1. 6-7 October 2015, Warsaw 1 SEMINAR MUNICIPALITY AUDIT Warsaw, 5-7 October 2015 Ms. Liljana STOJANOVA, M.Sc. – Head of Department Mr. Ivan DIONISIJEV, Junior Auditor State Audit Office of the Republic of Macedonia

2. 6-7 October 2015, Warsaw 2 INTRODUCTION - 1 The municipalities of the Republic of Macedonia are first-order administrative divisions. The Republic of Macedonia is organized into 80+1 municipalities, 10 of them constitute the City of Skopje - a distinct unit of local self- government and the country's capital. All municipalities have the same responsibilities regardless of their size. - Municipality decentralization in Macedonia began in 2005;

3. INTRODUCTION - 2 Local government units have competences: in urban planning, area management, public utility regulation, local economic development, education, culture and sports. According to the Law on State Audit, Macedonia SAO has a mandate to review the local government units (LGU); LGU budgets and beneficiaries of LGU budgets are subject to audit (F/A,C/A and P/A) 6-7 October 2015, Warsaw 3

4. 4 INTRODUCTION - 3 Budgeting is a process of allocating resources for realization of the programs. Resources should be allocated in a way to improve the standard and living needs of the citizens; The LGU budget has limited resources which implies a need for measuring the results of their spending in order to confirm whether the program objectives have been achieved;

5. FISCAL TRANSPARENCY The budget process includes fiscal component which indicates how the functions, fiscal policy objectives and projections are transparent for the public. The level of transparency depends on the following:  How budgetary funds are used in accordance with legal regulations;  Is the budget process transparent at the stage of planning, adoption and execution; 6-7 October 2015, Warsaw 5

6. Local Government Financing-1 LGU- Own sources of revenue Local taxes established by law; Local fees and charges determined by law; Property tax; Revenue from Donation; Revenue from Fines prescribed by law; Self-taxation revenues Other. 6-7 October 2015, Warsaw 6

7. Local Government Financing-2 State Budget Grants and Grants from the budget of the Funds VAT revenue; Earmarked grant; Capital grant; Block grant; Delegated competences grant. 6-7 October 2015, Warsaw 7

8. Object of Audit Planning of the LGU budget; Own revenues collection; Execution of the LGU budget; Financial reports: Income statement and balance sheet. 6-7 October 2015, Warsaw 8

9. REGULARITY AUDIT OBJECTIVE The OBJECTIVE of regularity audit is to enable the auditor to obtain reasonable assurance about whether : the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework (ISAAI 200 paragraphs 16 and 17) and activities, financial transactions and information comply, in all material respects, with the authorities which govern the audited entity.(ISSAI 400 section 12 and 13). 6-7 October 2015, Warsaw 9

10. Congress of EUROSAI Recommendations-1 Conclusions and recommendations of the EUROSAI Congress, held in Bonn 2005, are taken into consideration when auditing revenues. The basic principles of auditing revenues: legality, inclusiveness, timeliness and completeness. 6-7 October 2015, Warsaw 10

11. Congress of EUROSAI Recommendations-2 The audit should examine the system of public revenue collection and if needed to make proposals for improving the system. Therefore, the SAO focuses on timely, equally and entirely application of the regulations by the authorities. 6-7 October 2015, Warsaw 11

12. REVENUE AUDIT SAO uses audit procedures in order to determine the existence of:  full database of taxpayers for all kind of taxes;  Proper setting of tax base and application of statutory rate;  determining tax obligations at statutory deadlines;  timely tax collection and taking proper actions against tax payers that have not paid within the specified time limit. 6-7 October 2015, Warsaw 12

13. EXPENTIDURE AUDIT Expenditure audit determines whether:  Funds are used according to previously approved budget, by items and programs;  Reallocation of funds is done according to regulations;  Restrictions are in place according to the Law of budget execution and Law on Financing of Local Self Government Units;  Financial transactions are in accordance with the legislation. 6-7 October 2015, Warsaw 13

14. EXPENTIDURE AUDIT Mayors of the LGUs are responsible for the execution of the LGU budget. The legal framework for the use of the funds is determined by the Law on Financing of Local Self-Government Units. 6-7 October 2015, Warsaw 14

15. CONCLUSION Based on the working experience of the Macedonia SAO we point out: Implementation of SAO recommendations resulting from the municipality audit in the Republic of Macedonia contribute to: Improving the operations of the LGUs, and Actions are taken by the central government to improve legislation where systemic weaknesses have been referred to. 6-7 October 2015, Warsaw 15

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