even though the total limit of local government borrowing has been increased by 118 million euros this year, it is very likely that it will be emptied sooner than in previous years because the local governments are very active in this regard.

At the same time, the State Audit Office has also looked for the examples of best practice during the audit where the local governments have carried out a thorough and comprehensive assessment of the necessity and economic sustainability of the projects they have implemented in order to prepare recommendations for improving the planning, financing, and implementation of infrastructure object projects together with local governments.

The audit included the regional governments of Bauska, Carnikava, Dundaga, Jaunjelgava, Jaunpils, Jelgava, Krustpils, Kuldīga, Ludza, Rugāji, Salacgrīva, Sigulda, Stopiņi, Valka, and the local government of Jēkabpils City.