AUDIT REPORT ON SPECIAL PURPOSE FINANCIAL STATEMENTS FOR THE PROJECT "IMPROVEMENT OF EDUCATIONAL SYSTEM IN KOSOVO” FOR THE PERIOD ENDED 31 DECEMBER 2018 Audit based on the agreement for the project financed from funds allocated by the World Bank Prishtina, July 2019 The National Audit Office of the Republic of Kosovo is the highest institution of economic and financial control which according to the Constitution and domestic legislation has functional, financial and operational independence. National Audit office carries out regularity and performance audits and for its work is accountable to the Assembly of Kosovo . Our Mission is that through quality audits strengthen accountability in public administration for an effective, efficient and economic use of national resources. We carry out audits in accordance with the recognized International audit standards in the public sector as well as with good European standards. The reports of the National Audit Office directly promote accountability of public institutions as they provide a base for holding managers’ of individual budget organizations to account. We are thus building confidence in the spending of public funds and playing an active role in securing taxpayers’ and other stakeholders’ interests in enhancing pub lic accountability. The Auditor General has decided on the audit opinion on the Annual Financial Report for the project “ Improvement of educational system in Kosovo ”, in consultation with the Assistant Auditor General, Vlora Spanca , who supervised the audit. The report issued is a result of the audit carried out by Laureta Matoshi-Pozhegu (Team Leader), Besa Morina and Mimoza Morina-Kelani (team member) under the management of the Head of Audit Department Enver Boqolli . NATIONAL AUDIT OFFICE St. Musine Kokollari, No. 87, Prishtina 10000, Kosovo Tel: +383(0) 38 60 60 04/1011 http://zka-rks.org http://zka-rks.org 2 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE TABLE OF CONTENTS Executive Summary ............................................................ Error! Bookmark not defined. 1 Audit Scope and Methodology ................................. Error! Bookmark not defined. 2 Special Purpose Annual Financial Statements and the audit opinion ............ Error! Bookmark not defined. Annex I: Explanation of the different types of opinion applied by the NAO........ Error! Bookmark not defined. Annex II: Special purpose financial statements of the project for 2018 ........................ 11 3 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Executive Summary Introduction This report summarizes key issues arising from our audit of Special Purpose Annual Financial Statements for the project “Improvement of educational system in Kosovo”, for the period ended 31.12.2018, which defines the Opinion of the Auditor General. Examination of special purpose Financial Statements was undertaken in accordance with the International Standards on Supreme Audit Institutions (ISSAIs). Our approach included such tests and procedures, as we deemed necessary to reach at an opinion on the financial statements. Our audit focus has been on: Issues related to The Annual Financial Financial Management procurement and the Report and Control process of payments The level of engagement to conduct the audit was determined depending on the quality of internal control implemented by the management of the Ministry of Education, science and Technology (in further text MEST) as well as by the Project Coordination Unit (in further text PCU). Opinion of the Auditor General Unmodified Opinion with emphasis of matter The Special Purpose Financial Statements present a true and fair view in all material aspects. Emphasis of matter We draw your attention to the fact that there is wrongful budgeting and payment form the category of the Capital investments of the amount of €81,141 for the purchases that according to their nature belong to the category of the goods and services. We would also like to draw your attention to the fact that Financial Statements are prepared in accordance with the framework designed for special purposes and therefore the financial statements cannot be used for other purposes. For more, please refer to Section 2.1 of this report. Annex I explains the different types of Opinions applied by the National Audit Office. 4 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 1 Audit Scope and Methodology Introduction The National Audit (NAO) is responsible for carrying out a Regularity Audit, which involves the examination and evaluation of the financial report and other financial records, and expression of opinion on:  Whether special purpose financial statements give a true and fair view of the accounts and financial affairs for the audited period;  Whether foreign funds have been used in compliance with conditions of respective financing agreements;  Whether the data, financial systems, and transactions comply with applicable laws and regulations for funds allocated by the World Bank;  Whether financial statements comply with the requirements of the special agreement between the Ministry of Economic Development and the World Bank;  The appropriateness of internal control functions; and  All matters arising from or relating to the audit. Audit methodology was focused on examination of financial data and transactions, including the supporting documentation. We have determined the level of detailed tests needed to provide evidence that support the opinion of the AG. Audit findings should not be considered as a comprehensive overview of all weaknesses that may exist, or of all improvements that can be done in operated systems and procedures. In the report shall be presented findings that are part of the opinion on the financial statements. While findings related to the financial management aspect, internal control functioning, and compliance issues will be summarized in the management letter. 5 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 2 Special Purpose Annual Financial Statements and the audit opinion Introduction Our audit of the Special Purpose Annual Financial Statements considers compliance with the reporting requirements according to the agreement, and the quality and accuracy of information presented in the financial statements. ku 2.1 Audit Opinion Unmodified Opinion with emphasis of matter We have audited the Special Purpose Financial Statements of the Project ”Improvement of educational system in Kosovo”, financed by the World Bank for the year ended 31.12.2018, which includes a summary of sources of funds and expenditures incurred, statement of applications for withdrawal of funds and disclosures. In our opinion, audited Special Purpose Financial Statements of the project “Improvement of educational system in Kosovo” for the year ended 31.12.2018 present a true and fair view in all material respects in accordance with reporting requirements under the agreement between parties, by adhering to principles of cash based accounting. Basis for the opinion Our audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that audit evidence obtained are sufficient and appropriate to provide a basis for the opinion. Emphasis of Matter We draw your attention to the fact that a portion of the expenses is wrongfully budgeted and spent from inadequate economical category. MEST/PCU has wrongfully classified as capital investments, the budged and consequently the payment in case of purchase of the IT equipment (Laptops and USBs) for PISA1 Project in the amount of € 81,141, that according to the Administrative Instruction 2005/08 fall under the category of goods and services. We would also like to draw your attention to the fact that Financial Statements for special purpose have been prepared in accordance with the framework for special purposes and therefore the financial statements cannot be used for other purposes. These financial statements are prepared to assist the Ministry to meet requirements set by the World Bank. Our opinion is not modified in relation to the above stated. 1 PISA –International program for assessment of students. 6 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Responsibility of Management and Persons Charged with Governance Management of MEST as implementer of the Project as well as the Chairman of the PCU are responsible for true and fair preparation of the special purpose financial statements, according to the agreement signed between the Republic of Kosovo represented by the Minister of Finance and the International Development Association. This information is comprised of the Statement of Funds and Their Use, and the Statement of Withdrawal of Funds. Auditor General’s Responsibility for the Audit Our responsibility is to express an opinion on the special purpose financial statements based on the audit carried out. We conducted our audit in accordance with ISSAIs. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that financial statements are free from material misstatements. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will detect any material misstatement that might exist. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could influence the decisions taken on the basis of this financial report. The audit involves performing procedures to obtain evidence about the financial records and disclosures in the special purpose financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement in the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation of special purpose financial statements, in order to design audit procedures that are appropriate for entity’s circumstances, but not for the purpose of expressing an opinion on the effectiveness of entity’s internal control. The audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluation of the presentation of the financial report. 7 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Annex I: Explanation of the different types of opinion applied by the NAO (extract from ISSAI 200) Form of opinion 147. The auditor should express an unmodified opinion if it is concluded that the financial statements are prepared, in all material respects, in accordance with the applicable financial framework. If the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement, the auditor should modify the opinion in the auditor’s report in accordance with the section on “Determining the type of modification to the auditor’s opinion”. 148. If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor should discuss the matter with the management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, determine whether it is necessary to modify the audit opinion. Modifications to the opinion in the auditor’s report 151. The auditor should modify the opinion in the auditor's report if it is concluded that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or if the auditor was unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement. Auditors may issue three types of modified opinions: a qualified opinion, an adverse opinion and a disclaimer of opinion. 8 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Determining the type of modification to the auditor’s opinion 152. The decision regarding which type of modified opinion is appropriate depends upon: The nature of the matter giving rise to the modification – that is, whether the financial statements are materially misstated or, in the event that it was impossible to obtain sufficient ditor’s judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements. 153. The auditor should express a qualified opinion if: (1) having obtained sufficient appropriate audit evidence, the auditor concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or (2) the auditor was unable to obtain sufficient appropriate audit evidence on which to base an opinion, but concludes that the effects on the financial statements of any undetected misstatements could be material but not pervasive. 154. The auditor should express an adverse opinion if, having obtained sufficient appropriate audit evidence, the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements. 155. The auditor should disclaim an opinion if, having been unable to obtain sufficient appropriate audit evidence on which to base the opinion, the auditor concludes that the effects on the financial statements of any undetected misstatements could be both material and pervasive. If, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the audit scope that the auditor considers likely to result in the need to express a qualified opinion or to disclaim an opinion on the financial statements, the auditor should request that management remove the limitation. 156. If expressing a modified audit opinion, the auditor should also modify the heading to correspond with the type of opinion expressed. ISSAI 170519 provides additional guidance on the specific language to use when expressing a modified opinion and describing the auditor’s responsibility. It also includes illustrative examples of reports. Emphasis of Matter paragraphs and Other Matters paragraphs in the auditor’s report 157. If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the financial statements that is of such importance that it is fundamental to their understanding of the financial statements, but there is sufficient appropriate evidence that the matter is not materially misstated in the financial statements, the auditor should include an Emphasis of Matter paragraph in the auditor’s report. Emphasis of Matter paragraphs should only refer to information presented or disclosed in the financial statements. 9 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 158. An Emphasis of Matter paragraph should:  be included immediately after the opinion;  use the Heading “Emphasis of Matter” or another appropriate heading;  include a clear reference to the matter being emphasised and indicate where the relevant disclosures that fully describe the matter can be found in the financial statements; and  indicate that the auditor’s opinion is not modified in respect of the matter emphasised. 159. If the auditor considers it necessary to communicate a matter, other than those that are presented or disclosed in the financial statements, which, in the auditor’s judgement, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report, and provided this is not prohibited by law or regulation, this should be done in a paragraph with the heading “Other Matter,” or another appropriate heading. This paragraph should appear immediately after the opinion and any Emphasis of Matter paragraph. 10 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Annex II: Special purpose financial statements for the project for 2018 11 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 12 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 13 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 14 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 15 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 16 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 17 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 18 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 19 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 20 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 21 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 22 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 23 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 24 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 25