Report activity of Chamber of Accounts of Republic of Azerbaijan for 2010

The activity of the Chamber of Accounts in 2010 was carried out in accordance with legislative acts in effect, approved work plan and other relative normative documents.

The report emphasized the successful results such as maintaining macroeconomic and social stability, ensuring sustainable economy, improving a favorable investment climate that would encourage economic activity, directing vital resources to the fixed capital from all financial sources for the development of economic and social spheres, significantly increasing the volume of the country’s currency reserves and strengthening the country’s financial potential despite the ongoing economic tension in most countries due to the global  financial-economic crisis. It was stressed that under these circumstances efficient external public audit, besides supporting quick implementation of the fiscal policy and maintaining financial stability, has allowed observing the law in the flexible management of public assets in the process of drafting and executing the state budget and extra-budgetary state funds, monitoring the efficient and purposeful utilization of these assets and eliminating faults and drawbacks in individual budgetary organizations in this field.

It was noted that public auditing should be more transparent, efficient and workable, financial discipline in the utilization of budgetary funds should be further strengthened and be adequate to the existing economic conditions in our country. All this has made it an important task for the Chamber to expand its activities in eliminating cases of misuse of budgetary funds and corruption offences.

In accordance with the execution of functions of the Chamber of Accounts determined by the legislation, the following indicated opinions in the area of expert analytic activity in 2010 were prepared and presented to Milli Majlis of the Republic of Azerbaijan:

• opinion to the draft Law of the Republic of Azerbaijan “On the execution of the state budget of the Republic of Azerbaijan in 2009” and to the annual report on the execution of the budget;

opinion to the draft Law of the Republic of Azerbaijan “On making changes to the Law of the Republic of Azerbaijan on the State Budget of the Republic of Azerbaijan in 2010”;

• opinion to the draft Law of the Republic of Azerbaijan “On the execution of the state budget of the Republic of Azerbaijan in 2011”.

• opinion to the draft Law of the Republic of Azerbaijan “On the execution of the state budget of the State Social Protection Fund of the Republic of Azerbaijan in 2011”.

The Chamber of Accounts paid special attention to the efficient and high-quality implementation of its auditing functions and carried out 23 audits, 21 expert analytic activities and one monitoring in 2008, 31 audits and 10 expert analytic activities in 2009 and  41 audits and 6 expert analytic activities in 2010. As can be seen, when conducting audits, the Chamber preferred post-audits and carried out eight and ten audits more than in 2008 and 2009 respectively.

These audits were conducted with the purpose of checking the formation and execution of tax revenues in accordance with the legislation, timely and efficient use of resources allocated from the state budget in terms of their scope, structure and assignment, financial transactions involving these resources in accordance with the rules and periods determined by the legislation.

As a result of the audits, the Chamber revealed faults and gaps in the areas of registration and awareness raising of tax payers about the revenues of the state budget, submission of tax declarations, application of modern information technologies in this sphere, the volume of circulation of electron documents which will help strengthen transparency in the tax system, the amount of debts in the reporting year, forecast indicators on separate trade types without totally determining taxation basis, full payment of the calculated funds to the state budget, the low level in payment of voluntary contributions among registered tax payers, violation of the requirements of the relevant regulatory and legal acts during out-of-office tax audits, conclusion of agreements with persons who are not registered as taxpayers. It was recommended that tax administration be improved, the pace of reducing tax arrears be acceletrated, tasks on a different type of payment and region be implemented, harmony in collecting taxes be preserved and more advanced methods and mechanisms be used.

The report notes such progress as drafting forecast projects as sections, paragraphs and expense articles of functional and economic classification by following the requirements of the existing rules in the expenditures of the state budget, developing cost estimates and tarifficaton lists according to regulatory documents, implementing activities according to the Pension Reform Conception in places, regular automation of pension-related issues, spending the funds for paying pensions as assigned, preparing usage instructions of chemical, biological and other drugs and implementing activities according to those rules, accelerating taken measures for protecting cattle and other animals from diseases by implementing necessary veterinary measures, keeping collector drain systems, hydro technical and hydrometric installations in a working condition, implementing bank protection and dam construction activities, issuing on-time certification and inventory taking of housing entities, making assigned use of non-residential areas, developing the infrastructure of railroads and generally operating railways, strengthening activities preventing cases of early erosion and destruction of roads and road structures, conducting feasibility studies and timely drafting project estimates for planning, building and reconstructing highways, bridges, tunnels and other related road constructions, improving power supply, modernizing the existing electric cables and substation equipmentsin accordance with the investment program.

The report also discovered several faults and gaps such as incorrect determination of actual needs when drafting budgets for costs allocated to budgetary organizations, violation of harmony in the execution of estimate costs, issuance of unintended rewards and financial aid to employees, overpayment of per diem expenses, establishment of departments with minor staff units, signing of short-term labor contracts intead of civil legal contracts with physical entities, maintenance of additional staff, assignment of above-the-quota teaching hours for senior staff, increase in the actual teaching hours in paying salaries to pedagogical employees by violating certain instructions and generalizing this increase to other additional payments, overpayment to employees who are on maternity leave or ill, failure to collect education fees on time, identification of additional tariff rates in the health sector, surplus or deficit of food products, medicine and bandage, violation of the norms on food products and fuel consumption, over-expenditure on holding international events, changing assignment of costs, failure to accomplish repair,  failure to consider income potential on compulsory public social insurance fees, failure to observe the law in implementing procedures related to appointment of pensions, expoprt of some plants and plant growing products in the field of phytosanitary and veterinary service without quarantine permission, write-off of excessive veterinary drugs, cases of exceeding the demand as specified in the plan of action during the purchase of veterinarian preparations, miscalculation of incomes on relevant residential areas during forecasting funds in housing and utilities, increase in costs due to incorrect consideration of registered population, undercalculation of useage fees for apartments, inaccurate accounting of repair work, drafting of schemes for cleaning streets and greenness without indicating addresses in each area, drafting of some project estimates in investment area without special consent (license), non-transfer of received funds on signed leasing contracts to the state budget, write-off of funds from the accounts of accountable persons directly to the expenses without confirming documents, failure to indicate absolute obligations in signed contracts between customer and contractor concerning construction work, prolongation of  implementation period of activity and increase in the value as a result of bad organization, failure to draft any reports on growth rates applied to road repair work, undetermination of alleged costs of purchasable goods (work, services) during purchase of some goods in public purchases sphere, division of purchases to separate contracts for eliminating amount restriction, stock of goods without conducting purchase procedures, change of assignment without any consent of relevant executive power, cases of changing procurement methods and failure to implement purchases on drafting project estimates of objects in accordance with the legislative requirements.

Within the framework of the audit on drafting the local expenditures and implementation of public funds allocated to state organizations financed from local costs of Shaki town, the Chamber of Accounts of the Republic of Azerbaijan has revealed great damage caused to the state during the audit on status of utilizing and forecasting funds allocated to the department of Culture and Tourism of Shaki from local costs regarding the section "Education" and sub-section "Activities in the area of art and culture" on public budget.

So far as the Chamber found out that the money have been misused by the responsible officials of the department from cash box unreasonably, the final amount on payroll lists has been increased, one of the part of surplus funds generated due to increase the funds assigned for employees in payroll list has been transferred to the accounts of employees and external persons in the branches of International Bank, Kapital Bank, Rabita Bank and Damiryol Bank, the remaining part has been charged to the fake ATM cards of unidentified persons outside the department as well as to the second fake ATM cards of employees of various sections of the department, the funds have been unreasonably written off from cash box at the expense of increasing numbers of recipients of benefits, accumulated cash on specific funds haven’t been received, the volumes of current and capital repair work have been increased intentionally, as well as such as serious faults and gaps have been committed.

The Chamber of Accounts of the Republic of Azerbaijan sent the audit findings concerning the Shaki "Tourism" and "Culture" department to the General Prosecutor Office by the decision of its board.

In the direction of conducting external audit it was indicated in the report as a result of audit activities for the financial year of the Chamber that it restored several times more funds to the budget than its cost budget, inefficient expenditures were prevented, properly accounting was ensured, urgent measures for eliminating faults and gaps and disciplinary measures against the responsible persons for admitted lacks and financial irregularities were taken and relevant government authorities supported a number of proposals made by the Chamber.

Detailed information about the work done in the direction of regulating current activities was given in accordance with the audits conducted by the Chamber of Accounts of the Republic of Azerbaijan, including:

• Relevant profession degrees were given to 25 colleagues of the Chamber of Accounts in accordance with the Decree of the Chairman of the Chamber of Accounts numbered 810 dated 6 august 2008 on making amendments to “The collection of classification of main and subsidiary functions” approved by the Decree numbered 911 dated 4 august 2003 and “Rules on giving profession degrees to the civil servants in state bodies” approved by the Decree numbered 569 dated 3 September 2001 of the President of the Republic of Azerbaijan, to the Law of the Republic of Azerbaijan on “Civil service” in order to settle the issues arising from the measures related to the encouragement of civil servants;

• the appeals to the Chamber were timely examined by the Chamber of Accounts, applicants were informed about investigations in an appropriate order and those applicants were accepted by responsible people in necessary cases and the questions were responded in compliance with the Law of the Republic of Azerbaijan “On the rule of examination the requests of the citizens”, “Rules on conducting clerical work on proposals, applications and complaints of the citizens at state authority bodies, offices, organizations and entities” approved by the Decree of the President of the Republic of Azerbaijan No. 52 dated 29 December 1998, “On the rules of reception of citizens in the Chamber and conducting clerical work on proposals, applications and complaints of the citizens at the Chamber of Accounts of the Republic of Azerbaijan” approved by the meeting decision numbered 19/151 dated 03 August 2007 of the Chamber of Accounts.

Also Chamber of Accounts presented its yearly report to the Prime Minister of the Republic of Azerbaijan regarding the works connected with the execution of the Order numbered 2292, dated 28 July 2007 of the President of the Republic of Azerbaijan on “Increasing transparency and application of National Strategy on fighting against the corruption”.

In order to strengthen the capacity of the Chamber “The Agreement (SECO Project Number: UR-00379.01.01) on technical maintenance on the Corporate and Public Sector Accountability project between the Government of the Republic of Azerbaijan and the Government of the Swiss Confederation was signed by Ambassador of the Swiss Confederation in Azerbaijan and the Chairman of the Chamber of Accounts in the administrative office of the Chamber in 8 December 2010 in accordance with the disposal numbered 211s dated 22 July 2010 of the Cabinet of Ministers of the Republic of Azerbaijan to ensure the implementation of Strategic Development Plan of the Chamber and to carry out the measures envisaged on 2nd component project Public Sector Accountability.

The number of the Understanding Memorandums signed by the Chamber of Accounts and other state bodies reached 6 as there was signed a new understanding memorandum on the cooperation between the Chamber of Accounts and the Chamber of Auditors of the Republic of Azerbaijan.

• Following the reporting year the amendments have been made to the legislative acts which regulates the activities of the Chamber to utilize public funds in a assigned and economical manner, as well as to ensure the expansion of the powers of the Chamber in the direction of strengthening financial control. So the 12th paragraph on the following content has been added to the second Article of the Law of the Republic of Azerbaijan “On the Chamber of Accounts” based on the law numbered 954-IIIQD dated 12 February 2010 of the Republic of Azerbaijan:

• “The Chamber sends the relevant material to the General Prosecutor's Office without delay as soon as the signs of criminal offense have been discovered during the auditing of the management and disposal of state property, execution of the state budget, payment of funds obtained from privatization of state property to the state budget, utilization of the funds allocated from the state budget for legal entities and municipalities purposefully”.

• In accordance with Article 4 of the Internal Regulations of the Chamber of Accounts of the Republic of Azerbaijan 269-II dated 05 March 2002, the Chamber drafted and approved the Rules of conducting joint and parallel audits between the Chamber of Accounts of the Republic of Azerbaijan and foreign SAIs, the Rules of controlling the implementation of decisions made by the Board of the Chamber on the results of its audits, the Rules of obtaining audit evidence in the audits of the Chamber, the rules of verification of observance of the requirements of legal and regulatory acts in entities audited by the Chamber and th Rules of quality management of audits by the Chamber.

• the Chamber of Accounts provided opinions on the adoption of the second round evaluation report concerning the Republic of Azerbaijan and the recommendations on fighting corruption on 31 March 2010 within the framework of the Istanbul Plan of the East Europe and Central Asia Anti-Corruption Network of the Organization for Economic Cooperation and Development, which were forwarded by the Commission on Fighting Corruption of the Republic of Azerbaijan.

• the Chamber of Accounts drafted and submitted proposals containing 32 items to the Cabinet of Ministers of the Republic of Azerbaijan with letter No. 1/2/01-222 dated 25 February 2010 in order to ensure that the State Budget is formed accordingly and funds from the State Budget are disbursed as assigned, public control over the management of state property and state assets is strengthened, controls are improved and transparency is increased and the gaps in legislation and regulatory and methodic documents are narrowed. The proposals called for determining the exact number of managers, administrators, teachers, medical and service personnel in schools and institutions of secondary and higher education, organizing circles in out-of-school facilities, making extra payments to the staff working in education institutions, drafting regulations or revising the existing instructions on education of persons with limited health abilities and nutrition norms of citizens in schools, hospitals and other social facilities, making the required changes to the laws on subsistence minimum and targeted state social aid, eliminating additional allowances on determination of disability status or establishing a fixed amount irrespective of years of service and severity of disability (excluding sight impaired persons), drafting regulatory documents identifying the number of staff in the central library and calculating subsidies for damage refund for housing and utilities entities and replacing the temporary Regulations with the Regulations containing the revised norms, reviewing tariffs for sell-off of main species of trees and bushes and fines for illegal hunting, drafting an appropriate legal and regulatory document on growing and selling farming crops, identifying time frames for the implementation of the procedure to procure goods (work and services) with the application of other procurement methods approved by the appropriate government authorities in the area of public procurement, clarifying the terms of using the method of single-source procurement, regularly posting information on procurements on the official websites of organizations, using as a basis the number of qualified bidders with real offers rather than the number of bidders in a tender, barring persons who are involved in calculating approximate amounts from participating in the procurement procedure, specifying the guarantee for contract implementation and keeping it valid until the expiry of the contract, simplifying the requirements for quoting-based procurements, revising up the minimum amounts for assumed prices of goods (work and services) identified by the relevant executive authorities for an open tender or quoting, drafting the appropriate instructions regulating the mechanisms of smooth implementation of the Law on Public Procurements of the Republic of Azerbaijan, ensuring refund of value added and excise taxes paid by foreign diplomatic missions of the Republic of Azerbaijan for the goods purchased and services delivered and their repayment to the State Budget within five banking days, clarifying the rules of accounting of fixed assets in foreign diplomatic missions, making the required changes in legislation to clarify the powers of supervision over the consumer market and increasing the amounts of fines for breaking the rules of sale of ethyl spiritis, alcoholic beverages and tobacco products.

• members and staff of the Chamber of Accounts participated in international conferences and events organized abroad by foreign SAIs and their international organizations (INTOSAI, EUROSAI, ASOSAI, ECOSAI, etc.) in the area of fighting corruption and ensuring transparency in the work of SAIs. A representative from the Chamber of Accounts was included into the expert group of the government, which attended the meeting of the Expert Group of the UNODC on the implementation of the UN Anti-Corruption Convention in June 2010.

The Chamber continued to strengthen bilateral relations with INTOSAI and its regional groups (ASOSAI and EUROSAI), as well as ECOSAI, and carry out comprehensive work in building bilateral and multilateral cooperation with SAIs of many countries during the reporting period.

Thus, the Chamber of Account drafted an agreement on cooperation with the State Control Committee of the Republic of Belarus and the Chairman of the Chamber and the Chairman of the State Control Committee signed the Agreement on cooperation between the Chamber of Accounts of the Republic of Azerbaijan and the State Control Committee of the Republic of Belarus in Baku on 03 June 2010 during the official visit of the President of Belarus, Alexander Lukashenka to Azerbaijan.

INTOSAI’s XX Congress (XX INCOSAI) was held in Johannesburg, the Republic of South Africa, on 22-27 June 2010 with SAI representatives from 152 countries participating. Azerbaijan was represented with a delegation led by the Deputy Chairman of the Chamber of Accounts.

The Chamber continued working to ensure participation of its staff in different international events, seminars and training courses organized abroad and the staff of the Chamber attended the following training, seminars and conferences:

• training on environmental auditing in Antalya, Turkey, on 05-06 April 2010;

• ASOSAI’s training on performance audit in Noida, India on 13 September – 08 October 2010;

• training on environmental auditing in Turkey, 0n 01-12 November 2010;

• seminar on IT audit in Kuala-Lumpur, Malaysia, on 22 November – 04 December 2010;

• seminar on strengthening external public audit in ASOSAI region in Seoul, the Republic of Korea, on 13-18 December 2010.

The Board of the Chamber held 23 meeting in the reporting period in order to regulate the work of the Chamber, making decisions on 84 issues concerning the execution of the Chamber’s functions. The Chamber has also received 1,239 documents from government entities, various national and foreign organizations, including 774 documents from government entities, 329 from foreign organizations, 99 from various national entities, 9 from the print media, 26 from government authorities, as well as 2 phoned telegrams, 239 books, journals and magazines. The Chamber sent a total of 1,077 letters to different addresses, including 69 to government authorities, 468 to government entities, 273 to various local entities, 251 to foreign organizations, 5 to the print media, 2 to physical entities and 9 phoned telegrams.

Like in the preivous years, the report contained information on strengthening the staff potential and logistics in order to ensure the current operations of the Chamber, recruiting highly qualified personnel, improving methodological support and drafting regulatory and methodic documents. Five new regulatory and methodic documents were drafted and approved with a view of regulating the activities of the Chamber in line with international practice and standards, and the Chamber sent 83 pronouncements to audited entities, their respective ministries, committees and general departments, as well as to other appropriate entities, on the basis of the audits conducted, which are 42 (102.4%) more than the pronouncements sent in 2008 and 26 (45.6%) more than those sent in 2009. A total of 36% of the pronouncements were forwarded to ministries, 8% to committees and general departments, 7% to extra-budgetary state funds, 27% to local entities and 22% to other entities.

The Ministry of Finance of the Republic of Azerbaijan paid a total membership fee of 878 Euros and 1,105 US dollars to INTOSAI, EUROSAI, ASOSAI and ECOSAI at the request of the Chamber of Accounts.

Information on the activities of the Chamber was regularly provided to the media in accordance with the Rules of preparation of information on the activities of the Chamber of Accounts of the Republic of Azerbaijan and its dissemination in the media in the form of press releases, reports or news items. Also, the Chamber replied to enquires from news agencies and media outlets.

The Chamber made a frequent use of its internet resources to ensure transparency in its own activities and provide the required information to the public in a timely and flexible manner. To ensure legislative, regulatory and methodic provision of its activities, the Chamber provided all the required information concerning all the sections of its website, including news, stories and announcements on the budget of the Chamber, public procurements and other areas of activity. The new English version of the website was developed and introduced in the reporting year. Both the Azerbaijani and English versions of the website were under technical maintenance throughout the year. Special attention was paid to the provision of the Chamber with modern information technologies.

Consequently, 139 appeals were submitted to the Chamber in 2010, which are 135.6% more than in 2009. A total of 79 appeals were on abuse of power, which are 97,5% more than in 2009. A total of 28 appeals were about social issues, which are 115.4% more than in 2009. Appeals were mostly about rights abuses in offices and entities where citizens work or worked, miscalculation of pensions and refusal to assist in providing social benefits. These complaints were properly reviewed and sent to the relevant authorities for investigation. The Chamber received seven appeals proposing carrying out extra audits, but it responded that it was impossible to carry out extra audits beyond the scope of the work plan and the proposals could be taken on board in making work plans for the next years. Furthermore, six of the appeals were on municipalities, 12 on employment, three on labor disputes and four on household problems. It should be noted that the overwhelming majority of the appeals received in recent three years are on abuse of power and social issues.

The State Budget for 2010 envisioned 3,727,000 manats for the effective operation of the Chamber, but only 2,913,100 manats were disbursed. In other words, the Chamber executed its budget at the level of 78.2%.

Thus, the Payment of Labor section of the economic classification of the State Budget, which made up 80.9% of all the costs, was executed by 79.8% or 2,404,900 manats were actually cashed against the allocated amount of 3,014,800.

The Procurement of Goods (Work and Services) section, which represented 15.7% of all the costs, was executed by 73.8% and 431,600 manats were spent against the allocation of 585,000.

The Pensions and Social Allowances section, which was 1.6% in the overall costs of the Chamber, was executed by 44.9% or 26,900 manats were used against the allocation of 59,800.

The Procurement of Non-Financial Assets section, which made up 1.2% in the overall costs, was executed by 97.4% or 45,300 manats were disbursed against the allocated amount of 46,500.

The Other Expenses section constituted 0.6% in the overall costs and executed by 21.3%. In other words, 4,400 manats were spent against the allocation of 20,800 manats.