world bank document...standards of the supreme audit institutions of level 3 – issai 100, issai...
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_____________________________________________________________________
Approved
through the Court of Account’s Decision
no. 27 dated July 19, 2016
Audit Report on financial statements of
Moldova Education Reform Project
for 2015 year
Recipients: Ministry of Education, World Bank,
Ministry of Finance,
Parliament and Government of the Republic of Moldova,
other stakeholders
CHISINAU 2016
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Content
I. PRESENTATION OF THE AUDITED AREA .................................................................................. 3
II. AUDIT BASIS, METHODOLOGY AND AUDIT SCOPE .................................................................. 4
2.1 Legal mandate and audited period ......................................................................................................... 4
2.2 Methodology and audit scope ................................................................................................................. 5
2.3 General and specific objectives .............................................................................................................. 5
III. RESPONSABILITIES ............................................................................................................................. 6
3.1 Responsibility of the parties involved in Project implementation .......................................................... 6
3.2 Responsibility of the audit team .............................................................................................................. 6
IV. AUDIT FINDINGS ................................................................................................................................. 6
4.1 On budget reporting .............................................................................................................................. 6
4.1.1 The operational process for budget planning in 2015 was not justified by supporting calculations,
the situation was rectified in the next fiscal year ......................................................................................... 7
4.1.2 Partial execution of budgetary funds for financing the design services related to school
rehabilitation7
4.1.3 The transactions on design and verification services were recorded to other accounts than those
planned, which determined the lack of their amounts in the consolidated balance sheet of the Ministry of
Education .................................................................................................................................................... 9
4.2 On reporting to the World Bank ........................................................................................................ 10
4.2.1 Examine the observance of the disbursement mechanism and analysis of funds used within the
project for 2015 year ................................................................................................................................. 10
4.2.2 Data on teachers’ remuneration were correctly presented in the Report on execution of teachers’
salaries (Component I) ............................................................................................................................... 11
4.2.3 The procurement procedures under WB rules were correctly carried out ....................................... 12
4.2.4 The reporting process to the World Bank does not contain misstatements, but some supervision and
monitoring activities need to be initiated .................................................................................................... 13
4.3 Execution of the prior Court of Accounts’ decision: ................................................................... 13
V. AUDIT RECOMMENDATIONS .......................................................................................................... 14
VI. AUDIT TEAM’S OPINIONS ............................................................................................................... 14
6.1 Qualified opinion on budget reporting ................................................................................................. 15
6.2 Unqualified opinion on interim financial reports ................................................................................. 15
ANNEXES .................................................................................................................................................... 16
3
I. PREZENTATION OF THE AUDITED AREA
In 2013, the Government of the Republic of Moldova and the International
Development Association signed the Financing Agreement (IDA 51960) to obtain a
credit in the amount of 26,1 million Special Drawing Rights (SDR) or US$40
million equivalent for successful implementation of structural reform in the
education sector. Moldova Education Reform Project (hereinafter – Project) is a
Specific Investment Loan1, which was designed to be implemented over five years
that follows a performance-based approach with disbursements linked to measurable
results. The Ministry of Education (hereinafter – MoEd or Ministry) is the authority
responsible for Project implementation and ensures its general management.
The project development objective is to strengthen the quality of education
while supporting the efficiency reforms being implemented in the education sector.
The Project consists of 3 components:
Figure no. 1 „Project components”
The Disbursement Linked Indicators (hereinafter – DLIs) are “floating” and
not bound by the year of achievement that is indicative only. The Project
components will mirror these strategic pillars in the education sector. The
Component III, which provides financing for technical assistance activities, will
follow disbursement methods, based on request applications, according to the World
Bank procedures.
The project activity is regulated by the provisions of the Financing
Agreement, Project Appraisal Document and Project Operations Manual
(hereinafter – POM), with its annexes. At the same time, the processes related to
1 The credit is granted for a reimbursement period of 25 years with five years grace period and interest rate of 1.65%
annually, starting on May 15, 2018, and 3.35% annually starting on May 15, 2028.
Component I „Strengthening the
quality of education”
• which covers the financing of 12 Disbursement Linked Indicators (DLIs) in the amount of SDR20,0 million or US$30,5 million equivalent (at the moment of negotiations) to achieve progress on strengthening the quality of primary and general secondary education by: implementing quality assurance standards in the selected schools; establishing teacher and school directors’ training and remuneration programs; improving student assessment system; improving the quality of data and management systems.
Component II
„Improving the efficiency of the
education sector”
• which covers the financing of 4 Disbursement Linked Indicators in the amount of SDR5,1 million or US$8,0 million equivalent (at the moment of negotiations) to achieve results on improving the efficiency of the education sector by eliminating excess capacity and creating a leaner education system.
Component III „Improving the
Ministry of Education's capacity
to monitor the reform”
• which covers the financing of SDR1,0 million or US$1,5 million equivalent (at the moment of negotiations) as technical assistance for provision of consultants’ services, non-consulting services, training and operating costs to support strengthening the Ministry of Education's institutional capacity to implement, measure and monitor the execution of Components I and II of the Project.
4
selection of consultants, procurement of goods /works and non-consulting services
are regulated by the World Bank Guidelines and are applicable to its projects.
Project financial management is carried out by:
- Minister of Education: Project General Director (hereinafter PGD) is responsible
for the Project general management;
- Deputy Minister of Education: Project Executive Director (hereinafter - PED) is
appointed by the Minister of Education and provides project oversight, overall policy
direction, strategic and implementation guidance, and review of overall project
progress.
- Coordinating Board is responsible for monitoring of school rehabilitation
process;
- Project Coordinator is the key liaison with the World Bank and is responsible for
monitoring the achievement of the DLIs; regular interactions and requesting “no
objections” from the World Bank; and coordinating implementation of project
components, etc.;
- Financial management specialist is responsible for budgeting and whole
accounting system of the Project according to the Government and World Bank
requirements, etc.
The Annex 1 to this Audit Report presents the reporting and supervision
relationships of the responsible persons.
Relative progress on Project implementation
During 2015 year, the results on Project implementation process could be
characterised as moderate with trends of improvement. Thus, the progress was noted in
three of the five areas of intervention: i) the students assessment system, ii) the quality
of data and management information system and iii) efficiency reforms in the general
education. At the same time, delays are ascertained in the implementation of quality
assurance standards for schools and the establishment of teacher and school directors
training and remuneration programs. The conclusion is supported by the fact that from
Project starting until the end of 2015, only 7 out of 16 DLIs have been achieved, and
US$14.3 million (35,6%) out of the original credit in the amount of US$ 40.0 million
has been disbursed. The detailed information is presented in Annex 2.
The financial progress of 2015 year was especially influenced by limitation of
financing from the state budget of the activities under Component I, which was imposed
in the context of the country’s economic situation.
II. AUDIT BASIS, METHODOLY AND AUDIT SCOPE
2.1 Legal mandate and audited period
The Court of Accounts, based on the legal mandate, provided by the Article 28
and Article 31 paragraph (1) item a) of the Law on the Court of Accounts no.261-
XVI dated December 05, 20082, and according to the Audit Activity Program of the
Court of Accounts for 20163, has conducted the audit of financial statements of
“Moldova Education Reform Project" for 2015 year. The audit mission was initiated
2 The Law on the Court of Accounts no. 261-XVI dated December 05, 2008 (with further amendments). 3 The Decision of the Court of Accounts no.46 dated December 14, 2015 “On approval of the Audit Activity Program of the Court
of Accounts for 2016 (with further amendments.
5
and conducted, at the Ministry of Education’s request, under the provisions of the
Financing Agreement signed between the Government of the Republic of Moldova
and the International Development Association, ratified by the Law no.89 dated
April 19, 20134, the obtained results being adjusted to the requirements set out in the
Terms of Reference for financial audit.
2.2 Methodology and audit scope
The Audit Mission was planned and carried out in accordance with the Audit
Standards applied by the Court of Accounts5 (ISSAI 100, ISSAI 200 and ISSAI
1000-2999) and good practices in the area of financial audit. Thus, the audit
approach was based on:
assessing the functionality of internal controls on procurement procedures and
remuneration of local consultants (Component III);
applying substantive procedures on the categories of financial transactions
regarding: planning of funds; carrying out and accounting of design services;
executing disbursements; reporting teachers’ salaries, as well as developing Project
financial statements. The audit evidence was obtained by testing the internal control and applying the
analytical procedures and detailed tests on a random selected sample, using various
techniques, such as: inspection, examination, information request and recalculation.
In addition, the Audit team requested the Project management’s written statement6
signed7, that is attached to this Audit Report (Annex 3) to substantiate the audit
evidence and tested assertion relevant for interim financial reports. The audit team also
monitored and reviewed general IT controls and applications implemented by the entity.
According to ISSAI 1260 „Communication with those charged with governance”,
the audit team informed the entity about all audit findings and recommendations,
including in the Report the most significant ones, both quantitatively and qualitatively.
2.3 General and specific objectives
The objective of the exercised financial audit was to assess the financial
management and control system within the Project and to obtain reasonable assurance
that for the fiscal year ended on December 31, 2015, all significant financial
transactions were recorded and Interim Financial Reports8 and Budgetary reports9
present true and accurate amounts, expressing the audit’s opinion.
4 The Law no.89 dated April 19, 2013 ,,On ratification of the Financing Agreement between the Republic of Moldova
and the International Development Association for Moldova Education Reform Project achievement”. 5 The Law of the Court of Accounts no.60 dated December 11, 2013 ,,On enforcement of International Audit
Standards of the Supreme Audit Institutions of level 3 – ISSAI 100, ISSAI 200, ISSAI 300, ISSAI 400, within the
audit missions of the Court of Accounts”; The Court of Accounts’ Decision no. 7 dated March 10, 2014 “On
application of Audit Guidelines (ISSAI 1000 – 9999) within the state audit. 6 ISSAI 1580 „Written representations” and Terms of Reference for the Project financial audit.
7 From January 01, 2015 to December 31, 2015, the Project General Director was the Ministry of Education and the
Project Executive Director was the Vice Minister of Education, having the duties of Project result monitoring. 8 Report on execution of teachers’ salaries; report on financing sources and uses of funds; Report on expenditures
shown under the main project components and by main categories of expenditures, both for the current fiscal year and
accumulated-to-date; A Summary of Summary reports; the Statement of Designated Account. 9 Budgetary Financial Report includes information on execution of Project Statement of Expenditures, Form 2 and 2
PI.
6
The specific objectives were determined as a result of applying analytical
procedures to audited area, and aim to:
Regarding
budget
reporting
rules
- verify the correctness of planning and execution of budget
resources designed for financing the design services for rehabilitation of
school premises;
- examine the completeness of transactions and truthfulness of
balances in the Project budgetary reports and other accounting aspects.
Regarding
the
reporting
criteria
established
by the
World Bank
- examine the observance of the disbursement mechanism and
analysis of funds used within the project for 2015;
- determine the truthfulness of data presentation in the Report on
execution of teachers’ salaries (Component II);
- evaluate the regularity of expenditures made on procurements
(consulting and non-consulting services) defined by the World Bank
procedures;
- verify the truthfulness and completeness of expenditures designed
for institutional support of the Ministry of Education, including balances
presented in the Interim Financial Reports (remuneration of local
consultants, operating costs).
III. RESPONSABILITIES
3.1 Responsibility of the parties involved in Project implementation
The Ministry of Education is responsible for establishing an efficient financial
management and internal control system for successful Project implementation that
would ensure proper and timely submission of the Interim Financial Reports to the
World Bank and Budget Financial Reports to the Ministry of Finance.
According to the established provisions, in order to carry out activities for daily
administration of funds under Component III of the Project and to provide support to
the Ministry of Education’s staff, a Coordination Team was established, which is
responsible for ensuring the financial management and developing Interim Financial
Reports and Budget Financial reports.
3.2 Responsibility of the audit team
The activity of the audit team was to assess significant financial transactions and
operations, according to the defined requirements, in order to provide reasonable
assurance that the amounts and disclosures in the Project financial reports for 2015
were properly recorded and accounted, are free from material misstatements and present
true and fair view on audited financial statements, by applying relevant audit
procedures to obtain sufficient and appropriate audit evidence.
IV. AUDIT FINDINGS
4.1 On budget reporting
7
4.1.1 The operational process for budget planning in 2015 was not justified by
supporting calculations, the situation was rectified in the next fiscal year
The Minister of Education as Project General Director is responsible for all Project
components implementation. At the same time, the Ministry of Finance is responsible
for funds allocation as budget support, to the Ministry of Education and local public
authorities for Project implementation. The transfers to the local public authorities
(hereinafter – LPA) are approved by the Law on the state budget, through which they
are authorised to use funds transferred by destination.
According to the article 3, paragraph (2) of the Law no. 72 dated April 12, 2015 on
the state budget for 2015 year, initially the amount of 110126,0 thousand lei was
planned for rehabilitation works of primary and general secondary schools,
subordinated to the local public authorities, and upon distribution of funds by the
Government10, an amount of 37463,6 thousand lei was approved. Further, only in the
fourth quarter of 2015, the amount of budgetary funds needed for rehabilitation works,
established by the law, was adjusted11 to the amount of 32754,2 thousand lei, thus
revealing a discrepancy in the approved amounts. The analytical evidence of the audit
team determined that the discrepancies found were caused by lack of supporting
calculations for each investment object, which was the basis for draft budget, as well as
given the actual execution of the approved plan.
In 2014, the Coordinating Board of the Project12 selected and approved 19 schools
to be rehabilitated. Thus, both in 2014 and in 2015 year, the financial resources were
allocated for rehabilitation of five schools and for procurement of design, technical
supervision, verification and expertise services. As the planned services and works were
not executed by the end of fiscal year 201413, the list of schools as well as their amounts
were redistributed and transferred for 2015 year (14763,6 thousand lei for rehabilitation
works; 22700,0 thousand lei for design services, verification of designs and technical
supervision).
4.1.2 Partial execution of budgetary funds for financing the design services related to
school rehabilitation
The MoEd, jointly with individual consultants, made efforts to administer financial
transactions for capital investments in school premises, according to the activities
provided in the Government decision no. 403 dated June 16, 2015. The Table 1 presents
the analysis of funds execution allocated for financing the rehabilitation works of the
primary and general secondary schools subordinated to the local public authorities.
Table no. 1
Analysis of funds execution allocated according to the Government Decision no. 403 dated
June 16, 2015 (thousand lei)
Content Distributed
in 2014 Distributed
in 2015 Contracted
amount
Executed as of
December
Paid in2015
Balance as of
December
% Executed
10
The Government decision no. 403 dated June 16, 2015 „On financing the rehabilitation works of the primary and
general secondary schools subordinated to the local public authorities in 2015” – (hereinafter GD no. 403 dated June
16, 2015). 11
The Law no. 200 dated November 20, 2015 „On amending the Law on the state budget for 2015 no. 72 dated April
12, 2015”. 12
The Prime Minister’s Order no.27-d dated 26.03.2014 on establishment of the Coordinating Board for monitoring of
school rehabilitation process. 13
The Government Decision no.859 dated October 08, 2014 „ On financing the rehabilitation works of the primary
and general secondary schools subordinated to the local public authorities in 2014”
8
31, 2015 31, 2015
* 1 2 3 4 5 6 7=4/2
Public authority, object
1. Lyceum in Tibirica village, Calarasi rayon
2009,4 682,0 1989,43 1866,21 1866,21 123,22
47
2. ”Alexandru cel Bun” Gymnasium in Varzaresti village, Nisporeni rayon
3730,1 4300,0 3756,1 1990,83 1990,83 1765,28
3. ”V. Anestiade” Lyceum in Saratenii Vechi, Telenesti rayon
706,9 887,6 682,8 Contract terminated
4. “M. Manole” Lyceum in Salcuta village, Causeni rayon
8198,5 7200,0 6524,7 3026,97 3026,96 3497,73
5. ”Vasile Pîrvan” Lyceum in Gotesti villlage, Cantemir rayon
702,1 1694,0 694,04 Contract terminated
Ministry of Education (design services, verification of designs and technical supervision)
7200,0 22700,0 12919,13 11048,7 9776,6 1272,2
TOTAL 22547,0 37463,6 26566,2 17932,7 16660,6 6658,4
Source: GD no. 403 dated June 16, 2015 and no. 859 dated October 08, 2014; Project accounting data
The data from the table show that, in 2015 year, the MoEd used only 47% of the
financial resources provided in the legal framework for the purpose of capital
investments in schools. The audit conclusion was supported by the following findings:
it was contracted 14 services/rehabilitation works in the amount of 26,7 million
lei or 71 % out of the allocated amount of 37,5 million lei, the reason being the lack of
substantiation of the draft budget;
the rehabilitation works for schools indicated in Table 1 are under execution and
commissioning, namely: (i) for Lyceum in Tibirica village, Calarasi rayon, to be
organized the final commissioning; (ii) the rehabilitation works for 2 schools are under
execution according to the contract; (iii) and the contracts were terminated for 2 schools
due to low quality of design documentation developed by the LPA;
the financial transactions with providers of design services were made with some
reservations as regards the procurement process, namely: inconsistency between the
provisions of contracts and technical specifications on inclusion of verification works;
divergences found in two repeated procedures, at evaluation stage15, also failure to
comply with the regulatory framework16 on the performance guarantee term which did
not correspond with the one established in the contract, thus being revealed the lack of
legal basis for recovering damages in case the economic operator does not fulfil the
contractual obligations.
The verification and technical supervision services were contracted through 16 low
value contracts in the amount of 565,2 thousand lei, including 3 contracts were for
procurement of technical supervision services for rehabilitation works in the amount of
83,42 thousand lei. Following the review carried out, by integral testing of a contract in
the amount of 28,5 thousand lei, the audit established that all key controls determined
are applied, observed and functional.
At the same time, by applying analytical procedures (comparing the information
from delivery acts, invoices and orders of payment) on a sample of 30% of population
14
23 contracts for designs, verification of designs and technical supervision of school in the total amount of 12,9
million lei and 5 contracts for rehabilitation works in the total amount of 13,6 million lei. 15
Rehabilitation of ,,V. Anestiade” Lyceum in Saratenii Vechi village, Telenesti rayon and of ,,A. Donici” Lyceum in
Ciuciuleni village, Hincesti rayon. 16
Item 104 from the Government Decision no.352 dated May 05, 2009 „ On approval of the Regulation on carrying
out the public procurements for design services”
9
or 4 contracts in the amount of 159,8 thousand lei out of 13 contracts for verification
and expertise services in the amount of 481,7 thousand lei, the audit team found no
deviations.
4.1.3 The transactions on design and verification services were recorded to other
accounts than those planned, which determined the lack of their amounts in the
consolidated balance sheet of the Ministry of Education.
The financial management consultant is responsible17 for budget development and
the whole Project accounting system in organizing the accounting of transactions, and
the Ministry of Education, through the General Department of Economy, Patrimony and
Finance is responsible for financial reporting and verification, including consolidation
of financial statements according to the legal framework18.
In 2015, the Project budgetary accounting was kept by manual accounting method,
the data being submitted19 quarterly and annually to the General Department of
Economy, Patrimony and Finance within the Ministry of Education for consolidation
and reporting.
In accordance with the article 16, paragraph (2) of the Accounting Law and the
Minister of Finance’s Order no.92 dated June 24, 201320, the Ministry of Education had
to stipulate in the Accounting Policy the additional provisions pertaining to accounting
for foreign-financed projects and the way of their reporting. Contrary to what is
stipulated, the Ministry’s leadership has not ensured the inclusion of necessary rules in
this operational document.
For the reporting period, the expenditures in the amount of 11048,7 thousand lei
were recorded to the main component related to design services for school
rehabilitation, and 3438,4 thousand lei to other components designed for supporting the
Ministry of Education’s institutional capacities.
As a result of reviewing all transactions, the audit team found that non-adjustment
of the internal legal framework caused improper accounting, namely: inclusion of the
funds for procurement of design and verification services related to school
rehabilitation in the amount of 10965,3 thousand lei to the institution’s expenditures. At
the same time, the regulatory framework21 stipulates that the amount paid for design
documentation should be recorded in the balance sheet accounts (debit of sub-account
19 „Other fixed assets” and credit of sub-account 250 „Fixed asset fund”) and further
capitalized to building cost.
Summarising the above-mentioned, the audit team points out that the assets from
the project accounting have been significantly distorted and do not represent the fair
and true view of the project financial statements, which influence on the Ministry of
Education’s consolidated balance sheets entries and causes qualification of the audit’s
opinion.
17
Annex no. 5 from the Project Operational Manual; Ministry of Finance’s Order no.93 dated July 19, .2010 on
approval of Instruction on accounting in the state institutions. 18
Accounting Law no. 113 dated April 27, 2007. 19
Institution balance – Form I; Report on execution of public institution’s budget from the main expenditures as of
December 31, 2015 – Form no. 2; Operative report on use of funds from external grants, external credits and other
payments for implementation of projects financed from external sources – Form 2PI-tr, etc. 20
The Minister of Finance’s Order no.92 dated June 24, 2013 “On approval of standard accounting policy for state
institutions”. 21
Point 216 from the Minister of Finance’s Order no. 93 dated July 19, 2010 ”On approval of Instruction of
accounting in the budgetary institutions”;
10
On review of transactions with different debtors and creditors
The audit team found that the Project as of December 31, 2015 did not have
reconciliation statements with economical entities, making reconciliation on turnover
and balances presented in the Accounting note no. 6 „Summary of transactions with
diverse institutions and organizations” with external confirmations requested from 6 out
of 12 providers of design and verification services. No deviations were found between
the accounting data and the ones from reconciliation statements.
4.2 On reporting to the World Bank
4.2.1 Examine the observance of the disbursement mechanisms and analysis of funds
used within the Project for 2015
In 2015, the MoEd has achieved three DLIs22 within the Component I and
implemented some activities from Component III of the Project. The funds for
Component I in the amount of 113 113,7 thousand lei were provided by the World Bank
as „budgetary support without destination”, being transferred to the State Treasury to be
used jointly with the state resources. The funds designed to improve the Ministry of
Education’s capacity to monitor the reform in the amount of 2 995,8 thousand lei were
transferred directly in a designated account. The persons authorized to sign the
withdrawals applications were replaced with the establishment of a new Government,
based on internal regulations23. The “reimbursement” method is used to make
disbursements and it means reimbursing by the financier of eligible expenditures
previously made by the Ministry.
Analysing the disbursements of funds within the Project, the audit team found
that these were made in compliance with the provisions of the World Bank Guidelines
on Disbursement for Projects dated May 1, 2006. The Table 2 presents the summary of
funds execution under project components. Table no. 2
Analysis of disbursements and use of funds allocated for reform support (thousand lei)
Components Total
disbursements
planned
USD
2015 Total Executed /
Planned in
2015 (%)
Project
implement
ation (%) USD MDL USD MDL
1 2 3 4 5 6 7 8=5/2+100
I. Disbursements 40 000,0 6 116,0 116 109,5 14 269,0 228 964,9
17,3
35,7
Component I and II 38 500,0 5 955,7 113 113,7 13 697,3 220 256,3 x
Component III 1 500,0 160,3 2 995,8 571,7 8 708,6 x
II. Expenditures 40 000,0 1 047,0 20 099,0 3 396,9 49866,2 8,5
Component I and II 38 500,0 885,3 16 660,6 2 943,4 42 572,2 x
Component III 1 500,0 181,7 3 438,4 453,5 7294,0 x
III. Deviations (I-II) x 5 069,0 96 010,5 10 872,1 179 098,7 x
22
In February 2015, US$ 2.5 million were disbursed for DLI 1 ”Standards for receiving schools approved”; in July
2015, US$ 1.8 million were disbursed for DLI 16 ”System in place to closely monitor and mitigate drop outs (by
gender) in General Education (using EMIS)”; In December 2015, US$ 1.8 million were disbursed for DLI 14 ”980
classes reorganized in primary and secondary schools from the baseline in 2011/2012 school year”. 23
Ministry of Education’s Orders no. 904 dated September 16, 2013, and no. 877 dated September 09, 2015
on signature specimens.
11
Component I and II x 5 090,4 96453,1 10 753,9 177 684,1 x
Component III x 118,3* 1414,6* 118,3* 1414,6 x
Source: The data summarised by the audit team, based on the information submitted by the Ministry of Finance and Project
Coordination Team. (* The amount is calculated taking into account the balance of 2014 year – US$139,7 thousand or 1 857,2
thousand lei ).
The data analysis presented in the table shows the following:
▪ 17,3% represents the share of actual expenditures (20 099,0 thousand lei)
executed by the Ministry of Education from the total amount of disbursed funds (116
109,5 thousand lei) for Project implementation in 2015, and especially the design
services for school rehabilitation (16 660,6 thousand lei) and operating costs for
implementation of activities under component III (3 438,4 thousand lei) were financed.
▪ 35,7% reflects the share of amounts disbursed by the World Bank during 2013 –
2015 years (US$14269,1 thousand) from the total funds envisaged (US$40000,0
thousand) to carry out activities for the Project implementation and structural reform in
the area of education, especially (i) ensuring students’ access to quality education; (ii)
increasing the flexibility of labour relations in the area of education; and (iii) efficiently
use of allocations by implementing per student financing formula at the national level.
▪ only 8,5% of funds were used for Project implementation. This expresses the
planning with reservations of measures that had to be implemented for achievement of
16 DLIs, as well as the need for Project restructuring, including involved staff. This
conclusion is based on the World Bank’s recommendation made within Project
assessment visits in November 2015 and in March 201624, where it was proposed the
responsibility for civil works activities to be transferred from the Ministry of Education
to Moldova Social Investment Fund for better use of funds.
The low level of these indexes, compared with the expectations and disbursements
made was caused by several internal and external factors, namely:
(i) according to the consultants’ team it was noted: ”significant delays in meeting
the minimum quality assurance standards, namely it was found that the needs for
rehabilitation of selected schools are far greater than originally anticipated, and cost
estimate for those rehabilitations significantly exceeds the notional amount of the DLIs
allocated to these activities. The reason for this is irrelevance and outdated national
school construction standards”;
(ii) instability of the Executive’s structure in 2015, including two Ministers of
Education who hold the position of Project General Director;
(iii) increased turnover of staff involved in project implementation25, so during
the budget year, 6 out of 10 local consultants were replaced.
The audit team points out that the above-mentioned problems represent the main
reasons that determined the deficiencies found by the audit and presented in the Report.
4.2.2. The data on teachers’ remuneration were correctly presented in the Report
on execution of teachers’ salaries (Component I)
24
World Bank’s Aide Memoire dated November 2015 and March 2016. 25
Consultants’ turnover, including: Project coordinator – May 2015; Consultant on local procurements – February
2015; Consultant on WB procurements – July 2015; PR Consult - February 2015; Financial Management Consultant –
April 2016.
12
According to the Terms of Reference under Component III, the Project
Coordinator submits quarterly to the World Bank the information on teachers’ salaries,
including by primary schools-kindergartens, primary schools, gymnasiums and
lyceums.
In accordance with ISSAI 150526, the audit team requested from the Ministry of
Finance the information on teachers’ salaries for each local public authority and by each
type of institution for 2015 year. As a result of comparing the information submitted to
the World Bank with separate Reports on execution of the territorial-administrative
units’ budgets as of December 31, 2015, for components: total executed, actual
expenditures, receivables and payables, the audit found discrepancies in the amount of
845,2 thousand lei, for total executed (422,6 thousand lei) and actual expenditures
(422,6 thousand lei). The differences found for each case are not significantly and do
not affect the reference report, because they do not exceed the significance level set for
this area (Annex 4 presents this information).
In addition, the audit team noted that the risks tested for establishment,
calculation and paying of teachers’ salaries were also determined by the fact that the
Court of Accounts, according to the Audit Activity Program for 2015-2016 years, has
conducted the performance audit of the remuneration system in the public sector, which
results will be separately approved by the Court of Accounts.
4.2.3 The procurement procedures under the World Bank rules were correctly
carried out
To support the Ministry of Education in carrying out procurements under
Component III27, a part-time procurement specialist under WB procedures was hired. In
2015, according to the Procurement Plan and procurement documents reviewed and
approved by the financier, the audit mission found that 8 procedures were carried out,
being signed 8 contracts for individual consulting services in the amount of 943,0
thousand lei.
Following the review carried out, by integral testing of a procurement procedure
for consulting services in the amount of 40,6 thousand lei, as well as by internal control
testing of 3 procedures for consulting services in the total amount of 255,8 thousand lei,
the audit found no deviations, noting the World Bank’s no objection for all
procurements carried out.
Analysing the Project Operations Manual and the Procurement Plan for each
operational activity, the audit team found that for exercising the Project financial audit,
the financial resources from external funds in the amount of US$ 6,0 thousand were
foreseen annually or US$ 30,0 thousand for 5 years. This is not supported by the
provisions of the Financing Agreement 28, which stipulates that ”Beneficiary will ensure
the audit of its financial statements by the Court of Accounts”, therefore, these possible
expenditures could not be considered eligible. In this context, the Project Procurement
Plan should be adjusted by excluding the estimated cost of two financial audit missions
for 2013-2015 years in the amount of 12,0 thousand USD.
26
ISSAI 1505 „External confirmations”; 27
World Bank Guidelines on "Selection and Employment of Consultants by World Bank Borrowers under IBRD
loans, grants and IDA Credits" edition dated January 2011 (Consultant’s Guide); 28
point 3, Section II „Monitoring, reporting and evaluation within Project”.
13
4.2.4 The reporting process to the World Bank does not contain misstatements, but
some supervision and monitoring activities need to be initiated
In 2015, for implementation of Component III, the MoEd planned the amount of
US$351,6 thousand (6786,1 thousand lei), but benefitted of external funds under
technical assistance in the total amount of US$181,7 thousand (3438,4 thousand lei), so
the level of funds execution under this component is only 51%. Out of these resources,
96% were allocated for remuneration of local consultants and 4% for operating costs
and training. The Annex no. 5 presents the detailed information.
The economical transactions recorded in 2015 were reported to the World Bank
both quarterly by submitting IFR29, and by disbursements under Component I through
the statement of expenditures30, which are attached to the letter for funds disbursement.
The results of audit tests on primary financial documents (contracts, bills/
invoices, payment orders etc.), as well as on ex-post reconciliations show that the
procedures were established within the project for organizing the operational process on
developing interim financial reports, which ensure the accuracy and truthfulness of the
Project Financial Statements. At the same time, internal controls for supervision and
monitoring of the financial activity should be implemented, given the fact that the audit
found that the IFRs were submitted to the World Bank without Minister or Vice-
Minister’s signature. This is not in compliance with the general rules on accounting and
good governance. Regarding the statements of expenditures, these are strictly reviewed
and signed by responsible persons.
On the security policy of financial information
The accounting carried out under the World Bank rules was supported by the
software program „1C”. The audit tests reveal that the accounting program has
organized appropriate application controls that ensure the accuracy of accounting data
generated by the system. At the same time, the audit noted that physical and
informational security of the project accounting data should be strengthened by
organizing general controls on periodical archiving and secure keeping them on an
electronic support, which will ensure the integrity of transactions in case of force
majeure.
Taking note: During the audit, the process for archiving and keeping of
accounting information was organized and the decision was taken to archive quarterly
the Accounting Program on portable memories.
4.3 Execution of the prior Court of Accounts’ decision
The Ministry of Education partially ensured the implementation of audit
recommendations.
Regarding the Financial Audit Report recommendations for the previous year31,
the audit team points out that actions carried out by the MoEd, jointly with Project
29
a) Report on execution of teachers’ remuneration in schools; b)Report on Project funds and expenditures
(Component III); c) Report on project expenditures by main project components and by articles of expenditures both
for the current fiscal year and accumulated-to-date (Component III); d) Report on Project Special Account. 30
SOEs – Statement of Expenditures.
14
consultants, were aimed to ensure the continuity of Project implementation process.
Thus, in 2015, in order to execute the recommendation no.1, several meetings were
organized monthly with officials from the Financial Department in Education, Culture
and Science of the Ministry of Finance, local public authorities (Chairman of Causeni
rayon, Major of Varzaresti villlage, etc.) and other structures; the results/expenditures
per each DLIs (Minimum operational standards for schools, design services,
rehabilitation works, etc.) and the activities under Component III are regularly
presented and discussed within the working groups of the Ministry of Education.
The finding on partial use of funds for destinations and in time for implementation of all project components (level of execution 8,4%), mentioned in the subsection 4.2.1 of this Audit report, denotes the
partial execution of the recommendation no. 2, namely “to strengthen the control and
monitoring activities in order to use funds for destinations and in time envisaged for
implementation of all Components”, reiterating in this report the need of its full
implementation.
V. Audit recommendations
The Ministry of Education jointly with the consultants’ team:
1. To review the Procurement Plan and to redistribute the amount of US$12,0
thousand designed for project audit for 2013-2015 years;
2. To establish the supervision and monitoring activities on reporting and
submission of the interim financial reports to the World Bank, with compulsory
approval of them by the Project General Director and/or Project Executive Director.
The Ministry of Education jointly with the Ministry of Finance:
3. To strengthen the control and monitoring activities to enhance cooperation
between the responsible persons in order to use funds for destinations and in time for
implementation of all project components (repeated recommendation).
VI. AUDIT TEAM’S OPINIONS
Summarising the findings presented in the Chapter 4.1 „On budgetary reporting”
from this Audit Report, the audit team obtained the necessary assurances to express a
qualified opinion on reporting according to the Government rules.
The basis for qualified opinion on budgetary reporting
The Ministry of Education has not exhaustively regulated the provisions
pertaining to accounting of foreign–financed projects, as well as the way of their
reporting.
As of December 31, 2015, the balance of assets “Other assets” and the balance of
liabilities “Fund for fixed assets” in the Project accounting, and respectively, the
consolidated accounts of the MoEd do not reflect the contract amount for the design and
verification services for 16 investment objects in the amount of 10965,3 thousand lei,
because the costs were incorrectly reflected in the accounts of the reporting period.
31
The Court of Accounts’ decision no.32 dated August 05, 2015 „On audit of the financial statements of Moldova
Education Reform Project for 2013-2014 years”
15
The audit team qualified the error made as being significantly by context, because
it denotes a systematic/permanent character, as well as it refers to all project financial
transactions carried out in the financial year ended on December 31, 2015. These
deviations from the norms could also determine the final users of the budgetary reports,
forming some incorrect conclusions on the Project financial statements.
6.1 Qualified opinion on budgetary reporting
According to the audit team’s opinion, except for the effects on issues mentioned in
the paragraph “Basis for qualified opinion on budgetary reporting”, the Project
accounting as of December 31, 2015 is reported, in all material respects, in accordance
with the applicable financial reporting framework and provides its true and accurate
view.
6.2 Unqualified opinion on interim financial reports
According to the audit team’s opinion, based on sufficient and adequate evidence,
the Interim Financial Reports for the budget year ended on December 31, 2015, in all
material respects, provide true and accurate view of the Project financial statements.
The audit also attests the accuracy of data submitted to the World Bank on teachers’
remuneration as of December 31, 2015.
Audit team:
Head of the audit team, senior state inspector Alina CERTAN
Senior state inspector Maia SAVVA
State inspector Vera BORȘEVSCHI
Responsible for audit:
Head of the General Department I
(State budget and patrimony audit), Natalia TROFIM
State auditor
16
ANNEXES
Annex no. 1
Figure 1 – MERP implementation arrangements
Annex no. 2
Information on Disbursement Linked Indicators implemented during 2013-2015 years
under Components I and II (thousand m.u.)
Disbursement Linked Indicator
The amount to be
disbursed Disbursements
SDR US$
2013 2014 2015
SDR US$ SDR US$ SDR US$
Component I. Strengthening the quality of education
1. Standards for receiving schools approved. 1700,0 2500,0 1700,0 2392,6
2. 30 percent of receiving schools meet the approved school quality
assurance standards.
2700,0 4000,0
3. 50 percent of receiving schools meet the approved school quality
assurance standards
2700,0 4000,0
4. 70 percent of receiving schools meet the approved school quality
assurance standards.
2700,0 4000,0
5. Updated program for training of school directors and teachers
officially approved and implementation initiated.
1276,7 2000,0
6. 30 percent of school directors and 10 percent of teachers trained
based on the updated program for training of school directors and
teachers.
1276,7 2000,0
7. New remuneration program of school directors and teachers adopted. 1276,7 2000,0
8. Enrolment of Moldova in PISA 2015. 1276,7 2000,0 1276,7 1959,0
9. Results of Moldova participation in PISA 2015 analysed and
publicly disseminated
1276,7 2000,0
10. Revised national testing of all 4th and 9th grade students completed
and its results analysed, publicly disseminated and used by the MoEd.
1276,7 2000,0
11. Establish a consolidated Education Management Information
System (EMIS).
1276,7 2000,0 1276,7 1974,0
12. School Report Cards produced by the consolidated EMIS and sent
to all schools with comparative performance outcomes and trends at
regional and country level.
1276,7 2000,0 1276,7 1849,5
Component II. Improving the efficiency of the education sector
13. 80 percent of primary and general secondary schools have their
budgets approved according to the new per student formula
methodology
1276,7 2000,0 1276,7 1959,0
14. 980 classes reorganized in primary and secondary schools from the
baseline in 2011/2012 school year.
1276,7 2000,0 1276,7 1777,1
15. Student-teacher ratio for grades 1-12 is increased from 10.5:1 to 1276,7 2000,0
Environmental
specialist Procurement
specialist Civil works
specialist
Project Coordinator
Civil works
specialist
Project
assistant
Procuremen
t specialist
FM
specialist
World Bank/ IDA
Ministry of Finance
MoEd Divisions and
Departments
General Director
Executive Director
17
11.5:1.
16. System in place to closely monitor and mitigate drop outs (by
gender) in General Education (using EMIS)
1276,7 2000,0 1276,7 1786,1
Total 25120,0 38500,0 2553,3 3918,0 2553,3 3823,5 4253,4 5955,8
Source: Financing Agreement, Project Operations Manual and credit sheet as of December 31, 2015.
Annex no. 3
18
19
Annex no. 4 Analytical procedures on determining the level of materiality and comparing the error found on reporting
teachers’ salaries, thousand lei
Reports
from the
Ministry of
Finance
Report to the
World Bank Materiality
2%
Differences
determined
by the audit
Audit comments
* 1 2 3=2*2% 4=2-1 5
Total executed 2.533.241,1 2.533.663,7 50.673,3 422,6 Differences were found for
Total executed and Actual
expenditures, in the amount of
422,6 thousand lei, and in both
cases these do not exceed the
materiality level.
Actual expenditures 2.539.308,5 2.539.731,1 50.794,6 422,6
Total
receivables 908,4 908,4 18,17 -
payables 195.772,4 195.772,4 3.915,4 -
Annex no. 5 The amount of salary expenditures on remuneration of individual consultants
in 2015 (thousand)
No.
Position of individual
consultant Calculate
d salary
Employer’s
contributions
Employee’s
contribution Income
tax
The
amount
paid
23% 4/4.5
% 6%
4/4.5
%
1
Procurement consultant
under WB procedures 495.7 114.0 2.2 3.0 2.2 6.6 37.7
2 Consultant 209.7 48.2 9.0 11.8 9.0 30.2 158.7
3 Consultant 279.6 64.3 12.1 15.9 12.1 38.4 213.2
4 Consultant 31.6 7.3 1.4 1.4 1.4 4.9 23.9
5 Operator 52.8 12.1 2.2 3.2 2.2 6.9 40.5
6 Consultant 58.8 13.5 2.6 1.4 2.6 9.6 45.2
7 Operator 105.6 24.3 4.6 6.3 4.6 13.8 80.9
8 Project Coordinator 273.8 63.0 12.1 14.3 12.1 39.7 207.7
9 Translator 7.9 1.8 0.4 0.5 0.4 1.0 6.0
10
Procurement specialist
under local procedures 175.1 40.3 7.7 10.4 7.7 23.7 133.3
11 Legal consultant 201.0 46.2 8.5 10.5 8.5 27.7 154.3
12 Consultant 52.4 12.0 2.1 3.1 2.1 6.1 41.1
13
Environmental
specialist 21.8 5.0 1.0 1.3 1.0 3.0 16.5
14 Consultant 12.8 2.9 0.5 0.8 0.5 1.3 10.2
15
Environmental
specialist 54.8 12.6 2.5 1.4 2.5 8.6 42.3
16 FM specialist 189.4 43.6 8.2 11.4 8.2 23.7 146.1
17 Consultant 169.1 38.9 7.2 10.0 7.2 23.4 128.5
18 Civil works specialist 252.7 58.1 10.9 15.1 10.9 35.7 191.0
19 Consultant 588.5 135.4 2.6 1.4 2.6 9.6 45.2
20 Civil works specialist 26.2 6.0 1.2 1.6 1.2 3.4 20.1
21 Consultant 139.8 32.2 5.8 7.8 5.8 20.2 106.0
22
Administrative
Assistant 170.3 39.2 7.4 10.2 7.4 22.4 130.3
In total salary
expenditures,
thousand lei 2593.60 596.53 112.34 142.55 112.24 359.77 1979.03
Converting in
thousand USD 136.74 31.45 5.92 7.52 5.92 18.97 104.34
In total salary
expenditures,
thousand USD 174.11 x x x x
20
Annex no. 6
PROJECT INTERIM FINANCIAL REPORTS FOR 2015 YEAR
Special Account (SA) Statement Report as at December 31, 2015
(US Dollars)
Opening balance as at January 01, 2015 139706
Add: Cumulative unexplained discrepancy 0
Advance during the year 160296
Less: Refund to IDA during the period 0
Present outstanding amount advanced to SA 170161
SA closing balance as at December 31, 2015 carried forward to next period 118271
Add: Amount of eligible expenditures paid during year 181731
Service charges 0
Less: Interest earned 0
Total advance accounted for 170161
Discrepancy 0
Extract from the Special Account of the Project as at December 31, 2015
under Component III
(USD)
Opening balance of the special account as at January 01, 2015
139706
Total credit (plus):
IDA advance to the special account
during the period
0
IDA additional financing to the
special account during the period
160296
Total debit (minus):
Refund to IDA from special account
during the period
0,00
Eligible expenditures from IDA
funds paid from the special account
during the period
181731
Closing balance of the special account as at December 31, 2015
139706,0
21
Applications for disbursements under Component III of the Project for 2014 year (USD)
No Date
Total
amount,
USD
IDA
Cat.1
IDA
Cat.2
IDA
Cat.3
Total paid Paid, USD Paid
USD SDR Cat.1 Cat.2 Cat.3 Date
1.
2.
3.
February 10, 2014
July 03, 2014
December 24, 2014
300.000,00
45.175,73
66.324,13
300.000,00
45.175,73
66.324,13
300.000,00
45.175,73
66.324,13
194.977,38
29.211,97
45.781,83
300.000,00
45.175,73
66.324,13
February 12, 2014
July 03, 2014
December 29, 2014
Total 411.499,86 411.499,86 411.499,86 269.971,18 411.499,86
Applications for disbursements under Component III of the Project for 2015 year
(USD)
No Date Total amount,
USD
IDA Cat.1 IDA Cat.2 IDA Cat.3 Total paid Paid, USD Paid
USD SDR Cat.1 Cat.2 Cat.3 Date
1. June 04, 2015 160.296,39 160.296,39 160.296,39 114.233,87 160.296,39 June 29, 2015
2. December 03,
2015
87.571,26 87.571,26 87.571,26 63.925,76 87.571,26 December 03, 2015
Total 247.867,65 247.867,65 247.867,65 178.159,63 247.867,65
22
Use of funds by activities under Component III of the Project as of December 31, 2015 (USD)
No. Project components/Activities Actual Planned Difference
From the
beginning of
2015 year
From
Project
starting
From the
beginning of
2015 year
From
Project
starting
From the
beginning of
2015 year
From
Project
starting
1. Strengthening the quality of education
2. Improving the efficiency of the education sector
3. Improving the Ministry of Education’s capacity to monitor the reform
Consulting services 174104 415011 326783 653520 -152679 -238509
Non-consulting services 0 7369 13694 38849 -13694 -31480
Trainings 708 13266 1554 15708 -846 -2442
Operating costs 6917 17879 9580 21940 -2663 -4061
Grand total 181729 453525 351611 730017 -169882 -276492
Total expenditures of the Project 181729 453525 351611 730017 -169882 -276492
Project funds and use of funds under Component III as of December 31, 2015 (USD)
Executed Planned Deviations
From the
beginning
of 2015 year
From Project
starting
From the beginning of
2015 year
From Project
starting
From the
beginning of 2015
year
From
Project
starting
Opening balance 139 704 -
Special account 139 704 -
Other accounts
Total opening balance
Plus: financing sources 571 796 763 111 (191 315)
PPF Refund
IDA Credit 160 296 571 796 351 611 763 111 (191 315) (191 315)
Other sources
Total funds 300 000 571 796 351 611 763 111 (51 611) (191 315)
Minus: use of funds
Consulting services, non-consulting services, trainings,
Operating costs under Component III
181 729 453 525 351 611 730 017 (169 882) (276 492)
Total used 181 729 453 525 351 611 730 017 (169 882) (276 492)
Final balance 118 271 118 271
23
Report on teachers’ salaries as of December 31, 2015
No
Month
Budgeted Financed by the
Ministry of Finance
Actuals Owed to beneficiaries, current month
Approved for YTD Revised for YTD Revised for reporting
period
receivables payables
Thousand
MDL
Thousand
USD*
Thousand
MDL
Thousand
USD*
Thousand
MDL
Thousand
USD*
Thousand
MDL
Thousand
USD*
Thousand
MDL
Thousand
USD**
Thousand
MDL
Thousand
USD**
Thousand
MDL
Thousand
USD*
1. 6 months 2.543.785,9 140.810,6 2.563.484,0 141.901,0 1.592.578,2 88.156,8 1.482.789,5 82.079,4 1.467.308,9 81.222,5 1.336,0 74,0 175.049,8 9.689,8
Execution
rate 93,1%
2. 9 months 2.543.785,9 137.896,2 2.565.207,9 139.057,5 2.019.546,9 109.477,7 1.920.648,2 104.116,5 1.918.781,2 104.015,3 2.952,1 160,0 189.927,6 10.295,8
Execution rate
95,1%
3. 12 months 2.543.785,9 129.709,6 2.593.235,0 132.231,0 2.593.235,0 132.231,0 2.533.663,7 129.193,4 2.539.731,1 129.502,8 908,4 46,3 195.772,4 9.982,6
Execution
rate 97,7%
Total 2.543.785,9 129.709,6 2.593.235,0 132.231,0 2.593.235,0 132.231,0 2.533.663,7 129.193,4 2.539.731,1 129.502,8 908,4 46,3 195.772,4 9.982,6
* NBM average exchange rate USD-MDL for 6 months of 2015 = 18.0653 MDL/1 USD
* NBM average exchange rate USD-MDL for 9 months of 2015 = 18.4471 MDL/1 USD
* NBM average exchange rate USD-MDL for 12 months of 2015 = 19.6114 MDL/1 USD