Kosovo Judicial Council - Zyra e Auditorit të Përgjithshëm

REPUBLIC OF KOSOVA
OFFICE OF THE AUDITOR GENERAL
Document No: 24.18.1-2014-08
AUDIT REPORT
ON THE FINANCIAL STATEMENTS OF KOSOVA JUDICIAL
COUNCIL FOR
THE YEAR ENDED 31 DECEMBER 2013
Prishtina, June 2014
The Office of the Auditor General undertakes both Regularity and
Performance Audits. The Auditor General Lage Olofsson is the head
of the Office of the Auditor General which employs around 145 staff.
The Auditor General and the Office of the Auditor General shall be
independent and certifies around 90 Annual Financial Statements
each year, while undertaking other forms of audits.
Our Mission is to “Contribute to sound financial management in
public administration”. We shall perform quality audits in line with
internationally recognized public sector auditing standards and
good European practices. We shall build confidence in the spending
of public funds. We shall play an active role in securing taxpayers‟
and other stakeholders‟ interests in enhancing public accountability‟.
The reports produced by the Office of the Auditor General directly
promote accountability as they provide a base for holding managers‟
of individual budget organisations to account.
The Auditor General has decided on the audit opinion and report on
the Annual Financial Statements of Kosovo Judicial Council in
consultation with the Assistant Auditor General Ibrahim Gjylderen,
who supervised the audit.
The opinion and report issued are a result of the audit carried out
under the management of the Audit Director, Valbon Bytyqi,
supported by Astrit Bllaca (Team Leader), and Arta Kryeziu.
OFFICE OF THE AUDITOR GENERAL-St. Musine Kokollari, No. 16, Prishtina 10000, Kosova
Tel.: +381(0) 38 25 35 /121/262-FAX: +381(0) 38 2535 122 /219
http://oag-rks.org/
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS
Executive Summary .............................................................................................................. 4
1
Audit Scope and methodology ................................................................................... 6
2
Annual Financial Statements and Other External Reporting Obligations ........... 7
3
Prior Year Recommendations ................................................................................... 10
4
Financial Management and Control ......................................................................... 11
Annex I: Explanation of the different types of opinion applied by the OAG ............ 22
Annex II: Prior year recommendations............................................................................ 25
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
Executive Summary
Introduction
This report summarises the key findings from our audit of the 2013 Annual Financial
Statements of the Kosova Judicial Council, which determine the Opinion given by the
Auditor General. I would like to thank the Director General and his team for their assistance
during the audit process.
The examination of the 2013 Annual Financial Statements was undertaken in accordance
with the Internationally Recognised Public Sector Auditing Standards (ISSAIs). Our
approach included such tests and procedures as we deemed necessary to arrive at an
opinion on the financial statements. The approach taken is set out in our Audit Planning
Memorandum dated 30. 9.2013.
Our audit focus has been on:

Compliance with the reporting framework and the significant risks to the Annual
Financial Statements highlighted in the Audit Planning Memorandum;

The response to our 2012 and earlier recommendations; and

The Financial Management and Internal Control of Kosova Judicial Council
(including budget execution and management).
The level of work undertaken by the Office of the Auditor General to complete the 2013
audit is a direct reflection of the quality of the internal controls implemented by
management.
Opinion
Annex I explains the different types of Opinions applied by the Office of the Auditor
General. The Auditor General‟ opinion is:
In our opinion, the financial statements present a true and fair view in all material aspects
(ISSAI 200 Unmodified Opinion).
Overall Conclusion
Our overall conclusion based on the detailed sections of this report is that:
Kosova Judicial Council has made progress in addressing the recommendations given in the
2012 audit report. However unaddressed recommendations affect important areas of
Financial Management and Control.
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OFFICE OF THE AUDITOR GENERAL
Our review of the Annual Financial Statements considers both compliance with the
reporting framework and the accuracy of the information recorded in the financial
statements. We also consider the Declaration made by the Chief Administrative Officer and
Chief Financial Officer when the draft AFS are submitted to the Government.
The budget was executed at a reasonable level, with the exception of Capital Investments, an
issue that is repeated through years. However procurement remains a key area that requires
additional control. Irregularities in this area were noticed throughout the entire process
including planning, entering into contracts and their execution. When it comes to lower level
of significance, additional controls are needed in the personnel and assets management.
The Auditor General’s key recommendations are as follows:
The Director General should ensure that:

A revised action plan clearly sets out a practical but challenging timetable for
addressing the recommendations made by the AG with accountable staff members
identified and with initial focus on those of greatest significance. The implementation
of this plan should be reviewed by the Director General on regular basis;

Budget preparation is preceded by a thorough analysis of all relevant information
including prior year outturns and changes expected during the year. Budget
performance should be monitored on a monthly basis and barriers to planned levels
of budget execution should be identified and addressed on a timely basis;

While preparing the procurement plan the time for the initiation of procurement
procedures is included. A well-prepared plan will enable the budget execution in
accordance with the cash flow;

The identified contracts are signed before committed of funds were and ensure an
effective implementation of existing controls or introduce enhanced controls to
ensure that contracts are only signed when there are sufficient funds to ensure
contract‟s execution; and

Necessary measures are taken to ensure that Audit Committee is fully functional to
support the effectiveness of the IAU and enhanced governance within Kosova
Judicial Council.
The Management’s response
The Management agreed with all our audit findings and committed themselves to address
our recommendations.
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OFFICE OF THE AUDITOR GENERAL
1
Audit Scope and methodology
It is the responsibility of Kosova Judicial Council (KJC) to prepare Annual Financial
Statements (AFS) under the International Public Sector Accounting Standards (IPSAS) for
„Financial Reporting under the Cash Basis for Accounting‟ and other specific requirements.
The Office of the Auditor General (OAG) is responsible for carrying out a Regularity Audit
which involves the examination and evaluation of the AFS and other financial records and
expression of opinions on:

Whether the AFS give a true and fair view of the accounts and financial affairs for the
audit period;

Whether the financial records, systems and transactions comply with applicable laws
and regulations;

The appropriateness of internal controls and internal audit functions; and

All matters arising from or relating to the audit.
We have considered the extent to which management controls can be relied upon when
determining the overall testing required to provide the necessary level of evidence to
support the Auditor General‟s (AG) opinion and the focus of our audit.
The following sections provide a more detailed summary of our audit finding with
emphasis on observations and recommendations in each area of review. An assessment of
how the Management have addressed recommendations made in the 2012 report is found at
Annex II.
For completeness we have included issues identified at the interim audit where they remain
relevant. Our findings are defined as:
High Priority - issues which may result in a material weakness in internal control and where
action will offer the potential for improvements to the efficiency and effectiveness of internal
controls; and
Medium Priority - issues which may not result in a material weakness but where action will
also offer the potential for improvements to the efficiency and effectiveness of internal
controls.
Our procedures included a review of the internal controls and accounting systems and
procedures only to the extent considered necessary for the effective performance of the
audit. Audit findings should not be regarded as representing a comprehensive statement of
all the weaknesses which exist, or all improvements which could be made to the systems
and procedures operated. Findings considered low priority will be reported separately to
finance staff.
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
2
Annual Financial Statements and Other External
Reporting Obligations
Overall Conclusion
Our review of the AFS considers both compliance with the reporting framework and the
accuracy of the information recorded in the financial statements. We also consider the
Declaration made by the Chief Administrative Officer (CAO) and Chief Financial Officer
(CFO) when the draft AFS are submitted to the Government.
The declaration regarding presentation of the AFS incorporates a number of assertions
relating to compliance with the reporting framework and the quality of information within
the annual financial statements. A number of the declarations are intended to provide
assurance to the Government that all relevant information has been provided to ensure that
a comprehensive audit can be undertaken.
KJC has managed to submit all reports required under the applicable legal framework in
time. The AFS have met all International Public Sector Accounting Standards (IPSAS) for
„Financial Reporting under the Cash Basis for Accounting‟ and the Financial Rule 03/2013.
They provided complete and accurate information on events and presented transactions.
2.1
Audit Opinion
Unmodified Opinion1
In our opinion, the financial statements present a true and fair view in all material aspects
(ISSAI 200 Unmodified Opinion).
The term ,”unmodified opinion‟‟ is equivalent to the term ,”unqualified opinion‟‟ used in our previous year‟s
reports. The new wording is in accordance with the new INTOSAI audit standards (ISSAI 200). For more
information refer to Annex 1.
1
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
2.2
Significant risks to the Annual Financial Statements
Description
Our Audit Planning Memorandum dated 30.09.2013 identified one significant risk related to
the classification of expenditures. This is a risk of material misstatement which may result in
a modified opinion including an emphasis of matter.
The risk of material misstatements that we identified occurred because KJC and the Ministry
of Finance did not take actions to address the identified risks.
Identified risk
During the planning process, KJC has wrongly budgeted expenditures for Goods and
Services (purchase of office inventory) in the category of Capital Investments valued at
€298,312. Subsequently the Ministry of Finance (MoF) did not approve the request of KJC to
transfer the funds from Goods and Services to Capital investments. Despite this, the
purchase of inventory for a new building was processed and paid from Capital Investments.
KJC justified this on the importance of that particular project and the necessity of using the
funds provided for this purpose.
Finding
We reviewed management‟s controls and associated guidance applied to misclassification of
expenditures and confirmed the completeness of information held.
However, KJC‟s inability to improve the misclassification resulted in the overstatement of
Capital Investments and the understatement of Goods and Services by €298,312.
In the memo submitted on December 2013, knowing the outcome of this issue at the
yearend, we advised the management to disclose explanatory information in the 2013 AFS
explaining the purchase of inventory, i.e. its registration in the wrong economic code.
The management addressed our advice and provided sufficient disclosure regarding this
transaction. Nevertheless, the management should ensure that all future expenditures are
budgeted according to relevant codes in order to avoid similar technical difficulties when
processing and recording of expenditures.
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
2.3
Compliance with AFS reporting requirements
Description
The AFS are required to comply with a specified reporting framework. We considered:

Compliance with Financial Rule no. 03/2014;

Requirements of Law no. 03/ L-048 on Public Finance Management and
Accountability;

AFS was signed by CAO and CFO;

AFS was produced in Albanian and Serbian languages;

AFS was prepared in both hard and electronic copies; and

During 2013 the KJC prepared and submitted regular quarterly reports to Minister of
Finance.
All the above requirements were met by the management of KJC, with exception to the
submission of the AFS to the Ministry of Finance (MoF) which were delayed by one day.
2.4
Compliance with other external reporting requirements
Description
KJC is required to address the following external reporting obligations other than producing
AFS:

Budget request;

Quarterly reports including nine month financial statements;

Annual work report for 2012;

Draft and final procurement plan;

Report on outstanding liabilities;

Reports on internal controls, including the self-assessment report; and

Action plan for implementation of recommendations.
We have no issues to raise on these requirements.
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
3
Prior Year Recommendations
Overall Conclusion
KJC Management has made significant progress in addressing recommendations given in
the 2012 audit report. However unaddressed recommendations affect some of significant
areas of Financial Management and Control.
Description
Our Audit Report on the 2012 AFS of the KJC resulted in 18 key recommendations. The KJC
prepared an Action Plan stating how all recommendations will be addressed. 13 have been
fully addressed; two are partially addressed; and three have not been addressed yet. For a
more thorough description of the recommendations and how they are addressed, see Annex
II.
Issue 1 - Addressing Prior Year Audit Recommendations – High Priority
Finding
Despite management efforts, a proportion of recommendations are
either not addressed or partly addressed. Unaddressed
recommendations mainly relate to internal control system such as: job
positions ran by acting officers and audit committee.
Unimplemented recommendations are repeated from previous years.
Risk
Recommendation 1
Failure to address audit recommendations for key financial systems
have resulted in:

Continued weaknesses in budget execution;

Poor recording of delays in contract completion; and

Poor controls over procurement.
The Director General should ensure that a revised action plan clearly
sets out a practical but challenging timetable for addressing the
recommendations made by the AG with accountable staff members
identified and with initial focus on those of greatest significance. The
implementation of this plan should be reviewed by the Director
General on regular basis.
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
4
4.1
Financial Management and Control
Overall Conclusion
Our audit approach is focused on understanding and evaluating the actions taken by
management to secure effective Financial Management and Control and the results thereof.
For individual financial systems we seek to identify the level at which actual controls
operate. This may, for example, be monitoring activity undertaken by senior management or
lower level operational controls. We consider whether controls are well designed, have been
implemented as planned and operate effectively. This requires an assessment of structures,
processes and accountability lines introduced by management including the role undertaken
by Internal Audit and Audit Committee.
The budget was executed at a reasonable level, with the exception of Capital Investments, an
issue that is repeated through years. However procurement remains a key area that requires
additional control. Shortcomings in this area were noticed throughout the entire process
including planning, entering into contracts and their execution. When it comes to lower level
of significance, additional controls are needed in the personnel and assets management.
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
4.2
Budget Planning and Execution
Description
We have considered the source of budget funds for KJC, spending of funds by economic
categories and revenues collected. This is highlighted in the following tables:
Table 1 Sources of budget Funds - outturn against the budget (in €)
Initial
Budget
Final
Budget2
2013
Outturn
2012
Outturn
2011
Outturn
Sources of Funds
19,910,467
19,072,192
16,760,413
16,332,438
15,453,779
Government Grant Budget
18,696,567
17,506,067
15,555,444
15,256,209
14,248,035
0
348,696
303,412
161,345
598,244
1,213,900
1,213,900
901,557
865,204
382,492
0
3,529
0
49,680
225,028
Description
Carried forward from
previous year3 –
Own Source Revenues4
Domestic Donations
The final budget was by €838,275 lower than the initial budget. The difference is a result of
budget cut by €1,190,500 following its review and in line with Government decisions, whilst
revenues carried forward from the previous year and external donations increased by
€352,225.
KJC used €16,760,413 or 88% of the final budget in 2013. When compared to 2012 budget
execution, which was 89%, we see a similar trend of spending. However, the budget
execution analysed by economic categories remains at an unsatisfactory level.
Final budget – the budget approved by the assembly which was subsequently adjusted for by the Ministry of
Finance.
3 Own Source Revenues unspent in previous year carried forward into the current year.
4 A Portion of the receipts planned and collected for the Kosova Budget in the current year which was used by
the entity for financing its own budget.
2
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
Table 2 Spending of funds by economic categories - outturn against the budget (in €)
Initial
Budget
Final
Budget
2013
Outturn
2012
Outturn
2011
Outturn
Spending of funds
broken down by
economic categories
19,910,467
19,072,192
16,760,413
16,332,438
15,453,779
Wages and Salaries
12,667,798
12,327,250
11,449,464
10,872,460
10,219,454
Goods and Services
4,285,694
4,086,791
3,472,471
3,605,107
3,517,403
Utilities
606,975
606,975
436,544
484,225
415,636
Subsidies and Transfers
250,000
341,676
266,374
158,324
189,384
2,100,000
1,709,500
1,135,560
1,212,322
1,111,902
Description
Capital Investments
Explanations for changes in budget categories are given below:

In 2013, only 66% of the final budget for Capital Investments was spent. The Public
Investment Program (PIP) includes some projects from the previous year, which
were ongoing, and three new ones for the current year. However, the projects for
construction of courts in Ferizaj and Vushtrri provided by the Public Investment
Program for 2013 were not implemented due to budget cuts. The low level of budget
execution occurred due to delays caused by respective Municipalities in issuing
construction licenses;

The decrease in the budget for Wages and Salaries by €600,000 continues to be
repeated because of failure to staff the approved positions (most of them Judges);
and

The decrease in the budget for Goods and Services by €200,000 is a reflection of the
new penal code, under which the payments for experts and ex officio lawyers are
made by the State Prosecutor.
Table 3 Revenues collected for the Kosova Budget – outturn against the budget (in €)
Initial
Budget
Final
Budget
2012
Receipts
2011
Receipts
2010
Receipts
Court fee
4,370,000
4,370,000
2,681,843
4,331,421
5,158,584
Court fines
2,800,000
2,800,000
2,318,544
2,584,828
2,134,052
Traffic fines
2,300,000
2,300,000
1,997,693
1,983,940
2,495,614
0
0
16,440
29
5,670
9,470,000
9,470,000
7,014,519
8,900,218
9,793,920
Description
Other revenues
Total
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
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In 2013, KJC was allowed to use €1,213,900 from own source revenues; out of which,
€963,900 for Wages and Salaries and €250,000 for Subsidies and Transfers. €901,557 was
spent from this amount. A decrease by €1,649,578 was found in court taxes because most of
the taxes have been transferred to notaries.
Issue 2 - Budget execution – High Priority
Finding
Budget execution in most of economic categories was inadequate. The
budget spending for Capital Investments was at a low level in
particular. It was 66% in 2013, or just 2% higher compared to 2012
(64%).
Risk
Inadequate budget planning and a low budget execution level may
result in failure to meet organisational objectives and may result in
current year obligations being funded from future year budgets.
Recommendation 2
The Director General should ensure that budget preparation is
preceded by a rigorous assessment process that reflects all relevant
information including prior year outturns and changes expected
during the year. Budget performance should be monitored on a
monthly basis and barriers to planned levels of budget execution
should be identified and addressed on a timely basis.
Issue 3 – Planning in inadequate category– Medium Priority
Finding
Supply with two “Main Switches” in the amount of €10,951 and the
purchase of a “Photocopy Machine” in the amount of €6,366 was
made from the category of Goods and Services. These supplies were
wrongly planned in and executed from the category of Goods and
Services.
Risk
Misclassification of expenditure reduces the effectiveness of budget
management and financial reporting. Significant errors may result in
material errors in the AFS.
Recommendation 3
The Director General should ensure that, when planning the budget,
detailed analysis are performed and real needs of expenditures are
identified, including their categorization. He should also ensure that
all expenditures are recorded in the adequate economic categories.
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ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
4.3
Revenues (including own source revenues)
Description
In 2013, KJC collected revenues in the amount of €7,014,519. They were collected from three
main sources: court fees, court and traffic fines.
We tested the system of control over revenues collection and their reporting in the AFS. KJC
manages the revenues recording and reporting software programme and has a range of
controls over their management. However, we identified one error related to the reporting
of revenues in KFMIS.
Issue 4 - Software shortcomings – Medium Priority
Finding
Each municipality should correctly report revenues from traffic fines
to the Treasury, in order to enable Treasury to distribute those
revenues to the relevant municipality. KJC reports its revenues to the
Treasury based on the location of the relevant court‟s decision rather
than based on location where the fine was issued.
Risk
Due to lack of accurate information, Treasury cannot correctly
distribute revenues to each respective municipality.
Recommendation 4
The Director General should ensure that the existing software for
revenues management is applied and that the revenues of respective
municipality are correctly identified.
4.4
Expenditures
4.4.1
Procurement
Description
Our audit examinations included the entire procurement process, from the initiation of
procurement activities to the management and execution of contracts.
During 2013, KJC entered into 78 contracts. We tested 16 contracts in the amount of
€2,894,885. We also tested 46 payments of €1,490,863, linked to procurement procedures.
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OFFICE OF THE AUDITOR GENERAL
Issue 5 – Procurement plan was not clear – High Priority
Finding
KJC did not prepare a good procurement plan based on actual needs
and requirements. This plan did not set forth the deadlines for
contracts implementation.
Risk
Poorly procurement planning will result in unplanned expenditures
and delays in execution of contracts.
Recommendation 5
The Director General should ensure that while preparing the
procurement plan the time for the initiation of procurement
procedures is included. A well-prepared plan will enable the budget
execution in accordance with the cash flow.
Issue 6 – Contracts signed without committed funds – Medium Priority
Finding
KJC signed six contracts before committing funds, thus not confirming
the sufficient funds to meet obligations.
Risk
Entering into obligations without ensuring the necessary funding will
result in delays in contracts implementation and increase the amount
of outstanding liabilities which will be a burden to the following
year‟s budget.
Recommendation 6
The Director General should review why the identified contracts were
signed before funds were committed and ensure an effective
implementation of existing controls or introduce enhanced controls to
ensure that contracts are only signed when there are sufficient funds
to ensure contract‟s execution.
Issue 7 – Recording in KFMIS after receiving the invoice – Medium Priority Systematic
Finding
In 13 payments, Treasury rules were not adhered to during their
processing. Purchase requisition, purchase order and receipt of goods
were made after the invoice was received.
Risk
Receipt of goods prior to securing the necessary funds, may cause
difficulties in the execution of payments.
Recommendation 7
The Director General should ensure that payments‟ processing is be
made fully in compliance with the steps set forth in LPFMA and
Treasury rules.
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OFFICE OF THE AUDITOR GENERAL
Issue 8 – Failure to adhere to delivery schedule – Medium Priority
Finding
In the contract “Supply with uniforms for judges of all courts” in the
amount of €18,800, the supplier failed to deliver uniforms within the
set forth schedule. Instead of imposing penalties, KJC allowed a two
month extension of the delivery period through an annex contract.
Risk
Inconsistent application of penalties reduces incentives for economic
Operator (EO) to fulfil the terms of contracts. Delays in the provision
of goods and services will have a negative effect on planned activity
and may adversely affect future spending plans if financed from the
following year‟s budget.
Recommendation 8
The Director General should review why penalties were not applied
in the above identified case and ensure the effective implementation
of existing controls or introduce enhanced controls to ensure that
penalties are applied fully in compliance with the contract terms.
Issue 9 – Exceeding contract value – Medium Priority
Finding
The Technical Specification of the contract “Purchase of Airconditioners and filling them with gas did not specify the number of
air-conditioners. As a result the contract value was exceeded by
€2,700.
Risk
Poor or incomplete planning of technical specifications in the contract
may result in unplanned costs.
Recommendation 9
The Director General should ensure an effective oversight of the
procurement process so that the tender dossier sets forth the
approximate quantity of goods/services needed to be purchased.
4.4.2
Non Procurement Expenditure
Description
In Other Expenditures we included purchases that are not subject to procurement
procedures such as utilities and travel allowances. We tested 13 payments in total amount of
€284,254.
Recommendation
We have no recommendations in this area.
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OFFICE OF THE AUDITOR GENERAL
4.4.3
Remunerations (Wages and Salaries)
Description
The final budget for Wages and Salaries for 2013 was €12,327,250 whilst €11,449,464 or 93%
were spent.
We reviewed payroll lists and compared the data presented by the Treasury, KFMIS and
their presentation in the AFS. We also tested samples, including personnel files and
recruitment procedures performed during 2013.
Issue 10 – Staffing management positions with acting officers – Medium Priority
Finding
Under Regulation no. 06/2010 on procedures for appointing senior
management positions in the Civil Service, an acting officer cannot be
appointed for a period longer than three months.
The position of Procurement Director in KJC have been held by an
acting officer since December 2012.
Risk
Failure to adhere to proper recruitment procedures may result in
failure to hire the most appropriate staff. Inadequate staff may lead to
poor performance and poor quality of administrative services.
Recommendation 10 The Director General should as recommended last year ensure that
the recruitment procedures to staff the position of Procurement
Director are initiated.
4.4.4
Subsidies and Transfers
Description
Expenditures for Subsidies and Transfers for 2013 were €266,374. They are related to the
payments made to prisoners without any legal basis.
Recommendations
We have no recommendations in this area.
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OFFICE OF THE AUDITOR GENERAL
4.5
Assets and liabilities
4.5.1
Capital and non capital assets
Description
According to the accounting register (KFMIS), the net value of KJC‟s assets was €14,647,887,
whilst non-capital assets under €1,000 were €1,505,000.
We have reviewed whether the assets registration and recordkeeping processes were in
compliance with the requirements of MoF Regulation no. 02/2013 on the Management of
Non-Financial Assets of budget organization (BO). We also verified whether assets were
physically existing and recorded in the assets register.
Issue 11 – Incomplete assets register - Medium Priority
Finding
Conceptual projects for the construction of courts in Ferizaj and
Vushtrri, in the amount of €37,680, were not recorded as capital assets
in the KFMIS. In addition, we identified that the assets are not labelled
with barcodes.
Risk
Incomplete recording of assets in the register will result in
understatement of assets presented in the AFS. Poor management of
asset records may result in their loss or alienation. It also makes it
difficult to identify assets when confirming their existence.
Recommendation 11 The Director General should review why the identified assets have not
been recorded in KFMIS and address control weaknesses related to
continuous update of assets accounting register. Requirements related
to recording and maintenance of assets should be fully applied.
4.5.2
Handling of receivables
Description
The statement of account receivables at the end of 2013 was €98,780. We have no issues to
report from their testing.
Recommendations
We have no recommendations in this area.
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OFFICE OF THE AUDITOR GENERAL
4.5.3
Handling of debts
Description
The statement of outstanding liabilities towards the suppliers at the end of 2013 was
€356,529. These liabilities are carried forward to be paid in 2014.
During 2013, KJC submitted regular monthly reports in accordance with the Administrative
Instruction. In addition, there were good controls over payments execution.
We have no issues to report regarding their testing as these were paid early in 2014.
Recommendations
We have no recommendations in this area.
4.6
Internal Audit System
Description
The Internal Audit Unit (IAU) within KJC consists of the Head of Unit and three auditors.
In 2013, this unit prepared an annual audit plan which included seven audits. Out of which,
five were carried out, including audits on: Procurement procedures; Personnel management;
Asset Management; Management of expenditures for lawyers; and Follow up of
implementation of recommendations.
Reports were of a good quality, providing the management with clear recommendations
regarding the effective functioning of key controls, including all significant financial
systems.
However, Audit Committee was not sufficiently functional. This is disclosed in the
following:
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OFFICE OF THE AUDITOR GENERAL
Issue 12 – Incomplete functioning of the audit committee - High Priority
Finding
Notwithstanding recommendations given earlier, the Audit
Committee is not yet fully operational. During 2013 this committee
held two meetings (in September and October), although the minutes
of the last meeting remained unapproved.
In early 2014, this committee was not functional because the chairman
of the committee retired.
Risk
A non functional audit committee will reduce the level of both
challenge to and support for the IAU including the implementation of
their recommendations.
Recommendation 12 The Director General should take the necessary measures to ensure
that the Audit Committee is fully functional to support the
effectiveness of the IAU and enhance governance within KJC.
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OFFICE OF THE AUDITOR GENERAL
Annex I: Explanation of the different types of opinion
applied by the OAG
(extract from ISSAI 200)
Form of opinion
147. The auditor should express an unmodified opinion if it is concluded that the financial
statements are prepared, in all material respects, in accordance with the applicable financial
framework.
If the auditor concludes that, based on the audit evidence obtained, the financial statements
as a whole are not free from material misstatement, or is unable to obtain sufficient
appropriate audit evidence to conclude that the financial statements as a whole are free from
material misstatement, the auditor should modify the opinion in the auditor‟s report in
accordance with the section on “Determining the type of modification to the auditor‟s
opinion”.
148. If financial statements prepared in accordance with the requirements of a fair
presentation framework do not achieve fair presentation, the auditor should discuss the
matter with the management and, depending on the requirements of the applicable financial
reporting framework and how the matter is resolved, determine whether it is necessary to
modify the audit opinion.
Modifications to the opinion in the auditor’s report
151. The auditor should modify the opinion in the auditor's report if it is concluded that,
based on the audit evidence obtained, the financial statements as a whole are not free from
material misstatement, or if the auditor was unable to obtain sufficient appropriate audit
evidence to conclude that the financial statements as a whole are free from material
misstatement. Auditors may issue three types of modified opinions: a qualified opinion, an
adverse opinion and a disclaimer of opinion.
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OFFICE OF THE AUDITOR GENERAL
Determining the type of modification to the auditor’s opinion
152. The decision regarding which type of modified opinion is appropriate depends upon:

The nature of the matter giving rise to the modification – that is, whether the
financial statements are materially misstated or, in the event that it was impossible to
obtain sufficient appropriate audit evidence, may be materially misstated; and

The auditor‟s judgment about the pervasiveness of the effects or possible effects of
the matter on the financial statements.
153. The auditor should express a qualified opinion if: (1) having obtained sufficient
appropriate audit evidence, the auditor concludes that misstatements, individually or in the
aggregate, are material, but not pervasive, to the financial statements; or (2) the auditor was
unable to obtain sufficient appropriate audit evidence on which to base an opinion, but
concludes that the effects on the financial statements of any undetected misstatements could
be material but not pervasive.
154. The auditor should express an adverse opinion if, having obtained sufficient
appropriate audit evidence, the auditor concludes that misstatements, individually or in the
aggregate, are both material and pervasive to the financial statements.
155. The auditor should disclaim an opinion if, having been unable to obtain sufficient
appropriate
audit evidence on which to base the opinion, the auditor concludes that the effects on the
financial statements of any undetected misstatements could be both material and pervasive.
If, after accepting the engagement, the auditor becomes aware that management has
imposed a limitation on the audit scope that the auditor considers likely to result in the need
to express a qualified opinion or to disclaim an opinion on the financial statements, the
auditor should request that management remove the limitation.
156. If expressing a modified audit opinion, the auditor should also modify the heading to
correspond with the type of opinion expressed. ISSAI 170519 provides additional guidance
on the specific language to use when expressing a modified opinion and describing the
auditor‟s responsibility. It also includes illustrative examples of reports.
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Emphasis of Matter paragraphs and Other Matters paragraphs in the auditor’s report
157. If the auditor considers it necessary to draw users‟ attention to a matter presented or
disclosed in the financial statements that is of such importance that it is fundamental to their
understanding of the financial statements, but there is sufficient appropriate evidence that
the matter is not materially misstated in the financial statements, the auditor should include
an Emphasis of Matter paragraph in the auditor‟s report. Emphasis of Matter paragraphs
should only refer to information presented or disclosed in the financial statements.
158. An Emphasis of Matter paragraph should:

be included immediately after the opinion;

use the Heading “Emphasis of Matter” or another appropriate heading;

include a clear reference to the matter being emphasised and indicate where the
relevant disclosures that fully describe the matter can be found in the financial
statements; and

indicate that the auditor‟s opinion is not modified in respect of the matter
emphasised.
159. If the auditor considers it necessary to communicate a matter, other than those that are
presented or disclosed in the financial statements, which, in the auditor‟s judgement, is
relevant to users‟ understanding of the audit, the auditor‟s responsibilities or the auditor‟s
report, and provided this is not prohibited by law or regulation, this should be done in a
paragraph with the heading “Other Matter,” or another appropriate heading. This
paragraph should appear immediately after the opinion and any Emphasis of Matter
paragraph
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Annex II: Prior year recommendations
Audit
Component
Recommendation given
Recommendation Partly addressed
fully addressed
Not
addressed
3. Prior Year
To ensure that the Action Plan is revised and it clearly Yes
Recommendations sets
out
a
timetable
for
addressing
the
recommendations with accountable staff members.
4.2 Budget
Planning and
Execution
When drafting the next year‟s budget, to ensure that
sufficient analyses are carried out related to
classification of goods and services and capital
investments into relevant categories, with the aim to
spend the budget in line with the approved accounting
plan.
4.3 Reporting
requirements
To analyse the reason for shortcomings repetition and Yes
take adequate measures so that upcoming Nine month
Financial Statements are prepared in accordance with
legal requirements on financial reporting.
4.5.1 Procurement
Participants in the price quotation procedure should be Yes
selected among economically advantageous operators
and should be invited to participate by encouraging the
most efficient and effective manner.
25
No action
taken.
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OFFICE OF THE AUDITOR GENERAL
4.5.1. Procurement To follow-up contracts execution and if contractors with
their responsibility do not timely meet their contractual
obligations, penalties should be applied, provided for
increasing their awareness in order to complete works
within deadlines set.
4.5.1. Procurement In order to avoid losses caused by contractor’s failure Yes
to meet their obligations, KJC should ensure that the
execution security covers the whole period as
determined by the contract.
When drafting the contracts, to specify warranty period Yes
4.5.1. Procurement for defects and request the warranty for the completed
work.
When preparing procurement activities, sufficient Yes
4.5.1. Procurement analysis are conducted with the aim to include all
vehicles in KJC’s possession for maintenance and
servicing.
Accountability and responsibility measures are Yes
4.5.1. Procurement strengthened concerning legal implementation of duties
starting from preparing tender dossier up to receiving
of goods.
Revised procedures are introduced in the system Yes.
4.5.1. Procurement ensuring that controls regarding the payments sector
are increased, in order that, expenditures are classified
and recorded in accordance with the approved
accounting plan.
26
Partially, is was applied in
some cases, in one case it
was identified that instead
of applying the penalties
the delivery extension for
two months with a contract
amendment was made.
ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
4.5.2.
Expenditures
To undertake concrete measures for planning additional Yes
payments within the framework of the category of
Wages and Salaries.
4.5.2. Other
expenditures
To increase responsibility of Senior Officers by Yes
requesting evidences for reasoning the funds spent
during the travel and submit those in time and that
proper procedures for closing the advances are carried
out within the period prescribed by law.
4.5.3.
Remunerations
(wages and
salaries)
Acts of Appointment are reviewed and after justice Yes
system is reformed, take into account the errors
identified securing that acts of appointment are
prepared in accordance with legal requirements.
4.5.3.
Remunerations
(wages and
salaries)
Salaries for the employees on maternity leave should be Yes
calculated and paid according to the provisions in force.
4.5.3.
Remunerations
(wages and
salaries)
To initiate procedures for completing positions covered
by acting officers.
4.6.1. Capital and
non-capital assets
To ensure that the review of the actual asset registry is
considered and completed with elements required by
the Instruction in force, in order to ensure the recording,
maintenance and preservation of assets from their loss
or alienation.
27
No action
taken.
Partially, most of elements
for assets recording are
fulfilled, however, the
assets are not yet identified
with barcodes.
ZYRA E AUDITORIT TË PËRGJITHSHËM – KANCELARIJA GENERALNOG REVIZORA
OFFICE OF THE AUDITOR GENERAL
4.6.1. Capital and
non-capital assets
Goods should be received through the warehouse in Yes
order to ensure that goods are of the quality and
quantity requested and so that they are registered in the
e-Assets software.
5. Internal Audit
System
To undertake measures for making Audit Committee
(AC) with aim to use AC input in improving public
internal financial controls.
28
No action
taken.

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