1. Upon assessing the efficiency of funding utilisation allocated to State motor road renovation, the State Audit Office (SAO) has disclosed that during the time period from 2004 to 2007 the increase in funding for State motor road renovation significantly exceeds the increase in volume of motor road renovation because the price level of State motor road renovation works has considerably risen.
Contract prices of renovation works for State motor roads are affected by insufficient competition among the construction companies - in 39,6% of all procurements performed during the audited time period for renovation, design and construction supervision, the proposal for tender was submitted by only one applicant.
SAO verified that in cases of procurements that were included in the audit selection for State motor road renovation and maintenance, the State JSC “Latvian State Roads” has performed the public procurement in accordance with procedures stipulated by the Public Procurement Law. However, in circumstances of insufficient competition, the application of procedures stipulated by the Public Procurement Law does not ensure the attainment of the objective set by the Law – efficient utilisation of State resources.
The competition is also affected by the dominant market position of particular construction companies - during the audited time period contracts on implementing 84,3% of the total amount have been entered into with 11 capital companies, contracts on implementing 65,8% of the total amount have been entered into with 5 capital companies whereas 52,4% of all State motor road renovation works are performed by one capital company.
SAO would like to point out the fact that substantial increase in funding for State motor road renovation and concentration of construction works in the competency of few contractors provides with an opportunity to make use of the situation by unjustifiably increasing the service price. For example, after a repeated open tender, the applicants were able to offer a price that was by 24% lower than the initial price offered.
The competition in the area of State motor road maintenance has been practically eliminated because during the time period from 2004 to 2006 the Ministry of Transport (the Ministry) has merged four capital companies and thus created one company with large market power – the State JSC “Latvian Motor Road Maintainer”, which is the only company performing daily maintenance works for State motor roads.
As a result of the activities mentioned above, for the open tender organised in 2007 for maintenance of State motor roads for the next seven year the State JSC “Latvian Motor Road Maintainer” was the only company that submitted tender application, with which contracts were entered into for the amount of 328,6 million lats. The price offered by the State JSC “Latvian Motor Road Maintainer” exceeded the anticipated contract price by 45,3 million lats, however the contract on the price offered was entered into.
SAO has concluded that overall the contract prices for motor road renovation offered by open tender applicants significantly vary from the anticipated contract prices determined by the State JSC “Latvian State Roads”, and occasions when procurement applicants offer to perform works for considerably – up until two times – lower prices indicate at the low quality of anticipated contract price development.
It was disclosed during the audit that the State JSC “Latvian State Roads” does not perform planning of contract prices in accordance with the requirements of “Guidelines for Developing State Motor Road Funding Programmes” and does not ensure unified approach to calculating contract prices.
When taking decisions regarding increase in funding on occasions when there is discrepancy between planned contract prices and contract prices offered by the applicants, the Ministry officials without respective authorisation have permitted the State JSC “Latvian State Roads” to increase funding for separate motor road renovation procurements in the amount of LVL 5 583 616.
SAO also indicates at the fact that measurable selection criteria are not applied to development of a list containing projects to be performed for State motor road renovations, therefore decisions on including projects on the list are taken subjectively. Taking into consideration that the State motor road renovation works are planned and performed in the amount of 36% of the necessary amount, there is risk that the operating year funding for the State motor road renovation is not being allocated to the objects required the most.
SAO has disclosed that the Ministry does not perform site inspections of construction work implementation for motor road renovation, financed by the State budget. Therefore, the Ministry has not ensured implementation of functions entrusted upon it.
2. During the audited time period, the Ministry has not ensured performance of public procurement in accordance with requirements of regulatory enactments and has created a situation when the State budget resource for performance of procurements are being utilised inefficiently.
Upon verifying compliance of procurement performance with the Public Procurement Law, the SAO has disclosed that on occasions of three procurement in the amount of LVL 109 963 the Ministry has violated procedures stipulated by the Public Procurement Law that ensure traceability of decision making.
Upon assessing the usefulness of procurement performance and utilisation efficiency of State budget resources, the SAO analysed 12 procurements at random with a total value of LVL 241 622 or 37% from all the funding utilised for procurements performed during the audited time period. It was concluded that:
* The Ministry has utilised LVL 104 076 for activities not in accordance with functions, tasks and competencies as determined by the regulations of the Ministry. The Ministry financed an expensive non-governmental organisation event in 2006 – two-day conference “The EU and Russia: Talks on New Relations” for 191 attendees, on average spending LVL 523 per attendee. The Ministry has permitted unjustifiable and unbeneficial utilisation of State budget resources by entering into contracts in 2006 and 2007 on rent of paintings and on rent of rooms at a sports complex;
* The Ministry has utilised LVL 26 179 for sports games in 2006 and 2007 and for a year-end event in amount of LVL 9250, which is not in accordance with functions, tasks and competencies as determined by the regulations of the Ministry, is a voluminous funding for implementation of personnel policy objectives and does not promote useful utilisation of State budget resources;
* The Ministry has utilised LVL 99 650 on organisation of the Council Meeting for Communication Administration of Regional Commonwealth Organisation on Communication which is in accordance with functions, tasks and competencies as determined by the regulations of the Ministry, but has to be recognised as too expensive because on average LVL 664 have been spent per attendee;
The Ministry has also not controlled the utilisation of the funding mentioned above – organiser of the Meeting has not submitted to the Ministry documents justifying the expenses regarding several activities essential for organising the Meeting, but at the same time has confirmed that all the State budget resources intended for the Meeting have been utilised. Therefore, risk of fraud exists that the documents submitted by the organiser of the Meeting do not correspond with the true volumes of services rendered;
* The Ministry has utilised LVL 3870 to pay for a transaction that did not occur, which indicates at fraud in utilisation of State budget resources. The Ministry of Transport commissioned lectures in schools on significance and accessibility of the European Union Structural Funds but the management of educational institutions denies that the lectures mentioned above have been organised at schools;
* The Ministry has utilised LVL 7847 to pay for legal consultations it received in connection with audit findings by the SAO, including to pay for a consultation rendered regarding SAO opinion on conduct of the Ministry officials in attraction of private capital to State Joint Stock Company “Biķernieku Complex Sports Centre”.
For financing of two of the events mentioned – the conference “The EU and Russia: Talks on New Relations” and the Council Meeting for Communication Administration of Regional Commonwealth Organisation on Communication, the Ministry requested from the Cabinet of Ministers (the Cabinet) additional resources from the State budget sub-programme “Resources for Unforeseen Circumstances” without attaching a cost estimate of planned utilisation of resources and not ensuring complete disclosure of information to the Cabinet, therefore causing risk of inadequate utilisation of State budget resources, which also came to be.
The Ministry indicated in the request that the resources will be utilised for the working group, developed by the Cabinet, to implement activities related to Latvia-Russia border crossing as well as to implement development activities of Latvia’s ports, transit and logistics.
SAO indicates at the fact that none of the mentioned activities is in accordance with objective of State budget resource allocation as determined by the Cabinet regulations, therefore the Ministry has utilised LVL 149 825 out of the LVL 200 000 allocated by the Cabinet for achieving objectives not in accordance with allocation of funding.
The audit was conducted on the time period from January 1, 2006, to July 1, 2007.
After performance of the audit, the SAO has developed 10 recommendations for the Ministry and 7 recommendations for the State JSC “Latvian State Roads”, implementation of which in accordance with coordinated schedule will be kept track of.