GEO

2013 audits by State Audit Office of Georgia: Major trends, problems and recommendations

05 June, 2014

This report by Transparency International Georgia gives user-friendly summaries of audits conducted  by the State Audit Office of Georgia in 2013.

In 2013 State Audit Office of Georgia conducted 95 audits , including the Ministry of the Interior, the Ministry of Labour, Healthcare and Social Protection, the Ministry of Culture and Monument Protection,  etc., which covered the period from 2004 to 2013. In-depth audit of some of these institutions had never been attempted before.

1. Financial and Compliance Audit of the Headquarters of the Ministry of the Interior
Audit period: 1 Jan 2011 - 30 Sep 2012

The supreme auditor gave an adverse opinion in view of:

    1. Serious Problems with purpose-specificity of MoI’s public procurements. Under the pretext of urgent need and in violation of the applicable legislation the MoI concluded 507 simplified procurement contracts worth GEL 31.6 million in violation of the applicable procurement thresholds.
    2. Numerous documents submitted to the accounting department are incomplete and fail to document spending, e.g.  representational expenses are poorly documented (receipts, menus, invoice, documents of receipt of services, etc), which makes it impossible for the Accounting Department to establish whether or not expenses were incurred, how lawful/purpose-specific these were, what the money was spent on
    3. Suspicious A/R & A/P on the MoI balance sheet, e.g. delivery of GEL 4 million worth of goods is documented with major inaccuracies.
    4. Some of the income tax the MoI owes was not paid.
    5. There are serious shortcomings in planning budgetary programmes
    6. The MoI paid GEL 2.1 million in bonuses while it owed  GEL 7.5 million in salaries
    7. 8  Georgian and 26 Ukrainian citizens received gift of weapons without any grounds.
    8. The carrying value of certain buildings on the balance sheet are at variance with their real value

2. Audit of State Budget Execution of the Ministry of Labour, Health, and Social Affairs
Audit period: 2012

Problems:

    1. Sales of rehabilitated facilities. The buildings of the Georgian Railways Central Clinical Hospital with the adjacent area and Ghivi Zhvania Children’s Clinic with the adjacent area realized GEL 9.6 million and  GEL 8.7 million respectively (the estimated value of both was about GEL 47 million). The prices at which the properties were realized do not include costs of rehabilitation.
    2. The social assistance programme. The database of the socially vulnerable has major inaccuracies which wasted GEL 607,872 of public funds.
    3. The programme of rehabilitating and equipping medical facilities. The activities within the framework of the 2012 programme of rehabilitating and equipping failed to achieve its objectives. The national training centre, which was part of the rehabilitation component was not launched.
    4. The unified database of job seekers has people other than job seekers
    5. Evidence of work completed. The Agency for Social Services failed to produce evidence of the work done by contracted 21,837 staff worth GEL 5.280 million.
    6. The social rehabilitation and child care programme (GEL 12.4 million) is not planned based on the number of beneficiaries.
    7. Overlap. The Village Doctor programme and a public insurance program had overlapping expenditures, which resulted in a waste of GEL 477,400.
    8. Inventory. The central staff of the ministry has not taken inventory of assets on its balance sheet since 2008.

3. Financial and Compliance Audit of the Ministry of Culture and Monument Protection
Audit period: 1 Jan 2011 - 31 Dec 2011

The auditor gave an adverse opinion in view of the following circumstances:

    1. Public procurement made under the pretext of urgent need; transfers made without proper estimates
    2. Overpayments and unreasonable markups on goods and services (GEL 298, 400): 1. The Ministry paid Eastern Promotion GEL 115,900, which it had never owed 2. Eastern Promotion, on its part, added an overpayment of GEL 75,000 to Horizon TV Studio to its operational budget, which was subsequently paid for by the Ministry 3. The National Museum overpaid GEL 31.2 for lifts it bought.
    3. Major inaccuracies in cataloguing inventory in the storage facilities of the National Museum. The Ministry has never checked accuracy of cataloguing of inventory in the storage facilities
    4. No inventory checks during the audit period in the music theatre, opera and other legal entities of public law. Property worth GEL 14.2 million needs to be verified.
    5. Major weaknesses in the public internal financial control
    6. Number of funding requests from contingency funds signals major shortcomings in the budgetary planning
    7. Serious problems in financial accounting: Property of at least GEL 11.7 unaccounted for; GEL 172,300 in accounts receivable written off, unwarranted by circumstances

4. Audit of construction of the parliament building in Kutaisi:  legality of fundraising
Audit period: 2009-2012

Problems:

1.  The parliament building in Kutaisi was built without permit.

2.  Funds necessary for the construction were raised in violation of law. Around GEL 100,000 million of public funds allocated by the programme for promotion of state-run enterprises to boost the capital of the State Services Ltd was spent on the construction of the parliament building in violation of the 2012 budget law.

5.  The State Audit Office issued:

    • five adverse opinion reports (Financial and compliance audit of the Ministry of Culture and the Protection of Monuments, 2011; 2. Audit of financial accounts of Samkharauli National Forensic Bureau, 2010; 3. Audit of financial accounts of Samkharauli National Forensic Bureau, 2011; 4. Audit of financial accounts of Samkharauli National Forensic Bureau as of 30 June 2012; 5. Financial and compliance audit of the Ministry of the Interior, 2011-2012)
    • Auditors give adverse opinion, when they find essential shortcomings in financial accounting and find the information presented unreliable and incompatible with applicable standards and regulations 

6.  The State Audit Office issued:

    • a disclaimer of opinion,  which is a statement  by auditors that they do not express an opinion on the financial position because they have not completed an examination of the auditee’s accounts or the examination is not broad enough to enable them to form an opinion (Audit of financial reporting by Samkharauli National Forensic Bureau, 2009).

These findings by the State Audit Office point to the essential shortcomings allowed by the GoG agencies over the years. The shortcomings were due to both mismanagement and lack of parliamentary oversight, which resulted in wasteful and undocumented spending of millions of laris in public funds, which posed serious risks of corruption highlighted by Transparency International Georgia in its 2011Assessment of the National Integrity System.

We believe Parliament of Georgia needs to pay closer attention to the SAO audit findings and assume a more responsible parliamentary oversight role.