Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

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68 Chapter 4: Public Financial Management and Procurement positions would not be enough to expand much beyond the MOF. Intensive training for younger, less experienced recruits may be the only short to medium term alternative for building capacity. Pushing IA out into the line ministries will also enable it to be a more complementary to the role of the external auditor, the State Audit Institution (SAI). Contrary to the traditional role conceived of IA, the department in Montenegro currently functions more as an external control by the MOF rather than a resource to Ministers in line ministries for assuring affective internal controls. External Audit 4.45 The State Audit Institution, like the IA, has only a two year history, but it has been effective already in fulfilling its primary duties. The SAI issued its audit of the 2004 Final Budget Account and its first Annual Report in 2005. Although the 2004 audit focused on financial audit, the SAI also carried out a review of operations, procedures, and controls. The audit also included information on management of the budget, assets, and business operations. The legal framework gives the SAI substantial independence even though it still must follow civil service rules and submits its budget request to MOF. The SAI head indicated that the institution has benefited from strong support from Parliament, and excellent working relationships with IA. The scope of its mandate is sufficient to cover issues such as public procurement and value for money audits, although capacity is likely to be a limitation for some time. Box 4.1 gives an overview of some of the institution’s observations in its 2005 report. Box 4.1. Sample Findings from Audit of 2004 Financial Accounts The SAI issued clear opinion on the accounts. However, the audit resulted in certain findings that point out areas for improvement. Some of those are the following: 1. There is a lack of accurate and updated deposit signatures. 2. Some payment requests are not authorized by appropriate persons. 3. Procedures relating to revenue collections are not always applied. 4. Some spending units did not perform inventory of assets and liabilities as of December 31 2004. 5. Financial statements do not always include Notes to financial statements. In addition, financial statements are not always timely submitted to the Treasury. 6. Appropriate documentation and records regarding court disputes is not held. In addition, it is not always budgeted for court disputes. 7. It was not possible to verify whether all arrears were captured in the records. 4.46 A more active role for SAI will depend on a build up in capacity over the coming years. Staffing has been limited to six people. Since their employment at SAI, all staff has been trained at the Law school and Accounting and Auditing Institute, in addition to obtaining practical experience through a six months training in audit firms Montrev and Deloitte. Continuous training of staff is expected to be one of the policies of the institution, and they are applying for membership in both the international and European associations of supreme audit institutions (INTOSAI and EUROSAI). F. CONCLUSIONS AND RECOMMENDATIONS 4.47 The challenge for Montenegro going forward is to strengthen the process of managing reform and the institutional mechanisms that support reform. Reforms such as program
Chapter 4: Public Financial Management and Procurement 69 budgeting, medium term budget frameworks, capital budgeting, and strengthening of internal audit are all important over the long term, but they risk being unfocused efforts with little impact. Sustainability of the reforms could be enhanced by having a comprehensive action plan that describes the concrete results expected from each reform and the interim milestones toward each goal. Given the capacity constraints inherent in a small MOF such as Montenegro’s, it is even more important to have a coherent and realistic framework through which to sequence activities and to evaluate progress over time. 4.48 Some of the near term milestones that the government should consider as part of its comprehensive plan are: • Helping all major budget users to develop a sensible program budgeting structure that is rooted in the organization’s strategic plan and that clearly reflects the three to five major policy priorities of the institution. Performance indicators can be addressed later and over a longer time frame, but the process should begin with effective identification of the overall policy priorities. • Developing indicative expenditure levels for the medium term budget framework broken down by sector or function, including the extra-budgetary funds. These would be for only one year beyond the budget year, but they should capture future policy priorities and should be the starting point for the next year’s budget preparation process. • Developing a capital budget as part of the process for preparing the 2007 State budget. At this stage the capital budget may be no more than a summary of the current and future budgetary impact of each project. • Developing strategies for internal financial control in all major spending units, and gradually moving towards decentralized management of internal audit functions, which in turn will require modest increase in the staffing of internal audit and the gradual reassignment of IA staff to work with key ministries as their own IA staff. 4.49 Since many of the PFM reforms have implications across sectors and in the way ministries interact with MOF, the Government should consider strengthening the institutional arrangements for reform coordination. Building up the capacity within the MOF to implement reform is critical, and should be reflected within implementation of the PAR. Though the MOF bears the primary responsibility for day-to-day implementation, a strong support and accountability from the Office of the (Deputy) Prime Minister may be critical. Integrating PFM reforms as part of the broader EU accession agenda may be another strategy worth considering.
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Report No. 36533 Republic of Monten
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CONTENTS ACKNOWLEDGMENTS ..........
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TABLES Table 1.1. Montenegro’s Gr
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ACKNOWLEDGMENTS This is the first v
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ii Executive Summary and procuremen
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iv Executive Summary 2006-2010 is p
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vi Executive Summary bill in the ke
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viii Executive Summary 23. Going fo
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x Executive Summary 27. The impleme
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2 Chapter 1: The Economic and Insti
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10 Chapter 1: The Economic and Inst
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12 Chapter 2: Composition of Public
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Page 116 and 117: 98 Annex 3 ANNEX 3. COSTS OF ALTERN
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Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

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