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.
