Lack of Efficiency in Public Funds Management at the Level of Local Authorities

26 June 2014.
Lack of Efficiency in Public Funds Management at the Level of Local Authorities
Local self-governments and territorial autonomies do not manage public funds efficiently, make payments with no legal basis, have not established internal audit, rent out business premises in a corruptive manner and do not implement international standards in their operations. Those were some of the conclusions contained in the "Analysis of the Past Reports of the State Audit Institution, regarding work of the local government units and territorial autonomies". The Analysis was presented at the conference "Improvement of Public Finance Management at the Local Level". The event, attended by mayors, presidents of municipalities and representatives of the relevant state institutions, Mr. Radoslav Sretenovic, President of the State Audit Institution, said that numerous irregularities, issued audit opinions and filed charges indicate that the operation of local authorities is very difficult issue, complex and burdened with problems. He added that the key problems are reflected in insufficient efficiency of public funds' usage, inefficient public property management, insufficient observation of laws, regulations and procedures, which clearly indicate lack of public responsibility.

"It has been noticed that a large portion of public revenues is collected on other basis, thus precluding them to be spent for budgetary purposes", Mr. Sretenovic said.

"We have also proposed changes to certain regulations. For instance, law should be adopted on work relations and on salaries in local governments, as well as on subsidies", Auditor-General highlighted. He said that it was of particular importance that the mayors and presidents of municipalities understand the essence and importance of irregularities for which they are mostly responsible, for they issue orders for budget execution.

Vice-President of the Government of the Republic of Serbia and Minister of State Administration and Local Government, Ms Kori Udovicki, emphasized that the source of financial indiscipline and debt is the government itself. According to her, the root of the problem is the lack of compulsory planning system, lack of coordination, and lack of supervision over what we do.

"At the level of local government units, these problems are considerably more complex due to inconsistency of competences, priorities and capacities", Ms Udovicki said.

"In the Autumn, a variety of laws will be adopted, regulating work in public administration, particularly important issue will be to comprehensively regulate salaries in the public administration, agencies, public services and local government", Ms Udovicki said.

Finance Minister, Mr. Lazar Krstic, expects that by the end of July a draft law on local government financing will be finished and that such law will be adopted in September or October.

"When the law is adopted, municipalities will be able to plan the next-year budget", Mr. Krstic emphasized. He added that this law would introduce clear rules and predictability in allocation of revenues, so that each municipality, based on the parameters, will know the size of the Government transfer funds on which it can count.

According to him, it is very important to adopt such law, because one eight of total government revenues is collected at the level of local governments.

"Manner of financing various levels of government is one of the five priorities of the Finance Ministry", he emphasized.

President of SCTM and Mayor of the City of nis, Mr. Zoran Perisic, said that attitude to the public property must be changed.

In Nis, total of 6,500 facilities were constructed in the period between adoption of two legalization laws. Therefore, City Budget is deprived of two annual budgets, Mr. Perisic explained.

Jürg Staudenmann, Deputy Resident Representative of the United Nations Development Program, emphasized that the introduction of the programing budget, along with adoption of the law on local government financing, are the possibilities to strengthen public funds management.

He said that UNDP will continue, during this and next year, to cooperate with Serbia's institutions, in order to improve conditions at central and local level of authorities.

Mr. Duško Pejović, Supreme State Auditor of the Sector for Audit of Local Authorities' Budgets highlighted that at the level of local authorities, operations have not been defined through internal enactments, risk management strategy was nod developed, control activities have not been properly established, nor has internal audit been established, while revenues and receipts have been planned in unrealistic manner.

As examples of poor public funds management at local level, he gave example of a municipality with level of indebtedness equaling two annual budgets, and the municipality whose account has been frozen for 265 days.

Mr. Nebojsa Lazarevic, expert consultant, who participated in development of the Analysis, pointed to the most important conclusions included into the Analysis.

Mr. Djordje Staničić,Secretary General of the Standing Conference of Towns and Municipalities addressed the participants.

State Audit Institution has published the total of 59 audit reports so far. Audit of annual financial statements of the budget and compliance audit of AP Vojvodina were conducted, along with audits of 23 cities, 31 municipalities and 4 city municipalities. Currently, audit is conducted at 27 local authorities, out of which 20 audits relate to municipalities, and 7 to city municipalities. In the previous three years, the Institution issued 1,034 recommendations, out of which 607 were implemented, 342 are currently being implemented, 9 recommendations were not implemented and regarding 76 recommendations audits of responses to the audit report will be implemented in 2014. Largest number of recommendations, 44% of them, was issued in the area of expenses and expenditures, 11% regarding balance sheet, 10% regarding financial management system etc. So far, the Institution has filed total of 343 requests for initiating misdemeanor proceedings against local authorities, 32 charges for economic offense and 65 criminal charges.

Moderators at the event were Ms Iva Vasilic, Head of the Office of the President of the State Audit Institution, Mr. Nebojsa Lazarevic, Consultant for development of the Analysis, and Mr. Aleksandar Bucic, Assistant Secretary General of the Standing Conference of Towns.

The conference was organized by the Standing Conference of Towns and Municipalities, within activities of the Project "Advancing Accountability Mechanisms in the Public Finances', implemented by the United Nations Development Program (UNDP) in cooperation with the State Audit Institution, which is funded by the Swedish International Development Cooperation Agency (SIDA).