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Public Expenditure and Financial Accountability (PEFA) Public Financial Management Assessment

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Public Expenditure and Financial Accountability (PEFA) Public Financial Management Assessment Republic of Kosovo Public Expenditure and Financial Accountability (PEFA) Public Financial Management Assessment LOCAL GOVERNMENT LEVEL May 2011 Exchange Rates, Calendar Information and Abbreviations CURRENCY AND EXCHANGE RATES Currency unit = Euro (€) € 1 = US$ 1.4385 (As of May 31, 2011) Government Fiscal Year (FY): January 1 – December 31 Acronyms AC Audit Committees AGA Autonomous Government Agencies BO Budget Organizations CFA Central Fiscal Authority CHU Central Harmonization Unit CIAHU Central Internal Audit Harmonization Unit COFOG Classification of the Functions of Government DB Database DCFDM Division of Cash Flow and Debt Management DIA Department of Internal Audit DMU Debt Management Unit EC European Commission GDP Gross Domestic Product GFS Government Finance Statistics GFSI USAID Growth and Fiscal Stability Initiative HQ Headquarters IA Internal Audit IAU Internal Audit Unit IFAU Internal Financial Audit Unit IMF International Monetary Fund IPA Instrument of Pre-Accession IPSAS International Public Sector Accounting Standards IRB Independent Review Board ISPPIA International Standards for the Professional Practice of Internal Auditing KCB Kosovo Consolidated Budget KEK Kosovo Energy Corporation KFMIS Kosovo Financial Management Information System KPA Kosovo Privatization Agency LLGF Law on Local Government Finances MDA Ministries, Departments and Agencies MEF Ministry of Economy and Finance (synonymous with MFE) 2 MFE Ministry of Finance and Economy (synonymous with MEF) MIT Ministry of Industry and Trade MOSR Municipal Own Source Revenue MPS Ministry of Public Services MTEF Medium Term Expenditure Framework MYR Mid-Year Review OAG Office of the Auditor General PE Public Enterprises PFIC Public Financial Internal Control PIP Public Investment Program PISG Provisional Institutions of Self-Government POE Publicly Owned Enterprise PPA Public Procurement Agency PPL Public Procurement Law PPRC Public Procurement Regulatory Commission PRB Procurement Review Body PTK Post Telekomi I Kosoves RTK Radio and Television of Kosovo SN Sub National SOE Socially Owned Enterprise SRSG Special Representative of the Secretary-General STA Single Treasury Account TAK Tax Administration of Kosovo ULT Unit for Large Taxpayers UNIREF Unified Reference Payment Code UNMIK United Nations Interim Mission in Kosovo VAT Value Added Tax 3 Table of Contents Preface and Acknowledgements 5 Overview of the Indicators Set 7 Summary Assessment 8 Introduction 15 Country Background Information 19 Reform Agenda 29 Pristina Municipality PEFA Performance Report 30 Podujevo Municipality PEFA Performance Report 85 Vushtri Municipality PEFA Performance Report 137 Mamusha Municipality PEFA Performance Report 187 Shterpce Municipality PEFA Performance Report 236 Annex 1: Summary and Explanation of Indicators Scores 286 Annex 2: People Interviewed 307 4 Preface and Acknowledgements The Kosovo Government has demonstrated a strong commitment to public financial management (PFM) reform. First, the Government embarked on a wide review of PFM by conducting a Public Expenditure Financial Accountability (PEFA) assessment, which was carried out in the first quarter of 2009. Subsequently, a PFM Reform Action Plan was formulated, which established the basis for strengthening practices across the Government PFM systems based on the PEFA diagnostics. The Government also recognized that the engagement of Local Government would be crucial for the success of this overarching PFM reform initiative. A similar PEFA assessment on the Kosovo Municipalities was initiated with the ultimate goal of formulating a comprehensive PFM Reform Program geared to the specific needs of Local Government institutions, complementing that of the Central Government. The donor community responded to this initiative with technical assistance provided jointly by USAID and DFID for which the Government greatly appreciates. Overall, it is expected that the Local Government PEFA process will contribute to improvements in fiscal stewardship in Kosovo’s municipalities through improved public financial management with enhanced capability in providing autonomously managed and efficiently delivered public services that can, in turn, stimulate local economic development. The Local Government PEFA was carried out in five Kosovo Municipalities under the auspices of the Minister of Finance, Bedri Hamza, the Minister of Local Government Administration, Slobodan Petrovic, and the Association of Kosovo Municipalities, represented by the Head of Budget Collegium, Aferdita Grapci. Special thanks are due to the Head of Kosovo PEFA Secretariat Azem Reqica, from whose experience and expertise the Local Government PEFA process greatly benefited. The Municipalities of Pristina (Capital City), Podujevo, Vushtri, Mamusha, and Steprce were involved in the PEFA process, led by the Municipal Mayors and with the strong commitment and excellent participation from municipal administration staff. Particular acknowledgements for leadership and outstanding contributions go to the members of the five dedicated PEFA Municipal Teams who implemented the assessment tasks: • Pristina : Finance Officer, Erol Raskova, Budget and Finance Officer, Hyre Muharremi, Revenue Officer, Arton Osmani, and Procurement Officer, Xhevat Sminica. The Team received support throughout the process from the Pristina Mayor, Isa Mustafa and the Chief Financial Officer, Xhelil Bektshi. • Podujevo : Budget Manager, Kadrie Ajvazi, Head of Finance Unit, Sabit Syla, Property Tax Officer, Ajshe Vokrri, and Chief Financial Officer, Isuf Latifi. The Team gained from the leadership of Podujevo, Mayor Agim Veliu. • Vushtri : Budget and Finance Director, Isuf Jashari, Chief of Budget, Mexhid Percuku, Procurement Officer, Xhafer Islami, and Internal Audit Director, Bedredin Mulaku. The Team’s work benefited from the support of Vushtrri Mayor, Bajram Mulaku. • Mamusha : Budget and Finance Director, Yahya Mazreku, Procurement Manager, Gazmend Gashi, Finance Officer,Aziz Elshani, and Deputy Mayor, Abdulhadi Krasnic. The Team was supported by Mamusha Mayor Arif Butuc. • Shterpce : Budget and Finance Director, Sinan Ymeri, Procurement Officer, Shaban Tafa, and Property Tax Manager, Danijell Vuksanovic. The Team was supported by Sterpce Mayor Bratislav Nikolic. The Local Government PEFA process was facilitated and supported with technical expertise in PFM matters by a team comprising Magdalena Tomczynska, Fortuna Haxhikadrija, Ramadan Matarova (all USAID/Growth and Fiscal Stability Initiative (GFSI) implemented by Deloitte) and John Short (DFID/REPIM ). Specialist advice and training contribution were also provided by Matthew Smith and Kris Kauffmann (both USAID/GFSI). Valentina Imeraj and Laura Hasani (GFSI Project Office) provided excellent assistance and logistical support. Azra Bajramlic, Gordana 5 Blanusha, Valon Novosella and Fatos Katanolli made possible for this report and meetings to be translated in all three local official languages. The Local Government PEFA was based on an assisted self-assessment approach and was carried out between October 2010 and May 2011. The successful implementation benefited from a specially designed process, which brought together key stakeholders and ensured a unique mix of continued engagement and support from the Central Government authorities, municipal executive leaders, municipal administration, and donors. Capacity building and professional education were particularly addressed to the PFM practitioners from municipal administration and has represented an important by-product and benefit of this PEFA exercise. 6 Overview of the indicator set 1 A. PFM -OUT -TURNS: Credibility of the budget Mean Mode PI -1 Aggregate expenditure out -turn compared to original approved budget B B PI -2 Composition of expenditure out -turn compared to original approved budget C+ D PI -3 Aggregate revenue out -turn compared to original approved budget B+ A PI -4 Stock and monitoring o f expenditure payment arrears B B+ B. KEY CROSS -CUTTING ISSUES: Comprehensiveness and Transparency PI -5 Classification of the budget A A PI -6 Comprehensiveness of information included in budget documentation B B PI -7 Extent of unreported gover nment operations A A PI -8 Transparency of inter -governmental fiscal relations N/A N/A PI -9 Oversight of aggregate fiscal risk from other public sector entities. C N/A PI -10 Public access to key fiscal information A A C. BUDGET CYCLE C(i) Pol icy -Based Budgeting PI -11 Orderliness and participation in the annual budget process B+ B+ PI -12 Multi -year perspective in fiscal planning, expenditure policy and budgeting D+ D C(ii) Predictability and Control in Budget Execution PI -13 Tran sparency of taxpayer obligations and liabilities A A PI -14 Effectiveness of measures for taxpayer registration and tax assessment B B PI -15 Effectiveness in collection of tax payments D+ D+ PI -16 Predictability in the availability of funds for commitment of expenditures A A PI -17 Recording and management of cash balances, debt and guarantees A A PI -18 Effectiveness of payroll controls B+ B+ PI -19 Competition, value for money and controls in procurement A A PI -20 Effectiveness of interna l controls for non -salary expenditure B+ B+ PI -21 Effectiveness of internal audit C B+ C(iii) Accounting, Recording and Reporting PI -22 Timeliness and regularity of accounts reconciliation B+ B+ PI -23 Availability of information on resources r eceived by service delivery units B B PI -24 Quality and timeliness of in -year budget reports B+ A PI -25
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