TALLINN, 16 August 2004 - The State Audit Office is of opinion that in 2003, the accounting of the Labour Market Board and its local institutions or employment offices is characterised by disorganisation – both the Accounting Act and other requirements applicable to financial accounting were violated en masse.
The audit revealed that the accounting policies and procedures were insufficient and missing altogether in some of the employment offices. According to the confirmation of the Audit Team Leader of Financial Audit Department, Ms. Sale Ajalik, the level of the accountants employed by the institutions strongly leaves to be desired. “The State Audit Office could not provide an assessment regarding the annual accounst of the Labour Market Board and the local employment offices as the single reports serving as the basis of the consolidated reports are erroneous and therefore, also distorted the consolidated picture,” Ms Sale Ajalik explained.
The State Audit Office found the accounting in some of the employment offices was organised according to cash-accrued principles instead of the required accrual principles. Cash-accrued method means that an economic transaction is only recorded after the money has been in fact paid or received whereas in case of accrual method the transaction is recorded after it takes place – regardless of whether the money has, in fact, been received or paid.
«When using cash-accrued methods there is always a danger that some of the monies are not claimed or the other way round – some of the invoices remain unpaid as there is no clear overview of the situation,» explained Ms Sale Ajalik, Audit Team Leader.
The State Audit Office also found that the balance sheets of the Labour Market Board and its local authorities included claims having incurred several years ago and therefore, the receipt thereof had become doubtful. This also means that the institutions does not have a real picture of its assets.
Nobody’s debt
The State Audit Office found out that as of the end of 2003, the obligations not recorded on accounts of the Labour Market Board amounted to at least 727 100 kroons. As of January 1, 2004, the Labour Market Board consolidated its accounting information into a common system, but a situation occurred where the local employment offices assumed that in future, their obligations shall be recorded in the accounting of the Labour Market Board but in fact, the Labour Market Board failed to do it. «The obligations belonged to nobody,» Ms Sale Ajalik explained.
In several cases the State Audit Office observed that the Labour Market Board and the employment offices failed to calculate, declare and pay fringe benefit taxes imposed on expenditures observed as fringe benefits/presents nor income tax imposed on gifts made. For example, gift certificates of the Tallinn Department Store had been bought for the amount of 43,500 kroons as bonuses the employees of the employment offices. Fringe benefit tax or income tax should have been imposed on that respective amount. The State Audit Office considers it improper to use the state budget for making such gifts or providing fringe benefits. Such bonuses should have been made available in the salary funds of the Labour Market Board.
When carrying out a random control, the State Audit Office found that expense receipts were not available to verify some of the payments made with a credit card (in total amount of 2,404 kroons). Initially, this amount was 3,785 kroons but later the accountants succeeded in locating some of the expense receipts, which once again demonstrates the disorganisation of the accounting.
Complications with the Register
One of the important problems detected by the State Audit Office in course of the audit revealed that the information included in employment service register program can’t be compared to the accounting information. This means that the employment service register can’t be used to learn at a random moment the value of the amount allocated to the beneficiaries of employment subsidies but not yet paid or the amounts to be reclaimed from the beneficiaries. According the estimates of the Audit Team Leader Ms Sale Ajalik, the state may have lost thousands of kroons in subsidies not reclaimed.
Also, the employment service register program allows to enter simultaneous participation of one and the same unemployed in two training courses. There was a case as an unemployed person had been sent to a training by the consultant of Employment Office of Järva county while the last day of first and the first day of the second training overlapped.
The audit also revealed that there is no functioning internal control system applicable to the organisation of public procurement, assuring the compliance with the limits established in the Public Procurement Act as goods and services are purchased. In several cases, public procurement has not been organised at all while in general, not an open but a negotiated tendering procedure without prior publication of a tender notice was used to purchase labour market training services. «Nevertheless, some positive development should be noted: for example, in 2001, public procurement for labour market training was not conducted altogether,» commented Ms Sale Ajalik. In total, the value of procurements where the Labour Market Board failed to observe the requirements of the Public Procurement Act, amounted to more than 2 million kroons in 2003.
Harmful contracts of lease
The State Audit Office found that the Contracts of Lease, concluded to lease the facilities in the building of the Labour Market Board at Luha Street 16, did not comply with the rules of procedure applicable to the rules of procedure for the granting of a use of state assets or the State Assets Act. At the end of the last year, the Labour Market Board had concluded 15 valid Contracts of Lease, covering the lease of 1426 m2 of facilities in the building at Luha Street 16. The Labour Market Board had not organised public auctions; also, most of the Contracts of Lease are open-end contracts.
Decisions concerning the lease of non-residential premises administrated by government institutions, provided that the lease period exceeds 5 years, are to be passed by the Government. Therefore, the Labour Market Board has violated the State Assets Act when concluding a majority of the contracts.
The State Audit Office also finds that some of the premises have been leased at prices which are unreasonably low. In the case of seven contracts of lease, the rent fluctuates between 60-150 EEK/m2, including the utilities, while in case of eight contracts the rent remains between 10-60 EEK/m2 without utilities. Most of the Contracts of Lease also include a provision, allowing the rent to be reviewed in January, each year, but this has not been done.
The Audit Team Leader Ms Sale Ajalik mentioned that in some cases the state is paying the commercial lessees some extra, as the utilities are bigger than the rent stipulated in the contract, alleged to included the utilities.
As in 2004 the Ministry of Social Affairs took over the building at Luha Street 16 and the administration thereof, the Ministry should now analyse all the terms and conditions, set out in the contracts of lease and whether the tenants comply with the aforementioned terms, accompanied by the attempts to make amendments in the conditions and periodic comparison of receipts from contracts of lease and the expenditures made. The State Audit Office came to a conclusion that the value of damages, caused by the conclusion of contracts of lease, harmful for the state, should be established and require the persons accountable to compensate for such damages.
Inspection by Tax Board required
In 2003, the Labour Market Board had not required any of the debtors to pay any charges for delayed payment, stipulated in respective contracts, therefore failing to meet its obligation to claim the damages caused to the state by failure to comply with the contracts.
The Audit Team Leader Ms Sale Ajalik observed that In addition to the failures of the Labour Market Board we can also observe the failures and omissions of the Ministry of Social Affairs in coordinating the organisation of accounting efforts and implementation of other internal control systems.
In its audit report, the State Audit Office made some proposals to the Minister of Social Affairs to eliminate the omissions detected. The person accountable for the fair and true recording of economic performance of both the Labour Market Board and its local authorities is the Director General, Mr. Mati Ilisson.
Considering the scope of the disorganisation detected in the accounting of the Labour Market Board and employment offices, accompanied by the fact that in several cases the data provided in the records of employment offices failed to comply with the data available to the Tax Board, the State Audit Office asked the Director General of the Tax and Customs Office to conduct the inspection of the accuracy of tax accounting in these institutions.
Sven Soiver
Press Representative of State Audit Office
Telephone: (372) 640 0787
GSM: (372) 53 414464
E-mail: [email protected]
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Posted:
8/16/2004 12:00 AM
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Last Update:
10/1/2015 10:20 AM
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Last Review:
10/1/2015 10:20 AM