Documente Academic
Documente Profesional
Documente Cultură
REPORT
December 2001
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REPUBLIC OF BULGARIA
NATIONAL AUDIT OFFICE
REPORT
№ 0600020801 / 28.12.2001
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Razgrad and Silistra from BNAO Regional Offices -
Sofia District, Plovdiv, Varna, Rousse, Lovech,
Haskovo, Bourgas and Montana.
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and Vocational Training, and Annex B, Project
Document signed by the MLSP, the eleven
beneficiary municipalities and the UNDP on
September 1 1999;
• UNDP Programming Manual;
• UNDP Finance Manual;
• PHARE Decentralized Implementation System
Manual.
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The expenditures on the budget lines (International
Personnel, National Project Office Personnel and
Equipment) under which UNDP has made direct payments
on behalf of the project, are not within the scope of this
audit.
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auditors to express reasonable assurance that they do not
prejudice substantially the information for the users,
contained in the audit report.
The cases of infringement of legal provisions concerning
financial management of the funds are considered as
materiality by nature.
2. Audit risk
In compliance with BNAO audit policy in financial
management auditing, the audit team has determined an
audit risk of 3 per cent, which ensures an acceptable
assurance level (97 per cent).
Inherent risk
The audit team has analyzed the activities related to the
project implementation and the financial management
system and identified the following main inherent risks
and measures undertaken for their minimization:
MAIN INHERENT RISKS RISK CONTROL MEASURES
Existence of different donors Operations Manual
– a large variety of rules and developed, containing the
procedures. A large number administrative and financial
of different kinds of guidelines for the project
regulations. implementation.
A large number of actors in Mechanisms created for
the project. project coordination at
central and local levels:
• Meetings for technical
coordination and
meetings of the National
Steering Committee
held;
• Regional Advisors
coordinated activities
between the different
Municipal Project
Offices;
• Municipal Project Offices
coordinated the
participation of the
actors through meetings
of the Local
Management
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Committees.
Lack of sufficient • Preliminary training of
management experience on all main project actors
central and local levels in relation to the
objectives, strategy,
legal framework,
project procedures
and donors
requirements.
• Continuous training
performed in the
process of
implementation and
resolution of arising
problems.
• Special software
developed for
facilitating financial
and accounting
activities of the
project.
Lack of sufficient personnel in The municipalities included in
municipal administrations the project have been
and in the other local involved in view of
structures participating in the participation of municipality
project. personnel.
Different donors – a large Operations Manual
variety of rules and developed, containing all
procedures administrative and financial
guidelines for the project
implementation
Technical issues related to: • Involvement of a
• The seasonal large number of
character of the skilled personnel,
construction works on having participated in
the project; “Beautiful Bulgaria I”
• The lack of necessary Project.
skills in unemployed • Development of
people for certain calendar work-
types of work; schedules for
• The specific construction works.
requirements for • Memorandum signed
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restoration of with the National
buildings-monuments Institute for the
of culture; Monuments of
• Non-keeping of the Culture, “Technical
occupational safety specifications and
and health rules and requirements for the
lack of sufficient restoration of
control. buildings –
monuments of
culture” developed,
approval of technical
projects and control.
• Checklist for control
on the
implementation of the
safety and health
rules developed.
Control risk
The analysis of the control environment, the accounting
system and the control procedures foreseen, allowed the
audit team to determine a low control risk.
Detect risk
After the evaluation of inherent and control risk, the
results reported from the internal control system tests and
the direct substantive tests undertaken, the audit team
determined a low detect risk. The undetected errors or
omissions would not affect significantly the opinion on the
financial management of the project funds.
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Six audit samples have been formed using non-
statistical methods: random selection and selection on a
determined example, including a total of 2 661 sampling
units. 431 units of them are on payments and 2 230 units
on documents annexed to the main works contracts.
The audit samples on a determined example and
their scope are indicated in the following table:
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• Interviewing key personnel – director,
administrator, chief engineer, chief accountant,
etc.;
• Examining and checks of documents;
• Evaluation of the materials related to project
publicity;
• Audit of samples selected on a determined
example for revenue, expenditures, and
contracts by types of works and sites, etc.;
• Following of the conformity to implementation
and monitoring procedures;
• Analysis of the financial reports and reports
from the municipal project offices in terms of
their completeness, regularity, measurability,
reliability, timeliness and legality of
expenditures;
• Analysis of labour/material expenditure ratios
for construction works.
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The National Audit Office has not carried out an audit of
the project funds.
An audit of the financial operations has been carried out
by KPMG for the period September 1 1999 to December
31, 1999. The audit conclusion is concerning only funds
from municipalities and from UNDP, as well as central
UNDP Office expenditures, as EU funds became available
at a later stage. The audit report states that expenditures
are made in compliance with UNDP financial regulations
and with generally accepted accounting principles.
An audit of the financial operations has been carried out
by PriceWaterhouseCoopers for the period January 1 2000
to December 31, 2000. No violations of UNDP financial
regulations and of generally accepted accounting
principles have been found.
A team of international and Bulgarian experts has
performed in the end of 2000 an independent evaluation
of the expedience of the funds disbursed on the project for
the period September 1999 to December 2000. A positive
estimation has been given to the implementation of the
project objectives and recommendations have been made
for the use of gained experience in the management of
other international programmes and projects.
The European Court of Auditors has checked 20 financial
transactions of EC to Bulgaria for the year 2000 in April
2001, including transactions on the Beautiful Bulgaria II
Project. By the end of November 2001, the CFCU and the
National Project Office had received no information on the
audit.
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The sources of financing and the total budget in Euro
according to the project fiche, approved by the EU, are as
follows:
Chart 1
Chart 2
2. Management structure
The management structure of the project has actively
engaged different actors on international, national,
regional and municipal levels.
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In accordance with the Memorandum of Understanding
between the Government of Bulgaria and the European
Commission on Establishment of the National Fund,
ratified with an Act in 1999, the funds allocated by the EU
are transferred to the Recipient through the National Fund
as a central treasury entity at the Ministry of Finance.
A Central Finance and Contracts Unit (CFCU) has been
established as an implementing body under the
responsibility of the Minister of Finance with a
Memorandum of Understanding between the Government
of Bulgaria and the European Commission, approved with
Council of Ministers decisions No 328 of 09.07.1998 and
No 551 of 16.10.1998. The CFCU is in charge of tendering,
contracting and payments on PHARE Programme projects.
The CFCU has been designated as an Implementing
Agency for the BG 9914 project with a Financing
Memorandum between the Government of Bulgaria and
the European Commission signed on December 30, 1999.
With the Memorandum of Understanding between the
Ministry of Finance through the CFCU, the UNDP and the
MLSP, signed on March 24, 2000 and endorsed by the
European Commission on June 14, 2000 the CFCU has
delegated its responsibilities to the UNDP.
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funds as required by the CFCU and UNDP, payments and
monitoring of payments according to the budget. The
organizational structure of the National Project Office has
included a National Project Director and 9 consultants
appointed by the UNDP.
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3. Funds planning, spending and accounting
A budget of the project in US dollars is drafted in
accordance to the UNDP financial rules and procedures,
consisting of separate budget lines. In order to comply
with EU requirements the budget in Euro is drafted,
consisting of categories of expenditures, each of them
including several budget lines. A budget in Leva is
prepared for operative purposes and day-to-day
monitoring of expenses.
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initiated locally but effected at the central level. Each local
payment request has been signed by the Local Manager
and by the authorized representative of the municipality.
The project has been reported in USD to the UNDP, and in
EURO to the CFCU (for EU funds only).
The following reporting system has been established:
• Quarterly reports for project activities and
disbursed by National Project Office funds are
submitted at National Steering Committee
meetings to UNDP, EU Delegation in Bulgaria,
MLSP and National Steering Committee;
• Financial reports, from National Project Office to
UNDP and requests for transfer of funds for a
maximum period of three months;
• Monthly reports from Municipal Project Offices to
National Project Office;
• Consolidated monthly reports of the Regional
Advisors;
• Quarterly reports from the National Project
Office with requests for transfer of funds to the
CFCU;
• Monthly reports to the CFCU for EU funds.
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Bulgaria II Project financial management system, and has
obtained assurance that relevant policies and effective
internal control procedures have been put in place.
The management team has administered the project
according to UNDP and EU rules and procedures and has
been aware of the significance and the role of the internal
control. The project complexity and the inherent risks of
the system have been assessed in advance. The risk for
omissions and errors have been minimized through
adopting of policies and financial management and
reporting procedures. The Operations Manual has
regulated activities and responsibilities concerning
preventive, ongoing and subsequent control.
Competences of the decision-making bodies have been
differentiated on all management levels and project
implementation stages.
The division of rights and responsibilities on the national
and local levels, (between the National Steering
Committee and the National Project Office, the Local
Steering Committees and the Municipal Project Offices, the
Local Evaluation Committee) as well as the assuming of
responsibilities by the regional advisors have created a
reliable control environment. The use of approved formal
job descriptions, the double signature system and
standard documents for initiating payments and approving
effected disbursements have limited the risk for errors in
the funds management.
2. Accounting system
A system of accounting procedures, providing information
for the project, has been put in place in view of the legal
and expedient disbursement of project funds and of
preparing reliable reports.
The accounting and the document flow management allow
the application of control on the project revenue and
expenditures.
The individual project chart of accounts has been drafted
in accordance with the budget lines, as defined in the
UNDP Programming Manual and the categories according
to EU requirements. The information has been organized
analytically in different levels on 8-digit accounts and
consolidated by category types according to UNDP
requirements, with segmentation by sources of financing.
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The software product has completed accounting
operations automatically, according to the previously
defined budget lines.
3. Control procedures
The management has determined control procedures in
accordance with good European practice, in order to
secure the achievement of project objectives. The
preliminary assessment of the signed preventive, ongoing
and subsequent control procedures has proved that
prerequisites have been created for the achievement of
the determined objectives and tasks. The control system
seems reasonable and risks have been adequately
addressed.
In order to give a final evaluation of the level of
effectiveness and reliability of the internal control system,
the audit team has performed an extended substantive
testing, as well as other techniques: interviews,
conversations, written statements by the relevant officials.
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the Project Administrator, the Chief Engineer and the
Regional Advisors have visited the respective sites;
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The relevant officials have kept the procedures for
expenditures confirmation. Municipal Project
Offices have been authorized to make certain
types of operational expenditures with the funds
collected from selling bidding documents, in
accordance with a Directive on the management of
funds collected from selling bidding documents.
Lack of signatures for cash payment certification
and disbursement of operational costs from the
relevant National Project Office and MLCP officials
has been found in Yambol municipality, below the
materiality threshold.
Procedures for selection, training and qualification
have been established which guaranteed
compliance between the personnel skills and
responsibilities. The personnel have been selected
through open competition, based on the principles
of competitivity and transparency and training has
been provided for new-coming personnel.
The works supervisors, the job creation and safety
consultants, health and safety consultants and
representatives of the National Institute for
Monuments of Culture have performed a
specialized ongoing control and monitoring. The
results of these controls have been as follows:
• A performance bond has not been reimbursed in
Silistra and Yambol for two sites, due to bad
works quality;
• Performance bonds have been retained in Sofia,
Veliko Turnovo, Razgrad and Stara Zagora, due to
bad works quality. They have been reimbursed
after eliminating of faults;
• Insignificant reductions of contracted sums have
been made in Stara Zagora, Veliko Turnovo and
Vidin, because of non-fulfillment of contracted
man/months and bad quality of works;
• The works in Sofia, Stara Zagora, Varna, Plovdiv,
Yambol and Vidin have been temporary
interrupted, because of non-keeping of health
and safety requirements. The instructions for
their eliminations given have been fulfilled in due
time.
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Unpaid student allowances with an amount below the
materiality threshold have been recovered as a result of
the supervision on courses attendance made by
educational institutions and job creation and health and
safety consultants.
The respective Labour inspections have been informed for
non-keeping health and safety requirements. As a result
they undertook the following measures:
• Four infringement acts have been drawn up and
penal ordinances have been issued against
subcontractors in Razgrad municipality;
• Fifteen labour legislation infringement acts have
been drawn up in Veliko Turnovo municipality.
4. Monitoring
The UNDP, MLSP, CFCU and EU Delegation in Bulgaria
have carried out the project monitoring on the national
level.
The project management and monitoring support from the
UNDP has been provided by the Programme Director, Mr.
Hachemi Bahloul.
The MLSP has appointed two officials for the day-to-day
monitoring of the project and for approving of all
payments from bank accounts. The Minister of Labour and
Social Policy has directly monitored project activities
through his participation in the National Steering
Committee meetings.
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The CFCU has monitored the following of the procedures
under the Memorandum of Understanding and Operations
Manual for the management of funds granted by EU.
On behalf of the EC Delegation in Bulgaria, the monitoring
of the project has been carried out by an Advisor.
The end beneficiaries of the project results have
participated directly in the monitoring.
The audit has found out that the Ministry of Foreign
Affairs, MLSP and UNDP have performed no tripartite
overview of the project every six months in accordance
with the requirements of the Project Document. The
opinion of the UNDP Resident Representative that this
would lead to doubling the quarterly National Steering
Committee meetings has been accepted. A representative
of the Ministry of Foreign Affairs had not participated in
the National Steering Committee meetings, which did not
allow the Ministry of Foreign Affairs to participate in the
monitoring.
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by the local offices) with centralized payments, allowing
better control and shared responsibility.
When entering a payment, the system performs an
automatic check of the available funds under relevant
budget line compared with the last budget revision
approved in order to avoid payments exceeding. The
software gives information about the payments effected to
date, and total sums contracted in the three currencies –
Leva, USD and Euro:
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is compared with the contracted sums and the
payments effected on them;
• Informations concerning bank account flows,
budget revisions, etc.
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fiche Budget as per s
budget May 23, 2001
UNDP 700 000 680 000 - 20 000
Municipalities (including 772 947 985 267 + 212 320
private owners of buildings)
European Union 4 804 3 978 066 - 826 282
348
TOTAL REVENUE 6 277 5 643 333 - 633 962
295
UNDP Project administration 195 205 173 718 - 21 487
and management
expenditures
TOTAL AMOUNT 6 472 5 817 051 - 655 449
500
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The project activities from September 1999 to July 2000
have been carried out with the UNDP and the
municipalities’ funds only, as the EU funds have been
made available early in August 2000. This has led to
difficulties in the division of work and the activities have
been carried out within five months (from August to
December 2000) instead of the agreed nine months (from
April to December 2000).
Despite the delay in EU funds, the project management,
following the advice of the EU Delegation in Bulgaria, has
started tendering procedures in June 2000 and has
continued with contracting according to the procedures.
This has allowed effecting of advance payments on the
signed contracts and start of works in due time,
immediately after receiving of the funds.
In the process of the project implementation, the owners
of private buildings have been involved in all
municipalities with the exception of Varna. The relevant
Local Management Committees have taken the decision
for the involvement of private persons in the project
implementation, as well as the amount of their share. The
funds agreed with the private owners amount to Leva 397
597.
The audit has found that housing co-operative “Tsarevets”,
Sofia, has transferred an amount lesser than contracted,
which is below the determined materiality threshold.
Revenues have been generated in the local offices,
coming from the sale of tendering documents to
interested works companies. They have been managed
and reported in accordance with the written Directives
given by the National Project Office.
A doubling of the numbers of credit orders issued in the
Municipal Project Office Yambol has been found, with a
total amount not exceeding the materiality threshold.
Based on a proposal by the National Fund and with the
approval of the Ministry of Foreign Affairs and the EU
Delegation in Bulgaria, the interests on the PHARE funds
for the year 1999, amounting to Euro 91 086 have been
transferred to the Beautiful Bulgaria II Project. At a
National Steering Committee meeting on June 19, 2001
the proposal of the National Project Director for allocating
the funds to subprojects in Sofia has been approved.
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The audit of the legality and regularity of revenues has
proved that the total amount of the omissions found does
not exceed the determined materiality threshold.
2. Expenditures
The project expenditures as per June 30, 2001 amount to
5 613 453 USD equal to Leva 11 863 050, being 95.6 per
cent of the available funds under the last budget revision.
The expenditures are broken down in the following
category types:
The works have the highest relative share – 73.59 per cent
and the expenditures for training unemployed people
engaged in the project (6.85 per cent from the total). The
other expenditures have a total share of 19.56 per cent
from the total.
A conclusion may be drawn that 80.84 per cent from the
funds have been disbursed for achieving the project
objectives: to reduce unemployment and to restore the
urban environment.
2.1. Works
The main part of the works expenditures (90 per cent)
have been financed with EU funds; the UNDP and
municipalities contribution in the works expenditures was
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5.5 per cent, and the contribution of the private owners
was 4.5 per cent.
A total of 179 contracts have been signed in the 11
municipalities included in the project, with 128
subcontractors, for the refurbishment and repair of 221
sites, half of which being monuments of culture. Tendering
procedures for subcontractor selection have been followed
and bidders with proven capacities have been allowed to
participate, together with new companies.
A total of 6 184 construction workers have been engaged
in the project,
5 080 of which being registered long term unemployed. A
total of 24 199 man/woman-months of temporary
occupation have been created under works sub-projects,
which is 13 per cent more than the planned 21 400
man/months.
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included in the contracts, upon insistence of the European
Commission, for refunding of occupational safety and
health expenditures subject to certain conditions:
instructions to the unemployed, lists of personal safety
equipment distributed, etc. Insignificant irregularities have
been found during the checks performed by the Labour
inspectorates on the project sites, and they had been
eliminated in due time.
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decreased competitiveness; insufficient motivation and
lack of appropriate trainees.
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One of the project objectives is its popularization as a
social model for employment promotion policy. A Public
Relations Strategy has been developed and approved by
National Steering Committee. This Strategy is addressed
to the following groups: the society as a whole; citizens of
the beneficiary municipalities; actors directly involved in
the project (unemployed, small and medium enterprises);
state institutions; donors’ organizations (national,
international and EU member-states).
The information strategy activities have been
implemented through:
• Different media appearances: monthly press
releases, over 800 articles and publications, press-
conferences, over 200 TV and radio transmissions,
photo exhibitions, questionnaires on investigation
of the public opinion, Internet website, film made.
• Preparing advertising materials: З 000 calendars, 2
000 photo albums, billboards, plaques, sites
posters providing information for donors and
contractors, project business organizers, labels,
etc.
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1. A complicated inter-institutional framework
ensuring good interaction between the project
parties and the participants has been established
with the UNDP support.
2. Budget drafting, distribution, execution and
accounting have been made in compliance with
the UNDP rules and procedures.
3. All revenue has been received in accordance with
the Financial Memorandum, Memorandum of
Understanding and Project Document regulations.
4. Project funds expenditures have been made in
compliance with the laws, secondary legislation,
internal rules, contracts signed and the powers
given to the respective officials.
5. The organization established for distribution,
contracting, payment and expenditures control
has ensured the funds use for the objectives they
have been granted only.
6. The financial reporting and the documentation
are in compliance with the UNDP and EU rules
and regulations approved. Consolidated reports
on the funds disbursed have not been envisaged
and prepared according to the Bulgarian
legislation.
7. The established internal control system allowed
an effective preventive, on-going and subsequent
control and monitoring to be carried out.
8. During the project implementation and after its
finalization the unemployment in the
municipalities has been temporary reduced.
9. A high level of publicity and transparency on
project activities has been achieved.
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The total amount of omissions and errors found does not
exceed the determined materiality threshold. This allows
the audit team to express reasonable assurance that the
omissions and errors in the management of Beautiful
Bulgaria II project funds do not prejudice substantially the
decisions of the users of report information.
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