2015 Government Budget Execution: Fifteen Major Findings by the State Audit Office - საერთაშორისო გამჭვირვალობა - საქართველო

2015 Government Budget Execution: Fifteen Major Findings by the State Audit Office

29 August, 2016


On May 15, 2016 the State Audit Office released an extensive report on the execution of the 2015 budget, which covers program budgeting, revenues, total outlays, problems with public procurement and cash management, as well as recommendations. We have raised most of  these issues in a number of our publications over the past few years.

1. Below we give the major findings by  the State Audit Office:

1. Unequal distribution of expenditures and budget underspending at the end of the year. In December 2015, government agencies accelerated spending of budget funds. As the agencies were unable to spend the budget, they paid advances towards the end of the year, including procurement of goods/services, which did not have to be paid at the time.      

2. Public Spenders substituted  bonuses with  salary supplements. The government order of July 15, 2014, which introduced limits on public servants’ bonuses, saw salary supplements skyrocket soon after it had been released. Thus public spenders substituted bonuses with  salary supplements. Despite limits imposed by the order, both bonuses and salary supplements occasionally exceed monthly salaries and are issued more frequently than allowed by the limits. A number of spenders authorized issuing salary supplements to specific  employees all the year round, which blurred the line between supplements and salaries.          

3. What is the total of salaries for non-permanent staff  Neither the budget e-planner nor the enacted budget give information on salary forecasts for non-permanent staff. This makes it impossible to find out whether the  remuneration for non-permanent staff as given in the budget execution reports match  forecasts.

4. In most cases, financial reporting by spenders fails to give an accurate account of their financial situation. A number of spenders are in breach of the accounting and reporting standards, viz.,   the ministry  of defense, the ministry of internal affairs,  the ministry of foreign affairs,  the ministry of labor, health and social affairs,  the ministry of economy, etc.

5. Some institutions do not use accounting software. Only 9 out of 54 institutions surveyed by the SAO use Microsoft Excel.TI Georgia expressed its concern in its report on public internal financial control released as early as July 27, 2014.         

Three out of 16 ministries – the ministry of justice, the ministry of economy, the ministry for  the protection of the environment and natural resources – do not use an accounting software.       

6. There is no complete database of state-owned enterprises.

7. Issues with program budgeting are as follows:

  • At the budget planning stage, certain allocations for some programs have no targets, and spenders decide what program activities they should implement later in the year;

  • 65% of subprogram indicators in the program appendix to the 2015 budget law have no targets. Therefore, failure to indicate what is to be achieved with budget allocations at the planning stage, at the reporting stage it becomes impossible to evaluate the effectiveness of the subprograms with output indicators;     

  • There are programs that do not list all their expected results;             

  • In some cases, inputs and expected results are given at the level of programs rather than being broken down into subprograms, which makes it impossible to set outcome and output indicators apart or match the two;  

  • Budget execution reports fail to provide full information on all programs in the program appendix. In particular, although some programs as detailed in the program appendix to the budget law give expected results and indicators, the budget execution reports lack any detail on what has been achieved.

  • In certain cases, results are not reported against pre-defined indicators of achievement;

  • 39.4% of the programs and subprograms require an additional indicator to comprehensively assess outputs and outcomes. In a number of cases, not all expected results come with indicators or a single indicator;         

  • 30% of spenders lack a well-developed system of collection, processing and storage of data.

8. Problems in the management of financial assets:  

  • The line item for increase in financial assets does not capture financial assets in their entirety.

  • Loan and leasing commitments by Mekanizatori LLC are paid for from the government budget funds, though the Ministry of Finance has not recorded the loan in its internal debts module.       

9. Flawed Public procurement plans resulted in goods and services procured non-competitively Although spenders had a chance to procure goods/services competitively they opted for non-competitive  simplified procurement under the pretext of urgent need.

10. Procurement that was not planned at the beginning of the year, as well as a high percentage of failed tenders, signals flaws in public procurement as well as the planning thereof, e.g.:      

  • In 2015 the Ministry of Corrections and Probation advertised 319 tenders worth GEL 36,225,000; Sixty-one of these tenders (19.1%) worth GEL 1,613,800, were not held; nine worth GEL 229,000 failed, while eleven worth GEL 660, 600 were terminated;       

  • In 2015 the Ministry of Defense advertised 616 tenders worth GEL 45.99 million, 191 of which (31%) worth GEL 5.88 million, were not held, while 81 worth GEL 7.12 million failed, and 51 worth GEL 5.63 million were terminated;           

  • Thirty-one of the 90 tenders by the Ministry of Culture and Monument Protection in 2015 worth GEL 990,000 (34.4%) worth GEL 317,000 were not held, and 2 failed.

11. Spenders adapt their tenders to goods/services provided by specific suppliers, which creates a non-competitive procurement environment and risks of wasteful spending, e.g.:

  • On September 15, 2015, the Ministry of Internal Affairs advertised an electronic tender (SPA150025083) worth GEL 184,600 to purchase office furniture. The tender involved a single bidder, which subsequently won it. The tender specifications determined fixed sizes for each detail of the furniture and were accompanied by photos rather than miniature model pictures of each specific model.    

  • On January 30, 2015, Georgia’s Innovation and Technology Agency, a legal entity of public law, advertised a simplified electronic tender (SPA150003095), worth GEL 25,500 to purchase computers. The descriptions of goods indicated such particulars as Apple wireless keyboard and Magic Mouse.   

12. Bidders are not held to their commitments or disqualified for late or incomplete submission of documentation.     

13. Contingency funds are used to finance regular expenditures, which, if planned properly, can be added to regular appropriations at the budget planning stage, e.g. 27% of funds allocated from the government’s contingency fund are earmarked for supplementing spenders’ budgets or financing some current expenditures without a specific target.

14. The government budget gives both incomplete and inaccurate data on capital projects: A number of capital projects are not assessed in advance; monitoring results are not properly/regularly logged or reported to agencies responsible for the projects; monitoring reports on the progress of work are not prepared. What has/has not been achieved is not looked at following the projects’ completion. The assessment would allow to use the experience in the planning of subsequent projects.

15. Funds received from outside sources were underspent, which  caused spenders to incur additional expenditures related to completion and loan servicing as well as penalties (commitment fees) for the underspent budget.    

2. The Supreme Auditor Precluded from Discharging its Duties

1. Spenders refuse to provide information to the State Audit Office

Despite multiple requests by the State Audit Office, the Ministry of Finance and its Treasury Service have failed to provide some of the requested information to the SAO for four years, which precludes the supreme auditor from examining a number of issues related to the budget spending. In 2015, for instance, the MoF and the Treasury Service failed to inform the SAO about 2015 transactions that caused financial assets to increase, viz,  shares and other capital, loans, other expense and other remaining current expense. Apart from this, information on how local municipalities had expended the funds they received from the 2015 central budget’s Regional Projects Fund and the Village Support Program was withheld from the SAO.

2. Parliament Negligent towards the State Audit Office

The quality and number of audits by the State Audit Office has increased significantly since 2013, which we have looked at in a number of our publications. However, over 2013-2015, when these tangible improvements occurred, public institutions ignored many of the supreme auditor’s recommendations, while the legislature, in violation of its own Rules of Procedure, failed to hold hearings of the SAO’s 2013 and 2014 Annual Reports. However, the Parliament held a hearing of  the SAO’s 2015 annual report as well as the report on the execution of the 2015 budget at its spring plenary session this year.  

In 2014 a provisional parliamentary commission released a biased account of the work undertaken by the SAO in 2013. Even so, we found that 2013 was the most productive year in the history of the SAO and Chamber of Control, its predecessor.           

  1. The government monitoring of implementing the SAO’s recommendations needs to be  more effective

The situation took a turn for the better when in March 2015 the government set up a monitoring mechanism to help implement the SAO’s recommendations. On December 30, 2015, the government directed the ministry of finance, the ministry of justice, the ministry of economy, the Government Administration, the Civil Service Bureau, the National Agency for State Property, and other institutions to start implementing the recommendations in the SAO’s report on the execution of the 2014 government budget.                 

However, while the SAO’s report on the execution of the 2014 government budget was published in May 2015, the government action plan for the implementation of the recommendations in the report was released on December 30, 2015, almost eight months after the 2014 report had been published. Moreover, we do not know what the auditees have done to implement the recommendations.     

  1. Recommendations  

Transparency International Georgia believes

  • the government needs to develop an action plan to ensure implementation of the SAO’s recommendations regarding the execution of the 2015 budget without delay. Public spenders are more likely than not to ignore the supreme auditor’s recommendations in the absence of the action plan;    
  • welcomes the fact that the government set up a system monitoring the implementation of the SAO’s recommendations;

  • calls upon the government to release annual reports on the progress of implementation of the supreme auditor’s recommendations;

  • welcomes the fact that the Parliament held a hearing of the 2015 SAO’s annual report as well as the report on the execution of the 2015 budget at a plenary session this year.      

Author: Mikheil Kukava