Presentations by local experts on some issues identified in the local finance analysis Issues identified in Municipalities of Shkodra, Lezha and Durrës Assessments of Albanian Municipality Experts Durrës, April 2016

The difference between the value of primary expenditure foreseen in the initial and actual budget at local government appears to be high (varies from 9 to 31%). Is this in line with the law? Is it related to technical issues, lack of capacities to comply with the plan? Is it due to economic reasons (lower revenues)? The difference between the foreseen expenditure and the actual one is not in line with the law. It comes as a result of lack of capacities and experience in expenditure planning. During the budgeting process the relevant activities and costs are not taken into account. There is a lack of financial control. The performance evaluation system is missing and no liability system is in place for failure to realize the expenditures or investments. There are economical difficulties and the collection of revenues is not achieved. In no case collection of more than 80% of the plan is achieved. It happens due to the difference created as a result of the procurement process. The difference is a result of legal gap on planning.

The conditioned funds are never included in the initial planning. Is this related to a legal rule or it is rather a procedural matter? Would it be advisable that the inter- governance relations were defined in the new law on local finances. The current legislation foresees that the conditioned funds are not part of the initial plan The conditioned funds are not clearly defined and therefore they do not manage to be part of the initial planning. The new law should define that the conditioned funds must be part of the initial budget planning. The law should clearly define the responsibilities, rights, and duties of the local and central government with respect to the conditioned funds.

The aggregated result of revenues compared to the budgets initially approved reaches a difference from 14 to 44%. Is this a legal or technical problem? Are we dealing with fiscal forecasts inaccuracies due to the lack of a medium-term expenditure framework, professional capacities, or is it due to a low level of revenue collection? There are inaccuracies in the budgeting of revenues due to ignorance of the fiscal framework. The tax agents are missing the necessary capacities. There is a lack of clear analyses regarding the revenues. There are shortcomings in the definition of medium-term framework. There is a need for capacity building in structures handling the revenues. In order to balance the budget, revenues are planned, which are sure will not be collected. There is a barrier by the mayors themselves. Legal instability and management of business revenues by the central government. There is a low level of revenue collection. The awareness to make the mandatory payments is not performed and application of sanctions is missing. There is a need to digitalize the systems. It has to do with a technical problem.

Accounting shall be presented in a diversified way. It has the same classification as the treasury, but different programs are used for internal use. Are there difficulties in internal consolidation or reporting? There are difficulties in the internal consolidation and reporting, which can be eliminated in the case of systems unification. Legal rules are needed. The adoption of a unique accounting system with unified standards is necessary. Investments are required for the digitalization of the accounting system.

The annual budget proposal is not properly supported with arguments and documents (most common is the documentation related to the stock of debt - prepared in accordance with GFS or similar standard). This procedure is not properly known and used by the local government. The law should clearly define the documentation arguing the budget and provide (as annexes) various templates to be filled.

Plans of performance for delivery of services: Performance Indicators related to the planned results of programs or services that are financed from the budget are not included in the budget proposal or relevant documentation at functional, municipal or tier level. Only KASH is based on performance indicators, but there is no connection between it and the annual budget. Is this due to human resource capacities to include performance indicators in the budget, or is it a legal problem? There is a lack of capacity for including performance indicators in the budget. Performance indicators are missing and there is no accountability towards the mayor, which leads to lack of incentives. There is a need to make budgeting with programs and otherwise have penalties in place. Inspection from the line ministries is missing. The new law should define a number of indicators related to the local budget planning.

The public access to fiscal information is very low or nonexistent. It appears that only the proposed annual budget is made public after approval by the municipality council. The entire set of budget documentation is not made public and the pertinent calendar for that is missing. Is this due to deficiencies in the legal framework or because of failure to implement the law? The main cause is the failure to implement the law. Public access is very low or absent entirely due to non- implementation of the legal obligations by the side of the municipality. Variability of fiscal packages. On the other hand, demand for accountability by the citizens or interest groups is missing.

Monitoring of non- financial assets: the m Municipality keeps a register of fixed assets, collecting data on the use or depreciation. This information is not published. Is it due to legal provisions or because of failure to implement the law? Due to failure to implement the law. Monitoring of financial assets is incomplete and not made public. Assets are not inventoried and neither registered in IPRO, and therefore not used to generate revenues Such a thing is not required (by law). Decision of the Council of Ministers no. 30 does not require this.

The budget preparation process: The facts show that information on spending units, in order to provide guidance on the methodology for the budget preparation is not circulated, but only the ceiling amount of the fund. No ceilings are defined for the administrative units. Should this process be regulated by procedures defined in the law? The process should be regulated by legal proceedings. The law should specify that any spending unit shall be made familiar with the methodology and budget preparation. Rules for the circulation of information in the process of preparing the budget should be determined by the municipality /mayor rather than the law.

Review of budgets/deadlines for approving budgets: Municipalities fail to approve the budgets within the first month of the year, while the budget starts since 1 January. Is there room to revise the deadlines for the review and approval of the budget by the municipal council? The deadlines for the approval of the budget should be regulated by law. The deadlines for the approval of the budget by the municipality council should be revised. The budget deadlines are not appropriate. The budget must be prepared in the period March - September for the following year. Public hearings should be conducted in the period October – November. The approval by the municipal council should be made in November/December/January/February.