Public Expenditure and Financial Accountability PEFA

This report presents the findings of the first assessment of PFM systems in the Municipality of Fier based on PEFA methodology. 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 October 2016 and during the period prior to that as defined by PEFA methodology. It is focused on the amalgamated Municipality following the 2015 merger with nine former communes (Libofshë, Dermenas, Qendër, Mbrostar, Topojë, Levan, Frakull, Portez and Cakran) as part of the Territorial Administrative Reform (resulting in a more than doubling of the population), but covers for a number of issues the period back to FY2013 inclusive. It is one of a series of five assessments of Tirana and other municipalities financed by SECO and USAID/PLGP, with the sample selected so as to have a view of PFM in large, medium and small municipalities. Fier, with a population of 120,000 is the largest municipality assessed apart from the capital city, Tirana.

ACKNOWLEDGEMENTS Prepared for the United States Agency for International Development, USAID Contract Number AID-182-C-12-00001, Albania Planning and Local Governance Project (PLGP) This assessment report was prepared by: John Wiggins International Public Finance Management Consultant Elton Stafa Public Finance Management Expert Co-Plan, Institute for Habitat Development Merita Toska Public Finance Management Expert Co-Plan, Institute for Habitat Development Tetra Tech ARD Home Office Address: Tetra Tech ARD 159 Bank Street, Suite 300 Burlington, Vermont 05401 USA Telephone: (802) 658-3890 Fax: (802) 658-4247 www.ardinc.com Tetra Tech ARD Contact: Adrienne Raphael, Senior Technical Advisor/Manager adrienne.raphael@tetratech.com PLGP contact: Kevin McLaughlin, PLGP Chief of Party kevin.mclaughlin@tetratech.com The assessment team is grateful to Fier Municipality and its officials for their ready and patient cooperation in providing all the information needed for the production of this Assessment. We are grateful in particular to the Mayor, Mr. Armando Subashi, the Administrator General, Mr. Florjan Muçaj, Ms. Enkelejda Peshkëpia, Ms. Evrinomi Zhezhi and Ms. Dorela Dollakaj for their support and coordination of the entire process within the municipality. About the USAID Planning and Local Governance Project USAID’s Planning and Local Governance Project in Albania (PLGP) works both at the national policy level and at the local level to promote acceptance of the principles of decentralized governance, and to disseminate and institutionalize practical and effective methods and techniques for municipal management. The PLGP ‘partner’ local selfgovernment units after the Territorial and Administrative Reform include: Tirana, Durres, Fier, Lushnje, Berat, Kuçova, Patos, Vlora, Saranda, Elbasan, Korça, Vora and Kamza. The program works in four main areas: SUPPORT THE GOVERNMENT OF ALBANIA TO DRAFT AND IMPLEMENT EFFECTIVE DECENTRALIZATION POLICIES AND LEGISLATION The Project assists the Government of Albania (GOA), local government representatives, and relevant NGOs/municipal associations to make informed decisions based on inclusive consultations/broad consensus on the policy development framework for effective decentralization such as the Territorial and Administrative Reform, the National CrossCutting Strategy on Decentralization and Local Governance 2014-2020, the Law on Local Self-Government, the reformation of the unconditional grant system and the development and discussion of the first-ever comprehensive law on local government finances, aiming at a more equitable distribution of resources and improved delivery of services;. PLGP continues to promote an inclusive dialogue and help building a bipartisan consensus on issues of strategic importance to local self-governments and the citizens of Albania. IMPROVE LOCAL GOVERNANCE PLGP provides technical assistance and on-the-job training to staff in the 13 consolidated partner municipalities to improve the efficiency of their management systems and service delivery operations. A special focus is given to information and communication technology (ICT) helping building e-government solutions that enhance both local operational efficiency and public administration modernization. The program assists partner local self-governments to improve tax collection by addressing systemic weaknesses of tax administration; develop alternative methods to increase own-source revenues; better manage assets under local government jurisdictions; and ensure the predictability, sustainability and transparency of local government budgetary processes. It assists the selected local self-governments in raising citizen awareness of local government functions, enabling the exercise of citizen rights and responsibilities, and citizen participation in local government decision-making. IMPROVE MANAGEMENT OF LOCAL SERVICES PLGP assists the GOA and local governments in ensuring that laws, policies, procedures, and services such as water, wastewater, and solid waste management are consistent with EU standards and environmental standards in particular. It assists selected local governments, and supervisory boards, in developing skills, defining roles, and building knowledge needed to effectively manage and oversee jointly-owned utility companies dealing with these services. ASSIST THE GOA AND LOCAL GOVERNMENTS TO PLAN AND MANAGE URBAN AND REGIONAL GROWTH PLGP provides technical assistance to the GOA and selected local governments in developing skills and knowledge to draft territorial plans in accordance with the Law on Territorial Planning. It provides technical assistance to the National Territorial Planning Agency to develop a conceptual framework for the National Territorial Plan in accordance with the Territorial Planning Law and implementing regulations. Citizens, civil society groups, businesses, and other NGOs will be provided opportunities for increasing their participation in and oversight of territorial planning. 1 Contents Executive Summary ............................................................................................................ 7 Chapter 1 Introduction ..................................................................................................... 10 1.1 Rationale and purpose .................................................................................................. 10 1.2 Assessment management and quality assurance ......................................................... 11 1.3 Assessment methodology ............................................................................................. 12 Chapter 2 Background information................................................................................... 15 2.1 Country economic situation .......................................................................................... 15 2.2 Fiscal and budgetary trends .......................................................................................... 17 2.3 Local Government Structure ......................................................................................... 18 2.4 Fier Municipality ........................................................................................................... 21 2.5 Legal and regulatory arrangements framework for PFM ............................................. 24 2.6 Institutional arrangements for PFM in Fier .................................................................. 26 Chapter 3 Evaluation of PFM systems, processes and institutions .................................... 29 3.1 Subnational PEFA indicator HLG-1: Transfers from a higher level of government ...... 29 3.2 Pillar 1. Budget Reliability ............................................................................................. 33 3.3 Pillar 2. Transparency of Public Finances ...................................................................... 40 3.4 Pillar 3. Management of Assets and Liabilities ............................................................. 49 3.5 Pillar 4. Policy Based Fiscal Strategy and Budgeting ..................................................... 55 3.6 Pillar 5. Predictability and Control in Budget Execution ............................................... 64 3.7 Pillar 6. Accounting and Reporting ............................................................................... 80 3.8 Pillar 7. External Scrutiny and Audit ............................................................................. 84 Chapter 4 Conclusions on the analysis of PFM systems..................................................... 87 4.1 Integrated analysis of PFM performance ..................................................................... 87 4.2 Effectiveness of the internal control framework .......................................................... 90 4.3 PFM strengths and weaknesses .................................................................................... 91 Chapter 5 Government PFM reform process ..................................................................... 93 5.1 Approach to PFM reform .............................................................................................. 93 5.2 Institutional considerations .......................................................................................... 93 Annex 1. Performance Indicator Summary ....................................................................... 94 Annex 2. Summary of observations on the Internal Control Framework ......................... 101 Annex 3A. List of documents consulted .......................................................................... 103 Annex 3B List of people interviewed .............................................................................. 104 Annex 3C Sources of information for each Performance Indicator .................................. 105 Annex 4. Disclosure of quality assurance arrangements ................................................. 106 2 Abbreviations ALL APP CA CHU COFOG DLDP EU FMC FMIS FY GFS GDTF HLG HR HSC IA IFMIS IIA IPSAS LGU MOF MOSLI MTB NA NS NU NDSI PEFA PFM PI PLGP PPC PPL PPP RDF SBT SDC SECO STAR TAR TDO TSA UNDP USAID WB Albanian Lek Public Procurement Agency Contracting authority Centralized Harmonization Unit Classification of Functions of Government Decentralization and Local Development Program European Union Financial management and controls Financial management information system Fiscal year Government Finance Statistics General Department of Tax High level of government Human resources High State Control Internal audit Integrated Financial Management Information System Institute of Internal Audit International Public Sector Accounting Standards Local Government Unit Ministry of Finance Minister of State for Local Issues Medium-term budget Not Applicable Not Scored Not Used National Strategy for Development and Integration Public Expenditure and Financial Accountability Program Public Financial Management Performance indicator Planning and Local Government Project Public Procurement Commission Public Procurement Law Public-private partnership Regional Development Fund Small business tax Swiss Agency for Development and Cooperation Swiss Economic Cooperation and Development Support to Territorial and Administrative Reform Project Territorial and Administrative Reform Treasury District Officer Treasury single account United Nations Development Program United States Agency for International Development World Bank 3 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 4 Executive Summary Purpose, scope and management of the assessment 1. This report presents the findings of the first assessment of PFM systems in the Municipality of Fier based on PEFA methodology. 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 October 2016 and during the period prior to that as defined by PEFA methodology. It is focused on the amalgamated Municipality following the 2015 merger with nine former communes (Libofshë, Dermenas, Qendër, Mbrostar, Topojë, Levan, Frakull, Portez and Cakran) as part of the Territorial Administrative Reform (resulting in a more than doubling of the population), but covers for a number of issues the period back to FY2013 inclusive. It is one of a series of five assessments of Tirana and other municipalities financed by SECO and USAID/PLGP, with the sample selected so as to have a view of PFM in large, medium and small municipalities. Fier, with a population of 120,000 is the largest municipality assessed apart from the capital city, Tirana. Main findings of the assessment 2. The main findings of the assessment are focused on the whether the Municipality has appropriate systems in place to assist it in maintaining aggregate fiscal discipline, allocating resources strategically, and using them efficiently for service delivery. A summary of findings on the individual elements of the PFM systems – indicator by indicator – is provided in section 4.1 of the report below, which is reflected in the table of scores at the end of this section. Aggregate Fiscal Discipline 3. Overall fiscal discipline is not a primary concern, although a number of issues need to be addressed. The Municipality is bound to balance its budget as – in common with almost all Albanian municipalities - it has no realistic prospect of borrowing to finance a fiscal deficit. About three quarters of its income consists of conditional and unconditional transfers from central government, which effectively determine much of its expenditure. The amounts and timing of these transfers are generally predictable during budget execution, but they are not set within a multi-year framework which would enable the municipality to plan their use effectively. . A ajo o e is the i diffe e t pe fo a e i the Mu i ipalit s o e e ue collections. Fier collected only 58% of planned local revenues (incl. taxes that in practice would be considered shared taxes) in 2013, 78% in 2014 and 85% in 2015. Such revenues on 5 average cover about two thirds of actual expenditure. Actual capital investments constitute between 5%- % of Fie s udget f o o lo al ta es a d fees a d f eel disposa le intergovernmental transfers. Major public investment are currently financed from conditional intergovernmental transfers from the Regional Development Fund. Funds awarded and actually executed from the RDF constitute 23% and 37% of Fie s o udget i FY and FY 2015. Notwithstanding the policy choices to seek investment financing from the RDF, underperformance in revenue collection have thereby substantially reduced the it s s ope for initiatives of its own. This situation is partly a reflection of limits placed by central government on municipal taxing powers ut also efle ts i ade ua ies i the it s p ope t and taxpayer records, and in the efforts made and instruments available to enforce payment. Strategic Allocation of Resources 5. Municipalities in Albania have only limited scope for choice in the allocation of resources. They have little responsibility for the provision of the main health and education services, and their involvement in social protection is essentially that of an agent of central government. In accordance with national requirements, Fier has prepared its General Local Plan (GLP), which incorporates its Territorial Development Strategy (TDS) and provides the basis for its Capital Investment Plan (CIP). However, implementation of these plans depends almost entirely on funding from central government, which has been highly unpredictable from year to year. The existence of these plans should mean that if resources become available, they will not be wasted; but the municipality does not decide the order in which its chosen investments should be executed. . I est e t apa t, the it s p edi ta le esou es f o its o e e ues a d f o unconditional grants distributed according to a national formula are largely pre-empted by the ongoing costs of running the city administration, keeping the city clean and tidy, and maintaining the public infrastructure. The allocation of resources to these functions is unlikely to change much within a fiscal year, or even between one year and the next. But the unpredictability of investment funding means that the functional composition of expenditure as measured by PEFA may change considerably between budget and out-turn. 7. Formal requirements for transparency and public consultation on the budget appear to be observed. But there is no evidence that discussion by the Municipal Council of the mediumterm plans or the annual budget makes much overall difference to the outcomes. Although the recommendations of external audit reports are freely available on the High State Control website, the reports have not been discussed by the Council. Although freedom of information legislation means that annual and in-year budget execution reports should be available on the city website, it is not clear that this requirement is consistently followed. Efficiency in Use of Resources for Service Delivery 6 8. It appears that the TAR has resulted in an overall reduction in the municipal wage bill, as not all the staff of the former communes have been absorbed by the new municipalities. This should al ead ea a effi ie gai , hi h should e ei fo ed the e u i ipalities greater ability to deploy staff and other resources in preparing plans and dealing with problems. In the medium term there should be scope for efficiency gains through the improvement and integration of IT systems; while the fact that all revenue and expenditure transactions are recorded in the national Treasury system provides an important element of overall structure, there are no automatic links between municipal budgetary systems and the Treasury, with most municipal operations (budgeting, revenue, payroll, procurement) dependent on separate and relatively basic IT systems. There is clearly room for a central initiative to develop integrated IT systems which could be used by all municipalities. There is formal compliance with requirements for budgets to be presented in a programme format, but many municipal operations do not readily lend themselves to this, while little progress has been made in setting objectives to be secured by such programmes, and identifying performance indicators to measure progress towards their achievement. Other efficiency gains will be dependent on improvements in investment planning, which require changes in the way the central government allocates conditional grant finance. 9. At the operational level, control of employment and payroll appears to operate reasonably well as does the payment function for non-salary expenditure. Also, recent gains in transparency and monitoring of procurement augur well for improvements in value for money of expenditure, particularly if the medium-term planning of municipal investment can be improved. Internal audit in Fier is useful and effective, and external audit by HSC is evolving towards a greater focus on the performance of systems rather than simply inspecting compliance. Integrity and consistency of financial data 10. Considerable difficulty has been encountered in this assessment as a result of inconsistencies between data provided by municipalities and data extracted from the Treasury system. Clearer instructions are needed covering what is to be included in municipal budgets, how they should be presented, and how budget execution should be reported. The unpredictability of Regional Development Fund (RDF) funding and the differences in the way it is reported by different municipalities, are the most glaring example of this. Rationalisation of budget preparation, reporting and accounting requirements would facilitate the development of better IT systems while improving the integrity of the data they contain through greater discipline in the way data is managed. 7 Prospects for improvements in PFM 11. Fier as a relatively large municipality has the administrative capacity needed to discharge the functions for which the municipality is responsible, although the limitations on its resources mean that it cannot readily adapt to new challenges. The problems it faces are common to all municipalities in Albania, which is at a cross-roads for the development of municipal government. The need for more effective revenue raising through property taxes based on realistic valuations is acknowledged, while permanent arrangements have not yet been established to allocate to municipalities the resources they need in order to discharge the responsibilities recently transferred to them. There are no arrangements in place to allocate investment resources to each municipality in a way which enables them to plan their investments within a medium-term fiscal framework. The absence of common standards for the public presentation of fiscal information by municipalities is a further problem which needs to be addressed. Municipality of Fier - Summary Assessment 2016 ratings Dimension Ratings Scoring PFM Performance Indicator Method i. ii. iii. iv. Pillar I. Budget reliability Transfers from Higher Level of HLG1 M1 B C A Government PI-1 M1 D Aggregate expenditure out-turn PI-2 M1 D D A Expenditure composition out-turn PI-3 M2 D D Revenue out-turn Pillar II: Transparency of public finances PI-4 M1 C Budget classification PI-5 M1 B Budget documentation Central government operations PI-6 M2 A A NA outside financial reports Transfers to sub-national PI-7 M2 NA NA governments Performance information for service PI-8 M2 D D B D delivery PI-9 M1 D Public access to fiscal information Pillar III: Management of assets and liabilities PI-10 M2 A NA NA Fiscal risk reporting PI-11 M2 C C D C Public investment management PI-12 M2 D C B Public asset management PI-13 M2 NA A NU Debt management Pillar IV: Policy-based fiscal strategy and budgeting Macroeconomic and fiscal PI-14 M2 NU B NU forecasting PI-15 M2 A B D Fiscal strategy Medium-term perspective in PI-16 M2 B A D NA expenditure budgeting PI-17 M2 C A D Budget preparation process PI-18 M1 A A B C Legislative scrutiny of budgets Pillar V: Predictability and Control in Budget Execution PI-19 M2 B C D D* Revenue administration PI Score C+ D D+ D C B A NA D+ D A D+ C A B B B C+ C+ D+ 8 Municipality of Fier - Summary Assessment 2016 ratings Dimension Ratings Scoring PFM Performance Indicator Method i. ii. iii. iv. PI-20 M1 A D D Accounting for revenue Predictability of in-year resource PI-21 M2 A C D C allocation PI-22 M1 D A Expenditure arrears PI-23 M1 B A B C Payroll controls PI-24 M2 A A B B Procurement management Internal controls on non-salary PI-25 M2 B C A expenditure Pillar VI: Accounting and reporting PI-26 M1 C B B B Internal audit PI-27 M2 B A NA D Financial data integrity PI-28 M1 A A C In-year budget reports PI-29 M1 D D C Annual financial reports Pillar VII: External scrutiny and audit PI-30 M1 C D C C External audit PI-31 M2 D NA NA NA Legislative scrutiny of audit reports PI Score D+ C+ D+ C+ B+ B C+ B C+ D+ D+ D 9 Chapter 1 Introduction 1.1 Rationale and purpose 1. The objective of conducting a subnational PEFA in five selected municipalities is to gain a better understanding of the strengths and weaknesses of subnational PFM in Albania as a basis for discussing PFM reform priorities and possible areas of support to the newly restructured municipalities. 2. During the last two years, the local governance environment has changed dramatically. In July 2014, the Parliament enacted the Territorial Administrative Reform (TAR), decreasing the number of local government units in Albania from 373 very fragmented communes and municipalities to just 61 consolidated and larger municipalities. It is generally agreed that this as the g eatest ha ge to Al a ia s s ste of lo al go e e t si e the de o ati transition in 1992 and it provides an unprecedented opportunity to strengthen local government capacities. The TAR aims at improving efficiency and effectiveness, not only of local governments but also of the central government. To fulfil this, it needs to be accompanied by significant changes in the area of local government finances. 3. After the reform, a series of consequent legal and institutional changes occurred: i) local elections took place in June 2015 and 61 Mayors took office in the newly constituted municipalities; ii) a new National Crosscutting Strategy on Decentralization and Local Go e a e has ee fo ulated to p o ide o e la it o the Go e e t s isio o decentralization and (iii) a new Law on Local Self-Governance was enacted. The latter decentralized a number of important and costly functions to the new local government units which will have important implications for financial management as well. 4. The next step to complete the legal framework is the drafting and approval of the first-ever comprehensive Law on Local Government Finances, which will bring together all principles and procedures related to local government sources of revenues, expenditure management and intergovernmental dialogue and consultation. The key objectives of the new law are to ensure the adequacy of local government financial resources; strengthen local government taxing powers; guarantee the equity, transparency and predictability of intergovernmental transfers; support the effective and transparent use of local financial resources in accordance with the strategic priorities and local needs; ensure fiscal discipline and enable efficient delivery of public services; enable local governments to effectively use their right to borrow resources; and ensure a continuous dialogue between the two levels of governance on the key issues that affect local government functions and responsibilities and their financial resources. 10 5. The development of municipal government in Albania has particularly been supported by USAID and the Swiss Government (SECO/SDC). In accordance with this SECO has commissioned and financed the assessments of three municipalities (Tirana, Berat and Tropoja), while USAID/PLGP has been responsible for the assessments of Fier and Kuçova. Other development partners (EU, UNDP, World Bank, SDC) have been consulted in the preparation of the terms of reference and have commented on the draft reports. Overall the five municipal PEFA assessments are intended to:  Provide government officials at both, central and local level with an assessment of PFM performance at subnational level and improve the understanding of the need for a well-functioning PFM system at local level;  Provide information and inputs to the legal and regulatory reforms with regard to the subnational PFM area;  Provide an analytical starting point for deeper support of PFM reforms at subnational level in Albania, possibly also informing future TA projects in this area;  Provide opportunities for donor alignment and further use of synergies. 1.2 Assessment management and quality assurance 6. USAID/ PLGP and SECO are the lead agencies responsible for the procurement of the assessment teams and supervision of the work of the assessors. Box 1 Assessment management and quality assurance arrangements PEFA Assessment Management Organization   Oversight Team – covering all five municipalities : o Ministry of Finance (MOF), Fran Brahimi, co-chair; o Minister of State for Local Issues (MOSLI), Enea Hoti; o High State Control (HSC), Bajram Lamaj; o Representatives of each of the five municipalities, (Fier- Florian Muçaj); o EU Delegation, Edina Halapi; o UNDP, Viktor Malkaj; o World Bank (WB), Hilda Shijaku; o SDC/ DLDP, Valbona Karakaçi, o USAID/ PLGP, co-chair, represented by Kevin McLaughlin o SECO, co-chair, represented by Philipp Keller, Swiss Embassy in Tirana. Assessment Team for Fier: International PFM consultant John Wiggins (team leader), as well as local PFM consultants Elton Stafa and Merita Toska. Review of Concept Note for all five municipalities:  Concept Note draft prepared by SECO and USAID/PLGP, circulated for review to OT 11    members and PEFA Secretariat on 1st September 2016. Invited reviewers: MOF, HSC, MOSLI, PEFA Secretariat, SDC, DLDP, EU Delegation, WB, UNDP, five municipalities. Reviewers who provided comments: MOF (Fran Brahimi), HSC (Bajram Lamaj), SDC (Elda Bagaviki), PEFA Secretariat (Guillaume Brule) all on 13 September; and DLDP (Stefan Pfäffli) on 12 September. Final Concept Note approved by OT on 20 th September, 2016. Review of the Assessment Report for the Municipality of Fier:  Assessment report draft circulated December 14th and December 27th, 2016:  Invited reviewers: Municipality of Fier, Ministry of Finance, SECO, and PEFA Secretariat.  Reviewers who provided comments: Ministry of Finance, SECO, PEFA Secretariat 1.3 Assessment methodology 7. The overall assessment work covers the following five municipalities: Berat, Fier, Kuçova, Tirana and Tropoja. The municipalities were selected taking into consideration the following criteria:  Representative sample of population size, rural/urban and geographical coverage, average income, political balance;  Municipal commitment, staff capacities and data availability;  Synergies with donor support activities. Ti a a, as the apital it ith so e pe e t of the ou t s populatio , was automatically selected for assessment. Fier, Berat and Kuçova (in order of population) were selected as municipalities with substantial urban centres, while Tropoja was included in order to have an insight into a remote and largely rural municipality. Apart from the water utility Fier does not control any operations which are not accounted for as part of its budget, and has no interest in other business activities. There is no further tier of government subordinate to the municipality. 8. The territorial changes to the municipalities induced by the TAR necessitated a scoping mission prior to conducting the PEFA assessments in order to evaluate on which basis PEFA assessments may be conducted. The scoping mission was undertaken 26th June to 3rd July by a team of five consultants, contracted by SECO through ECORYS: international PFM consultants Frans Ronsholt (team leader) and Jorge Shepherd, as well as local PFM consultants Elona Gjika and Sabina Ymeri. USAID/PLGP participated in the scoping mission through a local PFM expert Elton Stafa. A Scoping Mission Report was issued on 15th July 2016 and became the basis for preparing the Concept Note, which was finally approved by the OT on 20th September 2016. 12 9. The aim of the scoping mission was to evaluate for each of these municipalities whether the assessments could be conducted in accordance with the requirements of the 2016 PEFA Framework considering that the relevant assessment periods spanned the transition phase of the TAR. The territorial coverage of each municipality in FY2016 is significantly different from the coverage in FY 2014, and FY 2015 represents a hybrid year of transition. Therefore, an assess e t of the u i ipalities pe fo a e i a ot e u de take ith o plete adherence to the PEFA 2016 Framework. Tirana apart, Fier continues to have the highest ratio of own revenues to total income among the four municipalities assessed (see Table 2.11 below). The assessment team has therefore assessed indicator dimensions with multi-year coverage on the basis of the pre-TAR municipality as regards FY2014 and FY2013 together with data for the amalgamated municipality during the hybrid FY2015. 13 10. In the case of Fier Municipality the impact of TAR on the organisation and overall level of financial operations is only moderate. While the integration of the 9 communes into the municipality implies an increase in potential own revenues of 75 per cent, it does not require a fundamental change in the financial management arrangements. Across the country the integration of rural areas with urban settlements implies an increase in the new u i ipalities depe de e o fi a e f o e t al go e e t as o pa ed ith the position of the former municipalities. The map attached illustrates the large increase in the area of the Municipality of Fier. 11. This PEFA assessment follows the structure, methodology and guidelines of the PEFA 2016 Framework and the Supplementary guidance for subnational PEFA assessments dated March 2016. As there is no subnational government level below municipalities, indicator PI-7 and dimension PI-10.2 do not apply. Fier and Kuçova are the owners or part owners of the water and sewerage utilities which operate in their areas, but neither municipality has any other subordinate institutions or extra-budgetary activities. Moreover, and in line with guidance, macroeconomic forecasting and macro fiscal sensitivity analysis in PI-14 as well as debt management strategy PI-13.3 have been excluded as they are central government functions which a municipality would not be expected to undertake. These indicator dimensions are a ked NA fo Not Appli a le . 12. Two assessment teams have been fielded for the municipal assessments proper. The SECO/ECORYS team that undertook the scoping mission also undertook the assessments of Tirana, Berat and Tropoja. A team commissioned by USAID/PLGP consisting of John Wiggins (international consultant) and Elton Stafa and Merita Toska (local experts) undertook the assessments of Fier and Kuçova. The field mission schedule for the team covering Fier and Kuçova was as follows: Table 1.1. Field Mission Schedule Date 15th September 15th-16th September 30th September 24th-28th October 31th October - 4th November 9th December 13th December 16th December Activity OT meeting PEFA capacity building workshop for all five municipalities Wrap-up meeting with Swiss Embassy, USAID/PLGP, MOF and HSC. Data collection/interviews in Kuçova (Municipality and central governmental institutions) Data collection/interviews in Fier (Municipality and central governmental institutions) Follow up meeting with the Municipality of Fier Follow up meeting with the Municipality of Kuçova Wrap-up meeting with Swiss Embassy, USAID/PLGP, MOF and HSC. 14 Chapter 2 Background information 2.1 Country economic situation 1. From 1945 to 1990 Albania was ruled by the most repressive communist regime in the world. Freedom of movement, speech and religion were all denied, and private property was expropriated. Most of Al a ia s su sta tial e o o i esou es e e asted o unproductive investments sustained by keeping Albania isolated from the rest of the world. Compared to the rest of Europe real incomes remained very low, and the public infrastructure very inadequate. By the time of the fall of the Berlin Wall and the collapse of the Soviet Union the fo es i Al a ia seeki g fu da e tal ha ge had e o e i esisti le, a d the “tude ts Mo e e t led to the sudde i stallatio of de o a a d a a ket e onomy in the place of dictatorship and the former command economy. In the vacuum resulting from the disappearance of the former regime uncontrolled private interests tended to prevail over the interests of society as a whole. Since the turn of the millennium Albania has been working to build the social, political and judicial institutions which will support social and economic development, while ensuring the rule of law. While progress has been made, further work remains to be done. Table 2.1. Some facts about Albania Republic of Albania Name fo Population: Total surface Land boundaries: Coastline: Average age of inhabitants: Natural resources e l People s “o ialist ‘epu li of Al a ia 2.821.977 inhabitants (-8.0% compared to 2001 census) (estimated 500.000 emigrants living abroad) 28,748 km2 (land: 27,398 km2, water: 1,350 km2) 717 km border; Greece 282 km, Macedonia 151 km, Montenegro 172 km, Kosovo 112 km 362 km on Adriatic and Ionian Sea (strategic location along Strait of Otranto) 35.3 years (from 30.6 years in 2001); Petroleum, natural gas, coal, bauxite, chromite, copper, iron ore, nickel, salt, timber, hydropower. Source: Population and Housing Census 2011, INSTAT 2. The transition to the a ket e o o e essitated la ge ha ges i the ou t s e o o i structure. Much industrial capacity immediately became uncompetitive, resulting in high unemployment and a continuing large trade deficit as people satisfied pent-up demand for goods which could only be obtained from abroad. The trade deficit has been mainly financed by foreign direct investment (FDI), particularly in the tourism, finance and distribution sectors, by the sale of state assets to foreign purchasers, and by remittances from Albanians who had moved abroad in search of work. During the period up to the global financial crisis in 2008 these forces resulted in rapid economic growth. But since then conditions have been much 15 more difficult, and economic growth slowed progressively from 7.5 per cent in 2008 to 1.1 per cent in 2013. The last three years have seen a partial recovery based in inward investment and construction, with growth expected to each 3 per cent in 2016. For this recovery to be sustained the country needs to build productive capacity, for which a continuing flow of FDI will be needed, particularly to ensure that the country benefits from the introduction of new technology. This investment will in turn be dependent on Albania providing an adequately trained work force and a stable and reliable business and legal environment. Table 2.2. Main macroeconomic indicators Inflation (y-o-y, average, in %) Core Inflation (in %) Total inflation (in %) Economic Growth Real GDP growth rate (in %)1 Nominal GDP (ALL billion) GDP per capita (Euro) Labour Market Population (/000) Employed (/000) Unemployment Rate (in %)3 Fiscal Sector (General Government) Fiscal Balance (incl. grants, % on GDP) Public Debt ( % of GDP) Revenues (% of GDP) Expenditures (% on GDP) External Sector Current Account (% on GDP) Goods imports (fob, % on GDP) Goods exports (fob, % on GDP) Foreign direct investments (inflow, % on GDP) Foreign Reserve Assets (EUR million) Monetary and Financial Sector Repo rate (end of period) M3 Aggregate (y-o-y, end of period) Credit to Private Sector (y-o-y, end of period) 12M Yield (annual average) Average USD/ALL ER Average EUR/ALL ER 2008 2009 2010 2011 2012 2013 2014 2015 2.8 1.4 1.8 3.2 1.7 0.2 0.1 -0.2 3.4 2.3 3.6 3.5 2.0 1.9 1.6 1.9 7.5 3.3 3.7 2.5 1.4 1.1 2.0 2.7 1,089 1,148 1,240 1,301 1,333 1,351 1,401 1,443* 3,088 3,191 3,305 3,323 3,457 3,575* 2,947 2,928 2,913 2,905 2,900 2,897 2,894 2,889 974.1 899.3 1,153 1,127 1,097 990 1,006 1,051 12.7 13.7 14.2 14.3 13.8 16.4 17.9 17.4 -5.5 -7.0 -3.1 -3.5 -3.4 -4.8 -5.2 -4.1 54.7 59.4 57.7 59.4 62.1 70.4 71.8 73.0 26.7 26.0 26.2 25.4 24.8 24.3 26.3 26.4 32.3 33.0 29.3 28.9 28.2 29.2 31.5 30.5 -15.6 -15.3 -11.9 -13.5 -10.7 -11.2 -13.2 -9.8 37.7 35.1 36.2 39.4 36.7 35.7 38.6 35.9 10.3 8.6 13.2 15.2 15.9 18.2 18.4 17.4 7.5 8.2 8.8 6.8 6.9 9.5 8.2 9.3 1,675 1,646 1,904 1,912 1,972 2,015 2,192 2,879 6.25 5.25 5.00 4.75 4.00 3.00 2.25 1.75 7.7 6.8 12.5 9.2 5.0 2.3 4.0 1.9 32.2 11.7 10.1 10.4 1.4 -1.4 2.0 2.3 8.16 9.17 7.98 7.34 7.03 5.16 3.4 3.3 83.9 95.0 103.9 100.8 108.2 105.7 105.5 126.0 122.8 132.1 137.8 140.3 139.0 140.3 139.4 139.7 Source: INSTAT, Ministry of Finance, Bank of Albania. 1 Last update on 2015 Q3. 2 Labour Force Survey Results, referring to 15-65 years old range. 3 According to Labour Force Survey Results. *The GDP data for 2015 are derived from IMF. 16 3. Meanwhile fiscal and external imbalances continue to present challenges. Poor economic conditions in Greece and Italy mean lower remittances and the return of some emigrants, while weak domestic confidence is holding back credit demand despite unprecedentedly low interest rates. Nevertheless the country is currently making progress in addressing these imbalances, and meeting all the performance criteria agreed with the IMF under the current (2014-17) Extended Fund Facility (EFF) arrangement. 2.2 Fiscal and budgetary trends 4. As tables 2.2 and 2.3 show, total General Government revenue has been running at about 26 per cent of GDP, while total expenditure has been 30 per cent or more. The 2008 global crisis led to a fiscal deficit of 7 per cent of GDP in 2009, and although this was reduced to 3 per cent in 2010 the subsequent trend was upward until the deficit reached 5.9 per cent in 2014. Measures in accordance with the current IMF EFF arrangement brought the deficit down to 4.5 per cent of GDP in 2015, and a further improvement to 2.5 per cent is expected for 2016. The succession of fiscal deficits has resulted in an increase in total government debt from 55 per cent of GDP in 2008 to 73 per cent at the end of 2015, with particularly large increases in 2012 and 2013. The prospect is that 2016 will see a modest reversal of this upward trend, but substantial further fiscal consolidation will be needed – of the order of 3 per cent of GDP – to achieve the objective of bringing this ratio down by 2020 close to the legal maximum of 60 per cent of GDP required by current Albanian legislation as well as by the EU as a condition of membership. Table 2.3 General government revenue and expenditure (in ALL billion) 2013 2014 2015 TOTAL REVENUE 328.6 366.7 379.2 As % of GDP 24.3% 26.3% 26.4% Grants 5.7 10.1 11.2 Tax and Social and Health Insurance 290.6 323.5 330.6 Local Government own revenue 1 10.8 12.4 11.7 LG own revenue as % of GDP 0.8% 0.9% 0.8% Non tax revenues 21.6 20.7 25.7 TOTAL EXPENDITURE 394.1 438.8 437.4 As % of GDP 29.2 31.5 30.5 CG Current expenditure 298.8 308.4 316.7 LG Current expenditure 2 29.8 32.9 34.1 As % of GDP 2.2 2.4 2.4 Capital expenditure inc. net lending 65.4 60.5 63.1 Arrears 0 33.8 17.6 AGGREGATE DEFICIT -65.4 -72.1 -58.2 As % of GDP -4.8 -5.2 -4.1 General Government Debt as % of GDP 70.4 72.0 73.0 Source: Ministry of Finance, Table 4, 2016 Budget Law, Table 6.1 2016 Budget Law, Fiscal Statistics JanuaryDe e e ; IMF C‘ / ; Autho s al ulatio s. 1 Local own revenue here excludes certain non-tax revenue from fees, asset management income etc. It also excludes any type of revenues transferred by the national government or borrowing receipts. 2 Local Government expenditure here includes expenses financed through own source revenues from taxes, fees, asset management revenues, freely disposable unconditional grants and competitive grants allocated 17 through the Regional Development Fund. This item excludes financing of delegated functions or other local functions which are financed by line ministries. 2.3 Local Government Structure 5. The local government system in Albania is based on the Constitution, and is built on the principles of decentralisation of authority and subsidiarity. The Constitution provides for the establishment of two tiers of local governments. Since 2000 the decentralisation process devolved more administrative and fiscal authority to the first tier local government. Starting from 2015, local government structure underwent a series of structural and institutional reforms. These reforms began at end 2013 with a sweeping reorganisation of local first tier governments by reducing their number from 373 to only 61. Since June 2015 the 61 municipalities of Albania have assumed the responsibilities and challenges of managing local public matters. A new organic law on local government was adopted in December 2015, establishing the organisation and functioning of local governments, including the division of powers and responsibilities between the central and local governments. Table 2.4 Overview of subnational government structure in Albania Level of Govt. Corporate Body Own political leadership Approves own budget Number of jurisdictions Average population % of public revenue % of public expenditure % funded by transfers Central Yes Yes Yes 1 2.8 mill. 97% 92.2% 3% Regional Yes Yes Yes 12 233,000 0% 0.4% 100% Municipal Yes Yes Yes 61 45,900 3% 7.4% 62% 6. The Council and Mayor of municipalities are directly elected every four years. Regional Councils are not directly elected, but are composed of representatives of the constituent municipalities. The main (exclusive) responsibilities of municipalities are the provision and maintenance of the local infrastructure, including roads, local amenities, waste disposal, public lighting, control of building, social services, pre-university education infrastructure and irrigation systems. They also perform delegated responsibilities on behalf of central government, such as civil registration services. Regional Councils have very limited direct responsibilities, with the focus of their work on the harmonisation of local and national st ategies. The lio s sha e % of u i ipal e pe ditu e is fi a ed th ough g a ts f o the state budget. Municipalities may obtain resources through local taxes as established by law, fees and user charges for services, revenue from property, and donations. 18 7. National and subnational budgetary systems are governed by the same legal and regulatory framework. The budgetary system is managed through a unified Treasury account, controlled by the Ministry of Finance. Each budgetary entity, including municipalities and their institutions have their own accounts and sub-accounts with the Treasury, which is linked with the second-tier banking system. Municipalities and regional councils approve their own budgets, which are subject to a conformity/legality check by the Prefect, a deconcentrated institution mandated by the Prime Minister to each region. 8. As Table 2.3 shows, local government accounts for only a relatively small part of total General Government revenue and expenditure. This is a reflection of the limited responsibilities given to municipalities, and the limited sources of revenue available to them. As noted above, the revenue which municipalities collect through their own decisions corresponds to only about 3 per cent of total government revenue (and less than one per cent of GDP). Their expenditure represents somewhat less than 8 per cent of total government expenditure, with investment, which accounts for at least a quarter of municipal expenditure, almost entirely dependent on finance from central government. By contrast central government capital expenditure represents only about an eighth of total expenditure. Very little of the expenditure required for public education and health services falls to be met by municipalities, although they have recently been given more responsibility for the provision and operation of facilities in the areas of education, health and irrigation and drainage. Total expenditure by municipalities amounted to about US$170 per head of population in 2015. All municipal revenue and expenditure takes place within the national Treasury system managed by the Ministry of Finance; all revenue received by municipalities from non-government sources is paid into the Treasury account at the Bank of Albania, and all payments on behalf of municipalities are met from it. 9. The allocation of municipal expenditure by economic classification is shown in Table 2.5 and the functional allocation in Table 2.6. Current expenditures represented more than 70% of total expenditures during the period 2010-2015. Within this category, personnel and transfers account for the largest share. Personnel costs remained generally stable over the period, and operational costs increased only a little. Capital expenditures represented on average about 26.2% of total expenditures; they declined from 2010 to 2012, and subsequently recovered to their former level. Expenditure on transfers increased significantly from 2013.. Table 2.5. Gross current and capital expenditure of all municipalities (/000 ALL) I. Current expenditures Personnel Operational Subsidies Grants and Transfers Interest Payment 2010 21,263 9,580 8,771 2,407 457 47 2011 19,027 9,640 8,146 771 438 32 2012 20,387 9,583 8,532 1,665 573 35 2013 20,155 10,058 8,692 852 521 32 2014 21,094 10,384 9,544 572 568 27 2015 20,647 10,218 9,290 499 586 55 19 II. Capital expenditures Total Expenditures Source: Ministry of Finance, T easu 16,538 13,574 10,778 37,801 32,601 31,166 “ ste , Autho s al ulatio s. 13,035 33,190 15,469 36,563 16,526 37,173 10. As noted above, the main responsibilities of municipalities are the provision and maintenance of the local infrastructure, including roads, local amenities, refuse disposal, public lighting and control of building. Expenditure on social protection, where municipalities act as agent for the central government in selecting the recipients of means-tested benefits according to centrally determined criteria, and making the payments out of specific grants provided by central government is excluded from the statistics presented here. The costs of municipal administration are covered by General Public Services, with most other expenditure classified as Economic Services or Housing and Community Amenities. Table 2.6. Functional allocation of expenditures (61 Municipalities, ALL million) 2010 2011 Total Expenditures 37,801 32,601 General public administrative services 11,096 10,476 Public order and safety 174 159 Economic affairs 8,192 6,867 Environmental protection 0 0 Housing and community amenities 11,498 8,439 Health 19 86 Recreation, culture and religion 1,507 1,877 Education 4,868 4,295 Social protection 446 402 Source: Ministry of Finance, T easu “ ste , Autho s al ulatio s. 2012 31,166 10,881 174 5,077 0 8,487 88 1,585 4,462 412 2013 33,190 10,221 190 7,483 0 9,481 44 1,553 3,733 485 2014 36,563 10,753 212 8,979 0 9,441 11 1,569 5,109 488 2015 37,173 9,953 190 10,909 0 9,969 46 1,542 4,069 497 11. O l a elati el s all pa t of u i ipalities i o e is full u de thei o t ol. A oss the ou t a out th ee ua te s of u i ipalities total i o e is de i ed f o o ditio al and unconditional grants from central government, and from predetermined shares of taxes collected by central government. The main sources of revenue under municipal control are annual property taxes on buildings and land, annual fees charged for the provision of municipal services (which are very similar to property taxes), and the infrastructure impact tax levied in respect of new buildings. The potential revenue from property taxes is limited by central government restrictions on tax rates, as well as by inadequacies in the documentation of chargeable properties; it appears that municipalities have in many cases made only limited efforts to collect property taxes from households, considering that the potential revenue did not justify the trouble involved. The yield from the infrastructure impact tax is potentially important, but it has been reduced during the 2013-15 period by the centrally-imposed ban on the issue of new building permits. The different streams of municipal revenue are shown in Table 2.7. Table 2.7. Municipal revenues (61 Municipalities, ALL million) Revenues from taxes Small business tax1 2010 9,171 2,478 2011 9,084 2,641 2012 7,599 2,267 2013 7,501 2,090 2014 8,993 1,698 2015 8,339 2,064 20 1,605 1,564 1,970 1,840 3,101 3,315 Property Taxes 123 122 93 78 85 101 Tax on Hotels 2,622 3,209 1,642 1,796 2,439 1,420 Tax on Infrastructure. 291 378 536 614 581 606 Tax on Transf. Immov. Prop. 398 381 390 373 374 357 Tax on Billboards 1,654 788 701 710 716 476 Other taxes 3,573 3,445 4,319 4,185 4,762 4,717 Revenues from fees and charges 1,251 1,249 1,693 1,656 2,001 2,065 Fees for local public services Fees for the occupation of public 299 334 446 347 418 328 space 2,023 1,863 2,180 2,182 2,343 2,325 Administr. charges and other n.e.c. 10,562 10,205 9,230 10,955 12,128 11,252 Unconditional grant 1,170 1,309 1,407 1,509 1,065 1,133 Shared taxes 2 13,178 8,456 8,541 8,572 8,960 11,733 Conditional grants for Local Functions 5,486 2,685 2,173 2,667 1,771 2,005 Ministry of Transport & Infrastructure 2,633 2,206 2,403 1,694 2,731 1,800 Ministry of Education and Sport 159 313 Ministry of Urban Development 39 44 78 27 56 Ministry of Environment 42 513 155 112 114 55 Ministry of Culture 41 49 47 52 51 50 Ministry of Economy Ministry of Health 3 72 81 26 1 32 88 166 184 109 42 0 Ministry of Agriculture RDF for Local Transp. Infrastructure 3 4,884 2,726 3,454 3,833 4,066 7,421 148 86 69 468 654 Net Annual Local Borrowing 37,801 32,601 31,166 33,190 36,563 37,173 Total receipts “ou e: Mi ist of Fi a e, T easu “ ste , Autho s al ulatio s. 1 The small business tax has in practice become a shared tax from 2014 when the central government started collecting it on behalf of local government units. 2 The outturn of Regional Development Fund for Local Transport Infrastructure is obtained by processing data from the Treasury System with other data from the Ministry of Finance. 2.4 Fier Municipality Municipal economic situation 12. TAR has resulted in an increase in the municipal population from 55,000 to 120,000 through the incorporation of nine mainly rural communes. Fier is an important regional centre of a relatively prosperous agricultural area, and has not had to contend with the decline of major industries or government activities. It now has good road links with Tirana on recently constructed four-lane highways. It plans to reinforce its role as a regional centre by the provision of new hospital facilities. Revenue and Expenditure 13. Fier in common with other municipalities raises its own revenue through taxes on property and charges for municipal services. It receives unconditional grants and shares of nationally collected taxes to spend at its discretion, and also funds from central government to be spent on investment projects and on particular devolved and delegated functions. Municipal budgets are set by reference to funds which are freely disposable, excluding conditional grants whose amounts are unknown at the time municipal budgets are fixed. 21 Tables 2.8 – 2.10 provide information about the revenue and expenditure of the Fier municipality for the period 2013-15. They show that revenue and expenditure per head at about $75 were a little below the national average of about $101 for 2014. Fier started utilizing the Water Utility as a tax agent in late 2016, therefore the municipal revenue department has been responsible for the collection of local taxes and fees over the past three completed fiscal years. The revenue and expenditure figures from the municipality and Treasury sources are generally reasonably consistent for the years 2013 and 2014, with revenue and expenditure broadly in balance, while the functional allocations in 2014 to General Public Services, Housing and Community Amenities, Education and Social Protection were all broadly in line with the national averages calculated from Table 2.6. Fier spent relatively few of its own resources on Economic Affairs in all three years. However the same function has received substantial support from the RDF in 2014 and 2015 when the proportion of expenditure allocated to Economic Affairs increased by 5 and 10 times when compared to what the municipality spent on the function on its own. 14. Budget planning is essentially focused on what can e fi a ed f o the u i ipalit s own revenues (property taxes and service charges) and unconditional transfers from central go e e t i ludi g the u i ipalit s sha e of atio all olle ted ta es . Fi a e fo investment depends almost exclusively on conditional transfers from central government (including amounts received from the RDF) whose amounts cannot be predicted from year to year and which are not included in the budget as approved by the municipal council, although such capital spending is reported and accounted for alongside the expenditure provided for in the municipal budget. Funds allocated to meet the specific costs of functions recently transferred to the municipality are similarly excluded from the budget, but reported in the out-turn. Table 2.8. Fier Revenues 2013-15 (ALL thousands) data in /000 ALL Own Source Revenues Revenues from Own Local Taxes Property taxes on buildings and agricultural land Infrastructure impact tax Public space occupation tax Other taxes Revenues from Local Fees and Charges Cleaning fee Greening fee Public lightening fee Parking fee Other fees Other revenues from assets, donations etc. Freely disposable transfers Unconditional transfer from the state budget 2013 Out-turn 2014 Out-turn 2015 Out-turn 165,050 94,963 26,806 67,037 91 1029 62,615 25,682 1,859 3,600 2,474 29,000 7,472 308,745 184,510 218,667 111,053 66,695 43,272 114 972 100,844 55,244 5,925 7,988 2,772 28,915 6,770 293,485 208,300 312,665 155,099 130,097 19,621 2,940 2441 119,341 63,446 7,284 8,754 3,529 36,328 38,225 541,699 418,022 22 Shared taxes 124,235 85,185 Vehicles Registration Tax & Mineral Rent 32,922 24,927 Property transfer tax 13,798 11,053 Small businesses tax 77,515 49,205 Total Budget, excluding carry-overs 473,795 512,152 Conditional Grants 355,713 583,419 Conditional Transfers from line ministries 355,713 420,358 Ministry of Social Welfare and Youth 344,413 410,037 Ministry of Transport and infrastructure 0 0 Ministry of Interior 7,763 8,022 Ministry of Education 0 2,299 Ministry of Urban Development 0 0 Other Central Institutions 3,538 0 Regional Development Fund (Road Infrastructure) 0 163,061 Total conditional grants excl. MSWY & RDF 11,300 10,321 TOTAL 829,508 1,095,571 Source: Municipality of Fier, T easu “ ste , Mi ist of Fi a e, Autho s al ulatio s. 123,677 33,142 15,969 74,566 854,364 879,779 596,522 527,598 35,000 20,717 3,027 0 10,180 283,257 68,924 1,734,143 Table 2.9. Fier: Economic Classification of Expenditure (ALL /000) 2013 2014 2015 Personnel 262,069 301,025 326,359 Operational 139,882 163,471 241,579 Capital 35,200 34,567 28,822 1 Transfers 19,415 22,199 24,393 Total expenditures 456,566 521,262 621,153 Source: Municipality of Fier, T easu “ ste , Mi ist of Fi a e, Autho s al ulatio s. 1 This line item excludes transfers to poor families financed through earmarked grants from the Ministry of Social Welfare Table 2.10. Fier: Functional Classification of Expenditure (ALL /000) General Public Administrative Services Public order and safety Economic Affairs Housing and community amenities Recreation, culture and religion Education Social Protection Total Source: Municipality of Fier, T easu “ ste , Mi ist 2013 2014 129,595 145,665 0 0 31,131 33,462 161,666 186,289 95,468 105,366 38,706 50,480 0 0 456,566 521,262 of Fi a e, Autho s al ulatio s. 2015 294,211 0 25,060 185,777 59,194 56,911 0 621,153 The Development Strategy of the Municipality of Fier The Municipality of Fier has adopted its Strategy for the Development of the Territory for the next 15 years in accordance with la o. / Fo Pla i g a d De elop e t of the Te ito , as pa t of its General Local Plan (approved by the Municipal Council in December 2016). its development vision is to be accomplished by pursuing five strategic objectives: (i) increase of economic competitiveness supporting the diversification of its economic profile; (ii) support to the agriculture and tourism sector as two of the key sectors for the development of the local economy ; (iii) protection and regeneration of its natural assets as base elements for economic and social regeneration; (iv) orientation and control of urban development through the intelligent management of land and the creation of planned infrastructures for the whole of its territory ; and (v) smoothing of social disparities through improvement of the education and health systems. It has to be recognised, however, that the Municipalit s a ilit to p o ote these o je ti es is li ited, si e its 23 role in relation to social policy, health and education is relatively minor, and it will remain dependent on the central government for the financing of much of the necessary investment. 2.5 Legal and regulatory arrangements framework for PFM Legal Framework 15. Table 2.10 presents an overview of the main laws and regulations that guide the PFM systems in Albania. The impact of the legal framework in respect to specific areas is discussed in more detail in the narrative of the respective Performance Indicators. Internal financial control is analysed in detail in Chapter 4.2. Table 2.4. Summary of PFM Legislation Area Description General  Articles 155-160 of the Constitution provide the basis for the approval by the National Assembly of annual budgets submitted by the Government. Budget preparation and  Law on the Management of the Budgetary System in execution the Republic of Albania (2008) and the Standard Budget Instructions (2012) issued in accordance with the law. The Instructions cover the Medium Term Budget Preparation and define the roles, functions and responsibilities in management of government revenue and expenditure, including the accounting, control and reporting systems.  Annual budget preparation and execution instructions are also issued every year.  Law on Financial Management and Control (2010), defines management responsibilities for execution and control of budgets. Debt  Law on State Debt, and State Guarantees in the Republic of Albania (2006) defines the authorities and procedures for debt administration  Law on local government borrowing (2008) defines local borrowing limitations as well as authorities and procedures for local debt. Tax administration  General laws governing tax administration: Law on Tax Procedures (2008);  General laws for direct and indirect taxes:  Law On National Taxes (2008);  Law on Income Tax (1998);  Law on Value Added Tax (2014);  Law on excise duties (2002);  Law on the System of Local Taxes (2006). Public sector entities  La O Co essio s a d Pu li P i ate Pa t e ships (2013); 24 Expenditure control internal audit External Audit  and     Legislative oversight of the  preparation and execution of  the Budget Decentralisation    Transparency   La O o e ial o pa ies . Law on Public Procurement (2006); Law on Internal Auditing in the Public Sector (2015). Provision for the independent exercise of the functions of the Supreme Audit Institution (High State Control) is made in Articles 162-165 of the Constitution; Law on the Organisation and Functioning of the High State Control (2014). The Constitution (1999), Articles 155-160. Law on Organisation and Functioning of the Council of Ministers. Articles 108-113 of the Constitution provide the basis for elected local governments; Law on Local Self Government (2015) National Cross Cutting Strategy for Decentralization and Local Governance (2015); On the right to information (2014); On Public Notice and Consultation. 16. The La / O the ad i ist ati e a d te ito ial di isio of lo al go e e t u its i the ‘epu li of Al a ia edu ed the u e of lo al go e e t u its f o communes and municipalities and 12 regions to 61 municipalities and 12 regions. Such an administrative consolidation represents the merger of in average 6 -7 former LGUs into one new municipality (with a range from 4 to 14 LGUs). There is no level of general government below municipalities. A regional level of general government exists. It is made up of representatives of the municipalities and funded from municipal contributions. The regions have only a coordinating function among municipalities in each regional and the budget is minimal. 17. The main purpose of the TAR, consistently ith the Go e e t s st ateg o Decentralization and Local Governance, is to increase the efficiency of local administration and improve the quality and standards of service delivery. Larger LGUs with greater human and financial resources should be able to discharge effectively wider responsibilities for the de elop e t of thei te ito ies i a o da e ith the e o ga i la o Lo al “elfGo e e t e a ted i De e e , hi h ai s to o solidate the de e t alizatio process and delegate further functional and fiscal autonomy to the local level. Some new functions in the area of pre-school education, fire protection, irrigation and agriculture were accordingly transferred to the local level from the beginning of 2016. Pending the establishment of new permanent arrangements for the distribution of central funding to the municipal level, municipalities were given additional block grants to meet the costs of the staff employed and other operational expenses on the functions transferred to them. 25 18. The new consolidated municipalities were constituted following the June 2015 local elections and took office during July and August. Consolidation of the five municipalities with o u es fi a es took pla e th ough the a alga atio of the o u es t easu accounts into one single treasury account for each new municipality and the resulting elimination of separate commune treasury accounts. The accounts of the pre-TAR municipalities and communes were closed in July 2015 and the balances transferred to the new municipalities. Subsequently, budgets for the remaining 5 months of the fiscal year were created for each new municipality by mechanically adding the balances on the budgets of each of the merged LGUs. These tasks were, reportedly, executed through a smooth and swift process confronting no major challenges, in part due to the assistance provided by the STARproject which prepared financial statements as at July 2015 for all LGUs and as well as the corresponding consolidated ones for the new municipal territories. 19. In order to complete the legal framework for local governments, the MOF is currently drafting a comprehensive Law on Local Government Finances. This is the first time such a law has been prepared in Albania. It aims at incorporating all principles and procedures with ega d to lo al go e e ts sou es of e e ues o e e ues a d t a sfe s , pu li finance management and related intergovernmental dialogue and consultation. A first draft has been prepared and it is expected that the text will be finalized before the end of 2016 for submission to the National Assembly. 2.6 Institutional arrangements for PFM in Fier 20. It is the responsibility of the Mayor to prepare the three-year budget projections and the annual budgets for approval by the Council in accordance with the organic Budget Law which applies at municipal as well as at national level and with instructions from MoF. The Finance Directorate acts at municipal level in the same way as MoF at central government level in preparing budgets and fiscal plans on the basis of submissions by the spending units responsible for each of the Mu i ipalit s fu tio s. The assessment and collection of municipal taxes and fees is the responsibility of the Revenue Directorate, although the actual collection is mainly in the hands of the Municipality s ate utilit alo gside the ills businesses and householders have to pay for water. Internal control arrangements are set out in detail in Chapter 4.2. The Municipality of Fier has at maximum, 1300 employees. The it s administrative organization is shown in the following Chart, together with the number of employees engaged in each function. 26 Table 2.51. Organizational chart of the Municipality of Fier, 2016 Internal Audit Directorate 3 MAYOR 1 MUNICIAPAL COUNCIL Cabinet of the mayor 7 Secretary of Municipal Council 1 VICE – MAYOR 1 VICE – MAYOR 1 ADMINSTRATORS 15 General Economic Directorate 12 General Directorate Tax & Tariff 49 General Directorate Law Issues 23 General Directorate Public Works 22 General Directorate Planning &Territorial Development Directory 24 General Directorate Health, Agriculture, Forestry and Vet. 32 General Directorate HR and Services 41 General Directory Art and Culture 44 Directorate Finance and Budget 7 Directorate Control & Inspection 24 Directorate Legal Issues 4 Directorate Public Services 15 Directorate Planning & Development Control 8 Sector for Consulting and Forestry 21 Directorate Personnel and Administration 15 Public Library 16 Directorate Registering – Evaluation 16 Directorate doc. prep. agricultural land registering 10 Directorate Asset Mng. 4 Directorate Economic Center 423 Sector for Collection 7 NRC 4 Directorate Social Services 21 Handicap People Center 16 Civil Emergencies 3 Directorate Public Procurement 4 Directorate Transport & Licenses 3 Public Works Company 114 Office Social Housing Mng 2 Culture House 5 Directorate Planning Legalizations 15 Directorate Veterinary 11 Arts Gallery 2 Museum 7 Directorate Public Relations 4 Directorate Foreign & National Investment Projects 5 Theatre 28 Directorate for Agriculture 10 Directorate Education, Culture, Youth & Religion 7 Municipal Police 15 Sector Sports Club & Multi Sports 16 Cleaning & Greening Company 242 Directory Irrigation & Drainage 23 Sector Archive & Protocol 11 Fire Protection Services 31 IVMT 6 Object Guards 61 Source: Municipality of Fier 27 Table 2.62. Overview of Amalgamation of the Municipalities selected for PEFA Assessment Municipality Name Tirana Berat Kuçova Fier Tropoja No. communes absorbed 13 4 3 9 7 No. population1 PreTAR 418,495 36,946 12,654 55,845 5,340 TAR increase 557,422 60,031 31,262 120,655 20,517 33% 62% 147% 116% 284% Total Revenues2 ALL million PreTAR increase TAR 8,245 10,305 25% 778 1,139 46% 286 548 92% 1,005 2,015 100% 146 538 268% Own source revenues4 ALL mill PreTAR increase TAR 4,733 5,880 24% 202 262 30% 79 116 47% 305 530 74% 22 30 36% Share of own source revenues to total Pre-TAR TAR 57% 26% 28% 30% 15% 57% 23% 21% 26% 6% Pre-TAR: the municipality as it was defined prior to amalgamation of municipalities and communes under TAR i.e. up till June 2015. TAR: the new municipality after amalgamation i.e. from August 2015 onwards, but based on pre-TAR data 1 2 Source: Census 2011, Institute of Statistics. Source: End-of year budget execution data for 2014 fiscal year, Ministry of Finance & PLGP/USAID. 28 Chapter 3 Evaluation of PFM systems, processes and institutions 3.1 Subnational PEFA indicator HLG-1: Transfers from a higher level of government This indicator assesses the extent to which transfers to the subnational government from a higher-level government are consistent with the original approved high-level budgets, and are provided according to acceptable time frames. The indicator contains the following three dimensions and uses the M1 (WL - Weakest link) method for aggregating dimension scores:  Dimension HLG-1.1. Outturn of transfers from higher level government (last three completed fiscal years);  Dimension HLG-1.2. Earmarked grants outturn (last three completed fiscal years);  Dimension HLG-1.3. Timeliness of transfers from higher-level government (last three completed fiscal years); Background All 61 Municipalities in Albania receive five types of transfers from the budget of the central government:  Unconditional grants – over which Municipalities have full discretion to spend as they see fit;  Shared taxes – in this category are comprised the mineral rent and the annual tax on used vehicles, where Municipalities are entitled 18% of the vehicles tax collected by the central tax administration and 5% of the mineral rent generated in their jurisdiction. There are also two other taxes that despite being described in law 139/2015 on Lo al “elf-Go er e t as local taxes, are actually shared taxes where the tax base and rates are wholly determined by central government. These are the small businesses tax 3 (or the simplified tax on small businesses) and the property transfer tax. Revenue from these taxes is accordingly treated here in the same way as sha ed ta es, hose p o eeds a e used at the u i ipalit s dis etio i the sa e way as unconditional grants.  Conditional transfers – for financing delegated functions and can only be used for a specific program/purpose;  Specific transfers – which are a new type of conditional transfers municipalities receive from central government to be used exclusively for financing the newly transferred functions (Law 139/2015 on Local Self-Government);  Competitive grants for selected investment projects from the Regional Development Fund (RDF) allocated during the course of the year. 3 The simplified profit tax (formerly small business tax) became a shared tax in January 2014, hence it is not included in the calculations for 2013. 29 With regard to the conditional transfers Municipalities receive from central government institution, evidence showed that Municipalities do not include these funds in their original annual budgets. The only items included in the budget document are those financial resources flowing from the unconditional transfers, shared taxes and own revenues. Meanwhile, records regarding conditional transfers are kept separate from those of the approved budgets although the amounts and conditions are formally notified to the Municipal Council. In budget execution reports and balance sheets of the Municipality of Fier, expenditures are presented in consolidated format from all sources of financing, thus including conditional transfers from the Regional Development Fund or other central government agencies. The city has also presented tables and documentation evidencing expenditure financed through its own budget from local taxes and fees and from freely disposable transfers. Planned values for conditional transfers classified under current expenditures linked with previously delegated functions such as business registry and civil registry, poverty and disability cash benefits, and maintenance expenditures for pre-university school dormitories, are shared with the municipality by the relevant line ministries at the beginning of each year. Any unspent balances are to be returned to the respective ministries. HLG-1.1 Outturn of transfers from higher level government Annual deviation of actual total HLG transfers from the original total estimated amount provided by HLG to the sub-national entity for i lusio i the latter’s udget. In Albania during the period 2013-15 municipalities received unconditional transfers from central government distributed according to a formula mainly based on population and area, a relatively small share of nationally collected taxes (as shared taxes), and conditional transfers to finance investments and meet the cost of social assistance payments, maintain dormitories, and social service centers, kindergartens etc. Some of these transfers were provided by the line Ministries concerned, but in some cases substantial amounts were p o ided the e t al go e e t s ‘egio al De elop e t Fu d ‘DF o a o petiti e basis. Amounts to be provided as unconditional transfers were generally notified [by the end of October ea h ea ] i ti e to e take i to a ou t i p epa i g the u i ipalit s udget, while some guidance was given by the Ministry of Finance on the amounts likely to be received from shared taxes. But the amounts of conditional transfers and RDF assistance, if any, were notified only after the budget year had begun, and therefore not taken into consideration in the preparation of the budget. Furthermore, municipal officials state that they receive resources from the higher levels of government for delegated functions, without being informed at the same time about the amounts and purposes. This creates confusion about available conditional cash resources. As municipalities do not have direct IT access in the treasury system, such transfers are reconciled with the treasury officials on a weekly and monthly basis. It would be useful if line ministries making such transfers gave the 30 municipalities concerned full information at the same time about the amounts and purposes of the transfers. In Fier such resources constitute less than 15% of conditional transfers. According to the municipality, the amounts of unconditional transfers were paid in full, and the conditional transfers to meet the costs of services including social assistance payments were also paid. The municipality has also benefitted from competitive grants under the Regional Development Fund which once notified from the central government were paid in full. In 2014 Fier has been awarded from the RDF about 181.4 million ALL for investments, of which 139.7 million ALL for transport infrastructure. In 2015 it has been awarded 452.5 million ALL, out of which 398.3 for transport infrastructure. The out-turns have been much lower given the lengthy procurement process and the fact that public works have advanced a pace slower than planned. There were shortfalls in receipts of shared taxes in of 1.6 million ALL in 2013 and 45.6 million in 2014 (mainly due to receipts of Small Business Tax and the Property Transfer Tax). In 2015 the amounts transferred exceeded those planned by 49 million ALL. The amounts are shown in Table 1; for 2013 and 2014 the figures cover only the former Fier municipality, while for 2015 the additional nine former communes (now administrative units) are included for the whole year. Table 3.1. Planned and actual receipts from state budget transfers 2013 data in /000 ALL Plan Outturn 316,839 184,510 41,016 13,798 77,515 355,713 355,713 344,413 2014 Plan Freely disposable transfers 318,510 341,300 Unconditional transfer 184,510 208,300 Vehicle registr. tax & Mineral Rent 33,000 33,000 Property transfer tax 17,000 17,000 Small businesses tax 84,000 83,000 Conditional Transfers 358,303 612,119 Cond. Transf. from line ministries 358,303 430,710 Ministry of Social Welfare 344,490 420,232 Ministry of Transp. and infrastr. Ministry of Interior 7,782 7,763 8,022 Ministry of Education 2,456 Ministry of Urban Development Other Central Institutions 6,031 3,538 Total Regional Development Fund 181,409 of which for Road Infrastructure 139,746 TOTAL 676,813 672,552 953,419 Freely dispos. transf. out-turns/plan 99.5% Cond. transfers out-turns/planned 99.3% Total state transfers out-turns/plan 99.4% Composition variance 0.7% Source: Municipality of Fier, Ministry of Finance & Authors calculations. 2015 OutOutPlan turn turn 295,646 537,504 586,538 208,300 418,022 418,022 37,941 37,423 71,493 11,053 14,856 15,965 38,353 67,203 81,058 583,419 1,072,488 879,779 420,358 620,014 596,522 410,037 539,467 527,598 44,624 35,000 8,022 21,803 20,717 2,299 3,755 3,027 10,365 10,180 163,061 452,474 283,257 121,435 398,257 229,043 879,065 1,609,992 1,466,317 86.6% 109.1% 95.3% 82.0% 92.2% 91.1% 5.4% 18.4% Since total receipts were at least 90 percent of the original budget estimate in two of the last three years, the score is B. 31 HLG-1.2 Earmarked grants outturn As table 3.1 shows, receipts of conditional transfers were within 10 per cent of the planned amounts in two of the last three years. While conditional grants from line ministries were paid in full, grants from the RDF have not. The RDF grants have been awarded to Fier once the budget year had started. Further, the delays the procurement procedures and in the physical progress of work have impacted the amounts that have actually executed, ending up with an outturn of 90% and 63% in 2014 and 2015. As a result the composition variance is higher in 2014 and 2015; as the variance between the originally notified amount and actual earmarked grants was 10 percent or less in two of the last three years, the score is C. The level of outturns of RDF financing depends also on the timing of the transfers from the central government. If municipalities were informed beforehand about the amounts awarded it would create preconditions for a better planning of the implementation phase, including procurement procedures and physical progress of works. HLG-1.3 Timeliness of transfers from higher level government According to the finance and budget department officials, a quarterly disbursement plan is prepared by the Ministry of Finance for both conditional and unconditional grants (with some front-loading in the first quarter of the year), which the central government (CG) subsequently adheres to. Revenues from the mineral rent, the vehicles registration tax, the small businesses tax and the property transfer tax are transferred from central authorities to the Municipality in monthly instalments and without delays. The flows of conditional grants from the Ministry of Social Welfare and the Ministry of Interior did not present any significant problems. There is no regular calendar for financial resources obtained from other line Ministries or those obtained on a competitive base for investment projects from the Regional Development Fund. Overall the weighted impact of any delays would be relatively minor, not calling into question the requirement that 75 per cent of funds must be received without delay in relation to the original schedule. Score: A PI HLG-1 Dimension Transfers from a higher level of government (M1) Score C+ HLG1.1 Outturn of transfers from higher level government B HLG1.2 Conditional transfers outturn C HLG1.3 Timeliness of transfers from higher-level government A Justification for score Scoring Method M1 Total receipts were at least 90 percent of the original budget estimate in two of the last three years The difference between the original budget estimate and actual earmarked grants was 10 percent or less in two of the last three years A quarterly disbursement plan for unconditional grants is prepared by MoF, and implemented as scheduled. Delays in the payment of shared taxes and conditional grants were of minor significance. 32 3.2 Pillar 1. Budget Reliability PI-1: Aggregate expenditure out-turn This indicator measures the extent to which aggregate budget expenditure outturn reflects the amount originally approved, as defined in government budget documentation and fiscal reports. There is one dimension for this indicator assessed on the basis of the last three completed fiscal years (years 2013 and 2014 refer to the former (pre - TAR) Municipality, and 2015 data concern the new enlarged Municipality (post – TAR). As explained in relation to HLG-1, and based on the current framework in regard, conditional grant amounts are not notified to the municipality in time to be included in the original budget. In its budget the municipality takes into account only the prospective receipts from unconditional transfers and those items falling under the shared taxes (mineral rent, vehicles registration tax, small businesses tax and the property transfer tax), and the budgeted yield of its own revenues. Amounts of conditional transfers from line Ministries and the RDF are therefore considered to be outside the budget (and thus to be taken into account in PI-6 below), although they are included in the subsequent budget execution reports. Deduction of conditional transfers and RDF funding from the out-turn totals should therefore give some indication of the overall performance of budgeted expenditure against plans. Table 3.2. Total expenditures and total expenditures net of conditional transfers 2013 2014 2015 data expressed in /000 ALL Planned Total expenditures 715,662 Deviation of out-turn from plan Absolute deviation as % of planned Out-turn 456,566 Planned Out-turn 635,889 521,262 Planned 963,782 Out-turn 621,153 -259,096 -114,627 -342,629 36.2% 18.0% 35.6% Source: Municipality of Fier and Ministry of Finance & Authors calculations. Table 3.2 gives an approximation of what the municipality plans in its budget, and its actual expenditure from freely disposable revenue sources. There is an extreme gap between what the municipality plans and the actual outturn at the end of the year, because of both policy choices in the allocation of resources and shortfalls in revenue collection. Since actual expenditure was between 64% and 82% of budget in all three years, score is D. PI PI-1 Dimension Aggregate expenditure outturn Score D Justification for score Actual expenditure was between 64% and 82% of budget in all three years. Ongoing reform The Albanian government with the support donor community is currently working on the development of a new law on local government finances. The new law on local finances aims 33 to provide the basic rules which should regulate intergovernmental transfers and fiscal relation in Albania. The draft law is intended to regulate the financing of the Municipalities and Qarks defining their revenues from local taxes and fees, shared taxes and central government transfers as well as their other revenues, including borrowing. It specifies the basic rules for determining and allocating intergovernmental transfers as well as the policies and procedures for municipal budgeting, intergovernmental dialogue and other issues important to the financing of local government functions. This draft-law was submitted for the consideration to Council of Ministers before the end of February 2017. PI-2: Expenditure composition out-turn This indicator measures the extent to which reallocations between the main budget categories during execution have contributed to variance in expenditure composition. It contains three dimensions and uses the M1 (WL) method for aggregating dimension scores. It is assessed on the basis of the last three completed fiscal years (years 2013 and 2014 refer to the former (pre - TAR) Municipality, and 2015 data concern the new Municipality (post – TAR). This Indicator has three dimensions:  Dimension 2.1. Expenditure composition outturn by function - which looks at changes in the composition of expenditure by function between budget and out-turn;  Dimension 2.2. Expenditure composition outturn by economic type – looking at changes in composition by economic classification;  Dimension 2.3. Expenditure from contingency reserves – looking at the extent to which expenditure is charged to Contingency. Expenditure out-turns by function and economic classification are shown in Chapter 2 of this report, but no comparable breakdown of expenditure at budget/planning stage is available to provide a basis for scoring the first dimension. PI-2.1. Expenditure composition out-turn by function The following table shows planned and actual expenditure by functional classification for the total expenditure, excluding that financed from conditional grants from line ministries and the RDF. As can be noted, the actual amounts for all functions deviate substantially from the original estimates for all functions in all three years. It is important to note that arriving at the functional classification of expenditures required an elaboration of the budget documentation presented by the municipal officials. From such documentation it appears that the administrative classification is used as the basis for the functional classification. This explains why no expenditure is planned and recorded for the functions of Public Order and Safety and Social Protection. This situation is mostly due to the lack of comprehensive national guidelines and templates as well as human capacities to work on program based budgeting. Since, the variance in expenditure composition by functional classification was less than 15% in only one of the three years, the score for this indicator is D. 34 Table 3.3. Expenditures by functional classification 2013 Out Planned turn 2014 Planned 2015 Out turn General Public Administrative Services 170,498 129,595 171,278 145,665 Public order and safety 0 0 0 0 Economic Affairs 159,110 31,131 66,164 33,462 Housing and community amenities 198,495 161,666 205,450 186,289 Recreation, culture and religion 123,686 95,468 114,195 105,366 Education 63,873 38,706 78,802 50,480 Social Protection 0 0 0 0 Total 715,662 456,566 635,889 521,262 Composition variance 32.2% 13.7% Source: Municipality of Fier & Authors calculations based on PEFA instructions. Planned 406,918 0 152,204 235,020 99,920 69,720 0 963,782 Out turn 294,211 0 25,060 185,777 59,194 56,911 0 621,153 25.5% PI-2.2. Expenditure composition by economic classification The following table shows planned and actual expenditure by economic classification for the total expenditure, excluding that financed from conditional grants from line ministries and the RDF. There is a substantial change in the composition of expenditure in all three years for all line items. The largest shortfall is on investments planned to be executed from own source revenues. As the municipality appears to plan most of its own expenditure other than investments be financed from the unconditional grant, revenue collection shortfalls have greatly impacted the realization of investments. On average, in the last three years Fier has realized less than one third of planned investments. On the other hand, in 2014 and 2015 Fier received substantial funds for investments from the central government through the RDF. If we consider only outturn data, investment actually financed from the RDF has been 5 and 10 times higher than what Fier has financed through its own budget. Since the calculated variances in expenditure composition were 33.2%, 32.8%, 23.8% for the three years 2013-15 respectively the score is D. Table 3.4. Expenditures by economic classification data in /000 ALL Personnel Operational Capital Investments Transfers Total expenditures Planned - 2013 291,966 262,069 226,507 139,882 163,889 35,200 33,300 19,415 715,662 456,566 Planned - 2014 Personnel Operational Capital Investments Transfers Out turn -2013 Overall difference Composition variance -36.2% 33.2% -18.0% 32.8% Out turn -2014 316,334 301,025 218,522 163,471 67,755 34,567 33,278 22,199 35 Total expenditures 635,889 Planned - 2015 Personnel Operational Capital Investments Transfers Total expenditures 521,262 Out turn -2015 405,831 326,359 369,297 241,579 154,804 28,822 33,850 24,393 -35.6% 23.8% 963,782 621,153 Source: Municipality of Fier & Authors calculations based on PEFA instructions. PI-2.3. Expenditure from contingency reserves In the budget documents of the Municipality of Fier there are two line items, similar in nature and not allocated: the contingency fund and the reserve fund. While the reserve fund funds are used to cover unexpected temporary needs for financial resources during the fiscal year, contingency funds are used to cover expenditure needs above the planned allocations or to cover any underperformance in revenues during the execution phase of the budget (Law 9936/2008, O the a age e t of the udgetar s ste i the Repu li of Al a ia , Art. 3). Over the last three fiscal years, the budgeted amounts for contingency and reserve funds were about 9 million ALL in 2013 and 2014, and about 10 million ALL in 2015. The amounts charged to contingency were about 5.1 million ALL, 4.8 million ALL, and 5.2 million ALL respectively. Table 3.5. Contingency and reserve funds 2013 data in /000 ALL Planned contingency and reserve funds Out turns for contingency funds Total expenditures Contingency fund out turns/total expenditures 9,000 5,113 715,662 0.71% 2014 2015 9,000 4,803 635,889 0.76% 10,000 5,200 963,782 0.54% Source: Municipality of Fier & Ministry of Finance & Authors calculations based on PEFA instructions. The percentages of total expenditures these amounts were 0.71%, 0.76%, and 0.54% in 2013, 2014 and 2015 respectively. As long as the average percentage is lower than 3%, the score is A. PI PI-2 PI-2.1 PI-2.2 PI-2.3 Dimension Expenditure composition outturn Expenditure composition out-turn by function Expenditure composition out-turn by economic classification Expenditure from contingency reserves Score D+ D D A Justification for score Scoring Method M1. The variance was less than 15% in only one of the three years. The variances were more than 15% in all three years The average amount charged to contingency was 0.67% of total expenditure in 2013-15 36 PI-3: Revenue out-turn This indicator measures the change in revenue between the original approved budget and end-of-year outturn. It contains two dimensions and uses the M2 (AV) method for aggregating dimension scores. It is assessed on the basis of the last three completed fiscal years (years 2013 and 2014 refer to the former (pre - TAR) Municipality, and 2015 data concern the new Municipality (post – TAR). There are two dimensions to this Indicator:  Dimension 3.1. Aggregate revenue outturn – considering the difference between budgeted and out-turns for own source revenues;  Dimension 3.2. Revenue composition outturn - measuring changes in the composition of those revenues between budget and out-turn As suggested by the PEFA Secretariat, the data considered for this indicator include revenues actually administered and collected by the Municipality or on behalf of the Municipality by directly contracted collection agencies. Taxes considered as shared taxes (the mineral rent, vehicle registration tax, small businesses tax and the property transfer tax) are also included in the calculations for this indicator. They have also been considered as part of transfers from central government and assessed together with other transfers under the HLG-1. As noted in Chapter 2 above, the collection of local fees from businesses and households, from late 2016 is undertaken on behalf of the municipality in the area of the former municipality and the communes by the water utility. Thus all revenues for the last three completed fiscal years have been the direct responsibility of the municipal revenue department. PI-3.1. Aggregate revenue out-turn As explained above, for aggregate revenue out-turn we have considered only those revenues which the municipality actually plans in its budget. Total budgeted and realised figures for own revenues are summarised in the following table. [ Table 3.6. Revenue out-turn data in /000 ALL Taxes, incl. shared taxes 2013 Budget 2014 Out-turn Budget 2015 Out-turn Budget Out-turn 390,129 219,198 256,006 196,238 366,009 278,776 Fees 80,700 62,615 127,837 100,844 141,170 119,341 Other (assets) 25,000 7,472 6,000 6,770 5,000 38,225 495,829 289,285 389,843 303,852 512,179 436,342 Total Actual as % of budgeted 58.3% 77.9% 85.2% Source: Municipality of Fier & Ministry of Finance & Authors calculations based on PEFA instructions. The data show that own source revenues fell far short of what budgeted in all three years under analysis. The most significant shortfalls were in the revenues from local taxes (especially the infrastructure impact tax imposed on new buildings, mainly due to the central 37 government decision to halt the issuance of construction permits until General Local Plans (GLPs) had been approved. Substantial shortfalls are registered also from the small business tax, which in 2014 became a shared tax the base and rate of which are outside municipal control (from 2014 this tax started being collected by the central government agencies and transferred back in full to the municipalities). Nevertheless, from a systemic point of view such large shortfalls are related also to overoptimistic revenue forecasts and to the inclusion in revenue projections of substantial amounts of tax arrears (accumulating from a number of years) which fail to materialize in the fiscal year. Since out-turns of revenues were less than 92% of budget in all three years, the score for this dimension is D. PI-3.2. Revenue composition out-turn There were substantial changes in the composition of revenues between budgets and outturns in each of the three years under analysis. Details are shown in the following table, which shows the nominal values for nine line items of revenues, the overall difference and composition variance. Each budget line is adjusted by the overall difference between budget and out-turn, and the absolute differences between these adjusted lines and actual revenues summed to give the overall variance as a percentage of actual total revenues. The shortfalls in revenue from the infrastructure impact tax, the small business tax and the cleaning fee were the most important elements in changing the relative composition of revenues during the period 2013-15. PI PI-3 PI-3.1 PI-3.2 Indicator/Dimension Score Justification for score Scoring Method M2 Revenue out-turn D Own source revenue was less than 92% of budget in all three years 2013-15. Despite the facts that data for 2013 - 2014 represent the pre-TAR Aggregate revenue municipality and that 2015 data is not completely D out-turn comparable due to TAR, the differences are so significant that a score can be assigned with confidence. Revenue Variance in revenue composition exceeded 15% in D composition out-turn all three years 2013-15. Ongoing reform: The new law on local finances that is actually under discussion, foresees the introduction of some fiscal rules, including indications on the need for more evidence based projections, and clear rules not allowing the introduction of tax arrears older than 18 months to be included in the revenue projections for next year. 38 Table 3.3. Revenue composition out-turn 2013 2014 Budget Actual Adj. B Diff. 30,200 26,806 17,620 Small businesses tax* Infrastructure impact tax Public space occupation tax Other taxes Vehicle registr. tax & Min. Rent* Property rights transferring tax* Cleaning fee Greening fee Public lightening fee Parking fee Other fees Asset Revenue Other revenues 84,000 223,329 1,000 1,600 33,000 17,000 32,000 3,200 6,000 3,200 36,300 5,000 20,000 77,515 67,037 91 1,029 32,922 13,798 25,682 1,859 3,600 2,474 29,000 4,498 2,974 Total revenues Absolute sum of differences Total revenue deviation Composition variance 495,829 289,285 Property tax on build. & agricult. land 2015 Budget Actual Adj. B Diff. Budget Actual Adj. B 9,186 55,416 66,695 43,192 23,503 143,134 130,097 121,940 8,157 49,009 130,298 583 933 19,253 9,918 18,670 1,867 3,501 1,867 21,179 2,917 11,669 28,506 -63,261 -492 96 13,669 3,880 7,012 -8 99 607 7,821 1,581 -8,695 83,000 65,000 1,000 1,590 33,000 17,000 63,517 15,703 16,406 3,200 29,011 5,000 1,000 49,205 43,272 114 972 24,927 11,053 55,244 5,925 7,988 2,772 28,915 2,179 4,591 64,692 50,662 779 1,239 25,721 13,250 49,507 12,239 12,787 2,494 22,612 3,897 779 -15,487 -7,390 -665 -267 -794 -2,197 5,737 -6,314 -4,799 278 6,303 -1,718 3,812 70,343 85,390 8,709 6,154 37,423 14,856 71,452 5,280 6,720 3,500 54,218 5,000 0 74,566 19,621 2,940 2,441 33,142 15,969 63,446 7,284 8,754 3,529 36,328 4,762 33,463 59,927 72,746 7,419 5,243 31,882 12,656 60,872 4,498 5,725 2,982 46,190 4,260 0 14,639 -53,125 -4,479 -2,802 1,260 3,312 2,574 2,786 3,029 547 -9,862 502 33,463 289,285 0 389,843 303,852 303,852 0 512,179 436,342 436,342 0 144,913 -41.7% 25.1% 79,265 -22.1% 13.0% Diff. 140,538 -14.8% 16.1% Source: Municipality of Fier & Ministry of Finance & Authors calculations based on PEFA instructions. 39 3.3 Pillar 2. Transparency of Public Finances PI-4 Budget classification This indicator assesses the extent to which the government budget and accounts classification is consistent with international standards. It is assessed on the completed fiscal year 2015. A o di g to the la o. / O the Ma age e t of the Budgeta “ ste i the ‘epu li of Al a ia the fo ulatio , e e utio a d epo ti g of the budget should be broken down according the administrative unit, economic classification and functional classification. While standardized systems and document templates have been developed for the formulation, execution and reporting of the budget of central go e e t s age ies, su h systems and templates have never been extended to the local level. With the exception of standardized templates to be shared with the Treasury District Offices, municipalities have developed their own templates for budget formulation, execution and reporting. This is one of the main reasons why budget documentation differs from municipality to municipality and why comparisons of budgets and outturn following different classifications require a substantial effort even within single municipalities. On the other hand, Treasury District Offices require municipalities to present and register their budgets in the treasury system following the administrative, economic and programmatic classification at both the 7 (for expenditure) and 3 (for revenue) digit level of economic accounts. In theory this should allow for consistent comparisons between budgets and out-turns. As the documents of the municipality show, budgets are set by administrative classification, with the amounts for each administrative unit broken down by economic classification at the 3-digit level. The Administrative classification is then processed and presented in terms of the COFOG ten main functions. The budget (including expenditure financed through conditional grants not included in the original budget) is executed through the Treasury system, which contains sufficient details of each transaction as to enable all expenditure to be analysed by reference to administrative, economic and functional classifications. But the templates used by the municipality to plan and report the budget require some additional efforts to be entirely comparable with the more detailed information extracted by Treasury system. However, consistent comparisons between budget and out-turn can be made based on administrative and economic classifications at the GFS 3 digit level. Score: C PI PI-4 Indicator/Dimension Score Budget classification C Justification for score Scoring Method M1. The 2015 budget classifications and Chart of Accounts are based on economic and administrative classification at the GFS standard 3digit level, although consistent comparisons between budget and out-turn require additional efforts. 40 PI-5 Budget documentation This Indicator assesses the comprehensiveness of the information provided in the annual budget documentation, as measured against a specified list of basic and additional elements. These are shown in the following table. It is assessed on the content of the last municipal budget submitted do the legislature, thus the budget document for 2016 4 . Budget documentation is published on the municipal website (see PI-9 below). Table 3.4. Budget documentation Full description of PEFA 2016 requirements Requirements fulfilled? (Yes/No) Basic elements 1. Forecast of the fiscal deficit or surplus or accrual operating result. Yes 2. Previous year’s udget outturn, presented in the same format as the budget proposal. Yes 3. Current fis al ear’s udget presented in the same format as the budget proposal. This can be either the revised budget or the estimated outturn. 4. Aggregated budget data for both revenue and expenditure according to the main heads of the classifications used, including data for the current and previous year with a detailed breakdown of revenue and expenditure estimates. Additional elements 5. Deficit financing, describing its anticipated composition. 4 Information included in 2016 budget By law, the local government units are required to present balanced budgets (on cash basis). The Decision of the Municipal Council approving the Budget is presented without comparisons with other years. However tables accompanying the Cou il s De isio p o ide comparisons with the outturn of the previous years, the expected budget for the current year and the three coming years. Yes Same as for basic element 2. Yes Data and projections are provided with respect to the p e ious ea s outturn, the expected budget and the coming three fiscal years. Yes No deficit is foreseen. The budget document for 2016 was approved with Municipal Council Decision No. 60 dated 17/12/2015. 41 6. Macroeconomic assumptions, including at least estimates of GDP growth, inflation, interest rates, and the exchange rate. 7. Debt stock, including details at least for the beginning of the current fiscal year presented in accordance with GFS or other comparable standard. 8. Financial assets, including details at least for the beginning of the current fiscal year presented in accordance with GFS or other comparable standard. 9. Summary information of fiscal risks, including contingent liabilities such as guarantees, and contingent obligations embedded in structure financing instruments such as public-private partnership (PPP) contracts, and so on. 10. Explanation of budget implications of new policy initiatives and major new public investments, with estimates of the budgetary impact of all major revenue policy changes and/or major changes to expenditure programs. 11. Documentation on the medium-term fiscal forecasts. In this element, the content of the documentation on the medium term forecast should include as a minimum medium term projections of expenditure, revenue, and fiscal balance. 12. Quantification of tax expenditures. In this element, tax expenditure refer to revenue foregone due to preferential tax treatments such as exemptions, deductions, credits, tax breaks, etc. Yes Guidance from Min. of Finance is reproduced and considered for the MTBP. Yes Apart from expenditure arrears, the Municipality of Fier has no debt. No No information is given about bank balances or amounts owed to the city. No Information is not provided about the Water Utility owned by the city. Yes There are some explanations of new policy initiatives (taxes and fees). Yes These are published on the Municipality of Fier website (http://bashkiafier.gov.al) MTBP 2016-2018 No In the Fiscal Package of 2016 some exemptions for vulnerable families are provided. But no details are given of the cost to the Municipality of the tax concessions. Source: Municipality of Fier PI PI-5 Indicator/Dimension Budget classification Score B Justification for score Budget documentation fulfils 9 elements, including all four basic elements. 42 PI-6 Government (subnational) operations outside financial reports This indicator measures the extent to which revenue and expenditure under the control of the Municipality is excluded from its financial reports. It covers all municipal operations during the last completed fiscal year. It contains the following three dimensions and uses the M2 (AV) method for aggregating dimension scores:  Dimension 6.1. Expenditure outside financial reports;  Dimension 6.2. Revenue outside financial reports;  Dimension 6.3 Financial reports of extra-budgetary units. 6.1 Expenditure outside financial reports Fier has no activities controlled by the Municipality, other than its share in the Water Utility which is considered under PI-10, which are not fully covered by its financial reports. Thus there is no expenditure outside financial reports, resulting in the score A. 6.2 Revenue outside financial reports Fier has no activities controlled by the Municipality, other than its share in the Water Utility which is considered under PI-10. Thus there is no revenue outside financial reports, resulting in the score A. 6.3 Financial reports of extra-budgetary units Since there are no extra-budgetary units, this dimension is Not Applicable. PI PI-6 Indicator/Dimension Municipal operations outside financial reports PI-6.1 Expenditure outside financial reports PI-6.2 Revenue outside financial reports PI-6.3 Financial reports of extrabudgetary units Score A A A NA Justification for score Scoring method M2 There is no expenditure controlled by the municipality which is not fully covered in financial reports There is no revenue accruing to Fier which is not fully covered in financial reports. There are no extra-budgetary units. PI-7 Transfers to lower levels of government Since there are no government units subordinate to the city of Fier, this Indicator is Not Applicable. 43 PI-8 Performance information for service delivery (M2) This indicator examines the service delivery performance targets in budget documentation, and the subsequent reporting of actual performance against the targets. It contains four dimensions and uses the M2 (AV) method for aggregating dimension scores.  Dimension 8.1 Performance plans for service delivery (covering information for 2016);  Dimension 8.2 Performance achieved for service delivery (covering information for 2015);  Dimension 8.3 Resources received by service delivery units (covering information for 2015);  Dimension 8.4 Performance evaluation for service delivery (covering information for 2013-2015); The first two dimensions ask what information is provided about the level of services planned, and the level of services actually delivered, while the second two dimensions ask first whether information is available about the resources received by individual schools and health clinics, and second, whether there have been any independent evaluations of the services provided. These questions are only just beginning to be considered by municipalities in Albania, despite being required by the current legislation to provide information on services programmes and performance indicators related to them. Article 33, subsection 2 of law no. 139/2001 On local self-go er e t states in relation to instruments to manage public services that Regardless of the sele ted i stru e t, i a e e t the lo al u it shall e respo si le for: a Designing and implementing a system of service performance management, based on the local standards and/or national minimum standards; (b) Designing and implementing a system of indicators, including the gender aspect, for measuring service performance; (c) Creating a special unit within their structures to be responsible for presenting, supervising, a d o itori g ser i e perfor a e, i ludi g the ge der aspe t . PI-8.1 Performance plans for service delivery Only major objectives and the related activities for expenditure programmes are set out in the budget documentation. No quantitative targets or goals are specified which could be used in measuring the efficient and effective use of resources. Hitherto budget documentation has not provided any information about the standard of service to be provided, for example concerning the availability of public lighting, or the services to be provided in terms of preschool education. Since no information is available about plans for service delivery, the score for this dimension is D. PI-8.2 Performance achieved for service delivery There is some limited reporting of actual standards of service, but no information is available about performance against targets. Score: D 44 PI-8.3 Resources received by service delivery units Fier implements three fees for public services: the cleaning fee, the greenery fee and the public lighting fee. Further there are revenues also from kindergartens, nurseries etc. Revenues from such fees are planned and reported regularly by the municipality on a monthly, quarterly and annual basis. Further, the treasury system collects sufficient information about each transaction to make possible reporting of the resources received by each service delivery unit (nurseries, kindergarten, library, football club etc.). Reports have been prepared and surveys undertaken identifying the resources received by services delivery units, the amounts to be subsidized by the municipal budget. The administration prepares also estimates and projections on how much fees should increase to get closer to cost recovery. Such projections are included also in the fiscal package and budget documentations presented to the municipal council. Score: B. PI-8.4 Performance evaluation for service delivery There have been no evaluations of effectiveness and efficiency of service delivery by independent bodies for any major expenditure programs or departments at least once within the last three years. Nor have either external audit (High State Control) or the Municipalit s internal audit service produced any reports about standards of service achieved. Score: D. PI PI-8 Indicator/Dimension Performance information for service delivery Score D+ PI-8.1 Performance plans for service delivery D PI-8.2 Performance achieved for service delivery D PI-8.3 Resources received by service delivery units (SDUs) B PI-8.4 Performance evaluation for service delivery D Justification for score Aggregation method M2 No plans are published at any frequency about the levels of service to be provided. Reporting of service levels achieved against targets is not yet established. Reports have been produced about the resources received by individual SDUs. No evaluations have been produced by internal or external auditors, or by other independent bodies. PI-9 Public access to fiscal information This indicator assesses the comprehensiveness of fiscal information available to the public based on specified elements of information to which public access is considered critical. The 45 score for this indicator depends on how many of five basic elements of information, and of four additional elements, are available to the general public. It covers the last completed fiscal year, the year 2015. At least four of the five basic elements must be available for a score of C or higher. The Municipality of Fier is engaged actively in increasing transparency, consultation and participation of the community in the overall management of the city (as stated in the budget do u e t of , i a o da e ith the e o ga i la o. / On local selfgo er e t which i t odu ed a e ti e hapte egulati g transparency, consultation and i i parti ipatio : - Local self-government units shall guarantee to the public the transparency of their activity (Art.15/1); - Every act of local self-government bodies shall be published on their official website and displayed in particular places for public announcements (Art.15/2); - Each unit of local self-government shall be obligated to appoint a transparency coordinator and adopt a transparency program, ensuring access for all, especially for the poorest communities, in accordance with the provisions of the applicable law for access to information (Art.15/3); - Keep accounts in conformity with the applicable legislation, and provide information and financial reports for the design and implementation of their budgets to the central government or the citizens (Art.9/1.3/d). The situation in the Municipality of Fier with regard to fiscal documentation to which citizens have access is set out in the following table. Table 3.5. Public access to fiscal information Elements Fulfilled (Yes/No) Reference / Means of publication Basic Elements 1) Annual executive budget proposal documentation. A complete set of executive budget proposal documents (as presented by the country in PI-5) is available to the public within one week of the e e uti e s su issio of the to the municipal council. 2) Enacted budget. The annual budget law approved by the municipal council is publicized within two weeks of passage of the decision. No Yes Although incomplete documentation is available on the Municipality of Fier website http://bashkiafier.gov.al/sqal/Bashkia/Pages/Buxheti.aspx PEFA Secretariat advise that full information in accordance with PI-5 must be available for the element to be satisfied. Published on the Municipality of Fier website http://bashkiafier.gov.al/sqal/Bashkia/Pages/Buxheti.aspx 46 3) In-year budget execution reports. The reports are routinely made available to the public within one month of their issuance, as assessed in PI-27. 4) Annual budget execution report. The report is made available to the public withi si o ths of the fis al ea s e d. 5) Audited annual financial report, incorporating or accompanied by the e ternal auditor’s report. The reports are made available to the public within twelve o ths of the fis al ea s e d. Additional elements 6) Pre-budget Statement. The broad parameters for the executive budget proposal regarding expenditure, planned revenue, and debt are made available to the public at least four months before the start of the fiscal year. 7) Other external audit reports. All nono fide tial epo ts o the u i ipalit s consolidated operations are made available to the public within six months of submission. 8) Summary of the budget proposal. A clear, simple summary of the executive budget proposal or the enacted budget accessible to the non-budget experts, often referred to as a itize s udget, a d he e appropriate translated into the most commonly spoken local language, is publicly available within two weeks of the e e uti e udget p oposal s su issio to the legislature and within one month of the udget s app o al No No & www.financatvendore.al & http://www.vendime.al/catego ry/fier/2015-fier/ . According to Fier officials, it was published on 18/12/2015 after the approval by with Municipality Council in Decision no. 60, dated 17/12/2015. There are half yearly budget execution reports produced by the finance and budget unit officials but they are for internal use only and there is no regular publication. The report is not published on the website of the Municipality of Fier. NA No opinion is given on annual budget execution reports as it is not a legal requirement in Albania. Yes Information is provided about the fiscal outlook prior to budget preparation in the Medium Term Budget Program. Yes No Recommendations in audit reports are published on HSC website http://www.klsh.org.al No user-friendly budget itize s udget summary is published. 47 Not applicable at municipal level Supplementary elements (in case any of the additional elements is not applicable to sub-national governments) 10) Information on fees, charges, and The information with regard to taxes that belong to the subnational fees, charges and taxes is Yes government. The information is publicly published in the Fiscal Package available and up to date. document. 9) Macroeconomic forecasts NA Since only two of the four applicable basic elements and two additional elements are satisfied, the score is D. PI PI-9 Dimension Public access to fiscal information Score D Justification for the score Only one out of the five applicable basic elements are satisfied. 48 3.4 Pillar 3. Management of Assets and Liabilities PI-10 Fiscal risk reporting This indicator measures the extent to which fiscal risks to central government are reported. Fiscal risks can arise from adverse macroeconomic situations, financial positions of subnational governments or public corporations, and contingent liabilities from the central go e e ts o p og a s a d a ti ities, i ludi g e t a udgeta u its. The a also arise from other implicit and external risks such as market failure and natural disasters. This indicator contains three dimensions and uses the M2 (AV) method for aggregating dimension scores. The indicator is assessed for the last completed fiscal year.  Dimension 10.1 Monitoring of public corporations  Dimension 10.2 Monitoring of subnational governments  Dimension 10.3 Contingent liabilities and other fiscal risks The first dimension of this indicator looks at reporting by corporate bodies owned by the city, whose operations are not included in the annual city budget. The second dimension is concerned with the monitoring of lower level governments, and is therefore Not Applicable. The third asks about the annual publication of information on contingent liabilities and other fiscal risks. PI-10.1 Monitoring of public corporations The only body owned by the municipality but excluded from its budget is the water utility, whose audited annual report has been published within six months of year-end. The it s Finance Director is a member of the management board. The water utility acts as the u i ipalit s fis al age t i olle ti g u h of the fee a d ta e enue due to the city from businesses and households, and its operations are expected to be integrated into the city budget for 2017. Score: A PI-10.2 Monitoring of subordinate governments Since there are no subordinate governments in this case, this dimension is considered as not applicable at municipal level. Score: NA PI-10.3 Contingent liabilities and other fiscal risks According to the information provided by the experts in the Municipality of Fier, they have not engaged in any transactions which would generate risks of this kind. Score: NA PI Dimension Score Justification for the score PI - 10 Fiscal risk reporting A M2 49 PI – 10.1 Monitoring of public corporations PI – 10.2 Monitoring of subordinate governments PI – 10.3 Contingent liabilities and other fiscal risks A The water utility has submitted audited annual financial reports within 6 months of year-end. NA Not applicable at municipal level. NA Fier has not guaranteed any borrowing by subordinate institutions, or participated in any PPP operations. PI-11 Public investment management This indicator assesses the economic appraisal, selection, costing, and monitoring of public investment projects by the municipality, with emphasis on the largest and most significant projects. The time period considered for assessing this indicator is the last completed fiscal year. It contains four dimensions and uses the M2 (AV) method for aggregating dimension scores.  Dimension 11.1 Economic analysis of investment projects  Dimension 11.2 Investment project selection  Dimension 11.3 Investment project costing  Dimension 11.4 Investment project monitoring The four dimensions of this indicator accord better with the situation of a central government rather than with that of an individual municipality. The first dimension asks whether investment proposals are subject to economic analysis in accordance with national guidelines; the second asks whether projects are prioritised on the basis of published standard criteria; the third asks whether full life-cycle costs are taken into consideration, and the fourth asks about the monitoring of project execution. PI-11.1 Economic analysis of investment proposals The Ministry of Finance introduced Public Investment Management procedures in 2007 and a new methodology for monitoring, evaluating and reporting of public investments has been introduced in 2014. These procedures require an economic analysis for all investment projects whereas a thorough analysis and full appraisal applies only for projects with an estimated value of above 100 million ALL. However it is unclear whether these procedures apply for municipalities and apparently there are no published guidelines for economic analysis of investment proposals by municipalities in Albania. Unless the central government provides the necessary resources – directly, through the provision of RDF funds, or through external funding – Fier does not have the resources to undertake major investment projects requiring sophisticated analysis. As explained in PI-2 above, very little was executed in the 2013 and 2014 and 2015 budgets for investment, with significant actual expenditure beginning after receipt of RDF funds in 2014 and 2015. In bidding for such financing the 50 municipality aims to put forward proposals consistent with its Territorial Development Strategy which reflect some assessment of the costs and analysis of the benefits to different sections of the population. Although there are no centrally imposed guidelines regulating these processes, Fier has prepared project fiches for the RDF committee that include an economic, financial and social cost benefit analysis. The road projects currently in process of execution are financed by the RDF, which is effectively in charge of project selection. Since the RDF has some selection criteria for the projects it finances, the score for this dimension is C. PI-11.2 Investment project selection Investment projects are proposed by spending units and are shortlisted by the strategic management group. Later on the short list is consulted with the public in public hearings. Project selection where finance is provided by RDF (or other similar financial resources provider) is primarily determined by the central government, although projects are prepared and executed by the municipal governments concerned. There are no published rigorous and transparent criteria regulating the basis of the choices made by central government through the RDF. Since all projects are prioritised by central government, the score for this dimension is C. PI-11.3 Investment project costing New projects are not for the most part included in budget documentation, because decisions on which projects should be financed are not made within the relevant timescale. Thus arrangements do not meet the minimum requirements for a C score, which depends on the availability of full information on total capital costs as well as information on spending during the year immediately ahead. Therefore, the score for this dimension is D. PI-11.4 Investment project monitoring Project execution is monitored by the Public Works Directorate and the Finance Department, with information on both physical and financial progress reported periodically at least 3-4 times a year in the budget implementation reports prepared for the municipal council. Payments to suppliers are linked with to evidence of physical progress, quality assurance from an independent expert (work supervisor) and acceptance from the Public Works Directorate. The urban planning department also prepares 3-4 reports each year on both physical and financial progress for every phase of the project implementation. While there is no strict calendar for this, the municipality follows the legislative requirements setting up the procedures for investment project monitoring. As there is no regular calendar, and the reports are not published, the score for this dimension is C. 51 PI PI-11 Dimension Public investment management Score D+ PI-11.1 Economic analysis of investment proposals C PI-11.2 Investment project selection C PI-11.3 Investment project costing D PI-11.4 Investment project monitoring C Justification for score Scoring Method M2 Projects are put forward to central government taking into account some analysis of the costs and the likely beneficiaries. Prior to their inclusion in the budget, some of the major investment projects are prioritized by a central entity. Most projects are selected by central government through the RDF. Decisions on project implementation are generally taken after municipal budgets have been set, with no information in budget documentation about the total capital costs of projects. Project implementation is regularly monitored by the Public Works Directorate, but the reports are not published. PI-12 Public asset management This indicator assesses the management and monitoring of subnational government assets and the transparency of asset disposal. It contains the following three dimensions, which are assessed on the last 12 months, and uses the M2 (AV) method for aggregating dimension scores:  Dimension 12.1 Financial asset monitoring  Dimension 12.2 Nonfinancial asset monitoring  Dimension 12.3 Transparency of asset disposal This Indicator has three dimensions: the first looks at the u i ipalit s holdi gs of fi a ial assets, the second at non-financial assets, and the third at rules for the transfer and disposal of assets. PI-12.1 Financial assets monitoring Revenue arrears are considered to be financial assets and are included in total in the financial statements of the municipality, but the amounts are very uncertain. However, these financial statements are neither published nor subject to any regular audit. Given uncertainties about amounts owed to the municipality, the score for this dimension is D. 52 PI-12.2 Non-financial assets monitoring The municipality maintains a record/register of all its physical or fixed assets: land (urban, rural - arable, pasture, forestry, unproductive), roads and pavements, buildings of different kinds, irrigation canals, plant and equipment. All changes in non-financial assets are regularly reported as part of the investment progress monitoring. Information on changes is included in the budget monitoring reports and financial statements. The asset register is not published, and contains only partial information on their usage, age, improvements and depreciation. It is part of the (unpublished) consolidated financial statement. The score for this dimension is C. PI-12.3 Transparency of asset disposal Although the municipality has a register of its non-financial assets, its ability to exploit them is limited by the fact that they are not for the most part included in the national register of properties. Registering all property will be time-consuming and expensive. Disposal or transfer of property is regulated by the national legislation and requires the approval of the municipal council; sales are by public auction, with a reserve price stated. However, in practice there has not been any sale or disposal of assets with the exception of very outdated and depreciated automobiles and equipment. The disposal of such assets took place through public auction (thus following the rules for public procurement) with each step of the procedure being managed by the legal department, the procurement unit, the finance department, and the relevant departments responsible for those assets. The score for this indicator is B. PI PI-12 Dimension Public asset management Score C PI-12.1 Financial asset management D PI-12.2 Non-financial asset management C PI-12.3 Transparency of asset disposal B Justification for score Scoring Method M2 Data in the unpublished financial statements about revenue arrears is very uncertain. There is a register of fixed assets, but it is not published. There are procedures regulating asset disposals, and reports to the council contain information on disposals. PI-13 Debt management This indicator assesses the management of domestic and foreign debt and guarantees. It seeks to identify whether satisfactory management practices, records, and controls are in place to ensure efficient and effective arrangements. The indicator contains the following two dimensions relevant to municipalities, which are assessed on the basis of the last 12 months, and uses the M2 (AV) method for aggregating scores: 53    Dimension 13.1 Recording and reporting of debt and guarantees Dimension 13.2 Approval of debt and guarantees Dimension 13.3 Debt management strategy All the applicable dimensions of this indicator concern debt and guarantees contracted directly by the subnational governments and serviced by the subnational government. The third dimension, which concerns debt management strategy at central government level is considered Not Applicable at municipal level. 13.1 Recording and reporting of debt and guarantees Fier has not contracted any loans, so this dimension is Not Applicable. 13.2 Approval of debt and guarantees The legal framework regulating the subnational borrowing in Albania is the Law no. / O o o i g of lo al go e e ts . A o di g to the la o o o i g, subnational governments may access short and long term loans, subject to limits on amounts outstanding set by reference to freely disposable annual revenue and annual debt service obligations. To keep total public debt under control, all borrowing is subject to control by the Ministry of Finance, under article 6 and 7 of the law. This has been reinforced by the 2015 Administrative Order which requires all municipalities to seek the permission of the Ministry of Finance to undertake any borrowing. In practice despite this provision in the law, there has been very little borrowing by a small number of municipalities. The total outstanding debt at the end of 2015 was 0.065% of GDP or 0.09% of total public debt. Although Fier has not contracted any debts, resulting in Not Applicable for 13.1, PEFA Secretariat consider that a score should be given for 13.2 based on the current legislation. Since all borrowing is ultimately controlled by MoF, score is A. 13.3 Debt management strategy In accordance with the terms of refence this dimension is Not Used. PI PI-13 PI-13.1 PI-13.2 PI-13.3 Dimension Debt management Debt recording and reporting Approval of debt and guarantees Debt management strategy Score A NA A NU Justification for score Scoring method M2 Fier has not contracted any loans All municipal borrowing is fully controlled by MoF. Excluded by terms of reference. 54 3.5 Pillar 4. Policy Based Fiscal Strategy and Budgeting PI-14 Macroeconomic and fiscal forecasting This indicator measures the ability of a country to develop robust macroeconomic and fiscal forecasts, which are crucial to developing a sustainable fiscal strategy and ensuring greater predictability of udget allo atio s. It also assesses the go e e t s apa it to esti ate the fiscal impact of potential changes in economic circumstances. It contains three dimensions and uses M2 (AV) for aggregating dimension scores.  PI-14.1 Macroeconomic forecasts  PI-14.2 Fiscal forecasts  PI-14.3 Macro fiscal sensitivity analysis PI-14.1. Macroeconomic forecasts The first dimension of this indicator concerns the preparation of macroeconomic forecasts by the central government, and the third the impact on fiscal forecasts of different macroeconomic assumptions. According to the terms of reference these dimensions are Not Used. PI-14.2 Fiscal forecasts The second dimension asks whether fiscal forecasts covering revenue and expenditure for the budget year immediately ahead and the two subsequent years have been submitted to the municipal Council with the budgets for the years 2014-16. The Medium-Term Budget Projections provide such information, with details of both revenue and expenditure shared with the municipal council. Both the numerical tables with revenue and expenditure forecasts (following the economic, functional and administrative classifications) and the accompanying report (including the underlying assumptions) are published in the municipal website. For an A score the information provided must include an explanation of the main differences from previous fiscal forecasts submitted to the Municipal Council. Since such an explanation has not been provided in the Municipality of Fier, the score for this dimension is B. PI-14.3 Macro fiscal sensitivity analysis This dimension is not applicable to the sub-national government since relevant to the central government only as set out in the concept note. PI PI-14 PI-14.1 Dimension Macroeconomic and fiscal forecasting Macroeconomic forecasts Score B NU Justification for score Scoring Method M2 Excluded by the terms of reference for the assessment. 55 PI-14.2 Fiscal forecasts PI-14.3 Macro fiscal sensitivity analysis B NU The city administration prepares forecasts of fiscal indicators, including underlying assumptions, revenues (by type), aggregate expenditure, and the budget balance, for the budget year and two following fiscal years. These projections have been submitted to the Council in each of the last three years and published. As 14.1 PI-15 Fiscal strategy (M2) This indicator provides an analysis of the capacity to develop and implement a clear fiscal strategy. It also measures the ability to develop and assess the fiscal impact of revenue and expenditure poli p oposals that suppo t the a hie e e t of the go e e t s fis al goals. It covers the entire municipal operations and contains the following three dimensions and uses the M2 (AV) method for aggregating dimension scores:  Dimension 15.1. Fiscal impact of policy proposals (the last three fiscal years);  Dimension 15.2. Fiscal strategy adoption (the last fiscal year);  Dimension 15.3. Reporting on fiscal outcomes (the last completed fiscal year). The first dimension of the indicator asks whether the city administration submits to the Council estimates of the fiscal impact of all proposed changes in revenue and expenditure policy for the following three years. The second asks whether the administration has submitted its fiscal strategy for the following three years to the Council (for at least one budget year and the two following fiscal years), including time-based fiscal goals. The last dimension of the indicator asks whether the administration has submitted to the Council a report on progress in implementing its previously adopted fiscal strategy. This indicator thus presupposes that the municipal administration is able to control the whole of its budget, and plan the whole of its expenditure with a time horizon of at least three years. In reality in Albania municipal administrations cannot do this (or cannot fully do it), because a large part of their overall expenditure is devoted to capital investment where decisions are taken by the central government outside the municipal annual budget framework. PI-15.1 Fiscal impact of policy proposals The administration presented its Medium-Term Budget Forecast (MTBF) for 2016-18 to the Council, including all elements of revenue and expenditure under its direct control, and the impact of changes, if any. Estimates include all types of revenues from local taxes and fees, 56 asset management, etc., whereas expenditure estimates include projections based on the administrative, economic and functional classifications for the three years to come, and the actual figures for the previous year. Estimates were included of the impact of fiscal policy changes (revenue and expenditure) and also of changes in applicable laws made by the central government5. A report explaining the underlying assumptions is prepared and shared with the municipal council and is published in the municipal website. But as explained above, this can only be a partial presentation (since the municipalities have no basis for forecasting capital expenditures financed through the RDF or other similar instruments controlled by the central government). However, it appears to meet the requirements of the PEFA criteria and the score for this dimension is A. PI-15.2 Fiscal strategy adoption Municipalities must present balanced budgets (according to Law No. 139/2015, O Lo al Self-Go er e t , Art. 34/6 and corresponding Art. 12 of the Law No. 9936/2008 O the Budgeti g “ ste Ma age e t i the Repu li of Al a ia ), unless they have approval from the Mi ist of Fi a e fo o o i g. Fie s MTBF -2018 is submitted on the basis of balanced budgets, which amount to fiscal targets. These could be seen as meeting the requirement for a fiscal strategy, although this has no real substance and contains no qualitative objectives for achievements during the period. However, since quantitative objectives are presented to the Council for three years ahead, the suggested score for this dimension is B. PI-15.3 Reporting on fiscal outcomes Although reports have been produced showing comparisons between original budget and out-tu figu es, these ha e ot i luded a e pla atio of diffe e es et ee o e ea s MTBF and that for the following year. Score: D PI PI-15 Indicator/Dimension Fiscal Strategy Score B PI-15.1 Fiscal impact of policy proposals A PI-15.2 Fiscal strategy adoption B PI-15.3 Reporting on fiscal outcomes D Justification for score Aggregation Method M2 MTBF includes estimates of revenue and expenditure, taking account of any changes in policy. But the coverage is incomplete. Balanced budgets represent a kind of fiscal strategy. But there are no qualitative objectives associated with it. No explanations have been given for diffe e es et ee o e ea s MTBF a d that for the following year. Law No. 142/2015 for some changes and additions to Law no 9632/2006 O Lo al Ta “ ste guidelines provided by the Ministry of Finance during early January of 2016. 5 and other 57 PI-16 Medium-term perspective in expenditure budgeting This indicator examines the extent to which expenditure budgets are developed for the medium term within explicit medium-term budget expenditure ceilings. It also examines the extent to which annual budgets are derived from medium-term estimates and the degree of alignment between medium-term budget estimates and strategic plans. It covers the last budget submitted to the Council and contains the following four dimensions, and uses the M2 (AV) method for aggregating dimension scores:  Dimension 16.1. Medium-term expenditure estimates;  Dimension 16.2. Medium-term expenditure ceilings;  Dimension 16.3. Alignment of strategic plans and medium-term budgets;  Di e sio . . Co siste of udgets ith p e ious ea s esti ates. The first dimension of the indicator reviews the extent of detail in medium-term fiscal projections prepared by the subnational government as part of the annual budget cycle. The second assesses whether the expenditure ceilings for three years for each service or administrative unit are determined by the Mayor at the beginning of the process; the third dimension assesses whether expenditure policy proposals are consistent with medium-term strategic plans; and the fourth whether explanations are given for changes between su essi e ea s MTBFs. As for PI-15 the plans put forward by the city administration do not cover much expenditure on investment, and so do not represent a complete plan for the development of the city. PI-16.1 Medium-term expenditure estimates In Albania the practice is first to prepare the MTBF covering the following three years, which is completed [in August] each year. The MTBF covers only expenditures, broken down by administrative and economic classification, which is expected to be able to be financed from unconditional t a sfe s a d e e ues u de the u i ipalit s o t ol, thus e ludi g ost investment expenditure. The MTBF 2016-2018 includes forecasts of expenditures for the years 2016, 2017 and 2018 and the actual figures for the previous year. A draft MTBF 20172019 has been prepared and approved in the Municipal Council and deposited in the Ministry of Finance. Each unit in the city administration is required to work within expenditure ceilings set by the Mayor. The completed MTBF is submitted to the Council, and thereafter used as the asis fo the p epa atio of the follo i g ea s udget. The udget as fi all p oposed may differ slightly from the MTBF figures, but the second and third year figures are not revised at that stage, and not presented in the budget documentation. If the MTBF figures are considered sufficient for this PI, the score would be B, since the projections are put forward based on administrative and economic classifications. 58 PI-16.2 Medium-term expenditure ceilings Expenditure ceilings for each of the three years for each administrative unit are issued by the Mayor at the first stage of the process. Each spending unit must abide to the ceilings during budget preparation. Budgetary requests above the ceiling are recorded, discussed and eventually approved in subsequent meetings by the Group for Strategic Management headed by the Mayor. Thus the proposed score is A. PI-16.3 Alignment of strategic plans and medium-term budgets Due to legislative changes, the Municipality of Fier has adopted (approved by the Municipal Council) a Territorial Development Strategy of the Municipality in 2016, as part of the General Local Plan (expected to be approved before the end of December 2016). Accordingly, the vision and strategic objectives as provided in the TDS of the Municipality have been developed and translated in financial terms in the Capital Investment Plan for 2016-2030. In theory, the CIP contains detailed information for the prioritized investment projects, which in turn should be linked to and translated in the MTBPs. Because most municipal investment depends on unpredictable grants from central government (RDF funding or other similar programs), municipalities are not in a position to prepare strategic plans which are in alignment with budget projections. Score: D. PI-16. Co siste of udgets ith pre ious ear’s esti ates The documentation provided by the municipality of Fier with regard to the MTBF 2016-2018 and the 2016 budget documentation do not contain any information with regard to previous years estimates. Because of the recent municipal reorganisation there has been no question as et of e plai i g the diffe e es et ee o e ea s MTBF a d the e t. The s o e fo the indicator is Not Applicable. PI PI-16 Indicator/Dimension Medium-term perspective in expenditure budgeting Score B PI-16.1 Medium-term expenditure estimates B PI-16.2 Medium-term expenditure ceilings A PI-16.3 Alignment of strategic plans and medium-term budgets D Justification for score Aggregation method (M2) Revenue and expenditure projections for the following three years based on administrative and economic classifications are submitted to the Council. Ceilings for each of the three next years are issued to each administrative unit at the start of the MTBF process. The unpredictability of investment financing precludes the preparation of 59 PI-16.4 Consistency of budgets with p e ious ea s esti ates NA strategic plans which can be executed over a specified time period. There has as yet been no opportunity to explain changes from a previous ea s MTBF si e the u i ipal reorganisation. PI-17 Budget preparation process This indicator measures the effectiveness of participation by relevant stakeholders in the budget preparation process, including political leadership, and whether that participation is orderly and timely. It covers budgetary municipal government and contains the following three dimensions and uses the M2 (AV) method for aggregating dimension scores:  Dimension 17.1. Budget calendar (covering the last annual budget submitted to the Municipal Council);  Dimension 17.2. Guidance on budget preparation (covering the last annual budget submitted to the Municipal Council)  Dimension 17.3. Budget submission to the legislature (covering the last three annual budgets submitted to the Municipal Council) PI-17.1 Budget calendar A clear annual budget calendar is issued by the Mayor early each year in accordance with the budgeting calendar guidelines provided in Law No. 9936/2008. Instructions on the annual and medium term budget preparation are issued in February of every year from the Ministry of Finance and then by all municipalities. This provides first for the development of the MTBF by the late summer, which then serves as the basis for the prepa atio of the follo i g ea s budget. Final instructions to each administrative unit are, however, only issued in November leaving less than four weeks before the budget is submitted to the Municipal Council. After the June 2015 elections that created the new and larger municipalities, Fier approved the new and consolidated budget for FY2015 (including the nine amalgamated Communes) on July 21st. Work on the new 2016 budget proposal started in September, with a new calendar being developed and subsequently followed. Until November spending units prepared budgetary requests which were discussed in the Strategic Management Group and publicly consulted with citizens. In November the Council approved the fiscal package including all tax and fee levels for the entire (new) territory for 2016, including revenue projections. The final 2016 draft budget proposal was presented to the Council in December 10th, one week before the date planned for its consideration and adoption, and in advance of final decisions by the Government on the amounts of unconditional transfers. Since the time available for the preparation of final submissions is very short, the score for this dimension is C. PI-17.2 Guidance on budget preparation 60 Clear instructions, including expenditure ceilings are given to each of the municipalit s administrative/spending units at each stage of the MTBF and budget preparation process. The Strategic Management Group composed of the heads of the budget programs and the mayor convene regularly to provide such instructions, evaluate and decide on budgetary request submitted by all spending units. Guidance, opinions and recommendations are included in the budget preparation templates fulfilled by all spending units. Instructions are provided to budgetary units also for RDF financing, whenever the central government publishes a call for proposals. Political leadership of the municipality helps in setting priorities for RDF financing. Score: A PI-17.3 Budget submission to the Council The draft budget and the fiscal package (i.e. the proposed fiscal policies on local taxes and fees for the coming year) have been put forward for public consultation. In general also municipal councillors participate in such events. The finalized proposals on the budget and the fiscal package are thereby made available to the Council, at least one week before the meeting scheduled for their consideration and approval, but less than one month before the start of the fiscal year. Based on the Law on Local Self-Government, municipal council decisions proposals must be submitted for consideration to the council at least one week in advance of the planned plenary session. In the last three years the draft-budget has been presented to the municipal council on 16 January 2014 for the 2014 budget proposal; 23 December 2014 for the 2015 budget proposal and December 10th, 2015 for the 2016 budget proposal. The 2016 budget proposal was adversely affected by the implications of the TAR and the delays of the central government in adopting the state budget that defines the unconditional grant and very late changes to the Law regulating the local tax systems. However, unlike many other LGUs, Fier managed to have the 2016 budget adopted before the start of the fiscal year. Because the Council has only one week to consider the proposals, score for this dimension is D. PI PI-17 Indicator/Dimension Budget preparation process (M2) Score C+ PI-17.1 Budget calendar C PI-17.2 Guidance on budget preparation A PI-17.3 Budget submission to the legislature D Justification for score Aggregation method (M2) There is a clear budget calendar, but administrative units have less than four weeks to prepare their final submissions. Expenditure ceilings are issued to administrative units at each stage of the MTBF and budget preparation process For each of the 2014-16 budgets proposals have been sent to the Council one week before the plenary session which approved them. 61 PI-18 Legislative scrutiny of budgets This indicator assesses the nature and extent of legislative scrutiny of the annual budget. It considers the extent to which the legislature scrutinizes, debates, and approves the annual udget, i ludi g the e te t to hi h the legislatu e s p o edu es fo s uti a e ell established and adhered to. The indicator also assesses the existence of rules for in-year amendments to the budget without ex-ante approval by the Council. The indicator covers municipal budget operations only and the most recent budget cycle i.e. the budget for FY2016 (except for dimension 18.3 which covers the last three budget cycles). It contains the following four dimensions and uses the M1 (WL) method for aggregating dimension scores:  Dimension 18.1. Scope of budget scrutiny;  Dimension 18.2. Legislative procedures for budget scrutiny;  Dimension 18.3. Timing of budget approval;  Dimension 18.4. Rules for budget adjustments by the executive. PI-18.1 Scope of budget scrutiny The Municipal Council reviews the fiscal package with policies and rates on taxes, fees and charges, medium-term fiscal outlook on revenues and expenditures, including any revenue policy changes, and the annual budget proposal document on the basis of the MTBF which is submitted in advance of the budget proposals. The Cou il s E o o a d Fi a e Committee, composed mostly of councillors with some experience of economics and finance, has convened to analyse and discuss the budget proposal at least one day before the budget proposal is presented in the plenary for final approval. The Committee prepares a report with findings and recommendations which is presented in the plenary session. Such proposals and recommendations on amendments to the budget are voted. Any proposal amending the draft-budget needs to comply with budget rules and regulations for a balanced and sustainable budget. Score: A. PI-18.2 Council procedures for budget scrutiny The Cou il s o side atio of the udget p oposals is p e eded pu li o sultatio eeti gs, a d also i ol es e ie the Cou il s E o o a d Fi a e Co ittee efo e it reaches the full Council. The standard procedures for budget scrutiny and the functioning of the Economy and Finance Committee are approved by the Municipal Council itself. The executive and the administration provide technical support to the Economy and Finance Committee and all Council Members to analyse and scrutinize the budget proposal. The Cou il s egulatio fo udget s uti i lude ules fo egotiatio a d e isio s. Score: A PI-18.3 Timing of budget approval 62 Based on the provisions of Law No. 9936/2008 O the Budgeti g “ ste Ma age e t i the Repu li of Al a ia , Art. 32., the municipal budget shall be approved by the legislature before the start of the new fiscal year. This requirement has been met only on two of the last three fiscal years considered for assessing this dimension. Therefore, the score for this dimension is B. Table 3.6. Budget submission and approval by the Council Budget Year FY2014 FY2015 FY2016 Date of Council approval of the budget 23 January 2014 30 December 2014 17 December 2015 Source: Municipality of Fier PI-18.4 Rules for budget adjustments by the executive The Mayor can authorise transfers within the allocations to each administrative unit, but transfers between administrative units require the approval of the Municipal Council. Budgets are formally adjusted to reflect conditional grants to finance investments, but RDF assistance towards investments has been treated as entirely outside the budget, and not subject to any supervision by the Municipal Council. Because substantial RDF funding has not been subject to any supervision by the Council included in the budget, the score for this dimension score is C. PI PI-18 PI-18.1 Indicator/Dimensi on Legislative scrutiny of budgets Scope of budget scrutiny Score C+ A PI-18.2 Council procedures for budget scrutiny A PI-18.3 Timing of budget approval B PI-18.4 Rules for budget adjustment by the executive C Justification for score Aggregation method (M1) The Council considers the MTBF before the budget is submitted. Procedures are well-established, including public consultation and review by a specialist committee. Budget has been approved before the beginning of the new fiscal in two of the last three budgets. Although budgets have been adjusted in response to the provision of conditional grants for investment, RDF grants have not been included in these arrangements. 63 3.6 Pillar 5. Predictability and Control in Budget Execution PI-19 Revenue administration This indicator assesses the procedures used to collect and monitor sub national government revenues. It contains the following four dimensions and uses M2 (AV) method for aggregating dimension scores:  Dimension 19.1. Rights and obligations for revenue measures (assessed as at time of assessment);  Dimension 19.2. Revenue risk management (assessed as at time of assessment);  Dimension 19.3. Revenue audit and investigation (assessed on experience in 2015 and subsequently);  Dimension 19.4. Revenue arrears monitoring (assessed on experience in 2015 and subsequently). The composition of municipal own revenue in Albania is described in Chapter 2 above, and the details of Fie s e e ue a e set out i PI-3 above. PI-19.1 Rights and obligations for revenue measures Law No. 9632/2006 O Lo al Ta es “ ste as subsequently amended provides the basis for the local taxes and fees levied by municipalities. The central government fixes the indicative rate for the main taxes levied by municipalities, but each Council has the right to vary this rate up or down by up to 30 per cent. Since 2006 this law has been subject to substantial changes, and a complete new law on local taxation is expected to be approved within the next few months. For the municipality of Fier, information about liabilities to pay taxes and fees is eadil a aila le o the it s e site. The it s ate utilit Wate & “e e age Co pa Fier) has recently taken responsibility for the collection of taxes and fees alongside the water charges in the city and in the former communes. It appears that this is resulting in an improvement in compliance rate especially for businesses. The ta lia ilit otifi atio se t by the municipal revenue department to all taxpayers contains all relevant information with regard to rights and obligations in the case of nonpayment. In the case of late payments, a penalty as a percentage of total amount per diem may be applied for a maximum of 365 days. Taxpayers can appeal to the Tax Directorate, which must respond within 5 working days. If the response is unsatisfactory, the taxpayer can appeal to the Mayor 6 ho ust espo d ithi da s. If the Ma o s espo se is unsatisfactory a further appeal can be made to the Administrative Court. Fier officials stated that there had been very few appeals to the Tax Directorate or the Mayor and none to the 6 http://bashkiafier.gov.al/sq-al/Services/Pages/Kerkese-Ankese.aspx 64 Court. Since information is available for taxpayers both from the water company and from the municipal revenue department, collects between them collect about 80% of municipal own revenues, the score for this dimension is B. PI-19.2 Revenue risk management Fier does not have an integrated tax management system covering both for household and non-household taxpayers. While the compliance rate is higher in the case of non-household taxpayers, the situation is considered unsatisfactory for household taxpayers. Available information indicates that there is considerable uncertainty about the amounts payable, given that enforcement is far from complete. The largest tax revenue – the infrastructure impact tax – shows very large proportionate shortfalls between budgets and out-turn mainly as a result of action by the central government in blocking developments, while the Other ta es line shows substantial unbudgeted receipts in 2014 which were not repeated in 2015 (see PI-3 above). The collection of fees from both households and businesses appears to have improved during the period 2013-15. More attention has apparently been paid to the collection of the larger amounts of taxes and fees due from businesses than to collection from households where both the individual amounts and the overall total due are smaller. Payment by businesses may be enforced by blocking the bank accounts of non-payers; there were said to be about 75 such cases each year. For household taxpayers other services might be withheld from non-payers, although the legal basis for this was doubtful. Since the focus on collection from business taxpayers can be seen as a response to risk, score is C. Households that do not have a contract with the water utility pay their tax obligations in cash at municipal cash desks in the former communes and four offices in the city. Transactions are kept in excel based modules, not linked to any IT system, and lists are processed manually. Cashiers provide taxpayers with a hard copy of the cleared tax liability. The taxpayer is then cleared from its tax liabilities in the excel list for the given year. Cash is transferred then through banks in the treasury system. In total, in 2016 such revenues constituted about 2% of the o e all e e ues olle ted Fie s e e ue ad i ist atio , the ate utilit a d the cash desks. PI-19.3 Revenue audit and investigation This dimension is of greater significance in relation to central government income taxes and VAT. Apart from the infrastructure impact tax, where there may be risks resulting from buildings being constructed without the tax being applied, the liability to pay taxes and fees should generally be straightforward, not requiring complex investigation. (There remains the question of ensuring a complete and accurate register of taxable households, given the large disparity between the numbers registered in each municipality and the generally much smaller 65 – except in Tirana – numbers found to be resident through the census.) It does not appear that there is any systematic approach to investigations of non-payment. Score: D PI-19.4 Revenue arrears monitoring No data have been provided by Fier officials about the stock and movement of revenue arrears. It appears that more attention has been paid to collections from businesses who pay three quarters of own source revenues, but in the case of households there are no consistent records of the amounts and ages of payment arrears. In the absence of information the score for this dimension is D*. PI PI-19 Indicator/Dimension Revenue administration Score D+ PI-19.1 Rights and obligations for revenue measures B PI-19.2 Revenue risk management C PI-19.3 Revenue audit and investigation D PI-19.4 Revenue arrears monitoring D* Justification for score Aggregation method (M2) Tax and fee payers have ready access to information on obligations, and procedures exist for appeals. The main focus of collection effort is on business taxpayers who contribute the largest share of revenue. There is no systematic approach to the investigation of non-payment of households. No data are available about the nature, amounts and ages of revenue arrears. PI-20 Accounting for revenue This indicator assesses procedures for recording and reporting revenue collections, consolidating revenues collected, and reconciling tax revenue accounts. It covers both tax and nontax revenues collected by the municipality. This indicator contains the following three dimensions and uses M1 (WL) for aggregating dimension scores:  Dimension 20.1. Information on revenue collections;  Dimension 20.2. Transfer of revenue collections;  Dimension 20.3. Revenue accounts reconciliation. PI-20.1 Information on revenue collections All revenue collected by municipal departments is paid immediately into the Treasury system either through banks/post offices. The amounts and type of revenue are notified by the Treasury Branch to the city administration competent office daily, and reports are compiled at least monthly. Revenue collected by the water company is fully reported on a monthly basis. The finance department exchanges information with the Tax Directorate which 66 prepares informational reports for the Mayor, at least on a monthly basis. The system is not automated, so that the Tax Directorate has to match the bank record of every single transaction with its own assessment records. Since the monthly reconciliations are complete, the score for this dimension is A. PI-20.2 Transfer of revenue collections Revenue received by Municipal departments from local taxes and fees from the business taxpayers is transferred daily to the it s a ou ts i the T easu s ste f o the banks/post offices which receive it. Also revenue collected from municipal cash desks in the fo e o u es a d the it s fo offi es a e t a sfe ed dail to the t easu s ste f o municipal officials through the banking system. But revenue collected through the water company hi h o olle ts the ajo it of the u i ipalit s o evenues is transferred only o thl to the it s a ou ts i the T easu s ste . The score for this dimension is D. PI-20.3 Revenue accounts reconciliation Banks and the water company collect the names of tax and fee payers and the amounts paid and the nature of the payments. The city revenue department then has to reconcile this information with its manual records of assessments in order to establish amounts still outstanding. While there appears to be adequate reconciliation between Treasury and city records of the total amounts received of different taxes and fees, the absence of data on payment arrears suggests that full reconciliations are not carried out at the level of the individual payers so as to provide the basis for establishing the total amounts assessed but not paid. The score for this dimension is D. PI PI-20 Indicator/Dimension Accounting for revenue Score D+ PI-20.1 Information on revenue collections A PI-20.2 Transfer of revenue collections D PI-20.3 Revenue accounts reconciliation D Justification for score Aggregation method (M1) Information is available daily about the nature and amounts of receipts, and reports are made. All revenue received by municipal departments is paid immediately into the it s a ou ts i the T easu system, but amounts collected by the water company, which now collects the majority of municipal revenues are paid into the Treasury account monthly. Reconciliations do not establish total amounts outstanding or the amounts owed by individual tax and fee payers. 67 PI-21 Predictability of in-year resource allocation This indicator assesses the extent to which the Municipality is able to forecast cash commitments and requirements and to provide reliable information on the availability of funds to budgetary units for service delivery. It contains the following four dimensions and uses the M2 (AV) method for aggregating dimension scores:  Dimension 21.1. Consolidation of cash balances (as at time of assessment);  Dimension 21.2. Cash forecasting and monitoring (last 12 months budget cycle);  Dimension 21.3. Information on commitment ceilings (last 12 months budget cycle);  Dimension 21.4. Significance of in-year budget adjustments (last 12 months budget cycle). PI-21.1 Consolidation of cash balances The Municipality conducts all its revenue and expenditure transactions through its one official a k a ou t, ope ati g th ough the Natio al T easu s Dist i t Offi e. “ o e: A PI-21.2 Cash forecasting and monitoring Based on the guidance instructions 93 to 104, 132 and 255, from “ta dard Pro edures of Appli atio for Budget Preparatio , issued by the Ministry of Finance, in February 2012, a cash flow forecast is produced at the beginning of the year, taking into account the agreed quarterly path for receipts of unconditional grants, and revised in the light of information about amounts of conditional grants and about revenue trends. However, it appears that in practice Fier updates the cash plan only when there are intergovernmental transfers but not to reflect actual revenue collection performance. Since there is not a regular pattern for the revision of the forecast, and there are continuing uncertainties surrounding some revenue and expenditure, the score for this dimension is C. PI-21.3 Information on commitment ceilings According to Art. 50, Orga i Budget La , Authorizi g offi ers of ge eral go er e t u its shall maintain information on financial commitments, and shall not allow undertaking of any new commitment if that exceeds the limit of the budget appropriatio . The municipality s administrative units normally have information about the annual commitment ceilings right after the budget is approved by the council and allocated to spending units. Budget units may undertake commitments where there is provision in the budget, where the amount has been i luded i the it s p o u e e t pla as otified to the T easu , a d he e the ti i g of the payments is consistent with the cash flow forecast. While commitment ceilings are updated to reflect in-year-budget adjustments or conditional grants from the central government it appears they are not timely or regularly updated to reflect the effective 68 revenue collection. Because in practice budget units may at any time find that funds are not available to meet planned expenditures, the score for this dimension is D. PI-21.4 Significance of in-year budget adjustments Budgets have to be adjusted in the light of information about the prospective availability of conditional grants, which were not taken into account when the budget was first approved. (Underspending resulting from revenue shortfalls does not have to be ratified through a revised budget.) Changes are notified to the Council, but not otherwise published. Score: C PI PI-21 PI-21.1 Indicator/Dimension Predictability of in-year resource allocation Consolidation of cash balances Score Justification for score C+ A PI-21.2 Cash forecasting and monitoring C PI-21.3 Information on commitment ceilings D PI-21.4 Significance of in-year budget adjustments C Aggregation method (M2) All ala es a e held i the it s Treasury account. A cash flow forecast is prepared at the beginning of the year, and may be updated to take account of the prospective availability of conditional grants but not revenue trends. Administrative units have little assurance that funds will be available to meet planned expenditures. Budgets are adjusted to take into account the prospective availability of conditional grants. PI-22 Expenditure arrears This indicator measures the extent to which there is a stock of arrears, and the extent to which a systemic problem in this regard is being addressed and brought under control. It contains the following two dimensions and uses the M1 (WL) method for aggregating dimension scores:  Dimension 22.1. Stock of expenditure arrears (last three completed fiscal years);  Dimension 22.2. Expenditure arrears monitoring (as at time of assessment). In Albania, there is no legal definition of when an outstanding invoice becomes an arrear. Arrears will generally be treated as such when payment has not been made within the normal 30 day credit period. The Treasury offices execute payments on behalf of subnational governments based on the availability of cash, generally within one month. All invoices not paid at the end of the year are considered expenditure arrears. Municipalities or budgetary institutions present received invoices from suppliers, approve them, and submit them to the Treasury District Office (TDO) for payment. In the system there are registered the date the 69 i oi e a i ed a d e te ed the s ste , the date of the T easu s p o edu es, a d the date the payment is executed. Currently, there is an initiative by the Ministry of Finance to establish the level of expenditure arrears for all 61 Municipalities (Decision No. 50/2014 “trateg for Cleara e a d Pre e tio of Arrears A u ulated the Ce tral Go er e t with the intent to apply the same for local government). The latest evidence refers to June 2016. PI-22.1 Stock of expenditure arrears After the TAR, a significant concern was raised about possible expenditure arrears. At the end of 2015 the Treasury system shows that Fier had arrears (payments outstanding for more than 30 days) of ALL 138.4 million, representing about 9.2 per cent of total 2015 expenditure (of about ALL 1,501 million). Of these, about ALL 99 million, mostly inherited from the former communes recently incorporated into the municipality, were incompletely documented. Fie s udget do u e tatio fo sho s that arrears were 141.4 million ALL at the end of 2013 (31% of total expenditure in 2013 of 456.6 million ALL), and 15.3 million ALLL (2.9% of total expenditure of 521.3 million ALL) at the end of 2014. Since arrears were more than 10 % of total expenditure in two of the three years, the score for this dimension is D. Table 3.7. Information on total arrears of the Municipality of Fier (in ALL) 2013 2014 Total Budget Out-turns Arrears with regular documentation Arrears without regular documentation Total arrears Total arrears/Budget 456,566 141,394 31.0% 2015 521,262 621,153 15,342 2.9% 39,011 99,406 138,417 22.3% Source: Municipality of Fier & Ministry of Finance *Data for 2013 and 2014 concern the old Municipality of Fier and are derived from the 2016 budget document. While for 2015, data concern the new Municipality of Fier and the source is the Ministry of Finance. 22.2 Expenditure arrears monitoring The Municipality of Fier has full records of the amounts, composition and ages of all the expenditure arrears of which it has been notified, which are available in real time (it is possible that some invoices have not been presented where contractors know that cash is not yet available to meet them). In 2016 such a register has been approved by the municipal council. A report on expenditure arrears has been prepared on a quarterly basis and shared with the municipal council and the Ministry of Finance. Information on arrears is included also in the budget documentation and budget implementation reports and the unpublished and unaudited annual financial statements. Fier has conducted an audit of the legality of payment arrears and has approved a strategy for their clearance. The score for this indicator is A. PI-22 Indicator/Dimension Expenditure arrears Score D+ Justification for score Aggregation method (M1) 70 PI-22.1 PI-22.2 Stock of expenditure arrears Expenditure arrears monitoring D The stock of expenditure arrears was more than 10% of total expenditure in two of the three years 2013-15. A Data on the stock, age, and composition of expenditure arrears is generated quarterly within four weeks of the end of each quarter. PI-23 Payroll controls This indicator is concerned with the payroll for public servants only: how it is managed, how changes are handled, and how consistency with personnel records management is achieved. Wages for casual labour and discretionary allowances that do not form part of the payroll system are included in the assessment of non- salary internal controls, PI-25. This indicator contains the following four dimensions and uses the M1 (WL) method for aggregating dimension scores:  Dimension 23.1. Integration of payroll and personnel records (as at time of assessment);  Dimension 23.2. Management of payroll changes (as at time of assessment);  Dimension 23.3. Internal control of payroll (as at time of assessment);  Dimension 23.4 Payroll audit (last three completed fiscal years). PI-23.1 Integration of payroll and personnel records The payroll management process includes several components: i. Organizational structure – in accordance with Law No. / O Lo al “elfGo e e t , A t. , the Ma o has the ight to Appro e the orga izatio al structure, the categories/classes of salaries for each civil service position and the basic statutes of the municipal administration, municipal budgetary units, and institutions o trolled the u i ipalit , i a orda e ith the appli a le la . In accordance with Art.54 (d) the Municipal Council has the right to Appro e the salar a d o us payment rates for employees and other persons, elected or appointed, in accordance ith the appli a le la . In Fier, a single payroll covers all 1300 employees. Appointments and promotions are controlled by the Human Resources Directorate (HRD), with appointments approved by the Mayor, and salary levels within the nationally prescribed range are approved by the Municipal Council. About 385 employees belong to the central city administration, and the rest to the five subordinated institutions. ii. personnel information files – all the information is organized, updated and stored by HRD exclusively. There have been no comprehensive internal audits of payroll, and the first is scheduled for 2016; iii. attendance list is prepared by each director monthly and is submitted to HRD; 71 iv. there is only one payroll prepared by the Finance Department based on the lists provided the HRD (validated and confirmed by the Finance Department). Calculations are made using simple excel sheets and payments are executed by the Treasury District Office as are all other transactions. Since there is full documentation of all changes to the payroll, and HRD has exclusive control over personnel records, the score for this dimension is B. PI-23.2 Management of payroll changes HRD updates the payroll monthly. Salary increases based on the acquisition of new qualifications are implemented from the day HRD are notified, and there have been no cases of retroactive adjustments. Score: A PI-23.3 Internal control of payroll The separate roles of HRD and the Finance Directorate ensure that personnel records and payroll data are reliably controlled, and only changed when properly authorised. Based on the legal framework, changes to personnel and payroll data require a number of checks from different bodies: the municipal council, the mayor, the HRD, the Finance Department, the directorate under which the employee is employed, and the (central government) Department of Public Administration for those employees vested with civil servant status. The authority to change personnel records is restricted to the HRD; whenever there is a change the process requires separate verification steps. The HRD is responsible for maintaining and archiving all personnel records, including salary levels. The payroll is prepared on the basis of the timesheets approved by all directorates who prepare their monthly timesheets for every employee and submit them to the HRD. The HRD consolidates timesheets and prepares the payroll that is then sent to the finance department. The finance department finalizes the payroll which is paid through the treasury with the previous clearance from the executing and authorizing officers. Score; B PI-23.4 Payroll audit High State Co t ol H“C hi h is Al a ia s “up e e Audit I stitutio audited the e pe ditu e of Fier in 2013 and 2014. The audit included substantive testing of elements of the payroll. HSC consider municipal payrolls relatively low risk, and did not find proble s. The it s Internal Audit Department is currently engaged in a series of payroll audits, beginning with the ate utilit hi h is to e i teg ated i to the it s udget e t ea . It p e iousl audited aspects of the staff management and payrolls of the former communes as they were integrated into the city. This work can be seen as partial payroll audits, sufficient for the score C. 72 PI PI-23 Indicator/Dimension Payroll controls (M1) Score C+ PI-23.1 Integration of payroll and personnel records B PI-23.2 Management of payroll changes A PI-23.3 Internal control of payroll B PI-23.4 Payroll audit C Justification for score Aggregation method (M1) Changes in the payroll are initiated by HRD on the basis of changes in personnel records, but there are no automatic links between them. The payroll is updated monthly on instructions from HRD. There have been no retroactive adjustments. Procedures in HRD and the Finance Directorate provide sufficient assurance of the integrity of personnel records and payroll data. ‘e e t audit o k H“C a d the it s Internal Audit Department constitute partial payroll audits. PI-24 Procurement This indicator examines key aspects of procurement management. It focuses on transparency of arrangements, emphasis on open and competitive procedures, monitoring of procurement results, and access to appeal and redress arrangements. The indicator covers municipal procurement operations only, assessed for the last completed fiscal year i.e. the fiscal year 2015. The indicator contains the following four dimensions and uses the M2 (AV) method for aggregating dimension scores:  Dimension 24.1. Procurement monitoring  Dimension 24.2. Procurement methods  Dimension 24.3. Public access to procurement information  Dimension 24.4. Procurement complaints management The procurement activity at national and sub-national level is regulated by Law No. 9643/2006 O Pu li Pro ure e t which has been amended almost 10 times. The procurement law is generally in conformity with EU standards (Procurement Directive 2004/18), and with stringent requirements for the publication of information, and there is provision for independent adjudication of procurement complaints. Open tendering should be the default method for large procurements, and some form of competition should be arranged unless there are special circumstances. Competing bids must all be registered through the on-line e-procurement system. There appears, however, to be limited public trust in the system, with criticisms that contracts may be fragmented in order to avoid tendering procedures, that specifications are distorted to favour particular bidders, and that there is unjustified use of contracts negotiated with a single supplier. 73 PI-24.1 Procurement monitoring In Fier a separate Directorate deals exclusively with procurement activity (with 5 employees). Municipalities are required by 20 January each year to send their procurement plans prepared consistently with recently approved budgets to the Public Procurement Agency (PPA), which publishes them on its website within 30 days from receiving it. They are also registered by the Treasury Office, which subsequently checks whether contracts registered and eventual payment instructions are consistent with the procurement plans. The it s P o u e e t Directorate keeps full records of all procurements of goods, services and works whatever the costs, and publishes all procurement opportunities, including low value procurements which do not require the full tendering procedure, on the PPA website. Subsequent contract awards are published in the same way. Municipalities are further required to submit a report on the p e ious ea s p o u e e ts to PPA Ja ua ea h ea . The s o e fo this di e sio is A. PI-24.2 Procurement methods Because of the shortage of funds for investment, relatively little procurement was undertaken by Fier in 2015. Nine contracts were let above the threshold requiring some degree of competition with a total value of 25.3 million ALL. A further 3.5 million ALL was spent on small purchases below the threshold. Since nearly 87.8 per cent of contracts by value in 2015 were placed in accordance with competitive procedures (requests for proposals, with a minimum of three bidders), the score for this dimension is A. PI-24.3 Public access to procurement information This dimension reviews the level of public access to complete, reliable, and timely procurement information at municipal level. It covers only procurement managed by the city. The score for this dimension depends on how many of the following elements are made available to the public: 1. Legal and regulatory framework for procurement - this is readily available from PPA website www.app.gov.al; 2. Municipality procurement plans - in principle available on PPA website (but this lacks any user-friendly search engine); 3. Bidding opportunities - available on PPA website (subject to the same qualification as (2); 4. Contract awards - available on PPA website, as for bidding opportunities; 5. Data on resolution of procurement complaints - published on the Public Procurement Commission (PPC) website, but again this lacks a user-friendly search engine; 6. Annual procurement statistics - not published. Since five of the six elements are published, score for this dimension is B. 74 PI-24.4 Procurement complaints management In this dimension the aim is to assess the existence and effectiveness of an independent administrative complaint–resolution mechanism for municipal procurements. According to the Albanian law, complaints must be registered with the Contracting Authority within seven days of the complainant becoming aware of the circumstances, and if there is no response within ten days may be submitted to the Public Procurement Commission (PPC). This suspends the procurement process unless the PPC rules otherwise. PPC should give a decision within 40 days, although it appears that this limit is exceeded in some 40 per cent of cases. A considerable number of cases are referred to the PPC; Fier alone has had four cases in 2016, one of which was determined in favour of the complainant who thereby secured a contract for which his bid had initially been rejected. Complainants must pay a fee of 0.5 per cent of the procurement amount, and possibly also other fees if the intervention is at an earlier stage in the procedure. The score for this dimension depends on how many of the following criteria for the operation of the PPC are satisfied: 1. The procurement complaints are reviewed by a body which is not involved in procurement transactions or in the process leading to contract awards decisions – satisfied; 2. The procurement complaints are reviewed by a body does not charge fees which prohibit access by concerned parties - not satisfied, since significant costs may be incurred by complainants; 3. The procurement complaints are reviewed by a body which follows processes for submission and resolution of complaints that are clearly defined and publicly available – satisfied; 4. The procurement complaints are reviewed by a body which exercises the authority to suspend the procurement process – satisfied; 5. The procurement complaints are reviewed by a body which issues decisions within the timeframe specified in the rules/regulations - not satisfied; 6. The procurement complaints are reviewed by a body which issues decisions that are binding on all parties (without precluding subsequent access to an external higher authority) - satisfied. 7. The procurement complaints are reviewed by a body which issues decisions that are binding on all parties (without precluding subsequent access to an external higher authority) - satisfied. Since the first criterion and three of the others are satisfied, the score for this dimension is B. 75 PI PI-24 Indicator/Dimension Procurement Score B+ PI-24.1 Procurement monitoring A PI-24.2 Procurement methods A PI-24.3 Public access to procurement information B PI-24.4 Procurement complaints management B Justification for score Aggregation method (M2) Full records are kept of all procurement contracts, including what is procured, the value, and the name of the successful contractor. Nearly 88 per cent by value of 2015 contracts were placed through the use of competitive procedures. Five of six elements of information are published. PPC satisfies the requirement for independence and three of the other five criteria. PI-25 Internal controls on non-salary expenditure This indicator measures the effectiveness of general internal controls for non - salary expenditures. Specific expenditure controls on public service salaries are considered in PI-23. This indicator contains the following three dimensions, scored at the time of assessment, and uses the M2 (AV) method for aggregating dimension scores:  Dimension 25.1. Segregation of duties  Dimension 25.2. Effectiveness of expenditure commitment controls  Dimension 25.3. Compliance with payment rules and procedures PI-25.1 Segregation of duties The La No. / O Fi a ial Ma age e t a d Co t ol distinguishes the responsibilities of the Authorising Officer and the Executing Officer, and prevents any single individual from being responsible for proposal, approval, execution, accounting and control of any commitment or transaction. The Law on the management of the budgetary system and Instructions of the Ministry of Finance ensure that there is appropriate segregation of duties. In Fier any proposal for expenditure will be initiated by the operational unit, and will require the consent of the Finance Director and the Mayor in the capacity of executing and authorizing officers. The operational unit will prepare plans and tender documents. The tendering process will be managed by the separate Procurement Directorate. The team evaluating bids is different from the team preparing the procurement documents. Any contract will require the approval of the Mayor, who is the chief Authorising Officer. Payment will be the responsibility of the operational unit, the finance directorate, authorising officer and treasury district officials. Accounting and reporting is the responsibility of the operational unit and the finance department. The signatures of both authorising and executing officers are required for any commitment or payment instruction. Since these arrangements function satisfactorily in the context of a (relatively small) city administration, although some standing 76 instructions may need updating following the municipal reorganisation, the score for this dimension is B. PI-25.2 Effectiveness of expenditure commitment controls Expenditure commitment controls apply to all expenditure other than on the employment of staff and the payment of benefits where administration has been delegated to the municipality. Procurement plans have to be registered with the Treasury system at the beginning of each year as well as with the PPA. Treasury confirmation of the availability of funds is required under the Organic Budget Law (OBL) before any tendering process (for a one year or multiyear contract) is launched. Thereafter contracts have to be registered when placed, and would be rejected if incompatible with the plan, with the provision on the relevant line in the approved budget, or with the cash flow projection, all of which are already in the system. However, as municipalities do not regularly update projected budget and cash availability (to which commitment limits are linked) following the actual revenue collection performance, there are risks of incurring expenditure arrears, score for this dimension is C. PI-25.3 Compliance with payment rules and procedures All payments are made after checks and procedures from the operational unit, the finance department, the authorising officer and the Treasury System, ensuring that any errors are eliminated before payments are made. There was no sign of any payments being made without complying with regular procedures. Score: A PI PI-25 Indicator/Dimension Internal controls on nonsalary expenditure Score B PI-25.1 Segregation of duties B PI-25.2 Effectiveness of expenditure commitment controls C PI-25.3 Compliance with payment rules and procedures A Justification for score Aggregation Method M2. Appropriately provided for in accordance with the law on Financial Management and Control, although some local instructions may need review following the municipal reorganisation. Controls are in place and limit commitments to projected cash availability and approved budget provision, but the latter are not updated to reflect actual revenue performance. The Treasury system ensures that all payments are in accordance with established rules and procedures. 77 PI-26 Internal audit This indicator assesses the standards and procedures applied in internal audit function. It covers all entities of the Municipality. It contains the following four dimensions and uses the M1 (WL) method for aggregating dimension scores:  Dimension 26.1. Coverage of internal audit (as at time of assessment);  Dimension 26.2. Nature of audits and standards applied (as at time of assessment);  Dimension 26.3. Implementation of internal audits and reporting (last 12 months budget cycle);  Dimension 26.4. Response to internal audits (audit reports issued during the last 3 years). I te al audit IA i Al a ia is ased o the La No. / O I te al Auditi g i the Pu li “e to hi h i t odu ed some further refinements as compared with the previous e sio La No. / O I te al Audit i the Pu li “e to . The la e ui es that IA meets international standards in terms of professional independence of the structures, sufficient access to information and power to report (breadth of mandate), and use of professional audit methods (including risk assessment techniques). Work should be focused on systemic issues related to the reliability and integrity of financial and operational information, the efficiency and effectiveness of operations, the safeguarding of assets, and compliance with laws, regulations and contracts. The head of the IA unit should report directly to the Mayor, and (since 2015) work should be overseen by an independent Audit Committee (this latter requirement introduced with Law No. 114/2015 appears not yet to be operational). An annual report on IA activities should be made to the Central Harmonisation Unit7 at the Ministry of Finance. PI-26.1 Coverage of internal audit In Fie i te al auditi g has ee ope atio al th oughout the it s u its, i ludi g the fo e communes newly integrated into the city in 2015. A particular concern has been to ensure the o e t ess of the fo e o u es losi g fi a ial state e ts. The municipal reorganisation and the election of a new Mayor required a revision of the audit plan. Seven of ten planned audits were carried out, with two of the remainder undertaken by HSC. The unit has three qualified staff, and considers that two further auditors are needed to achieve sufficient coverage of the enlarged municipality: the Mayor has agreed to appoint one additional auditor. The unit considers that it needs new capacity in order to be able to audit IT-based systems, particularly the operation of e-procurement, in order to achieve internal audit and management objectives. Because of the change of the audit plan from the territorial reorganization, in 2015 audits were conducted in entities that covered only 50% of revenues 7 http://www.financa.gov.al/en/the-ministry/departments/general-regulatory-and-controllingdepartment/joint-reports-for-chu-fmc-and-chu-ia 78 and expenditures of the municipality. Given that audit coverage is incomplete, the score for this dimension is C. PI-26.2 Nature of audit and standards applied In Fier work is carried out in accordance with professional standards, with particular attention given to the operation of internal controls in high risk areas such as the circumstances of the i teg atio of i e o u es i to the it s ad i ist atio . It is diffi ult to o ga ise a full effective quality assurance process in the context of a relatively small municipal operation. Audit activities focused on financial compliance and effectiveness of internal controls. Recommendations have been provided to develop and improve the internal regulations of audited entities. On the four communes it was mostly financial compliance audit with recommendations to improve accounting and financial reporting. Proposed score for this dimension is B. PI-26.3 Implementation of internal audits and reporting There is an annual audit plan, which may be amended when there is a change of Mayor. Most planned audits were completed in 2015 (with two taken over by HSC). Reports are sent to the audited entity before submission to the Mayor, and also submitted to the Central Harmonisation Unit at MoF. There appears to be good cooperation with HSC, although that body does not automatically receive copies of reports. Score: B PI-26.4 Response to internal audit IA units are responsible also for monitoring the implementation of their recommendations. According to the head of the IA unit, they have provided about 31 recommendations and appropriate responses have been made to 20 of them within six months of the report being produced whereas the other 11 are under implementation. However, some identified deficiencies (absence of job descriptions, inadequate personnel records in the former communes) may take time to remedy. The score for this dimension is B. PI PI-26 Indicator/Dimension Internal audit Score C+ PI-26.1 Coverage of internal audit C PI-26.2 Nature of audits and standards applied B Justification for score Aggregation Method M1 IA is ope atio al i all the it s departments, but coverage in 2015 was limited. Resources need to be increased to take account of the enlarged field following the municipal reorganisation. Audit meets professional standards and is focused on the operation of systems in high risk areas. 79 PI-26.3 Implementation of internal audits and reporting B PI-26.4 Response to internal audit B Most planned audits are completed, with reports sent to audited units before submission to the Mayor. Most recommendations are appropriately addressed by responsible managers. 3.7 Pillar 6. Accounting and Reporting PI-27 Financial data integrity This indicator assesses the extent to which treasury bank accounts, suspense accounts, and advance accounts are regularly reconciled and how the processes in place support the integrity of financial data. It contains the following four dimensions and uses the M2 (AV) method for aggregating dimension scores:  Dimension 27.1. Bank account reconciliation (as at time of assessment and for the previous 12 months)  Dimension 27.2. Suspense accounts (as at time of assessment and for the previous 12 months)  Dimension 27.3. Advance accounts (as at time of assessment and for the previous 12 months)  Dimension 27.4. Financial data integrity processes (as at time of assessment) PI-27.1 Bank account reconciliation This dimension evaluates the timeliness and regularity of the reconciliation of bank accounts under municipal control (where these are managed by the municipal treasury or its e ui ale t . Based o the i fo atio p o ided Fie offi ials, all the it s e e ue a d expenditure pass through its accounts in the Treasury system, and there are monthly (discrete and progressive) and annual reconciliations in aggregate and in detail at the 7 digit-level for revenues and 3 digits for expenditures (following economic, administrative and functional classification) between city and Treasury records. The score for this indicator is B. PI-27.2 Suspense accounts This dimension evaluates the timeliness and regularity of the reconciliation and clearance of suspense accounts under municipal control. Suspense accounts are used temporarily to register revenues not yet classified. In the case Fier, revenues received through the banking system include the identity of the payer, but not always the nature of the payment, which has to be reconciled manually o a o thl asis ith i fo atio held the it s e e ue Directorate. Score: A PI-27.3 Advance accounts 80 No use is made of advance accounts, thus the score for this dimension is Not Applicable. PI-27.4 Financial data integrity processes The execution of all transactions through the Treasury system provides a substantial measure of security for these operations. But the execution of many operations through stand-alone IT systems (e.g. revenue and procurement) which are not consistently linked to the Treasury system and to which access is not fully controlled, represents a significant risk. Action is now being taken address this, for example by insisting on the retention of hard copies of revenue receipts to ensure the maintenance of an audit trail for these operations. The score for this dimension is D. PI PI-27 PI-27.1 Indicator/Dimension Financial data integrity Bank account reconciliations Score B B PI-27.2 Suspense accounts A PI-27.3 Advance accounts NA PI-27.4 Financial data integrity processes D Justification for score Aggregation Method M2 There are monthly reconciliations between city and Treasury records. There are monthly reconciliations between Treasury and revenue Directorate records of individual payments. No use is made of advance accounts. Many operations are carried out through unlinked IT systems to which access is not restricted, and which do not ensure adequate audit trails. PI-28 In-year budget reports This indicator assesses the comprehensiveness, accuracy and timeliness of information on budget execution. In-year budget reports must be consistent with budget coverage and classifications to allow monitoring of budget performance and, if necessary, timely use of corrective measures. This indicator contains the following three dimensions, assessed on the basis of the last 12 months budget cycle, and uses the M1 (WL) method for aggregating dimension scores:  Dimension 28.1 Coverage and comparability of reports  Dimension 28.2 Timing of in-year budget reports  Dimension 28.3 Accuracy of in-year budget reports PI-28.1 Coverage and comparability of reports Monthly reports are made of budget execution prepared by the administration and sent for information to the mayor. These reports are shared also with the Prefect. When asked they are shared also with the municipal council. The reports are made with the same breakdown by administrative unit, economic and functional classification as in the revised budget which follows the same structure as the original budget. Quarterly and half-yearly reports are 81 prepared and shared with the Council. The reports are also shared on a quarterly basis with the deconcentrated structures of INSTAT. Score: A PI-28.2 Timing of in-year budget reports Reports are produced within 5 working days of the end of each month. Score: A PI-28.3 Accuracy of in-year budget reports In year budget reports cover only payments and not commitments, and do not include analysis of changes from the budget originally foreseen but instead from the revised budget. Information regarding payment stages, revisions and re-allocation among budget programs are not included in the document. The reliance on unlinked systems (see PI-27.4) undermines the quality of some of the data. Score: C PI PI-28 Indicator/Dimension In-year budget reports Score C+ PI-28.1 Coverage and comparability of reports A PI-28.2 Timing of in-year reports A PI-28.3 Accuracy of in-year budget reports C Justification for score Aggregation Method M1 Reports are produced with the same breakdown by administrative unit and economic nature as the original budget. Reports are produced within 5 working days of the end of each month. Payments only are covered, not commitments. There are serious concerns about data accuracy. PI-29 Annual financial reports This indicator assesses the extent to which annual financial statements are complete, timely, and consistent with generally accepted accounting principles and standards. This is crucial for accountability and transparency in the PFM system. It contains the following three dimensions and uses the M1 (WL) method for aggregating dimension scores:  Dimension 29.1 Completeness of annual financial reports (for last completed fiscal year);  Dimension 29.2 Submission of reports for external audit (last annual report submitted for audit);  Di e sio . A ou ti g sta da ds last th ee ea s fi a ial epo ts . PI-29.1 Completeness of annual financial reports (M1) Law No. / O Lo al “elf-Go e e t , A t. o the A ual ‘epo t p o ides that: The head of the lo al self-government unit shall be responsible for submitting to the council an annual written report about the financial activity and the implementation of the budget in the local self-government unit and the subordinate institutions thereof. Such report shall be su itted to the ou il o later tha Mar h 1 of the su eedi g ear. Annual financial 82 reports are made i a o da e ith the MoF s “ta da d I st u tio s o Budget E e utio (2012), and include information on operating revenue and expenditure, cash balances, debt and short-term liabilities8. The reports should follow the same format as the original budget, ut o pa iso s a e o l gi e ith the p e ious ea s out-turn. They include a cash flow statement, assets, liabilities, changes in assets, depreciation, revenues and expenses, cash flow and a table showing the fund utilization that shows funds to be carried over the coming fiscal year; payment arrears and tax arrears, including a list of all non-compliant taxpayers and a list of creditors to whom the municipality owes any amount. Because no comparison is provided between the out-turn and the original budget, the score for this dimension is D. PI-29.2 Submission of reports for external audit There is no legal obligation in Albania to have an annual audit of financial statements by an external auditor. Audits by HSC have generally been undertaken every second year; the 2015 audit covered expenditure in 2013 and 2014 and looked at the functioning of systems as well as at compliance with applicable laws and regulations. But while it cannot be considered a formal audit of financial statements, the HSC reviews and comments on them in the course of its work. The score for this dimension is D. PI-29.3 Accounting standards Reports are produced in accordance with national accounting standards9, which are disclosed and ensure comparability from one year to the next. But the standards are not in conformity with International Public Sector Accounting Standards (IPSAS), and differences are not explained. The score for this dimension is C. PI PI29 Indicator/Dimension Annual financial reports Score Justification for score D+ Aggregation Method M1 Completeness of PIannual financial 29.1 reports D Financial reports are prepared annually, and include a cash flow statement. But they do not provide for a comparison between the actual outturn and the originally approved budget. Information about financial assets and liabilities is incomplete. PISubmission of reports 29.2 for external audit D Reports are not submitted for external audit. PIAccounting standards 29.3 C Standards are disclosed, and applied consistently from year to year. But they are not consistent with IPSAS, and differences are not explained. Law No. 9928/2004, Art. 12 (Components of Financial statements) require that, “u je t to a e eptio s or exemptions specified in national accounting standards, the financial statements of an entity shall include the following documents: (i) balance sheet, (ii) income statement, (iii) statement of changes in equity, (iv) cash flow statement, and (v) Notes to financial statements, containing disclosure of accounting policies, as well as other explanatory material. 9 La No. / O A ou ti g a d Fi a ial “tate e ts . 8 83 3.8 Pillar 7. External Scrutiny and Audit PI-30 External audit This indicator examines the characteristics of external audit. It contains four dimensions, covers all municipal government operations, and uses the M1 (WL) method for aggregating dimension scores:  Dimension 30.1 Audit coverage and standards (last three completed fiscal years);  Dimension 30.2 Submission of audit reports to the legislature (last three completed fiscal years);  Dimension 30.3 External audit follow-up (last three completed fiscal years);  Dimension 30.4 Supreme Audit Institution independence (as at time of assessment). PI-30.1 Audit coverage and standards The audit coverage and standards dimension refers to financial reports of the subnational budgetary and extra budgetary institutions. The High State Control (HSC, the Supreme Audit Institution) has a section of 25 auditors devoted to the audit of local governments. The Municipality of Fier has been audited every two years, with the most recent audit in 2015 reviewing revenue and expenditure in 2013 and 2014. The work included both compliance audit (testing transactions for compliance with applicable laws and regulations) and aspects of the performance of systems (notably the poor performance of the revenue department in collecting outstanding amounts of property taxes and fees). But it has not hitherto included the provision of an Opinion on the annual financial statements, although reports make comments on these. HSC makes recommendations for improving the way in which the legal framework is applied, for making the administration more efficient, and for recovering the economic damage resulting from administrative and other errors. It follows up the extent to which its recommendations have been implemented as the first stage of its next audit. Since the audit covered both 2013 and 2014, it can be considered that audit coverage exceeded 50 per cent for the period 2013-15, resulting in the score C. PI-30.2 Submission of reports to the Municipal Council Audit Reports for the Municipality of Fier have not been submitted to the Municipal Council, so the score for this dimension is D. PI-30.3 External audit follow-up It is up to the Mayor and the city administration to follow up the HSC recommendations, although they are published on the HSC website. In the course of its 2015 audit, HSC found 84 cases where the recommendations of its previous audit had not been implemented; the necessary action should have been taken by June 2016. (The city administration noted that the H“C s e o e datio s did ot take i to a ou t the it s li ited esou es fo thei i ple e tatio ; fo e a ple, the e o e datio to egiste all the it s p ope t in the national register, in order to facilitate their exploitation, could only be achieved over a number of years, given the costs and administrative procedures required.) Since it appears that the municipality makes some response to the audit recommendations, and implements some of them, the score for this dimension is C. PI-30.4 HSC independence HSC operates independently from the central government in the conduct of its work and the execution of its budget (mandate and organization are established and protected by the Constitution of the Republic of Albania). The head of HSC is appointed by the National Assembly on the proposal by the President of the Republic for a 7-year term. Although the audit la p o ides fo H“C s udget to e set the Natio al Assembly, in practice HSC is constrained within expenditure ceilings set by the Government. HSC has unrestricted access to records and information. Score: C PI PI-30 PI-30.1 Indicator/Dimension External audit Audit coverage and standards Score D+ C PI-30.2 Submission of audit reports to the legislature D PI-30.3 External audit follow-up C PI-30.4 Supreme Audit Institution independence C Justification for score Aggregation Method M1 Audit coverage exceeds 50%, and international standards are observed. H“C s audit epo ts of the Municipality of Fier are not submitted to the Municipal Council. A formal response was made by the executive or the audited entity on audits for which follow up was expected, during the last three completed fiscal years. The HSC has its functional and operational independence, and its Head is appointed for a 7-year term by the National Assembly on the proposal of the President of the Republic. It has unrestricted and timely access to records, documentation and information, but its budget is constrained within expenditure ceilings set by the Government. 85 PI-31 Legislative scrutiny of audit reports This indicator focuses on local legislative scrutiny of the audited financial reports of the municipality, including institutional units, to the extent that either (a) they are required by law to submit audit reports to the Council or (b) their parent or controlling unit must answer questions and take action on their behalf. It has the following four dimensions, which are assessed on the last three completed fiscal years, and uses the M2 (AV) method for aggregating dimension scores:  Dimension 31.1 Timing of audit report scrutiny;  Dimension 31.2 Hearings on audit findings;  Dimension 31.3 Recommendations on audit by legislature;  Dimension 31.4 Transparency of legislative scrutiny of audit reports; PI-31.1 Timing of audit report scrutiny Audit reports have not been submitted to the Municipal Council by the Mayor, and the Municipal Council has taken no initiative to discuss them, although the recommendations are published on the HSC website. This is a matter of regret for HSC. Score: D PI-31.2 Hearings on audit findings Since the reports have not been submitted to or discussed by the Municipal Council, there has been no question of hearings to consider audit findings. Score: NA PI-31.3 Recommendations on audit by the legislature Since the Municipal Council has not considered the reports, the question of recommendations in the light of them does not arise. Score: NA PI-31.4 Transparency of legislative scrutiny of audit reports While the public are admitted to Municipal Council meetings where the budget or the budget execution report are discussed, there have been no occasions when the Municipal Council discussed audit reports, so again the dimension is Not Applicable. PI PI-31 Indicator/Dimension Council scrutiny of audit reports PI-31.1 Timing of audit report scrutiny PI-31.2 Hearings on audit findings Recommendations on audit by PI-31.3 the Council Transparency of Council scrutiny PI-31.4 of audit reports Score Justification for score D Aggregation Method M2 The Council has not discussed any D audit reports. NA No hearings have taken place. The Council has not discussed any NA audit reports. NA There has been no scrutiny. 86 Chapter 4 Conclusions on the analysis of PFM systems 4.1 Integrated analysis of PFM performance The findings from the assessments of each Indicator are summarised in terms of each of the seven pillars of the PFM performance measurement framework. 4.1.1 Reliability of the Budget Because much of the funding from central government is not notified to the municipality before the budget for the following year has to be set, original budgets give an incomplete pi tu e of the u i ipalit s ope atio s (PI-1). Nevertheless broadly consistent figures have been compiled for original budgets and out-turns linked to them broken down by administrative, functional and economic classifications, so enabling variance calculations to be made (PI-2.1 and 2.2). Expenditure net of conditional grants was well below plan each year, reflecting the fact that own revenues fell substantially short (PIs 1 and 3). There were substantial variances in revenue collection, mainly reflecting deviations from forecasts of amounts of infrastructure impact tax, the small business tax, local service fees, and other revenues. Once determined, amounts of central government grants, conditional and unconditional, were in the main actually paid according to a predetermined schedule (HLG1). Very little expenditure was charged to contingency and reserve funds, so the functional allocation of the expenditure out-turn should be reliable. 4.1.2 Transparency of public finances 3. The Treasury system through which all municipal revenue and expenditure pass should contain enough information about each transaction to make possible consistent comparisons of budget and out-turn by reference to administrative, economic and functional (the 10 main COFOG functions) classifications. But neither municipal nor Treasury sources retain the necessary information in a way which makes such comparisons readily accessible (PI-4). The budget information presented to the Council is fairly comprehensive (PI-5), but the information available to the general public (PI-9) is incomplete. Conditional grants excluded f o the u i ipalit s o igi al udgets a d e pe ditu e fi a ed f o the a e full reported (PI-6). No standards have been set for the delivery of public services, and there has been no consistent reporting on actual service delivery; no independent reports have been made about public service performance (PI-8). Apart from the water utility there are no ope atio s u de the it s o t ol hi h a e ot epo ted as pa t of the udget PI-6), and no subordinate government units (PI-7). 87 4.1.3 Management of assets and liabilities Fie has e ei ed p o pt audit epo ts f o the ate utilit it o s. The it s Fi a e Director sits on the management board of the utility, whose operations are to be integrated into the city budget for 2017. The city has no shareholdings in other industrial or commercial enterprises (PI-10, PI-12). The city has a Strategic Development Plan within which it plans its infrastructure investment projects, and has appropriate arrangements for the preparation and execution of projects, but project selection is in practice dependant on the central government through the Regional Development Fund outside the it s udget p o ess PI11). Fier has a register of the land and buildings it owns, but there is no recent valuation of the assets, and they are not recorded in the national property register in the way needed for their most effective exploitation. Asset disposals require the approval of the Council, and are done by public auction (PI-12). Apart from expenditure arrears, the city currently has no debts, although the sewage works currently being undertaken by the water utility are financed by an external loan channelled through the central government; for the time being the question of debt management does not arise (PI-13). 4.1.4 Policy-based fiscal strategy and budgeting In Albania municipal budget planning lacks substance because a substantial part of the budget is determined by central government through the Regional Development Fund, and cannot be planned locally. That said, aggregate forecasts of those elements of revenue and expenditure which can be predicted by the city, together with the budget balance, are produced for the three years ahead (PI-14.2). There are also detailed medium-term projections of revenue and expenditure allowing for any local initiatives in terms of tax or fee rates, and any clear decisions about future current expenditure on the services which can be financed from own revenues and unconditional grants (PI-15.1 and 16.1). The provision of medium-term projections of balanced budgets represents a sort of fiscal strategy (PI-15.2), but there has been no analysis of the reasons for changes between one year and the next (PI15.3). The formal processes to produce medium-term revenue and expenditure projections are undertaken, but because of the impossibility of overall budget planning the results have little foundation in reality (PI-16). Budget preparation is orderly, so far as it goes, although the officials concerned may have less than 4 weeks between receipt of the final budget Circular and the deadline for submissions (PI-17). The Cou il s p o edu es are sufficiently established, and the budget normally approved before the beginning of the year to which it relates (PI-18). 4.1.5 Predictability and control in budget execution Own revenue-raising is seriously deficient. There is inadequate control over amounts owing, particularly by households, and considerable uncertainty about registries of property and 88 taxpayers (PI-19). The refusal by the national registry of property to exchange information with municipal revenue departments constitutes an important obstacle to the compilation of full records of property which should be liable to tax. Aggregate revenues are reported and reconciled monthly. But there are no automatic reconciliations at the level of the individual tax- or fee-payer through municipal IT systems and the Treasury System (PI-20). All cash ala es a e o solidated i the it s a ou t i the T easu s ste , a d a cash flow forecast is made at the beginning of the year and updated to take account of receipts of conditional grants (but not reviewed in the light of actual revenue performance). City departments in principle ha e th ee o ths oti e of ash a aila ility, in line with the scheduled receipt of central government grants, but revenue shortfalls undermine these expectations. Budgets are amended to take account of some but not all such grants (PI-21). There are significant expenditure arrears following the municipal reorganisation; the city has their amounts and ages, but some are inadequately documented (PI-22). Payroll controls appear adequate, with changes to the payroll made only when authorised by the Human Resources Directorate, and monthly updating avoiding any need for retroactive adjustments. The external auditor (High State Control) considers payroll control systems to be relatively strong, although audit coverage has been relatively limited (PI-23). The centrally prescribed aspects of the procurement system appear satisfactory (PI-24) and contracts are let by competition. The law on Financial Management and Control and the actual division of responsibilities in the municipal administration should ensure sufficient segregation of duties, with the signatures of both authorising and executing officers required for all commitments and payments. As to commitments, the requirement to register procurement plans and contracts in the Treasury system should prevent the future accumulation of expenditure arrears, and there are no signs of irregularity in the actual payment process (PI-25). Internal audit has been functioning effectively, although it needs more resources to respond to the new situation consequent on the absorption of nine former communes into the city (PI-26). 4.1.6 Accounting and reporting 8. Bank reconciliations are made daily and monthly, and revenue suspense accounts cleared monthly. But the reliance on unlinked electronic systems without consistent controls over access to the systems implies a serious risk to the quality of financial data (PI-27). In-year budget executions reports are made monthly, but the reports cover payments only, and not commitments (PI-28). Annual financial reports provide only limited information, and do not include a comparison with the original budget for the year in question. The reports are not submitted for external audit each year; while accounting standards are consistent from year to year, divergences from international standards are not explained (PI-29). 89 4.1.7 External scrutiny and audit . The it s a ual fi a ial epo ts ha e ot ee audited ea h ea High “tate Co t ol H“C o a othe e te al audito . The H“C s biennal reports which are published on the HSC website, have not been submitted to, or reviewed by, the Council, although responses are made to some of the recommendations by the city administration. 4.2 Effectiveness of the internal control framework The internal control system should contribute towards four objectives: (i) the execution of operations in an orderly, ethical, economical, efficient and effective manner; (ii) fulfilment of accountability obligations; (iii) compliance with applicable laws and regulations; and (iv) safeguarding of resources against loss, misuse and damage. The analysis of the performance of the internal control system looks at the five internal control components: (1) the control environment; (2) risk assessment; (3) control activities; (iv) information and communication; and (5) monitoring. Annex 2 sets out specific observations relevant to the performance of internal controls. The control environment depends on the legal and regulatory framework, and the way it is applied in practice. The Organic Budget Law (2008 as updated in June 2016), the law on Financial Management and Control (2010) and the High State Control law (2015) set out the overall framework for internal control across government. Specific laws on public procurement (2006) and internal audit (2015) apply across central and local government, hile u i ipalities a ti ities a e egulated the la o Lo al “elf Go e e t , the law on the System of Local Taxes (2006) and the law on Local Government Borrowing (2008). In the local government context the performance of the municipality will depend on the integrity of the management and staff, the management style of the organisation, the organisational structure (including appropriate segregation of duties and reporting arrangements), the management of human resources, and the professional skills of the staff. It is the responsibility of the Mayor to set the tone of the municipal organisation, and to adopt a strategy to minimise the risks of damage to the provision of good services. The main risks faced by Fier are that revenue from the Municipality own taxes and fees will not be collected, that expected revenue-producing developments will not take place, and that procurements will not secure best value. A continued focus on maximising local revenues will be important in sustaining the local services which are the responsibility of the municipality. The internal controls within the municipal administration appear to work reasonably well. Internal audit functions effectively, although more resources are required to meet the challenges posed by the integration of nine communes into the city. External audit has 90 provided regular reports on compliance with applicable laws and regulations, although this has not covered the annual financial statements. The municipal website contains some information about the municipality s fi a ial management, although there remain important gaps in what is published. The problems for medium-te pla i g esulti g f o the e t al go e e t s failu e to p o ide fu ds o a predictable basis beyond the current year cannot be resolved by any action by the municipality. Little attention has so far been paid to monitoring the performance of the municipal service delivery. 4.3 PFM strengths and weaknesses 4.3.1 Aggregate financial discipline 15. The restraints on borrowing, and the requirement to balance the budget mean that the risks of uncontrolled overspending are low. Overoptimistic budget forecasts coupled with the i diffe e t pe fo a e of the it s o e e ue olle tio esults i possi le eeds to ut back on normal service delivery in order to avoid expenditure arrears. 4.3.2 Strategic allocation of resources 16. Although the Municipality of Fier has a strategic development plan within which it seeks to plan the investments necessary for its economic and social development, the absence of any assured funding for investment from central government largely prevents the municipality from implementing any medium-term prioritising its allocation of resources. A more predictable basis for the distribution of central government funds is needed, which would enable the Fier municipality to manage improvements in its infrastructure more efficiently. At the same time increased attention would need to be paid to the planning of investments, so as to ensure that priority was given to projects which yield the greatest economic and social benefit from available funding. The nationally imposed limit on the potential revenues from annual property taxes, even if all such revenues could actually be collected, restricts the range and level of services the municipality can provide. 4.3.3 Efficient use of resources for service delivery 17. The recent municipal reorganisation presents a challenge to all the new municipalities to adapt their organisations so as to provide services efficiently throughout their enlarged territories. This is only likely to be achieved over a period of time, and will be constrained by the availability of staff with the necessary qualifications and experience. Much of the recent activity of the municipality s i te al audit u it has had to e de oted to e su i g the e is a sound basis for future financial reporting, taking into account the closure of the books of the former communes now integrated into the city. Recent changes in the responsibilities 91 allocated to municipalities for the delivery of particular services represent a further challenge to the municipal organisation. The continuing shortage of resources resulting from the limited potential of local revenue sources, and limits on unconditional grants, constitute a spur to making the best of a difficult situation; but living from hand to mouth is not really compatible with longer term efficient planning. Criticisms by HSC of the fragmentation of contracts and the inadequacies of technical specifications suggest that best value may not be achieved. Little attention has so far been paid to establishing and reporting on the standards of services to be delivered. 92 Chapter 5 Government PFM reform process 5.1 Approach to PFM reform In Albania, the Ministry of Finance takes the lead in seeking improvements in PFM, notably through the institution of medium-term fiscal planning throughout central and local government, and through the development of Public Internal Financial Control (PIFC) to the sta da ds e ui ed fo e e ship of the Eu opea U io . The Go e e t s De e e 2014 PFM Strategy looked to achieve a prudent macroeconomic framework in which expenditure arrears would be paid off and the public debt/GDP on a downward trend; effective commitment controls as part of an enhanced financial control system which also includes well-functioning internal audit; effective medium-term fiscal planning; improvements in revenue collection and public procurement; and increased transparency combined with better accountability mechanisms. Although these improvements mainly look to the central government, in principle they apply also at the municipal level. So far as initiatives at municipal level are concerned, the 2015 territorial reorganisation was followed by the December 2015 new law on Local Self-Government which specifies the (enlarged) functions and competences of the reconstituted municipalities. MoF is currently (December 2016) working on a new law on Local Finances which will (1) strengthen financial discipline and regularise budget planning and internal control procedures; (2) fix the formula governing the distribution of unconditional grants, and determine other aspects of relations between central and municipal governments; (3) establish criteria for the management of current and capital expenditure, also covering accountability and transparency; and (4) prescribe the role of MoF. Meanwhile municipalities are required to report annually to the Central Harmonisation Unit at MoF on their performance in terms of internal financial control and internal audit. 5.2 Institutional considerations As is clear from the preceding analysis, improvements in the PFM performance of Albanian municipalities are crucially dependent on expanding municipal revenue sources and establishing arrangements for the predictable flow of central government grants (conditional and unconditional) to municipalities, so that they are enabled to make realistic medium-term fiscal plans covering their investment as well as their current expenditures. 93 Annex 1. Performance Indicator Summary PI HLG-1 Indicator/Dimension Predictability of transfers from Higher Level Government (M1) Score Justification for score HLG-1.1 Difference between planned and actual transfers B HLG-1.2 Grant composition variance C HLG-1.3 In-year timeliness of transfers from central government A PI-1 Aggregate expenditure outturn (M1) D C+ Unconditional transfers were paid in full, but the full amounts of conditional transfers were not paid. Variance in conditional transfers was more than 5% in two of the three years 2013-15. A quarterly disbursement plan for unconditional grants is prepared by MoF, and implemented as scheduled. Delays in the payment of shared taxes and conditional grants were of minor significance. Actual expenditure fell more than 15% short of budget In each of the three years 20132015. PI-3 Expenditure composition out-turn (M1) Expenditure composition outturn by function Expenditure composition by economic classification Expenditure from contingency reserves Revenue out-turn PI-3.1 Aggregate revenue out-turn D PI-3.2 Revenue composition outturn D PI-4 Budget classification (M1) C PI-5 Budget documentation (M1) B PI-6 Operations outside financial reports (M2) A Scoring Method M2 PI-6.1 Expenditure outside financial reports A All expenditure, including conditional grants not included in the original budget, is fully reported. PI-2 PI-2.1 PI-2.2 PI-2.3 D+ D D A D The variance was less than 15% in only one of the three years 2013-15. The variances were more than 15% in all three years. The average amount charged to contingency was 0.67% of total expenditure in 2013-15 Aggregation Method M2 Own source revenue was less than 92% of budget in all three years 2013-15. Despite the facts that data for 2013 - 2014 represent the pre-TAR municipality and that 2015 data is not completely comparable due to TAR, the differences are so significant that a score can be assigned with confidence. Variance in revenue composition exceeded 15% in all three years 2013-15. The 2015 budget classifications and Chart of Accounts are based on economic and administrative classification but consistent comparisons between budget and out-turn require additional efforts. Four basic elements, and five others, are satisfied. 94 All revenue, including amounts of conditional grants excluded from the original budget, is fully reported. PI-6.2 Revenue outside financial reports A PI-6.3 Financial reports of extrabudgetary units NA There are no extra-budgetary units PI-7 Transfers to lower tier governments (M2) NA Since there are no government units subordinate to the city of Fier, this Indicator is Not Applicable. D+ Aggregation Method M2 PI-8 PI-8.1 PI-8.2 PI-8.3 PI-8.4 Performance information for service delivery Performance plans for service delivery Performance achieved for service delivery Resources received by Service delivery units (SDUs) Performance evaluation for service delivery D D B D PI-9 Public access to fiscal information (M1) D PI-10 Fiscal risk reporting A PI-10.1 Monitoring of public corporations A PI-10.2 Monitoring of subordinate governments No plans are published at any frequency about the levels of service to be provided. Reporting of service levels achieved against targets is not yet established. Reports have been produced about resources received by individual SDUs. No reports have been produced about the resources received by individual SDUs. Only one out of the five applicable basic elements are satisfied. Aggregation Method M2 The water utility has submitted audited annual financial reports within 6 months of year-end. NA Not applicable at municipal level PI-10.3 Contingent liabilities and other fiscal risks NA Fier has not guaranteed any borrowing by subordinate institutions, or participated in any PPP operations. PI-11 Public investment management D+ Aggregation Method M2 PI-11.2 Economic analysis of investment proposals C PI-11.2 Investment project selection C PI-11.3 Investment project costing D PI-11.4 Investment project monitoring C PI-12 Public asset management C PI-12.1 Financial asset management D Projects are put forward to central government taking into account some analysis of the costs and the likely beneficiaries. Prior to their inclusion in the budget, some of the major investment projects are prioritized by a central entity. Most projects are selected by central government through the RDF. Decisions on project implementation are generally taken after municipal budgets have been set, with no information in budget documentation about the total capital costs of projects. Project implementation is regularly monitored by the Public Works Directorate, but the reports are not published. Aggregation Method M2 Data in the unpublished financial statements about revenue arrears is very uncertain. 95 PI-12.2 Non-financial asset management C PI-12.3 Transparency of asset disposal B PI-13 PI-13.1 PI-13.2 PI-13.3 PI-14 Debt management Debt recording and reporting Approval of debt and guarantees Debt management strategy Macro-economic and fiscal forecasting PI-14.1 Macroeconomic forecasts PI-14.2 Fiscal forecasts PI-14.3 PI-15 Macro-fiscal sensitivity analysis Fiscal strategy There is a register of fixed assets, but it is not published. There are procedures regulating asset disposals, and reports contain partial information on disposals. A NA Fier has not contracted any debts A All borrowing is controlled by MoF NU B NU B Excluded by terms of reference Aggregation Method M2 Excluded by the terms of reference for the assessment. The city administration prepares forecasts of the main fiscal indicators, including underlying assumptions, revenues (by type), aggregate expenditure, and the budget balance, for the budget year and two following fiscal years. These projections are submitted to the Council and published, but there are no explanations of differences from previous projections. NU As 14.1 B+ Aggregation Method M2 MTBF includes estimates of revenue and expenditure, taking account of any changes in policy. But most investment is excluded. Balanced budgets represent a kind of fiscal strategy. But there are no qualitative objectives associated with it. No explanations have been given for diffe e es et ee o e ea s MTBF a d that for the following year. PI-15.1 Fiscal impact of policy proposals A PI-15.2 Fiscal strategy adoption B PI-15.3 Reporting on fiscal outcomes D PI-16 Medium-term perspective in expenditure budgeting B PI-16.1 Medium-term expenditure estimates B PI-16.2 Medium-term expenditure ceilings A PI-16.3 Alignment of strategic plans and medium-term budgets D PI-16.4 Consistency of budgets with p e ious ea s esti ates NA Aggregation Method M2 Revenue and expenditure projections for the following three years based on administrative and economic classifications are submitted to the Council. Ceilings for each of the three next years are issued to each administrative unit at the start of the MTBF process. The unpredictability of investment financing precludes the preparation of strategic plans which can be executed over a specified time period. There has as yet been no opportunity to e plai ha ges f o a p e ious ea s MTBF since the 2015 municipal reorganisation. 96 PI-17 Budget preparation process C+ PI-17.1 Budget calendar C PI-17.2 Guidance on budget preparation A PI-17.3 Budget submission to the Council D PI-18 Legislative scrutiny of Budgets C+ PI-18.1 Scope of budget scrutiny A PI-18.2 Council procedures for budget scrutiny A PI-18.3 Timing of budget approval B PI-18.4 Rules for budget adjustment by the executive C PI-19 Revenue administration D+ PI-19.1 Rights and obligations for revenue measures B PI-19.2 Revenue risk management C PI-19.3 Revenue audit and investigation D PI-19.4 Revenue arrears monitoring D* PI-20 Accounting for revenue D+ PI-20.1 Information on revenue collections A PI-20.2 Transfer of revenue collections D PI-20.3 Revenue accounts reconciliation D PI-21 PI-21.1 Predictability of in-year resource allocation Consolidation of cash balances Aggregation Method M2 There is a clear budget calendar, but administrative units have less than four weeks to prepare their final submissions. Expenditure ceilings are issued to administrative units at each stage of the MTBF and budget preparation process. For the 2014-16 budgets proposals have been sent to the Council only one week before the plenary session which approved them. Aggregation Method M1 The Council considers the MTBF before the budget is submitted. Procedures are well-established, including public consultation and review by a specialist committee. Budget has been approved before the beginning of the new fiscal year for two of the three fiscal years considered. Although budgets have been adjusted in response to the provision of conditional grants for investment, RDF grants have not been included in these arrangements. Aggregation Method M2 Tax and fee payers have ready access to information on obligations, and procedures exist for appeals. The main focus of collection effort is on business taxpayers who contribute the largest share of revenue. There is no systematic approach to the investigation of non-payment of households. No data are available about the nature, amounts and ages of revenue arrears. Aggregation Method M1 Information is available daily about the nature and amounts of receipts, and reports are made. All revenue collected by municipal departments is paid immediately into the it s a ou ts i the T easu s ste , ut revenue collected by the water company is paid into the Treasury accounts monthly. Reconciliations do not establish total amounts outstanding or the amounts owed by individual tax and fee payers. C+ Aggregation Method M2 A All ala es a e held i the it s T easu account. 97 PI-21.2 Cash forecasting and monitoring C PI-21.3 Information on commitment ceilings D A cash flow forecast is prepared at the beginning of the year, and may be updated to take account of the prospective availability of conditional grants but not revenue trends. Administrative units have little assurance that funds will be available to meet planned expenditures. Budgets are adjusted to take into account the prospective availability of conditional grants. Aggregation Method M1 The stock of expenditure arrears was more than 10% of total expenditure in two of the three years 2013-15. Data on the stock, age, and composition of expenditure arrears is generated quarterly within four weeks of the end of each quarter. Aggregation Method M1 Changes in the payroll are initiated by HRD on the basis of changes in personnel records, but there are no automatic links between them. The payroll is updated monthly on instructions from HRD. There have been no retroactive adjustments. Procedures in HRD and the Finance Directorate provide sufficient assurance of the integrity of personnel records and payroll data. ‘e e t audit o k H“C a d the it s Internal Audit Department constitute partial payroll audits. Aggregation Method M2 Full records are kept of all procurement contracts, including what is procured, the value, and the name of the successful contractor. Nearly 88 per cent by value of 2015 contracts were placed through the use of competitive procedures, although the total amount was small. Five of six elements of information are published. PPC satisfies the requirement for independence and three of the other five criteria. PI-22 Significance of in-year budget adjustments Expenditure arrears D+ PI-22.1 Stock of expenditure arrears D PI-22.2 Expenditure arrears monitoring A PI-23 Payroll controls C+ PI-23.1 Integration of payroll and personnel records B PI-23.2 Management of payroll changes A PI-23.3 Internal control of payroll B PI-23.4 Payroll audit C PI-24 PI-24 Procurement B+ PI-24.1 Procurement monitoring A PI-24.2 Procurement methods A PI-24.3 Public access to procurement information B PI-24.4 Procurement complaints management B PI-25 Internal controls on nonsalary expenditure B Aggregation Method M2 B Appropriately provided for in accordance with the law on Financial Management and Control, although some local instructions may need review following the municipal reorganisation. PI-21.4 PI-25.1 Segregation of duties C 98 PI-25.2 Effectiveness of expenditure commitment controls C PI-25.3 Compliance with payment rules and procedures A PI-26 Internal audit C+ PI-26.1 Coverage of internal audit (IA) C PI-26.2 Nature of audits and standards applied B PI-26.3 Implementation of audits and reporting B PI-26.4 Response to internal audits B PI-27 Financial data integrity B PI-27. Bank account reconciliations B PI-27.2 Suspense accounts B PI-27.3 Advance accounts NA PI-27.4 Financial data integrity processes D PI-28 In-year budget reports (M1) C+ PI-28.1 Coverage and comparability of reports A PI-28.2 Timing of in-year reports A PI-28.3 Accuracy of in-year budget reports C PI-29 Annual financial reports D+ PI-29.1 Completeness of annual financial reports D PI-29.2 Submission of reports for external audit D Controls are in place which should limit commitments to projected cash availability and approved budget provision, but these are not updated to reflect actual revenue performance. The Treasury system ensures that all payments are in accordance with established rules and procedures. Aggregation Method M1 IA is ope atio al i all the it s depa t e ts, but coverage in 2015 was limited. Resources need to be increased to take account of the enlarged field following the municipal reorganisation. Audit meets professional standards and is focused on the operation of systems in high risk areas. Most planned audits are completed, with reports sent to audited units before submission to the Mayor. Most recommendations are appropriately addressed by responsible managers. Aggregation Method M2 There are monthly reconciliations between city and Treasury records. There are monthly reconciliations between Treasury and revenue Directorate records of individual payments. No use is made of advance accounts. Many operations are carried out through unlinked IT systems to which access is not restricted, and which do not ensure adequate audit trails. Aggregation Method M1 Reports are produced with the same breakdown by administrative unit and economic nature as the original budget. Reports are produced within 5 working days of the end of each month. Payments only are covered, not commitments. There are serious concerns about data accuracy. Aggregation Method M1 Financial reports are prepared annually but no comparison is provided with the originally approved budget. Information about financial assets and liabilities is incomplete, and there is no cash flow statement. Reports are not submitted for external audit. 99 PI-29.3 Accounting standards PI-30 External audit PI-30.1 Audit coverage and standards C PI-30.2 Submission of reports to the to the legislature D PI-30.3 External audit follow-up C PI-30.4 Supreme Audit Institution (SAI) independence C PI-31 PI-31.1 PI-31.2 PI-31.3 PI-31.4 Legislative scrutiny of audit reports Timing of audit report scrutiny Hearings on audit findings Recommendations on audit by the legislature Transparency of legislative scrutiny of audit reports C D+ D D NA NA NA Standards are disclosed, and applied consistently from year to year. But they are not consistent with IPSAS, and differences are not explained. Aggregation Method M1 Since the audit covered both 2013 and 2014, it can be considered that audit coverage exceeded 50 per cent for the period 2013-15. H“C s audit epo ts of the Mu i ipalit of Fie are not submitted to the Municipal Council. A formal response was made by the executive or the audited entity on audits for which follow up was expected, during the last three completed fiscal years. The HSC has its functional and operational independence, and its Head is appointed for a 7-year term by the National Assembly on the proposal of the President of the Republic. It has unrestricted and timely access to records, documentation and information, but its budget is constrained within expenditure ceilings set by the Government. Aggregation Method M2 The Council has not discussed any audit reports. No hearings have taken place. The Council has not discussed any audit reports. There has been no scrutiny. 100 Annex 2. Summary of observations on the Internal Control Framework Internal control components and elements 1. Control environment 1.1 The personal and professional integrity and ethical values of management and staff, including a supportive attitude towards internal control constantly throughout the organisation. 1.2 Commitment to competence . The to e at the top 1.4 Organisation structure 1.5 Human practices resources policies 2. Risk assessment 2.1 Risk identification 2.2 Risk assessment 2.3 Risk evaluation 2.4 Risk appetite assessment 2.5 Responses to risk Summary of observations The attitude of the organisation towards internal control depends heavily on the leadership of the Mayor. The fact that internal audit has been functioning in Fier for 10 years is an indication that attention has been paid to internal control. The city employs staff with appropriate professional qualifications. A new Mayor has only recently taken office. The head of the Internal Audit unit reports direct to the Mayor. The external auditor has questioned whether all the current Director posts are fully justified. and Posts requiring professional qualifications are filled by competitive processes and the holders have the status of civil servants. Other staff are employed on labour contracts without the same employment protection rights. However, the Mayor has a high degree of discretion in the making of appointments, and there is a lack of confidence in the judicial system in assuring the protection of rights. Risks are recognised of non-collection of revenues due, and of procurements failing to secure best value. Although the Mayor is formally expected to submit a report of the strategy to minimise damage to public services from risks to which they are subject, there is apparently little awareness of this. It appears that more attention should be given to the measures needed to improve the assessment and collection of the revenues under the control of the city. Other problems associated with the municipal reorganisation seem to have commanded more attention in recent months than actions to contain risks. Action is needed to improve revenue collection and the specification of projects. 3. Control activities 101 3.1 Authorisation procedures and approval The Finance Directorate ensures that commitments and payments are consistent with budgetary provision as registered in the Treasury system, the procurement plan as notified to MoF, and available cash having regard to the cash flow forecast. 3.2 Segregation of duties Sufficiently provided for in the law on Financial Management and Control and through the allocation of responsibilities within the structure of the municipal administration 3.3 Controls over access to resources and This is a major area of weakness, with records operations in many cases dependent on unlinked IT systems where no systematic controls are in place to control access to records and ensure the retention of an audit trail. 3.4 Verifications The Treasury system should ensure that commitments are not entered into, or payments made, unless all appropriate procedures have been followed. 3.5 Reconciliations Municipality and Treasury records are reconciled daily, and details of individual revenue amounts are reconciled monthly between revenue collection and banking records. 3.6 Reviews of operating performance Little attention has so far been paid to this. 3.7 Reviews of operations, processes and Some work is done on this by both internal and activities external audit. 3.8 Supervision Appropriately provided for in the municipal organisation 4. Information and communication Annual reports on the functioning of internal control and internal audit should be made to MoF CHU. Reports are made to the Council when required, and some budget information is on the city website. 5. Monitoring 5.1 Ongoing monitoring Municipal directorates (Finance, Education, Public Works, etc) monitor different aspects of budget execution. 5.2 Evaluations No significant action hitherto 5.3 Management responses Adequate responses are generally made to internal and external audit findings. 102 Annex 3A. List of documents consulted 1. Albania Public Finance Management Strategy 2014 – 2020, Government of Albania, 2014; 2. Budget Execution Data 2010 – 2015 on five selected municipalities, PLGP/USAID; 3. National Crosscutting Strategy on Decentralisation and Local Self Governance 2015 – 2020, Government of Albania, 2015; 4. Public Financial Management Strategy 2014-2020 2015 Monitoring Report, Ministry of Finance, March 2016; 5. PLGP Profile of Municipal Finance System in Albania, 2016; 6. IMF Country Report 16/289; 7. EU Albania Progress Report, September 2016 (SWD (2016) 364 (final)); 8. La / O the Ad i ist ati e-Territorial Organisation of Local SelfGo e e t U its i the ‘epu li of Al a ia , ; 9. La o. dated . . , O the Ma age e t of the Budgeta “ ste i the Repu li of Al a ia as a e ded Jul ; 10. MOF (2012) – Standard Instruction on the Medium Term Budget Preparation; and Standard Instruction on Budget Execution; 11. MOF Annual budget preparation and execution instruction; 12. Law on Financial Management and Control (2010); 13. Law on State Debt, and State Guarantees in the Republic of Albania (2006); 14. Law on local government borrowing (2008); 15. Law on the System of Local Taxes and Fees (2006); 16. Law on Public Procurement (2006); 17. Law on Internal Auditing in the Public Sector (2015); 18. Law on the Organisation and Functioning of the High State Control (2014); 19. The Constitution (1999); 20. Law on Organisation and Functioning of the Council of Ministers; 21. La / O Lo al “elf-Go e e t , ‘epu li of Al a ia; 22. Draft law on Local Self-Government Finances (November 2016); 23. Law on the right to information (2014); 24. Law on Public Notice and Consultation; 25. Ministry of Finance, March 2016: Public Financial Management Strategy 2014-2020, 2015 Monitoring Report. 103 Annex 3B List of people interviewed NAME 1 Florian Mucaj 2 Enkelejda Peshkpia 3 Armida Saliaj 4 Aurel Shanka 5 Besmir Dhana 6 Denisa Skenderaj 7 Dorela Dollakaj 8 Evrinomi Zhezhi 9 Enkelejda Ziu 11 Mukades Dano 12 Nevila Cala 13 Renilda Hyseni 14 Albina Behaj 15 Edmond Leka 16 Gazmira Plesati 17 Entela Kola 17 Neritan Bocova 18 Erald Filipi POSITION INSTITUTION Administrator and Deputy Mayor Municipality of Fier General Economic Director Head of Revenue Collection Office Tax Office Senior Expert Procurement Specialist Procurement Specialist Assistant to Administrator Budget and Finance Specialist Inspection Senior Expert Internal Audit Director Procurement Director Urban Planning Director Human Resources Director Public Service Directorate Public Service Directorate Irrigation Service Directorate Public Relations Director Asset management Director Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier Municipality of Fier 104 Annex 3C Sources of information for each Performance Indicator                              HLG-1 and PI-1 to 3: 2013-15 Budget documentation from Fier municipality, and actual expenditure data from central Treasury system, Ministry of Finance PI-4: Budget documentation and budget execution statements for 2013-15 from Fier municipality PI-5: Documentation provided by Fier municipality, Fier website (insert ref.), discussion with Fier officials PI-6: Discussion with Fier officials PI-7: Not applicable PI-8: Budget documentation and discussion with Fier and HSC officials PI-9: Documentation provided by Fier officials, Fier website PI-10: Discussion with Fier officials PI-11: Discussion with Fier officials PI-12: Consolidated Financial Statements of Fier municipality PI-13: Discussion with Fier officials PI-14: Documentation provided by Fier officials, Fier MTBF 2015-17 PI-15: Fier MTBF 2015-17 PI-16: Fier MTBF 2015-17, Fier Territorial Development Strategy 2016 PI-17: Discussion with Fier officials, MoF Annual Budget Preparation Instructions PI-18: Discussion with Fier officials PI-19: Discussion with Fier officials, Consolidated Financial Statements of Fier municipality for 2014 and 2015 (Dimension 4) PI-20: Discussion with Fier officials PI-21: MoF Treasury system, discussion with Fier officials PI-22: Documentation provided by Fier municipality PI-23: Discussion with Fier officials, HSC report on Fier for 2013-14, discussion with HSC officials PI-24: Data provided by Fier officials PI-25: Law on Financial Management and Control, discussion with Fier and HSC officials PI-26: Discussion with Fier officials PI-27: Law on the management of the Budgetary System, MoF Treasury system, discussion with Fier officials PI-28: Documentation provided by Fier officials PI-29: 2015 Budget execution statement, discussion with Fier officials PI-30: Discussion with HSC and Fier officials, information from HSC website (insert ref.) PI-31: Discussion with Fier officials 105 Annex 4. Disclosure of quality assurance arrangements Ministry of Finance Ministry of Local Issues High State Control FIER Municipality SECO/Swiss Embassy USAID/PLGP World Bank EU Delegation UNDP SDC/DLDP Composition of the Oversight team Fran Brahimi Enea Hoti Bajram Lamaj Florian Muçaj Philipp Keller Kevin McLaughlin Hilda Shijaku Edina Halapi Vladimir Malkaj Valbona Karakaçi Composition of the Assessment Team PLGP Project Director Kevin McLaughlin International PFM Expert – Team Leader John Wiggins Local PFM Expert Elton Stafa Local PFM Expert Merita Toska Review of Concept Note Concept note draft distributed 1st September, 2016 Reviewer Comments received Date of SECO/USAID response th th MOF 13 September, 2016 15 September, 2016 th HSC 13 September, 2016 15th September, 2016 th PEFA Secretariat 13 September, 2016 15th September, 2016 SDC 13th September, 2016 15th September, 2016 DLDP 12th September, 2016 15th September, 2016 Concept Note final approved by Oversight Team 20th September, 2016 Review of Draft Report Draft report distributed December 14th, 2016 Reviewer Comments received Date of USAID response Municipality of Fier Comments made orally in Amendments to text February and March discussed as necessary 2017 SECO/ECORYS January 16th, 2017 March 30th, 2017, (following oral discussions) st PEFA Secretariat February 1 , 2017 and March 16th, 2017 and further follow-up comments on response on March 30th. March 24th Ministry of Finance January 25th, 2017 Oral discussions of small number of comments in February and March 2017. 106

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