Special Report 4/2013

Revenue audit of the Municipality of Agios Dimitrios

The main objectives of this audit were to evaluate the completeness of revenues, in the financial statements and the design, existence and functioning of the internal control framework regarding the revenue process.

The audit key message is that the Municipality misses revenue as consequence of public governance, internal control framework and financial reporting weaknesses. Weaknesses in the internal control framework concerning mainly the lack of policies and procedures are an important cause of the uncertainty of the revenue base of the Municipality. Furthermore, the absence of systematic debt monitoring procedures compromises the sustaining of actual service delivery or maintaining the existing service infrastructure, let alone undertaking new development work to meet the needs of the citizens.

The Municipality faces two major issues related to: receivables and revenue base completeness. The use of Public Accounting (cash basis) over General Accounting (accrual basis) has affected the presentation of the Municipality financial statements lead to financial data misconceptions and does not assure public accountability.

The main findings are as following: a. Uncollected fees and taxes were not depicted in the receivables as at financial statements. b. Revenues were recorded under the wrong financial year. c. No provision has been formed. d. Regulatory ambiguity and administration contradictions have led to the exclusion from the financial statements fines on arbitrary structures related to the Municipality’s territory.

The findings make it clear that there are many measures needed to achieve revenue completeness (receive all possible and legal revenues). Structural changes are needed; the local government organizations will have to redefine their goals and policies in order to adjust their organizational structure and make it work efficiently for the citizens. Internal control framework and accountability regarding municipalities will be one of the tools needed to lead the necessary changes.

Internationally developed standards for governance and internal control can prove helpful in restructuring and re-organizing the municipalities; it will take a well-developed program and strategy, incorporating cooperation between all relevant stakeholders.

Recommendations: a. the HCA audit team proposed that cooperation between municipalities and the Central Government should be promoted in order to unroll that strategy and make plans to develop good public governance. b The HCA audit team recommended to the responsible Ministries to proceed with the necessary law codification and simplification, facilitate public services interaction and initiate plans for the establishment of internal audit department for the Municipalities, and finally take actions to activate the Legality Controller role. c. The HCA audit team recommended to the Central Union of the Greek Municipalities (“KEDE”) to coordinate data requests from Municipalities to the Administrator of the Greek Electricity Distributor Network (AGEDN), and taking training initiatives for the municipalities’ personnel.