What does the Report of the European Commission shows: No Progress in the Reform of Managing the Public Finances

State Audit Institution cannot carry out the tasks in its current composition, legal amendments in the area of ​​public procurement caused stagnation, while civil society should be more involved in the monitoring of Public Finance Management Reform Programme – these are the conclusions from the European Commission’s Report for Montenegro.

By fulfilling the Chapter 32 – Financial Control, Montenegro has made limited progress and is moderately prepared in this period. However, comparing to results achieved in 2015 and 2016, when there was good progress achieved in this chapter, now Montenegro backslides. In Chapter 32, areas where the good progress was made are internal and external audits.

Photo: Foundation for Economic Education
Photo: Foundation for Economic Education

When it comes to internal audit, noted progress is reflected in the fact that most public sector bodies set up internal audit. Progress is also reflected in strengthening the capacity of internal auditors by their attending of the training courses, aligned with international standards of auditing. Most internal audit unit have adopted strategic and annual internal audit plans. The number of recommendations and the level of their implementation are increasing. Although most public sector bodies have set up internal audits, they don’t meet the required legal requirements. The European Commission doesn’t further elaborate on this state of affairs.

When it comes to external audit, the capacities of State Audit Institution remain problematic, as the European Commission estimated, so the SAI cannot perform a large amount of work in its current composition. Some of the innovations in the SAI’s work, are noted in the report, and relate to the adoption of the new SAI Strategic Development Plan 2018-2020. When it comes to audit quality, SAI has adopted the methodology from auditing Final Budget Account of Montenegro, a new manual for auditing success, as well as guidelines for auditing quality control. The compatible ISSAI methodology, which auditors need to handle in their work, is not yet fully developed. When it comes to the impact of state audit, the European Commission points out that the SAI rarely submits individual reports to Parliament, and refers to the fact that only 5 of 41 reports were submitted to Parliament in 2016, while on the other hand there is a limited use of SAI’s report by the Parliament.

In addition to internal and external audit, in the area of ​​financial control, ie public finance management, the European Commission also evaluates Public Internal Financial Control (PIFC). Within this area, Commission recommends further efforts to strengthen the managerial accountability of subordinate bodies in the public sector, as well as to work on medium-term strategic planning that is not linked to the government’s work program. Annual plans and reports are focused on the activity process by itself, but not on aims and measurable indicators. Internal financial control is not equally represented, although several institutions have adopted annual internal financial management and control action plans. The report states that Central Budget Inspectorate doesn’t have enough staff and is not fully operational.

The amendments of the Public Procurement Law from June 2017 are not harmonised with EU rules, so the European Commission noted backsliding. The amendments are adopted without public consultation, don’t recognise low-value procurement, as well as defence and security procurement, and introduce several exceptions which are not recognised by EU legal principles.

In this report, the European Commission noted the lack of systematic involvement of civil society in monitoring the implementation of the Public Financial Management Reform Programme 2016-2020. The European Commission also noted that budget units do not proactively publish budget information, and that it is necessary to improve budget drafts and budget accounts in terms of quality and comprehensiveness. In addition to highlighting the progress made by European Commission on budgetary transparency in Montenegro, it also emphasises the need to further strengthen transparency through Montenegro’s participation in the Open Budget Index as well as the development of a “citizen budget”.

Report for Montenegro 2018, published by the European Commission on 17 April 2018 is available here.

Institute Alternative Team

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