Reorganizations in Albanian Public Sector - What was missed?

1. Reorganizations in Albanian Public Sector-What was missed? Prepared by: Valbona Gaxha, CPA, CGA ALSAI- Senior Auditor

2. 1925 1928-1939 1946 1966 1992 1997 2014 2016- 2018 • First Constitute Act. The Chamber of Deputies was established as the first institution to control public finances, • Monarchy regime. Institution is now called Control Council with the attributes of an independent institution, • Under new Law the State Control Commission is created, • State Control Commission get reorganized under State Inspection, • with a special Law State Control Service is established, • Under SIGMA assistance the Parliament approves the new Law “On organization and function of the High State Control”, improved on y. 2000. Since then institution is named High State Control. • New Law brought changes modernizing the law based on the principles of international audit standards introducing performance audits and IT audits, • Twinning Project with Polish SAI (NIK) • New Strategy 2018-2020 emphasizing performance audits ALSAI development Active and equal participant of INTOSAI and EUROSAI

3. INTOSAI 12 The value and benefits of SAIs“making a difference to the lives of citizens” The importance of public value creation has been also recognized by the INTOSAI as well and it gets represented to its basic principles of ISSAI 12 standard (2013). 1st group of principles: strengthening the accountability, transparency and integrity of government and public sector entities, 2nd group of principles: demonstrating on going relevance to citizens, Parliament and other stakeholders, 3rd group of principles: being a model organization through leading by example. The primary activity of the institution is the auditing, however this core business of the SAI is supported by other no less important factors and elements such as internal and external communication, management of network positions, the credibility in the public sector etc.

4. Moore’s model Creating public value according to Mark Moore Recognising and reporting public value is a form of accountability in government (1995). Moore’s focus is on what individual public managers should do providing the strategic triangle – that is based on the notion of three components: First, any strategy must be practically valuable, which means that public value is produced. Second, the strategy must be considered politically legitimate by the authorizing environment, which is composed of individuals and groups that can control flows of resources (e.g. authority, money, co-production, etc.) that are needed for achieving valuable results. Third, the strategy must be feasible in terms of operational capacity, i.e. the organization must be capable of delivering the stated results. Operational Capabilities The Authorising Enviroment Legitimacy & Support Leadership Public Value: economic, social

5. Case of “Local Government reorganizations” • “Follow up” audit on the 2012-2013 performance audit • Complex reform with high impact on citizens • First extensive experience with full support and expertise where public management skills of the new leadership are tested, • Direct impact in quality of services offered, • Public perception vs. true efficiencies • Measuring any systematic effect of local government amalgation in public service • Findings, problems and issues noted in compliance audits performed in local government entities during the reform and after amalgation. • Political factors

6. Waves of Local Government Reforms (split-out /amalgation) Wave 1990- 2000 (symmetric decentralization) Decentralization of governance in Albania starts in the early 1990s, when local governments were elected democratically for the first time. In 1998 happens the ratification of the European Charter of Local Government Autonomy (8548/1998). In 2000, the adoption of the Law on the Organization and Functioning of Local Governance (8652/2000) mark the second most important moment in the decentralization of governance. Both of these documents consider the need for Local Government Units to be able to provide the functions toward the citizens. (Y2000: 373 municipalities and communes) Wave 2000- 2014 (asymmetric decentralization) Referring to a political document prepared by the Council of Europe, in 2004 a law for the countries administrative and territorial reorganization was drafted. Census 2011 noted big demographic changes in population. October 2013, the Minister of State for Local Issues set up the group of national and international experts for the reform. The whole process and the involving structures were supported by the technical and financial assistance of the STAR project, funded by the US Government, Swedish Government, Swiss Government, Italian Government, UNDP, as well as Council of Europe, OSCE, Embassy of the Kingdom of the Netherlands, Embassy of Austria, etc.(Y2014: 61 municipalities)

7. Key motives: Decentralization, Access Main results: High fragmantation, lack of efficiencies 2013 Audit findings: Status of Reorganization of y. 2000

8. 2013 Audit recommendations : an ex-ante contribution for new 2014 reform

9. Reorganization y.2014: Timeline ALSAI ‘s performance audit period December 2012 First report October 2013 Effective date: September 2015 • 4 months 2 months • Less then 1 year preparations • Due diligence, technical and financial support • STAR project assistance approx. $ 3.5 million, 30 experts, 1 survey with 16000 questioners, 37 meeting with Civil Society, 5 meeting with the businesses, 60 days for complains and objections

10. 2018’s Audit: Municipalities function after 2014’s reorganization • Legal framework: lack of harmonization, uncoordinated timing, "gray areas“ in the municipal competences, • Efficiencies and quality: New functions include amortized services and heavy budget burden for municipalities. Performance indicators are missing and their monitoring is lacking. • Decentralization: the ratio between capital expenditures and current expenditures is the same as the 2010-2011. Revenues decreased at lower rates than central government incomes. • Autonomy: Frequent and ungrounded interventions in fiscal analysis of central government in local government have destabilized the local revenue system. • Efficiency • Savings from reduced operating costs and streamlined processes • Financial management: • More equitable revenue raising and service distribution in the territory • Quality of service: • Enhanced ability to provide a greater range of services with greater quality and lower unit costs. Better access to technology, increased productivity and economies of scale • Decentralization: • Improved long term integrated planning, including management of assets • Autonomy: • Increased capacity to attract state and donor funding and partnering with businesses for community projects. • Is legal framework complete, transparent and easily accessed? • Has the reorganization improved quality of functional services toward citizens? • What the municipalities expenses go? • Is the financial autonomy guarantied as a result of reorganization of y.2014? • What is the effect of amalgation to revenue collection? • Has the reorganization improved public financial management at the local government level? Audit findings Audit questions Amalgation Objectives 1 2 3

11. Reorganization y.2014: What was missed? Audit message: TAR did not meet the objectives: legislation is not fully implemented, the process of absorbing new functions, employees, assets and increasing the quality of services has not been achieved with success. In most municipalities it results low level of effectiveness in collecting theirown revenuesand the use of available funds. …. there is a discrepancy between the objectives of reform and fiscal policies and budget of the central government that have violated local autonomy ….. Budget central government allocates about 1% of GDP to LGU, which is the lowest regional level, by not helping the municipalities to grow the level of services to citizens. Performance Audit year 2018 Complaince and Financial Audits Year 2016- 2018 Key issues: Project management, Accountability, transparency, motivation, System controls

12. Public Value Strategic triangle: LG Reorganization • Decentralisation with little to no improvement. • LGUs need more autonomy: starting with vision and contribution in planning and budgeting in order to hold their staff accountable, as well as plan, implement and expend according to local priorities. . • Access to information needs to be improved • Legislation should be reviewed and amended: laws governing LGAs are spread over several pieces of legislation. At times, these are confusing, and overlap or conflict with sector legislation. • . • The level of improvement expected, the effectiveness of the reorganization, 3 years after the amalgation is still vague, evaluated based on financial performance and unequal improvement of quality of service. Political factors, lack of macro fiscal policies, lack of financial control system, staff capacities and motivation are aspects needed to understand the impact of specific aspects of reform and identify opportunities for accelerating.

13. Reorganization of y.2014 Audit: SAI’sPublic value • Distribution of audit report to respective shareholder: Ministry of Internal Affair, 8 audited Municipalities and The Agency for Reform Implementation • Publication of audit report in ALSAI website • Consolidating audit result to the Annual Implementation Budget Report presented to Parliament • Presenting the audit result in the Annual Performance Report presented to Parliament . Audit Results’ Dissimination I. Authorizing and supporting environment: Enhancement of learning processes and public finance awareness (PFA): More intense communication with stakeholders INTOSAI 2010) and to build capacities to absorb impulses from the operational environment Collecting more up-to-date information II. Capacities, capabilities: development of auditing techniques not just using statistical methods when it comes to evaluation of matters of public welfare, democracy, decentralization. Sharing the audit results internally is important for a better coordination in annual planning, risk assessment process to ensure SAI’s work sustainability hence to increase our impact. III Public value outcome: long term effect which community considers important Public Value Strategic triangle 1 2

14. What was missed? “ Operations keep the lights on, Strategy provides a light in the end of the tunnel but Project Management is the train engine that moves the organization forward” Joy Gumz What is still missing? “Accountability is the glue that ties commitments to results” Bob Proctor

15. Thank You!