TALLINN, 9 November 2011 - Having audited the financial status of Pärnu City, the National Audit Office found that although the city authorities have started to improve the city’s financial status decisively, it is also important to strengthen internal control in the city in order to identify financial difficulties and react to them more promptly. Monitoring the financial status has so far been one-sided and focussed on budget execution, meaning that it must be defined as a task in greater detail.

The National Audit Office analysed the activities of Pärnu authorities from 2008 to 2010 as a result of the deterioration of the city’s financial status and evaluated the efficiency of internal control in the Pärnu City Government in order to manage the risks associated with the changes in the financial status. The audit also focussed on the city’s activities in handling financial claims and debts, because the deterioration of the financial situation has led to an increase in claims and debts.

Pärnu has attracted a lot of attention in recent years due to the rapid deterioration of its financial status. In comparison to larger local authorities, the financial indicators of Pärnu highlight bigger problems in the organisation of the city’s finances. At the end of 2010 the city was burdened with large debts and its solvency was poor.

The National Audit Office points out in its audit that some of the reasons for Pärnu’s bad financial status stem from 2007 when it missed the mark with the city asset sales forecast and allowed its expenditure to grow in the hope that it would earn enough revenue. Pärnu has been too optimistic when planning the sales of its assets in later periods as well. The city constantly spent more than it earned during the audited period of 2008-2010. This made it difficult for the city to meet its payment obligations and was the main reason why it ended up in financial difficulties. The recession that hit local authorities in 2009 increased the tension in the city’s financial status even further and clearly highlighted the excessive risks taken in previous years. The debt burden on Pärnu exceeded the maximum level permitted by law in 2009 and by the end of 2010, the city’s debt burden was over 80% instead of the 60% permitted by law.

The National Audit Office also finds that although the city acknowledged its budget execution problems in 2008 and 2009 and reacted to them by adjusting its forecasts, the changes were made too late and a deficit could not be avoided. The authorities currently in power have cut the expenditure considerably and their goal is to reduce the city’s debt burden in such a manner that the maximum level permitted by law is achieved by 2013.

Although the city’s authorities have started to improve its financial status decisively, it is also important to strengthen internal control in the city in order to identify financial difficulties and react to them more promptly. Monitoring the financial status has so far been one-sided and focussed on budget execution, meaning that it has to be defined as a task in greater detail.
The National Audit Office also found several omissions in the processing of financial liabilities and receivables, which has caused delays in the payment of invoices submitted to the city or have made it difficult for the city to collect the money owed to it on the basis of the invoices it has submitted. For example, it is relatively common that the bills of the city’s agencies get to accounting with a delay, often even after the payment deadline noted on the bill. There are interruptions in the process of collecting the city’s revenue and not enough measures are taken to discipline debtors.

The audit also included recommendations to Pärnu City on how to improve its organisation of work, which the Pärnu City Government agreed to take on board.

Toomas Mattson
Head of Communication Service
National Audit Office
+372 640 0777
+372 513 4900
[email protected]
 

• Posted: 11/9/2011 8:48 AM
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