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Audit

Management of Regional Development Fund’s Projects

Published Date: 27:10:2016

Department: State Budget Analysis and Strategic Planning Sector

Type: Performance Audit

Improving the local infrastructure is one of the main prerequisites for reducing disparity within the municipalities, which is one of the most important goals for National Regional Development Strategy. Taking into consideration the fact that RDF is one of the main sources for financing infrastructural projects in municipalities, it is important to distribute fund resources within municipalities based on such criteria which should ensure reduction of disparity. Though, existing criteria (number of population and previous year’s spending) cannot support reduction of disparity. In addition to the mentioned criteria, defining other criteria, which will be based on the needs of municipality and economic factors, will support the development of municipalities and achieving specific goals defined within Regional Development Strategy.

In turn, there is a potential to improve the project implementation stage. In particular, proper monitoring system is a prerequisite for detecting and improving deficiencies on time. In addition development of project post evaluation phase will support the use the accumulated knowledge and experience in future projects, which will in turn improve project implementation process, quality and raise achieved results.

The State Audit Office of Georgia believes that by improving criteria for distribution of fund resources within municipalities, determining periodicity and format for presenting monitoring results and establishing the post evaluation practice for completed projects, will improve the management process of the projects financed by the RDF based on Government Commission’s decision.

Recommendations:

To the Ministry of Regional Development and Infrastructure:

To support equal development of municipalities, MRDI in collaboration with the Ministry of Finance, develop the criteria for defining the marginal limits, which in addition to the number of population and previous year’s spending, considers actual needs of the municipalities and other socio-economic factors.

To the Ministry of Regional Development and Infrastructure:

To ensure identification and elimination of mistakes made during project implementation phase, compliance of works with the predefined schedule and reporting of monitoring results, the ministry must recommend the form and periodicity of monitoring by taking into consideration the type of projects.

To the Ministry of Regional Development and Infrastructure:

To take into consideration and avoid deficiencies made in previous projects, the Ministry:

  • In collaboration with municipalities, should develop the format of project post evaluation (preparation of the report will be a responsibility  of municipality) and ensure analysis of those reports;
  • Should identify and share the results of analyzing deficiencies revealed on the planning and implementation stages through municipalities.

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performance audit of Capital Projects

Published Date: 13:05:2016

Department: State Budget Analysis and Strategic Planning Sector

Type: Performance Audit

The State Audit Office of Georgia (SAO) conducted performance audit of Capital Projects, which goal was to evaluate the management system of the domestically financed capital projects by assessing each step of the projects life cycle.

For this purpose, audit team studied 23 projects, which were implemented by the Ministry of Regional Development and Infrastructure, Ministry of Labor, Health and Social Affairs, Ministry of Education and Science. Moreover, auditee is the Ministry of Finance, which is responsible for the development of the program budget methodology and for allocation budgetary resources effectively.

All the investments made in capital projects are intended to develop infrastructure, which is one of the driven forces for the sustainable development of the country. In Georgia mostly capital projects are implemented to create roads, schools, hospitals, irrigation systems, energy infrastructure and etc.  In 2012-2015 years, the percentage of funds spent on capital projects amounted to 10-12% of the approved annual budget. During this period total resources allocated to the capital projects comprised to 3,980 million GEL.

In Georgia, planning and implementation processes are carried out by the line ministries. The Ministry of Finance is responsible for the allocation of budgetary resources among the capital projects implementing agencies and also, for the accumulation and presentation of the financial and general information of capital projects on the country level.

The audit team revealed the following deficiencies in regard with the management and reporting practices of the capital projects. Namely:

Information about planned and implemented capital projects are not complete and precise, on the country level, which is caused by the deficiencies related to the definition of capital projects and by incorrect classification of projects as a capital ones. Moreover, some projects implemented by the ministries and by their subordinated LEPLs and SOEs are not presented in the capital project annex. Imperfect information about the capital investments, on the one hand complicates to estimate accurately their contribution to the development of the country, and on the other hand, to analyze how the country is pursuing its development priorities and which areas require capital investment in the following periods. All these prevent the Government, the Parliament, as well as investors to make informed investment decisions.

Capital project development strategy does not exist neither on the country level, nor on the sector level. Besides, line ministries do not have methodology, which defines clearly the capital projects selection criteria and procedures.  All these raise the risk of choosing the projects which does not respond to the challenges, that the country is facing to and does not support sustainable development of the country.

For the chosen capital projects, formal appraisal, which is aimed to select the best option among several possible alternatives of the project implementation, are not carried out.As a result, at the budget approval stage, while making decision which projects should be financed, missing the appraisal stage increase the risk of selecting uneconomical and non-effective alternative of project implementation. 

Deficiencies are revealed on the detailed planning stage, which represents the most important stage for determining and specifying all the necessary parameters for the project implementation. The most critical problem at this stage appears to be the quality of the detail plan, which mostly is related to the non-comprehensive procedures carried out by the contractor companies (non-precise design documentation, skipped information in the cost break-downs, mistakes in geotechnical investigations and etc.). Namely, for 57% of the studied projects, the quality of the detailed plan became the reason of budget and time overruns.

Additionally, given that the existing practice of project implementation is not uniform, in some cases, significant deviations from the accepted practice are observed. Namely, there are cases of starting the project without developing complete project design documentation or differentiating the rights and responsibilities of the parties in the contract. This makes the costs of the project unpredictable and hampers the monitoring process by the responsible entities. Moreover, in some projects’ cases, involved parties and their commitments are defined in the contract, but the contract does not ensure identification of the responsible party for undertaking unsatisfactory work. 

At the implementation stage of the project, there is not a mechanism, by means of which important changes in the project (termination, substantial modification) would be justified taking different factors into account, such as past or future possible costs, benefits to be obtained and so on.This negatively affects the project sustainability and cannot ensure its compliance with the initial motivation and objectives. Namely, the audit revealed that from the 23 studied projects, 3 of them were terminated without analysis and justification. 2[1] out of 3 are still terminated and the total funds allocated to them amounts to 980 thousand GEL.  In case of the third project[2], 10.9 thousand GEL was spent at the termination moment and project resumed only after 19 months after the termination.

The form and frequency of the projects monitoring reports, which should be submitted to the project implementing agencies by the project supervisors, are not defined. Consequently, information about the ongoing projects progress is not consolidated, which complicates obtaining the necessary information about the implementation process of a specific project for the interested parties.  Non-standardized representation of the results of the monitoring makes the project appraisal difficult both, during the project implementation stage and after the completion.

After completion of the projects attained results are not evaluated, the knowledge acquired and the experience gained is not utilized for planning the following periods’ projects.  Therefore, the information about the projects results does not exist.Additionally, failure of utilizing the existing knowledge and experience becomes the reason of the repetitive nature of the deficiencies what subsequently leads to inefficient and uneconomical spending of the budget resources.



[1] The projects of the Ministry of Labor, Health and Social Affairs: construction of the psychological clinics, laboratory for pathologies.

[2] The program of the Ministry of Labor, Health and Social Affairs - Developing the Electronic Medical Record (EMR) system.

Performance Audit of the Government’s On-lending Activities

Published Date: 10:03:2016

Department: State Budget Analysis and Strategic Planning Sector

Type: Performance Audit

On-lending is a lending instrument utilized by many developing country governments. The rationale of on-lending is to support the implementation of the important investment projects without increasing the state budget burden by servicing the external debt. Under the prudent implementation of the on-lending practices countries get the opportunity to increase the potential of economic growth.

The State Audit Office of Georgia audited the Government’s on-lending practice in the period of 2010-2015. The audit has revealed a number of deficiencies in the on-lending activities of the Government:

  • Ministry of Finance of Georgia (MOF) does not have in place a comprehensive on-lending policy document setting the criteria for debtor selection and responsibilities of the entities involved in the process. Debtor selection process does not include the due diligence activities and at the moment loans are extended to the companies in financial difficulties;
  • The risks related to the lending activity are not assessed, priced and taken into account in determining the terms and conditions of on-lending. The MOF did not undertake any independent credit risk assessment prior to the on-lending transactions. In addition, the MOF does not have in place a written guideline describing how credit risk should be assessed and the way corresponding loan terms should be formulated when evaluating on-lending proposals. As a result, the basis of extending (or reorganizing) the loan to the entity whose financial situation does not guarantee the loan repayment is ambiguous.
  • Monitoring the performance of the lending and on-lending agreements is one of the important operations for the effective portfolio management and one of the statutory requirements. Monitoring function of the MOF is not an effective tool in detecting the threats in terms of loan recovery. An existing credit monitoring system does not provide the MOF with the sufficient information about the financial soundness of the borrower and does not ensure the identification of the potential problems in debt servicing;
  • The existing practice of recording the on-lent loans does not ensure the completeness, and provided information does not reflect the real standing of the on-lending portfolio. In addition, detailed information about the current standing of portfolio is not disclosed publicly neither by means of web sources nor it is included in the budget documents. Therefore, the transparency of the data is not ensured.

Considering all the shortcomings prevailing in the management of the on-lending activities and to improve the existing on-lending practice, the State Audit Office of Georgia elaborated corresponding recommendations.

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External Quality Assurance of Higher Education

Published Date: 09:03:2016

Department: Performance Audit Sector

Type: Performance Audit

The State Audit Office conducted the performance audit of External Quality Assurance of Higher Education covering the activities carried out by the LEPL National Center for Educational Quality Enhancement (the NCEQE) from 2011 to first half of 2015.

The accreditation process of higher education programs is the main external mechanism for higher education quality assurance and serves to ensure the compliance of study programs with existing standards. The State Audit of Georgia studied the accreditation procedure implemented by the NCEQE. The analysis revealed that the NCEQE accreditation mechanisms have major deficiencies on each stage of the process what hampers the achievement of higher education goals which aims to train competent individuals, capable of satisfying modern requirements of labor market.

  • Establishing accreditation standards with pre-determined assessment criteria and performance indicators is essential for effective accreditation process. Audit has revealed that due to the absence of pre-determined performance indicators, the HEIs are not obligated and therefore, fail to present relevant and sufficient information and supporting evidence for self-assessment reports. Furthermore, it is possible to fulfill different standard requirements with the same criteria. Therefore, those standard components do not serve their purpose. This hinders consistent evaluation of the level of compliance of study programs with the accreditation standards.
  • In the existing accreditation process, experts’ contribution is of a crucial importance. However, the Register of Experts is not properly managed by the NCEQE. Inefficient management of the experts’ database and the absence of set regulations in respect of the number of experts and terms of procedures caused irrelevant and inconsistent selection of experts for the expert committees in the audit period. In 29% out of all accreditation visits, the program evaluation was not conducted by an expert of relevant field. In 17.5% out of all visits, the NCEQE has not allocated sufficient resources corresponding to the number of programs to be reviewed. In 29% of all cases, experts had less than average amount of time (5 days) to study all the relevant accreditation documents.
  • The audit revealed, that the NCEQE hardly ever fully uses the 90-day term, assigned by its statute for accreditation procedures of each program in an efficient manner.   The number of study programs to be reviewed per Board meeting was in no way reflected on the term that is allocated to the Board for reviewing study program accreditation documents and respective experts’ opinion. Moreover, the analysis of the orders on accreditation visits and visit terms revealed that in 41% of cases the preparatory term and/or the number of experts was not proportionate to the number of programs to be examined.
  • Also the NCEQE has not implemented the follow up mechanism on study program accreditation process which shall ensure the compliance of study programs with the existing quality requirements. The audit has revealed that since 2011 no monitoring visit has been carried out based on the annual self-assessment reports.

The State Audit Office of Georgia has developed the recommendations which facilitate the elimination of existing deficiencies and consequential system improvement.

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Performance Audit of Forest Commercial Resource Management

Published Date: 09:03:2016

Department: Performance Audit Sector

Type: Performance Audit

The State Audit Office of Georgia has studied the situation of commercial sector of timber industry. In particular, issuance of special logging license, formation of license terms and conditions and the establishment of state control over the license area.

The most important component of the commercial timber resource extraction is a Special License of Timber Production that is issued in an open and public auction. Protocol analysis of auctions revealed, that the auctions for Timber Production Special Licenses were held in a non-competitive environment. Therefore, the state benefit from the licenses that were sold in a non-competitive environment is low.

Timber Production Special License document does not include terms and conditions. Along with the uncertain license conditions, the frequent forest-related legislation amendments in 2008 – 2012, significantly changed laws related to license conditions that lead to impression that some changes were adjusted to private companies. After obtaining timber production license, the Licensee prepares the forest management plan. Audit revealed, that the forest management plans do not design specific measures for forest care, protection, and restoration.

Despite of the fact that the state control over the license area improved, control does not carry preventive nature. The risk assessment is not conducted, based on which selected license holders should be annually inspected. In addition, controlling body has no mechanisms, to temporarily suspend activities of licensees to avoid repeated violations.

Based on above mentioned the State Audit Office issued recommendations, consideration of which will significantly improve the current situation.  

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Performance Audit Report on the Rural Doctor Program

Published Date: 22:01:2016

Department: Performance Audit Sector

Type: Performance Audit

Reduction of problems in rural primary health care is possible through increasing the accessibility to medical staff, their efficiency and integration with other levels of health care system

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erformance Audit Report on Government Measures for Ensuring Food Safety

Published Date: 19:01:2016

Department: Performance Audit Sector

Type: Performance Audit

The State Audit Office of Georgia conducted performance audit covering food safety control activities as at the border as within the country. Out of the food safety control activities at the border the main focus was made on physical examination of food and fulfillment of the corresponding monitoring plan. As for the National Food Agency, the audit covered two main food safety control mechanisms – inspection and monitoring.

In the audit period, border control covered only some categories of food of animal origin and did not cover food of plant origin. Despite the positive changes implemented by the customs department, the audit revealed that the number of samples taken for laboratory examination were not in accordance with the food safety monitoring plan. Together with the shortcomings related to the number of samples, the audit revealed that the samples were not tested on all the parameters defined in the monitoring plan. The imported food is sold at the local market, where food safety is controlled via inspection and monitoring mechanisms of food safety control.

The audit revealed that in the audit period, the agency did not have complete, accurate and timely information about the food business operators operating in the country. In the audit period, the agency did not access risk profiles of all food business operators and consequently did not possess full information about the risks created by the food business operators in the market.

The audit revealed that productivity in the inspection process is low and there is potential to increase the number of inspections twofold. Low productivity is mainly caused by the small number of inspections defined in the inspection plan.

In the audit period, execution of monitoring mechanism of food safety control was conducted with deficiencies, too. The agency did not conduct scientific risk assessment of risks related to food safety.

The audit revealed deficiencies in the direction of selection and territorial distribution of food business operators/premises.  Specifically, analyzing the existing practice of selection of food business operators for monitoring purposes revealed that selected food business operators for monitoring were mainly located in the same district while the number of registered food business operators is higher in other districts.

The audit revealed deficiencies in the communication of the agency with the customers. The conducted analysis revealed that ‘hot line’ works only in working days/hours in the agency and there is no proper system of ‘call center’.

Based on analysis and conclusions, corresponding recommendations, which SAO considers important for improving existing situation, are presented.

 

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