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04/09/2014   National Audit Office: municipalities are swamped in debts

The National Audit Office assessed the regularity of the management of public funds and assets by Lithuanian municipalities. “Municipalities still have problems in planning, accounting and managing funds and assets in accordance with law and most of them are swamped  in debts, which hampers investment projects of community importance,” said Auditor General Giedrė Švedienė commenting on the audit results in 60 municipalities.

Observations concerning issues of accounting were made to 47 municipalities. Most of the errors were related to the drawing up of financial statements, determination of the value of long-term fixed assets, improper accounting of investments in other entities and their own records, and compilation of inventory. Because of these errors, the balances of assets and liabilities shown in the sets of the financial statements of the municipalities were higher by LTL 267 million and LTL 359 million, respectively, meanwhile revenue and operating costs were lower respectively by LTL 68 million and LTL 10 million. In addition, it was not possible to verify the balances of assets and liabilities in the amount of LTL 3,648 million and LTL 2,215 million, respectively. The assessment of the financial statements of the municipalities also made use of the work done by the municipal Control and Audit Services.

At the end of 2013, local self-governments had debts in the amount of LTL 2,010 million. Borrowing opportunities of 25 municipalities have been limited because they do not have the right to borrow for investment projects implemented without EU support. Over the last ten years, municipal debts have increased five times. Most often municipalities run into debt while carrying out EU Structural Fund projects which require municipal contribution. Debts for implementing such projects accounted for about 50 per cent of all municipal debt. Municipalities do not have a clear debt management strategy, so they were warned of the risk of not being able to carry out investment projects, manage their debt liabilities, and balance their budgets if they come close to the maximum borrowing limit and lose the right to borrow, which in the future may pose a threat to financial sustainability. It should also be noted that the amount of municipal debt does not reflect the real situation of the municipal indebtedness. The lack of legal regulation determined that a number of municipalities did not refer to all liabilities to creditors as debt and one municipality started to apply alternative means of borrowing thus avoiding the established borrowing procedures.

Other audit observations concerned the planning and use of state budget funds allocated to municipalities. Not all state budget funds were referred to as municipal budget revenues. As a result, municipal budget execution reports failed to show information on the use of public funds in the amount of LTL 2.4 billion (LTL 2,414 million). There is no funding procedure laid down at the state level for the maintenance of institutions transferred to municipalities. Therefore, the funding of specific institutions can often depend on the decision of the respective ministry.

Neither government institutions and agencies nor municipalities have been paying enough attention to public investment planning: new projects are planned without having completed the ongoing ones, projects have been lasting ten years and more, not all projects remain relevant for such long period of time, with increasing implementation costs. The reasons of including new projects in the Public Investment Programme are often unclear, meanwhile follow-up projects do not receive funding and so their implementation gets delayed. Public investment projects bring social and economic benefits to municipalities, however, such projects are usually planned to be carried out using public funds, with little contribution from the municipalities.

The National Audit Office made recommendations to help municipalities ensure more efficient use of public funds and assets and manage their increasing debt.

 

Responsible for the information Communication Division
Last updated on 6 October 2014

National Audit Office of Lithuania

Pamėnkalnio St 27, LT-01113 Vilnius, Phone: + 370 5 266 6793, + 370 5 266 6752, Email: nao@vkontrole.lt.