audit report on financial statements of the regional … · revizora/office of the auditor general...

REPUBLIKA E KOSOVËS/REPUBLIKA KOSOVA/REPUBLIC OF KOSOVA ZYRA E AUDITORIT TË PËRGJITHSHËM / KANCELARIJA GENERALNOG

REVIZORA/OFFICE OF THE AUDITOR GENERAL

Document No: 23.10.1-2010-08

AUDIT REPORT ON FINANCIAL STATEMENTS OF THE REGIONAL WASTE

COMPANY “PASTRIMI”- PRISHTINA FOR THE YEAR ENDED 31 DECEMBER 2010

Prishtina, July 2011

OFFICE OF THE AUDITOR GENERAL-St. Musine Kokollari, No. 16, Prishtina 10000, Kosova 2 Tel.: +381(0) 38 25 35 /121/262-FAX: +381(0) 38 2535 122 /219

http://www.ks-gov.net/oag,

TABLE OF CONTENTS

Overall Summary.......................................................................................................................4

I. Introduction ...................................................................................................................... 5

II. Audit Opinion ................................................................................................................... 6

III. Status of the Prior Years Recommendations .................................................................... 6

IV. The analysis of the Outcome in the Financial Statements versus the revenues shows: ... 7

V. Financial Statements ......................................................................................................... 9

V.1 Compliance regarding the external reporting ............................................................ 9 V.2 Information quality .................................................................................................... 9

VI. Budget execution ............................................................................................................ 10

VI.1 Revenues management ............................................................................................ 10 VI.2 Expenditures ............................................................................................................ 11 VI.3 Assets and debts ...................................................................................................... 14 VI.4 Capital and non capital assets .................................................................................. 16

VII. Internal control systems .................................................................................................. 18

VII.1 Internal audit ............................................................................................................ 19

VIII. Overall conclusion on the company’s management ....................................................... 20

Annex I. RWC Pastrimi comments and the OAG response .................................................... 21

Annex II. Different types of Audit Opinions ........................................................................... 21



List of Abbreviations: AG Auditor General AI Administrative Instruction

CA Contracting Authority CBP Credit Bank of Prishtina

COGS Cost of Goods Sold

EB Economic Bank

EO Economic Operator

FS Financial Statements

IAS International Accountants Standards

IAU Internal Audit Unit

IFAC International Federation of Accountants

INTOSAI International Organization of Supreme Audit Institutions

JSC Joint Stock Company

KEC Kosova Energy Corporation

LPFMA Law on Public Financial Management and Accountability

LPP Law on Public Procurement

MEF Ministry of Economy and Finance

NLB Nova Ljubljanska Banka (New Bank of Ljubljana)

OAG Office of the Auditor General

PBB (BpB) Private Bank of Business

PE Public Enterprise

PPA Public Procurement Agency

RWC Regional Waste Company

TAK Tax Administration of Kosova

VAT Value Added Tax



Executive Summary

The Office of the Auditor General (OAG) has performed the audit of the Financial Statements of the Regional Waste Company (RWC) “Pastrimi”- Prishtina (hereinafter “Company”) for the year ended 31December 2010..

The audit was carried out in accordance with international auditing standards issued by INTOSAI and included the tests and procedures as we deemed necessary to reach an opinion on the financial statements.

In forming our opinion we have evaluated the overall adequacy of the presentation of information in the financial statements.

In our opinion the financial statements in all material aspects present a true and fair view.

We would like to draw your attention to the fact that in regard to the disclosure of accounts receivable and assessment of bad and doubtful debts, the Company did not have an adequate policy for the recognition of bad and doubtful debts’ writing-off. The Company has written-off as bad and doubtful debts all the uncollected revenues.

(ISSAI 400: Unqualified Opinion with an Emphasis of Matter)

Our audit has identified weaknesses in several areas of financial management. These weaknesses are described more in depth in the report, which should be addressed by the Management in order to improve the Organization’s performance.

Our Audit Report 2009 resulted with 11 recommendations, out of which four were addressed whilst the other seven were not in the process of being implemented.

Our main recommendation to the Mayor of Prishtina, as the representative of the owner, is to ensure that the Board both secures a better external reporting and supervises the company’s business in a clearer and more robust way. The Board must ensure that the Executive Director develops clear Financial Management and Control, guidelines and procedures which would assist in carrying out the business better and at the same time the weaknesses and shortcomings identified within the report. The Executive Director must also take measures assuring the implementation of a reviewed Financial Management Framework.

We particularly recommend you to ensure that:

• All explanatory notes and disclosures are presented in the Financial Statements;

• The accounts receivable are properly analysed and handled;

• The writing-off of bad and doubtful debts is fairly evaluated;



• Staff recruitment is assessed in a fair and transparent way;

• The adequate legal framework is completed by the Company according to the law on POEs;

• Procurement procedures are developed fully in compliance with the LPP;

• Non-financial assets are recorded; and

• The Internal Audit Unit and the Audit Committee are established.

The Management has been given the opportunity to give comments on a draft of this report.

The Management of Regional Waste Company Pastrimi has acknowledged our findings and conclusions presented in the audit report on the Financial Statements for the year 2010 and are committed to make every effort to address all recommendations given.

I. Introduction

This audit relates to the Annual Financial Statements for the year ended on 31 December 2010.

It is the responsibility of the Board of Pastrimi Company to prepare the annual financial statements in accordance with the IAS and Financial Reporting on Accrual Principle of Accounting.

The Regularity Audit is defined as an attestation of financial accounting, including the examination and evaluation of Financial Statements and other financial records and expression of opinions on:

• Whether the financial statements provide 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 in force;

• The appropriateness of internal controls and internal audit functions; and

• All matters arising from or relating to the audit.

We have carried out the interim audit of company. During that stage of the audit, we have addressed the handling of recommendations given earlier as well as the quality of financial management. We have also advised the management for addressing the issues in financial statements through the audit memorandum submitted in December 2010.

In order to fulfil our responsibilities for the audit of the company, we have undertaken the following activities:



• Reviewed the Annual Financial Statements of the company for the 2010;

• Determined whether the AFS were prepared in accordance with IPSAS “International Standards on Financial Reporting”;

• Used a combination of judgment and random sampling to select transactions for testing;

• Undertaken extensive substantive testing of financial transactions; and

• Relied on a combination of interviews, analytical reviews, document reviews, and physical verification to assess the validity and propriety of financial transactions.

In this report we summarise this year’s audit and present a formal opinion on the Annual Financial Statement 2010.

In regard to our audit opinion for the annual financial statements of the company, the international auditing standards set out specific criteria that govern the type of opinion that can be rendered.

These are set out more fully in Annex 2.

II. Audit Opinion

In our opinion the financial statements in all material aspects present a true and fair view.

We would like to draw your attention to the fact that in regard to the disclosure of accounts receivable and assessment of bad and doubtful debts, the Company did not have an adequate policy for the recognition of bad and doubtful debts’ writing-off. The Company has written-off as bad and doubtful debts all the uncollected revenues. (ISSAI 400: Unqualified Opinion with an Emphasis of Matter).

III. Status of the Prior Years Recommendations

Our audit report of the Financial Statements 2009 resulted in 11 recommendations. Out of which, four have been completely addressed, such as the establishment of the Board of Directors, the registration of expenditures according to the Chart of Accounts, as per the accounts plan, operational expenditures included in COGS and placing of bar codes. The others recommendations in the process of being implemented are:

• Preparation of financial statements in compliance with the IAS and applicable laws in the country, including its five components;

• Reviewing of accounts receivable and writing-off of bad debts in cooperation with central bodies, i.e. its stakeholders;



• The lack of control strengthening in the Human Resources Department, particularly in relation to the staff recruitment;

• Irregularities have been noticed in the procurement procedures commencing from the planning phase throughout its execution phase;

• The company did not achieve to issue and complete all regulations on charity gifts for the company employees as required by the Law on PE;

• Further strengthening of control on assets management; and

• The establishment of the IAU and the Audit Committee.

Failure to fully implement the previous years’ recommendations indicates that this Company is facing the same problems as in the last year. Expenditures compared to Revenues

IV. The analysis of the Outcome in the Financial Statements versus the revenues shows:

Table 1: description of the revenues and expenditures in Euros (€)

Items/Years Planning for 2010

The revenues and

expenditures 2010

The revenues and

expenditures 2009

The invoiced revenues 3,359,707 4,213,096 4,010,772Other revenues 993,012 239,718 187,803Total 4,352,719 4,452,814 4,198,575COGS - (469,345) -Gross profit 4,352,719 3,983,469 4,198,575 Gross salaries 1,565,320 1,617,827 1,462,665Maintenance and repair 191,812 150,520 163,457Administrative expenditures 144,613 44,461 40,042Electricity, utilities 43,598 26,190 5,195Fuel expenditures 725,135 403,599 444,491Rent expenditures 139,307 4,400 5,000Bad debts servicing 650,000 1,207,000 1,151,621Other operational expenditures 872,640 207,935 698,068Total operational expenditures: 4,332,425 3,661,932 3,970,539 Depreciation of working tools 228,506 277,442 184,396Depreciation of premises 88,280 44,153 44,110Total depreciation: 316,786 321,595 228,506 Net profit (loss) (296,492) (58) (471)

Referring to the table, it can be noticed that Company had a negative financial outcome during the two-year period. The Company achieve to generate revenues in the amount of



€4,452,814 during 2010. When comparing revenues per years, we see that the revenues have increased for €254,239, or about 6% during 2010.

Compared to the previous year the operational expenditures were €308,607 or 9% lower. As a result, during the 2010 the Company had a better financial outcome by minimizing the loss to only €58.

During 2010, the Company had a considerable increase in expenditures on electricity due to change in invoicing by KEK. This is as a consequence of the fact that, in the previous years, the invoicing has been made based on lump sums, whilst the invoicing in 2010 was made based on the factual expenses.

Table 2: Balance Sheet Statement

Items/Year 2010 2009 Current Assets 2,952,541 2,483,319 Cash-register and bank account 373,493 323,881 Accounts receivable 13,905,740 12,309,874 Other short term requests 17,933 19,435 Prepaid expenditures and accrual revenues 6,941 699 Issued loan 15,000 Stocks 35,818 37,337 Write-offs (11,402,384) (10,207,908) Fixed assets 6,216,116 6,525,347 Depreciation (819,548) (506,639) Plants, equipments and machinery 1,407,609 1,404,781 Buildings 883,055 882,205 Land 4,745,000 4,745,000 Total Assets 9,168,657 9,008,666 Total short term liabilities 3,362,642 5,572,054 Accounts Payable 1,468,747 1,243,835 Income Tax Payable 1,775,843 1,685,160 Accrual expenditures and collected advances 116,682 105,635 Profit tax of the reporting period 2,536,052 2,536,052 Other short term liabilities 1,370 1,370 Capital 5,806,015 3,436,612 Re-evaluated reserves 2,578,660 2,579,130 Capitalized gifts 25,000 25,000 Carried forward profits (58) (470) Donations, grants and financial gifts, (governmental donations for buying of vehicles) 666,362 832,952

Total liabilities and capital 9,168,657 9,008,666 Based on the Balance Sheet Statements above, we may notice that noticed that RWC Pastrimi has been operating with losses in years; therefore the Company’s Management must undertake concrete actions to recover the company.



In 2010, the amount of €11,402,384 is presented as written-off debts. It is the policy of the company to record all the non-receivable debts as doubtful debts. We have noticed that the Company does not separate the old debts from the debts of the following year. There is also insufficient information for preparation of an analysis on the aging of debts presented as doubtful debts.

According to the financial reporting of the company, the accounts payable for 2010 were €1,468,747, or around 18% higher than in 2009. Such problem impacts on the liquidity of the company because its liabilities have increased and the ability to pay them in foreseen deadlines makes the normal functioning of the Company questionable. Finding a mechanism to enable a higher level of collection is a serious problem in this Company.

V. Financial Statements

V.1 Compliance regarding the external reporting

The Company is obliged to prepare the AFS in compliance with the NAS and with the applicable laws in Kosova. For matters not regulated with national standards the IAS should be used.

• FS have been prepared as per the accrual accountancy principle;

• FS have been signed on 31 March 2011 by the Chief Accounting Officer and the Financial Director;

• FS have been prepared in Albanian only;

• FS have been submitted to the MEF (Tax Administration) on 31 March 2011; and

• The Company’s officers did not prepare quarterly reports where the business and financial performance description, changes in the organization structure etc. should be presented.

V.2 Information quality

The following errors have not been corrected by the Management and we are reporting them as follows:

• The Company prepared the four elements of the Annual Financial Statements but the fifth element of the FS, Explanatory notes and respective disclosures, was missing; and



• The handling of the accounts receivable and the write-offs of bad and doubtful debts was not disclosed in full compliance with the accounting standards and applicable laws.

Conclusion

The Financial Statements did not disclose the financial records fully as required by the IAS.

Recommendation 1

We recommend the Board of Directors to ensure that:

• The Company’s FS are prepared in compliance with the IAS, and applicable laws in the country including the four statements and their disclosure. The depreciation policies, the base for FS preparation, contingent liabilities, addressing of bad debts, collected credits etc, are important for the statements of disclosure; and

• Clear policies are issued and the criteria for bad debts servicing are adhered to. At the same time, measures are taken to increase the revenues collection level.

VI. Budget execution

VI.1 Revenues management

According to the financial reporting, the total invoiced revenues were in the amount of €4,452,814. Compared to 2009, there is an increase of €254,239 or 6%. The main source of revenues in the Company is:

• Revenues (invoicing) from the main business in an amount of €4,213,096; and • Other revenues in the amount of €239,718.

According to the financial reporting, the collection level for 2010 was €3,266,536 from the invoiced revenues and contracting services.

The following shortcomings were noticed during our audit:

Unfair presentation and evaluation of the annual collection

The company reported the collection in the amount of €3,266,536 in 2010. This amount was not disclosed in the FS to explain the amount of revenues belonging to 2010 and 2011 respectively.



The lack of policies to regulate the authorization of the bad and doubtful debts

We have noticed that the Company has, even during this year, used an accounting system which does not provide possibilities for bad and doubtful debts servicing.

Funds Collection

With exception to the public institutions which pay the invoices by depositing the cash in the company’s bank account, natural persons and business owners pay their liabilities in cash through collection officers in field. We have noticed that, in some cases, the collection officers, deposited the collected funds in the company’s cashbox with up to 20 days in delay.

Conclusion

Failure to implement the accounting rules on non-receivables may result in misdeclaration in the statements of incomes and in the balance sheet in terms of increases or decreases in the accounts receivable. In addition, the practice of collecting cash carries the potential risk for misuse.

Recommendation 2


• Accounting records are based on clear policies and are in compliance with the IAS which regulate the bad debts and discounts;

• The collection of revenues from the current year and the collection from previous year’s debts are disclosed; and

• Necessary measures have been taken to make sure that collected funds are deposited in the company’s bank account at least every second day.

VI.2 Expenditures

The Company does not have a specific expenditures accounting system. The Management should schedule expenditure according to the Chart of Account. In the lack of an adequate expenditures accounting system, the Management cannot make a proper analysis of the expenditures for each organisation unit.

2.1 Purchases through procurement

We have tested some samplings in procurement and have ascertained that the RWC Pastrimi has undertaken procurement procedures which are not in compliance with the LPP.



Procurement without procedures

“Golf-IV 1.9 TDI”, production year 2002, was purchased on date 12.04.2010. The supply price for this vehicle was €7,500. The vehicle “Opel Astra”, production year 2002, was purchased on 11.10.2010 in an amount of €6,300. In both cases, the supply was made by departing from procurement procedures.

We have also noticed that the supply and fixing of spare parts for servicing of vehicles were made by one EO within a two-month period without adhering to the procurement procedures. The Company did not send the requests for price quotation to at least three EOs as it is requested by the LPP. Those supplies were noticed in the following cases:

• Supply with a used engine for Mercedes 17/26, on 02.07.2010, by calculating the dismantling and assembling under the wining price, in the amount of €2,000;

• Supply with the engine for truck 7m3 Mercedes 13/14, on 04.08.2010 in the amount of €1,500;

• Supply and assembling the gear lever for Mercedes 24/35 on 04.08.2010 in the amount of €1,200; and

• Supply with the engine Man 232/6 cylinders on 06.09.2010 in the amount of €2,700.

Services performed by the EO even after the contract termination

The contract for waste depositing with the EO”KLMC” was signed for the period from 01.11.2007 to 31.10.2009. We have checked the invoicing and payments for waste depositing for 2010 in the amount of €20,000 and found that invoicing and payment have been carried out as per the price contracted with the EO whose contract has expired.

Supply with the items that were not part of the list of the contracted items

Testing the contract “Supply with the vehicles’ tyres and batteries” we have noticed items invoiced and paid in an amount of €4,098 that were not part of the items’ list as per the contracted specification.

Conclusion

The Internal Controls System has not functioned sufficiently. It has resulted in non-adherence to the procurement procedures, execution of payments for items not corresponding with the contracted specification, and services rendered by the EOs whose contract has expired.

The above mentioned actions increase the risk of mismanagement, loss or misuse of public funds.



Recommendation 3


• All supplies are made by adhering to the procurement procedures;

• All payments are executed in compliance with the contract validity; and

• No payments will be executed if not in compliance with the contract and Technical Specification.

2.2 Remuneration (Wages and Salaries)

According to the business plan for 2010, the budget for Wages and Salaries in RWC Pastrimi was €1,565,320, whereas according to the FS records in this category have been spent €1,617,827. The number of the employees as per the business plan for 2010, approved by the Board of Directors, was 439, but the Company had 444 employees.

We have tested the personnel files for the recruitment during 2010 and have noticed that the recruited employees were not recruited through the public advertisement (but through registers of the office for labour and social welfare). We have also ascertained the company did not have remuneration policy for the officials, approved by the Board of Directors, as it is required by the law on public enterprises. The remuneration and posts categorisation is regulated by a Committee appointed by the Company’s Director General.

Conclusion

Exceeding the number of employees compared to the business plan and the lack of a policy on employees’ remuneration approved by the Board of Directors might result in an irrational increase in expenditures.

Recommendation 4


• Clear policies on employees remuneration are drafted in compliance with the Law on Publicly owned Enterprises;

• Recruitment is made in compliance with the approved business plan 2008/2011, approved by the Board; and

• Recruitment is made through a transparent public advertisement.



2.3 Subsidies and transfers

The company has paid for charity gifts in monetary form and assistance in the amount of €48,760 from the Subsidies and Transfers category. Our reviews on the implementation of the subsidies’ procedures have resulted with the following shortcomings:

Based on the decision of the Director General the amount of €44,200 was paid in payment form to all employees; €100 to each employees for the New Years Eve; €600 on the occasion of 8th of March, the international Women day; 2 employees were awarded €400 for their contribution in work. We did not find any internal regulation that regulates this form for subsidising and incentives to employees.

Conclusion

The lack of any regulation, legal framework or internal instruction for charity gifts for the company’s employees and contribution awards makes the rationality of these expenditures questionable.

Recommendation 5


• Clear policies, instructions, and procedures are issued and that criteria for giving of subsidies are developed

VI.3 Assets and debts

3.1 Cash and its equivalent

The cash fund at the end of 2010 was €373,493.

Our audit has revealed some weaknesses in cash management starting from the collection process, maintaining the cash in the cash-box, and the cash transfer to the bank. These weaknesses are related to the lack of a clear regulation that would explain these procedures. The lack of this regulation has caused uncertainties in cash management in general, which makes it a risk in itself for misuse.

Lent funds not returned

We have noticed that the Company has reached an Agreement for temporary lending of funds in the amount of €15,000 to the “Eko-regjioni” Company from Prizren. The agreement was signed on 01.04.2010. The fund was lent to cover urgent liabilities the RWC “Eko-regjioni” had to its suppliers. The deadline to pay the loan back was 25.04.2010. But, the loan was not paid back within the deadline. In the audit phase, we were told that RWC “Pastrimi” has filed



a lawsuit at the District Economic Court of Pristina against the borrower in order to have the funds returned.

Conclusion

The Management did not achieve to undertake all necessary measures to secure satisfactory control of the cash management starting from collection, depositing, and use. Lending funds in an amount of €15,000, in a period when the company has short term liabilities for almost €1, 5 million may hamper even more the company’s financial situation.

Recommendation 6

We recommend the Board of Directors to ensure that;

• An instruction with clear procedures for cash management starting from collection, registering, transfers in bank accounts up to the reporting is issued; and

• Responsible officers are more engaged in load return procedures.

3.2 Accounts Receivable

The amount of €13,905,740 was presented in the company’s FS as accounts receivable. They have been accumulated from 1999 up to the end of 2010. The Company has declared €11,402,384 as bad and doubtful debts without any written internal policy. Notwithstanding the previous year’s given recommendations regarding the addressing of the accounts receivable, the Company could not manage to address this recommendation.

In our further evaluations, we have noticed the following:

Low level of account receivables accumulation and their insufficient display

The company did not achieve to collect the debts from the clients in a satisfactory level; as a consequence, there is a high level of uncollected loans. In 2010, the company has serviced clients’ debts in the amount of €12,524. There were neither adequate disclosures nor any regulatory base on servicing procedures.

Unfair handling and evaluation of the write-offs for bad debts

The Company has, in its financial statements, presented the amount of €1,207,000 as expenditures on bad debts, as a result of un-collected revenues during 2010. The presentation of this amount as a bad and doubtful debt was not made fully in compliance with the requirements of accounting standards and Kosova tax laws. This has influenced the financial outcome of the company.



Conclusion

The Company did not achieve to ensure recording and reporting of uncollected accounts fully based on accounting standards and applicable tax laws in country.

Recommendation 7


• Adequate actions to collect loans by providing support from its stakeholders i.e the municipality are taken;

• The settling of account receivables in the FS is properly disclosed; and

• The handling of the accounts receivable and evaluation of bad and doubtful debts write-off is made in compliance with the IAS, local standards, and applicable laws in the country.

VI.4 Capital and non capital assets

Fixed Assets

The value of the company’s fixed assets disclosed in the FS is €9,168,657. The Company did not possess any software to administer the fixed assets’ records. The company did not estimate and review the assets life cycle. The company did neither regularly identify nor took into account the expired items. There were no procedures assuring that the carrying amount of an item of property, plant and equipment to be derecognized when no future economic benefits are expected from its use. As of 08.12.2010, the Company’s Director General took the decision to establish an Assets Inventory Committee. This Committee did not prepare a report by the end of the year.

Conclusion

The identified shortcomings drive us to the conclusion that the Company should be must be further engaged in strengthening internal control system when it comes to the assets management. Failure to present the assets which are identified as unusable is one of the main mistakes in fixed assets management.



Recommendation 8


• The assets recording and follow up is made and that a comprehensive assets register, including all required information, is maintained by the Assets Officer;

• Fixed Assets Accounting Software is applied, which automatically records all existing assets, supplements, and sales and automatically calculates the depreciation expenditures for accounting purposes; and

• Reports are drafted and missing assets are verified by the Asset Evaluation and Inventory Committee by reconciling the accounting register with physical numbering.



VII. Internal control systems

A good internal control system assists each company to achieve its objectives for a more effective and efficient use of the resources.

The above presented findings and conclusions point out that the internal control systems were not designed in an adequate way to prevent errors and mistakes.

Failure to initially establish the Board of Directors (this board was established as of 11 November 2010) and the Internal Audit Unit presents two of the key problems in strengthening of internal controls system.

Due to the lack of adequate controls, weaknesses have been noticed in: the drafting and completion of a regulatory framework on the internal control functioning, as required under the Law on Publicly Owned Enterprises; having a mechanism to collect old debts; inadequate systems for recording and monitoring the fixed assets, including the evaluation of disposed equipments.

Conclusion

The above mentioned findings indicate that the Company did not achieve to provide a legal framework required by the Law on Publicly Owned Enterprises. Neither did it establish a proper internal control system which would assist the Company in improving the management.

We consider that the financial management level could have been improved if the Board of Directors and the Internal Audit Unit were established earlier.

In general, the level of the internal control was not sufficiently functional and the Company’s Management should take all the necessary actions to improve it.

Recommendation 9


• An internal legal framework which would help the internal control functioning and would provide an effective and efficient management of the company is drafted; and

• A functional internal control is designed and put in place by holding into account and asking complete reporting from all the levels in the Company regarding their duties and responsibilities.



VII.1 Internal audit

The Law on publicly Owned Enterprises stipulates the establishment of an Internal Audit Unit within the public enterprises. This should carry out its duties independently and with competence.

The Company’s Internal Audit Unit was not established yet. An Audit Committee was not established either.

Conclusion

Due to the failure to establish the Internal Audit Unit, the Company did not achieve to establish a proper control environment. The establishment of this unit would assist in assuring proper internal control functioning, by suggesting the necessary system improvements.

Recommendation 10


• The Internal Audit Unit and Audit Committee are established.



VIII. Overall conclusion on the company’s management

Overall conclusion

The Company Management has not managed yet to establish and put in place an adequate internal legal framework containing written instructions and procedures, which would provide the proper base for a sound and efficient management of the company. Besides the financial management, the lack of the framework was also reflected in the company’s internal control which did not function at a satisfactory level.

The Company’s main problems are related to the handling of revenues. During 1999 throughout 2010, the Company did not achieve a satisfactory collection. An amount of un-collected funds have been written-off by the company as bad and doubtful debts. As a consequence, the Company’s FS of this period resulted with losses. The lending and failure to have the loan returned increases even more the lack current assets.

However, we have noticed progress in the management. Following our last year’s recommendations, the company has already commenced to calculate the cost of goods/services sold and improve the accounting expenditures. Another positive development is the declining tendency of expenditures such as in fuel expenditures and other operational expenditures, which were over €500.000 less than the last year.

Overall Recommendation

We recommend the Company’s Steering Board to review the legal internal framework as well as the current policies, to analyse the shortcomings emphasized in the report, and to take the necessary actions for improvement.

At the same time, we recommend the Mayor of Prishtina, as the representative of the owner, is to ensure that the Board both secures a better external reporting and supervises the company’s business in a clearer and more robust way. The Board must ensure that the Executive Director develops clear Financial Management and Control, guidelines and procedures



Annex I. RWC Pastrimi comments and the OAG response

The Management of Regional Waste Company Pastrimi has acknowledged our findings and conclusions presented in the audit report on the Financial Statements for the year 2010 and are committed to make every effort to address all recommendations given.

Annex II. Different types of Audit Opinions

(extract from ISSAI 400)

9. An audit opinion is normally in a standard format, relating to the financial statements as a whole, thus avoiding the need to state at length what lies behind it but conveying by its nature a general understanding among readers as to its meaning. The nature of these words will be influenced by the legal framework for the audit, but the content of the opinion will need to indicate unambiguously whether it is unqualified or qualified and, if the latter, whether it is qualified in certain respects or is adverse (paragraph 14) or a disclaimer (paragraph 15) of opinion.

10. An unqualified opinion is given when the auditor is satisfied in all material respects that:

(a) the financial statements have been prepared using acceptable accounting bases and policies which have been consistently applied;

(b) the statements comply with statutory requirements and relevant regulations;

(c) the view presented by the financial statements is consistent with the auditor's knowledge of the audited entity; and

(d) there is adequate disclosure of all material matters relevant to the financial statements.

11. Emphasis of Matter. In certain circumstances the auditor may consider that the reader will not obtain a proper understanding of the financial statements unless attention is drawn to unusual or important matters. As a general principle the auditor issuing an unqualified opinion does not make reference to specific aspects of the financial statements in the opinion in case this should be misconstrued as being a qualification. In order to avoid giving that impression, references which are meant as "emphasis of matter" are contained in a separate paragraph from the opinion. However, the auditor should not make use of an emphasis of matter to rectify a lack of appropriate disclosure in the financial statements, nor as an alternative to, or a substitute for, qualifying the opinion.



12. An auditor may not be able to express an unqualified opinion when any of the following circumstances exist and, in the auditor's judgment, their effect is or may be material to the financial statements:

(a) There has been limitation on the scope of the audit;

(b) The auditor considers that the statements are incomplete or misleading or there is an unjustified departure from acceptable accounting standards; or

(c) There is uncertainty affecting the financial statements.

13. Qualified Opinion. Where the auditor disagrees with or is uncertain about one or more particular items in the financial statements which are material but not fundamental to an understanding of the statements, a qualified opinion should be given. The wording of the opinion normally indicates a satisfactory outcome to the audit subject to a clear and concise statement of the matters of disagreement or uncertainty giving rise to the qualified opinion. It helps the users of the statements if the financial effect of the uncertainty or disagreement is quantified by the auditor although this is not always practicable or relevant.

14. Adverse Opinion. Where the auditor is unable to form an opinion on the financial statements taken as a whole due to disagreement which is so fundamental that it undermines the position presented to the extent that an opinion which is qualified in certain respects would not be adequate, an adverse opinion is given. The wording of such an opinion makes clear that the financial statements are not fairly stated, specifying clearly and concisely all the matters of disagreement. Again, it is helpful if the financial effect on the financial statements is quantified where relevant and practicable.

15. Disclaimer of Opinion. Where the auditor is unable to arrive at an opinion regarding the financial statements taken as a whole due to an uncertainty or scope restriction which is so fundamental that an opinion which is qualified in certain respects would not be adequate, a disclaimer is given. The wording of such a disclaimer makes clear that an opinion cannot be given, specifying clearly and concisely all matters of uncertainty.

16. It is customary for SAIs to provide a detailed report amplifying the opinion in circumstances in which it has been unable to give an unqualified opinion./nj/

audit report on financial statements of the regional … · revizora/office of the auditor general...

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