WITH DEFICIENCES OF VIEW
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The Court of Accounts of the Republic of Moldova, on May 30, examined during the online meeting the Report of the financial audit on the Report of the Government on the execution of the state budget for 2021, the compliance audit report on state debt management, state guarantees and state recredit in 2021 and the Audit Report on the consolidated financial statements of the Ministry of Finance (MoF) concluded on December 31, 2021.
With regard to the overall execution of the state budget, the audit mentioned that, according to the Government’s Report, the specified parameters of the state budget were achieved, in proportion of 107.7% in revenues, with an excess of about 3.5 billion lei, and 93.9% of non-financial expenses and assets were executed, being 3.5 billion lei lower.
Given that the state budget for 2021 was specified with a deficit of about 11.8 billion lei, the budget year ended with a deficit of 4.7 billion lei, or 7.1 billion lei below the level of the specified deficit.
The balances of the funds, on December 31, 2021, constituted 9.1 billion lei, increasing 2.2 times, compared to the previous year, of which, at the basic component in the amount of 7.7 billion lei, the projects financed from external sources - 1.3 billion lei.
The final provisions for the state budget revenues were executed in a total amount of 49.4 billion lei, out of which for taxes and fees in the amount of 44.5 billion lei. The level of execution in the proportion of 107.7% in revenues was largely influenced by the changes operated in the budgetary-fiscal policy.
According to the data reported by the Ministry of Public Finance, the arrears on the payment of taxpayers' obligations towards the state budget amounted to 1.9 billion lei, which, compared to the previous year, increased by 542 million lei. In the structure of arrears, the preponderant part belongs to the taxes and duties administered by the bodies of the State Tax Service, which constitute 82.2%, or 1.6 billion lei. The arrears administered and reported by the Customs Service in 2021 constituted 17.8%, or 344 million lei of the total arrears.
The execution of the state budget expenditures amounted to a total of 54.1 billion lei, which in terms of economic classification, are related to: transfers to other budgets - 31.2 billion lei, personnel expenses - 7.8 billion lei, subsidies - 3.3 billion lei, other expenses - 3.0 billion lei, fixed assets - 2.8 billion lei, interest - 1,9 billion lei, etc.
One of the observations of the audit relates to the identification of reservations on the planning and estimation of expenditure limits for the implementation of the unitary salary system in the budgetary sector. Thus, some authorities continue to request additional allocations, respectively, the MoF has planned a centralized allocation fund in the amount of 170 million lei. Subsequently, based on Government decisions, 137.5 million lei were redistributed.
Also, analogous to previous years, the trend of a low level of capitalization of state budget allocations for capital investments has been maintained. Thus, in 2021, the volume of allocations initially approved for capital investments amounted to 1.6 billion lei, later the specified amount amounted to 2.3 billion lei. In the end, the capital investment expenditures were executed in the amount of 1.7 billion lei.
Another aspect highlighted by this audit is related to the state budget expenditures executed from the Government's emergency funds. For 2021, the Government's emergency funds amounted to 823 million lei, including 500 million lei - the reserve fund, and 323 million lei - the intervention fund.
The audit verifications showed that the significant share of 46.7% or 84.7 million lei from the reserve fund belongs to the allocation of financial means for the organization and conduct of the early parliamentary elections, established for July 11, 2021. At the same time, from the reserve fund were executed means for: procuring the vaccine against COVID-19 (27.7 million lei), awarding the athletes for the performances obtained at the 2021 Olympic and Paralympic Games -10.8 million lei, payment of fees of some law firms 1.7 million lei, expenses related to the use of humanitarian aid granted by Romania to support farmers affected by drought - 2.8 million lei and financing the compensation programs started within the State Program "First House" - 21.1 million lei. In this context, the audit highlighted that not all expenditures executed from the Government's reserve fund meet at the same time all the eligibility criteria established by the regulatory framework, having an impact on the compliance of the use of its resources.
The audit also identified an upward trend in state budget expenditures for payments related to enforcement documents. In 2021, public funds were used for these purposes in the total amount of 189.2 million lei, which is 3.3 times more than in 2020, or more by 131 million lei. Thus, out of the total expenditures executed directly by the MoF, 106.2 million lei were paid, and 83 million lei - by the budget executors. An increased risk in this identified audit department is related to the significant increase in expenses for the payment of enforcement documents based on the decisions and rulings of the European Court of Human Rights, respectively 47.4 and 42.5 million lei. At the same time, the partial execution of a title issued by The Hague Arbitral Tribunal in the amount of 74.4 million lei is also mentioned. Thus, these three titles constitute about 87% of the total expenditure executed for the payments related to the executory documents.
The external public audit reveals the further increase of the degree of financial dependence of the budgets of another level compared to the financing from the state budget, in 2021 constituting 31.2 billion lei, or 57.6% of the total state budget expenditures.
In 2021, the state budget expenditures for subsidies and grants granted from the state budget to public institutions amounted to about 4 billion lei. This highlights the need to develop the regulatory framework for regulating the activity of public institutions, including the determination of clear and unique principles for granting grants and subsidies from the state budget, and, where appropriate, how to transfer part of revenue to budget.
Another finding that needs to be highlighted is the process of reorganizing 4 central public authorities, through dismemberment (separation). Thus, this process started with delays and some deviations, which generated delays in financial reporting, but without causing an impact on the execution of the state budget. The audit checks show that 3 central public authorities did not meet the deadline, being extended upon request, the reporting periods up to 22 days.
In the context of the above, the Court of Accounts considers that the Government's report on the execution of the state budget, for the budget year concluded on December 31, 2021, provides, in all significant respects, a correct and accurate picture of the execution, according to the applicable financial reporting framework, having regard to the responsibility of the Ministry of Finance for the execution of the state budget by the cash method.
With regard to the Report of the Compliance Audit Report on State Debt Management, State Guarantees and State Recredit in 2021, the Court of Accounts mentions the following.
At the end of 2021, the balance of the state debt amounted to 77.8 billion lei, or increasing by 9.9 billion lei compared to 2020. At the same time, the level reached was within the limits approved throughout the Annual Budget Law. As a share of GDP, the state debt amounted to 32.1%, or a decrease compared to the previous year by 1.9 percent.
The evolving analysis shows that, over the last 5 years, the largest share of the total government debt is constantly due to the external government debt and represents the financial obligations of the state towards creditors in the foreign market, which are entirely denominated in foreign currency, are exposed to foreign exchange risk.
The total volume of foreign loan disbursements in 2021 amounted to 522 million US dollars, equivalent to 9.2 billion lei, or less compared to 2020 by 29.6 million US dollars. Out of the total volume of disbursements, 187.6 million US dollars was disbursed to finance investment projects and 334.4 million US dollars - financial assistance to support the budget.
As in previous years, the level of loan disbursements is low. In some cases the disbursement takes place late, the objectives in the implementation of the investment projects not being reached. The causes that determined the non-observance of the project implementation deadlines are: restructuring projects or modifying their components, which are often not accepted by funders; lengthy procurement processes; irrational planning of the time of execution of works or provision of services; slow execution of works, etc.
In 2021, about 31.5 billion lei were paid for servicing the state debt, including 29.6 billion lei for the repayment of the principal amount and the redemption of state securities (SS) matured and about 1.9 billion lei for payment of interest and commissions. Compared to 2020, in order to serve the state debt, in 2021, 15.4 billion lei were paid more.
At the end of 2021, the balance of the debt of the banks subject to liquidation, as a result of the previous issue of the SS for financial stability and for the execution of payment obligations derived from state guarantees amounted to 11.8 billion lei. During 2021, only 0.1 billion lei were reimbursed. The audit mentions that, out of the total debt taken over by MoF of about 13.8 billion lei, on December 31, 2021, the banks subject to liquidation returned only 1.9 billion lei, which is only 14.3%.
In 2021, the second case of activation of the state guarantee was registered within the “First House” Program, from the state budget being decommissioned state financial means in the amount of 183.3 thousand lei. In this context, the audit identifies the risk of increasing the number of beneficiaries who will not be able to meet their obligations towards the approved loans, given that the inflation rate is increasing from year to year.
Based on the audit work carried out, it is concluded that, although the MoF takes steps to ensure the management of state debt, state guarantees and state recrediting in accordance with the legal framework, they need continuous improvement. The audit also made recommendations in this regard, which are geared towards improvements in the area audited.
Concerning the audit of the consolidated financial statements of the Ministry of Finance concluded on 31 December 2021, The Court of Accounts noted that some issues have been identified which, although they did not influence the audit opinion, need to be communicated in order to improve the internal management control system of the MoF and its subordinate institutions.
Among the issues identified were:
- the non-completion by the MoF of the evaluation process of 10 information systems for the registration in the accounting records;
- insufficient regulation in the normative framework of the procedures related to the way of accounting for some confiscated goods that do not belong to the State Tax Service and the Customs Service;
- the reduced level of capitalization of capital investments by the State Tax Service of 22.8% and the Customs Service of 42.7% will be maintained in 2021;
- there are reservations about the planning of spending limits for the remuneration of employees' work, the largest balances of allowances being certified at the State Tax Service in the amount of 7.2 million lei and at the Customs Service, in the amount of 2.4 million lei;
- in terms of expenses, receivables are reported in the total amount of 4.9 million lei, of which 3.88 million lei are with expired payment term, being fully formed within the State Tax Service, as a result of the advancement of executors' expenses under the conditions provided by the legal framework, being increasing from year to year;
- non-completion of the reorganization process of the Customs Service.
Generalizing the findings, the Court of Accounts concludes that, in all material respects, the consolidated financial statements of the MoF as at 31 December 2021 provide a fair and accurate picture according to the applicable financial reporting framework, with sufficient and appropriate audit evidence to provide our opinion.
