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Assessment of Tirana Municipality, Albania Final Report

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Assessment of Tirana Municipality, Albania Final Report Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania Final Report Client: SECO Rotterdam, 20 March 2017 Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania Final Report Client: SECO Frans Ronsholt Jorge Shepherd Sabina Ymeri Elona Gjika Rotterdam, 20 March 2017 Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Final report The quality assurance process followed in the production of this report satisfies all the requirements of the PEFA Secretariat and hence receives the ‘PEFA CHECK’. PEFA Secretariat, November 30, 2017 2 SdV/KK NL2410-31689 / Contract Identification Number: 94501141 About Ecorys At Ecorys we aim to deliver real benefit to society through the work we do. We offer research, consultancy and project management, specialising in economic, social and spatial development. Focusing on complex market, policy and management issues we provide our clients in the public, private and not-for-profit sectors worldwide with a unique perspective and high-value solutions. Ecorys’ remarkable history spans more than 85 years. Our expertise covers economy and competitiveness; regions, cities and real estate; energy and water; transport and mobility; social policy, education, health and governance. We value our independence, integrity and partnerships. Our staff comprises dedicated experts from academia and consultancy, who share best practices both within our company and with our partners internationally. Ecorys Netherlands has an active CSR policy and is ISO14001 certified (the international standard for environmental management systems). Our sustainability goals translate into our company policy and practical measures for people, planet and profit, such as using a 100% green electricity tariff, purchasing carbon offsets for all our flights, incentivising staff to use public transport and printing on FSC or PEFC certified paper. Our actions have reduced our carbon footprint by an estimated 80% since 2007. ECORYS Nederland B.V. Watermanweg 44 3067 GG Rotterdam P.O. Box 4175 3006 AD Rotterdam The Netherlands T +31 (0)10 453 88 00 F +31 (0)10 453 07 68 E [email protected] Registration no. 24316726 W www.ecorys.nl Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania 3 Table of contents Preface 7 Abbreviations 9 Executive Summary 11 1 Introduction 17 1.1 Rationale and purpose 17 1.2 Assessment management and quality assurance 18 1.3 Assessment methodology 18 2 Background information 21 2.1 Subnational government structure 21 2.2 Municipal economic situation 22 2.3 Fiscal and budgetary trends 22 2.4 Legal and regulatory arrangements for PFM 24 2.5 Institutional arrangements for PFM 24 3 Assessment of PFM performance 27 3.1 Budget reliability 27 3.2 Transparency of public finances 35 3.3 Management of assets and liabilities 45 3.4 Policy-based fiscal strategy and budgeting 51 3.5 Predictability and control in budget execution 61 3.6 Accounting and reporting 81 3.7 External scrutiny and audit 85 4 Conclusions on the analysis of PFM systems 90 4.1 Integrated analysis of PFM performance 90 4.2 Effectiveness of the internal control framework 93 4.3 PFM strengths and weaknesses 94 5 Government PFM reform process 97 5.1 Approach to PFM reform 97 5.2 Recent and ongoing reform actions 98 5.3 Institutional considerations 100 Annex 1. Performance Indicator Summary 101 Annex 2. Summary of observations on the internal control framework 111 Annex 3A. List of documentation consulted 117 Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania 5 Annex 3B. List of Persons Interviewed 121 Annex 4. Subnational Government PFM System in Albania 123 Annex 5. Organisation of Tirana Municipality 135 Annex 6A Data and Calculations for HLG-1 137 Annex 6B Data and Calculations PI-1, PI-2.1 & 2.3 141 Annex 6C Data and Calculations for PI-2.2 145 Annex 6D Data and Calculations PI-3 147 Annex 7. Disclosure of quality assurance arrangements 151 6 Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania Preface The consultants wish to express their gratitude to SECO and the Swiss Embassy in Tirana as well as other members of the Oversight Team for their support in planning and directing the mission. In particular, the consultants wish to thank Oversight Team members from the Ministry of Finance, the Prime Minister’s Office and the High State Control, as well as the Director General of Financial Management and the many other officials of Tirana Municipality, who made themselves available, generously contributed their observations and opinions, and provided the information needed for the field mission. Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania 7 Abbreviations AGFIS Albanian Government Financial Management Information System ALL Albanian Lek AMG Automobile Parts Manufacturing APP Public Procurement Agency CA Contracting Authority CHU Centralized Harmonization Unit COFOG Classification of Functions of Government COSO Committee of Sponsoring Organizations of the Treadway Commission DLDP Decentralization and Local Development Program ECE Economic Centre of Education ECSD Economic Centre for Children Development EPSAS European Public Sector Accounting Standards EU European Union FMC Financial management and controls FY Fiscal year GFS Government Finance Statistics GDTF General Department of Tax HLG High level of government HR Human resources HRM Human resource management HSC High State Control IA Internal audit IIA Institute of Internal Audit INTOSAI International Organization of Supreme Audit Institutions IPS Integrated Planning System IPSAS International Public Sector Accounting Standards JSC Joint Stock Company LGU Local Government Unit MOF Ministry of Finance MOSLI Minister of State for Local Issues MTB Medium-term budget NA Not Applicable NDSI National Strategy for Development and Integration OT Oversight team PEFA Public Expenditure and Financial Accountability Program PFIC Public financial internal control PFM Public Financial Management PI Performance indicator PIM Public investment management PLGP Planning and Local Government Project PPC Public Procurement Commission PPL Public Procurement Law PPP Public-private partnership RDF Regional Development Fund SBT Small business tax Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania 9 SDC Swiss Agency for Development and Cooperation SECO Swiss Economic Cooperation and Development STAR Support to Territorial and Administrative Reform Project TA Technical assistance TAR Territorial and Administrative Reform TDO Treasury District Officer TSA Treasury single account UNDP United Nations Development Program USAID United States Agency for International Development WB World Bank Currency and indicative exchange rate Local currency unit: Albanian Lek (ALL) Exchange rates, September 2016: 137 ALL per Euro 125 ALL per USD Fiscal Year 1 January – 31 December 10 Public Expenditure and Financial Accountability (PEFA) assessment of Tirana Municipality, Albania Executive Summary Purpose, scope and management of the assessment This report presents the findings of the first assessment of PFM systems in the Municipality of Tirana based on PEFA methodology. It constitutes one of five municipal PEFA assessments being conducted simultaneously by teams of assessors contracted by SECO and USAID. The other municipalities are Berat, Fier, Kuçova and Tropoja. The objective of the assessment is to gain a better understanding of the strengths and weaknesses of municipal PFM systems as a basis for discussing PFM reform priorities and possible areas of support to the newly restructured municipality. The assessment is based on the performance of the PFM systems as at September 2016 and any period prior to that as defined by PEFA methodology. It is focused on the amalgamated Municipality following the 2015 merged with former communes as part of the Territorial Administrative Reform (TAR), but covers for a number of issues the period back to FY2013 inclusive. In such cases, scoring of PEFA indicators is done only when information across the years enable firm assessment of performance i.e. is not the result of disruption during the amalgamation. The institutional coverage of the assessment is the central municipal administration, the eleven dependent budget institutions and to a limited extent the one public corporation (water supply company) owned by the Municipality as well as national level institutions forming part of the municipal finance management system. There are no extra-budgetary units and no lower level of government. Main findings of the assessment The main findings of the assessment are focused on the whether the Municipality has appropriate systems in place to assist it in achieving the three main fiscal/budgetary outcomes (aggregate fiscal discipline, strategic allocation of resources and efficiency in use of resources for service delivery) as well as the integrity of the fiscal data on the basis of which many of the findings rely as summarized below. However, a summary of findings on the individual elements of the PFM systems – indicator by indicator - can be found in section 4.1 of the report and is reflected in the table of scores at the end of this executive summary. It is important to note that conditional or earmarked transfers from the state budget to the municipality – including
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