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The Office of the Auditor General’s observations on the central government accounts for 2004 - Doc. No. 1 (2005-2006)

The Auditor General (the OAG) submitted Document no. 1 (2005-2006) to the Storting on November 22. The document contains all the OAG’s observations on the Ministries’ administration and implementation of the budgets and on the Cabinet Ministers’ management of the state’s interests in companies for the accounting year 2004.
Published 11/22/2005 4:30 PM

Summary

The financial audit for the financial year ending 31 December 2004 has comprised 274 accounts. A total of 204 concluding audit letters have been issued without observations and 23 letters with significant comments. On May 27 the OAG presented a separate case concerning the Ministry of Defence’s accounts for 2004, therefore observations on this Ministry are not included in this document. No observations have been made to the accounts of the Ministry of Fisheries and Coastal Affairs, the Ministry of the Environment and the Ministry of Petroleum and Energy.

The corporate controls performed in 2004, covered 43 wholly-owned companies, 36 partly-owned companies, five regional health enterprises, five state-owned enterprises, six companies that are subject to special legislation and 26 student unions.

The OAG is unable to certify the accounts of several ministries’ subordinate bodies. The OAG cannot confirm that these accounts do not contain material misstatements and/or that the transactions upon which the accounts are based are in accordance with the decisions and intentions of the Storting. The deficiencies are primarily connected to the submission of the accounts and to weaknesses in internal control and the procurement process as well as to compliance with regulations.

Deficient grant management has been revealed in several grant schemes. The OAG’s monitoring of the ministries’ management of subordinate bodies has for several ministries also disclosed a number of weaknesses in the management of such agencies and in goal achievement and reporting.

With regard to corporate control, the OAG has presented observations on non-compliance with the regulations for public procurements, on how subordinate institutions exercise their ownership, and on whether the health enterprises are attaining the goals that have been set for some of the national quality indicators.

Ministry of Labour and Social Affairs

The National Insurance Service
The OAG regards the lack of monitoring activities in the National Insurance Service as serious. This has led to errors in the calculation and payment of pensions also in 2004. The audit shows that several widows/widowers who have the right to a pension have not received the pension to which they are entitled. There is considerable variation in the practice of discretionary judgement among the national insurance offices in their processing of cases concerning widows/widowers under the age of 55. Material weaknesses have also been found in the National Insurance Service’s handling and monitoring of payment settlements with doctors.

Aetat – the Directorate of Labour
The audit shows that there are material errors and deficiencies in Aetat’s administration of schemes involving advances on daily subsistence allowances in cases of bankruptcy. The OAG observes that Aetat’s accounting figures for the scheme do not give a correct picture of the actual situation.

Ministry of Children and Family Affairs

Bufetat – the Norwegian Directorate for Children, Youth and Family Affairs
The OAG has made critical comments on the accounts for the Directorate for Children, Youth and Family Affairs (Bufetat) and can verify breaches of the relevant regulations. The management and monitoring in Bufetat have been deficient, and the OAG notes that the ministry will continue to pursue this matter. The OAG has also made observations on the ministry’s routines for realistic budgeting.

Ministry of Finance

Transfer from the Government Petroleum Fund
When balancing government accounts, in the opinion of the OAG the transfer from the Government Petroleum Fund is NOK 1,481 million more than the accounting deficit for 2004 should indicate when corrections for petroleum activities have been made. The OAG maintains that the central government accounts must be balanced appropriately before loan transactions and must not show a profit or a loss. However, the central government accounts for 2004 show a profit before loan transactions of NOK 1,481.1 million, which has been employed for financing loan transactions.

Statistics Norway
The OAG takes a serious view of the fact that Statistics Norway does not comply satisfactorily with legislation and rules for value added tax, public procurements and financial management. The OAG has noted that the Ministry of Finance will monitor the agency’s activities more closely in these areas and expects that the financial administration will be brought in line with the applicable regulations.

Norwegian Revenue Service and Customs and Excise Administration
The OAG finds it unfortunate that there once again were weaknesses in the operating accounts of the Norwegian Revenue Service in 2004 even though measures were previously established to ensure satisfactory accounting. Furthermore the OAG has verified that there are still weaknesses in the Customs and Excise Administration’s use of the data system Autosys as a basis for setting the amount of duties – in spite of the fact that several measures have been implemented to reduce the risk of material errors.

Ministry of Health and Care Services

The OAG has made observations connected to management by objectives and results in the Directorate for Health and Social Affairs as well as to grant management and the safeguarding of IT systems that are critical for the Directorate’s activities. The OAG also has comments connected to transactions made by the Norwegian Institute of Public Health where questions raised include the ministry’s defective monitoring when the use of the special agreement for expert statements was terminated. Moreover it has not been possible to confirm the income of the Norwegian Medicines Agency.

The regional health enterprises
For the third consecutive year observations are made to the health enterprises’ violation of the public procurement regulations. This concerns the allocation of sole rights to the ICT enterprise Helse Vest IKT, engaging the regional hospital pharmacies without prior competition, the purchase of advisory services from an external auditor and entering into agreements with private institutions without competitive tendering. The ministry has put great effort into following regulations correctly, the OAG therefore views as serious the fact that its monitoring activities still reveal repeated and material violations of the regulations.

Productivity within mental healthcare still appears to be low, and psychiatry continues to lose priority compared with somatic healthcare. None of the health enterprises that were monitored have fulfilled the requirement of reducing the waiting period for assessment interviews for children and young people to ten days. The OAG would like to remark that it can be detrimental for children and young people to be obliged to wait up to two months before they are called in for the first discussion.

The OAG’s monitoring activities show that the health enterprises have different perceptions and practices with regard to the guidelines on employees taking on second jobs. It is underlined that it is important to continue the efforts to achieve a unified practice in this area. The OAG also takes a serious view of the fact that contrary to the relevant regulations several regions still have financial leasing agreements and in addition new agreements and guarantee obligations have been entered into in 2004.

Ministry of Justice and the Police

The OAG notes that the work of compiling financial instructions for some of the agencies has been delayed, and that this has made it difficult for these agencies to implement the new government financial regulations in 2005.
The Ministry of Justice and the Police has the former Air Force education centre in Stavern from the Norwegian Defence Estates Agency, where it has established the justice sector’s training centre. The National Police Academy has been assigned operating responsibility for the training centre. Crucial points in the agreement have not been put into effect, and a dispute has arisen between the ministry and the Norwegian Defence Estates Agency concerning one key point. The OAG is critical of the ministry’s planning, management and monitoring of this matter.

Ministry of Local Government and Regional Development

The OAG finds the fact that proper follow-up and reporting routines for grant schemes for regional and district policy purposes have still not been established, worthy of criticism.

The Norwegian Directorate of Immigration
The OAG also takes a critical attitude to the fact that there remain deficiencies in the Directorate’s monitoring of financial and administrative aspects of state reception centres for asylum seekers. The transactions upon which the accounts are based are not in accordance with the decisions and intentions of the Storting and are not acceptable when considered in the light of norms and standards for government financial administration.

The Saami Parliament
The OAG has made significant comments on the implementation of the budget in the Saami Parliament. The transactions upon which the accounts are based are not acceptable when viewed in the light of norms and standards for government financial administration. The OAG has noted deficient follow-up criteria and poor evaluations of grant schemes as well as aspects concerning routines and internal control relating to travel expense records and travelling allowances for the representatives of the Saami Parliament.

The OAG also expresses criticism of the fact that the ministry has not adequately monitored the financial administration of the resource centre for the rights of indigenous people, but has noted that the ministry has now implemented measures to rectify these matters and that this work will be continued.

Ministry of Culture and Church Affairs

Information Department fund
The OAG is critical of the fact that the Ministry of Culture and Church Affairs has no plan for how the non-restricted equity (the buffer fund) in the Information Department fund is to be increased to an appropriate level. The purpose of the buffer fund is to provide security against fluctuations in returns in the finance markets. It is not clear how it will be possible to cover any future deficit.

Norsk Tipping
The OAG had formerly noted that Norway’s leading games company, Norsk Tipping AS, has injected a considerable amount of capital into its subsidiaries Fabelaktiv AS and Spillverden AS, thus reducing its gaming profit. The OAG firmly maintains that the ministry is responsible for setting frameworks for Norsk Tipping AS’ subsidiaries. It must be ensured that the area of operations and the economy for subsidiaries are in line with the decisions and intentions of the Storting and the conditions stated in company legislation.

Centennial celebrations: Norway 2005
The OAG has noted that the running of the centennial celebrations Norway 2005 has not been financially acceptable and has questioned the ministry’s ownership management and monitoring of the grant. The ministry has informed the OAG that it will submit a complete report of the company’s financial administration to the Storting when the company’s final accounts are available.

Ministry of Agriculture and Food

Norwegian Food Safety Authority
The OAG has significant comments to the accounts for the Norwegian Food Safety Authority and cannot confirm that the accounts do not contain material errors and deficiencies. Nonconformance from the documentation requirements for accounting items and control routines that has been revealed is so great as to indicate a risk of material errors in the accounts.

Satisfactory reconciliation has not been made in the accounts – neither during the course of the year nor at year-end. The OAG takes a serious view of the fact that large procurements have been made in 2004 without allowing the opportunity for any subsequent verification of compliance with the regulations. The OAG is also critical of the fact that the process of setting salaries and wages for approximately 940 employees who were transferred from municipal activities cannot be re-examined due to lack of, or poor documentation.

Ministry of Modernisation

The OAG’s assessment shows that there are still weaknesses in the ministry’s management and coordination of county governor offices. The OAG wishes to stress that the ministry’s responsibility for managing subordinate bodies also extends to areas where other ministries have sector responsibility. The OAG expects the ministry to implement measures to assist the coordination of management signals and reporting requirements from the sector ministries.
The OAG refers to general weaknesses in the field of procurement, and emphasises the importance of following the regulations.

Ministry of Trade and Industry

GIEK – the central government institute for furnishing guarantees and insuring export credits
The OAG has significant observations on this agency’s implementation of the budget. The transactions upon which the accounts are based contain material breaches of the relevant regulations and are not acceptable when viewed in the light of norms and standards for government financial administration. The OAG’s comments cover aspects concerning accounting principles and the rules that govern the performance of accounting and financial administration as well as matters concerning value added tax and weaknesses and deficiencies in accounting reconciliation.

Ministry of Transport and Communications

The Norwegian Public Roads Administration and the Norwegian National Rail Administration
The OAG has significant comments to the accounts and the implementation of the budget for the Norwegian Public Roads Administration and the Norwegian National Rail Administration. For the former the observations include entries in the previous year’s accounts, making use of a bank account without authorisation, defective requisitioning of external funds from the road toll company and the county authority, and deficiencies connected to function contracts, i.e. contracts that cover the operation and maintenance of sections of road.

For the national rail administration the observations include the lack of internal control, violations of the procurement regulations for machine and contracting services for railway-related activities (through BaneService) and delays and cost overruns for the NyBaneDatabank project.

Norway Post
The OAG’s assessment shows that the purchasing practice in Norway Post still does not meet the requirements of the regulations for public procurements. This includes not verifying whether there are suitable Norwegian companies other than the subsidiary ErgoGroup AS that can place bids for technical services. The OAG’s view is that the requirement regarding proper administrative procedures indicates that in such cases government clients must conduct surveys to exclude doubt about whether there are other suppliers on the market.

Ministry of Education and Research

The OAG cannot confirm that the accounts for the Saami University College, Sør-Trøndelag University College, Hedmark University College and the School of Architecture and Design are of sufficient quality to prevent them containing material errors or deficiencies. The Norwegian University of Life Sciences (formerly the Agricultural University of Norway) has made transactions that are not acceptable when viewed in the light of norms and standards for government financial administration.

The OAG’s assessment reveals that several subordinate institutions show weaknesses in their administration of ownership interests in limited liability companies, and that the ministry has not satisfactorily monitored the ownership exercised by these institutions. For example the student union in Hedmark did not submit its accounts for 2004 within the deadline set by the relevant legislation.

Ministry of Foreign Affairs

The OAG ascertains that reporting from grant recipients concerning the administration of grants to Uganda, Tanzania and the Palestinian areas has been somewhat inadequate and does not provide a suitable basis for assessing whether the funds disbursed have been spent as intended. In particular the OAG notes that in Tanzania the Ministry has retained NOK 60 million from the educational programme for 2005, and that no further funds will be disbursed until the authorities in Tanzania provide satisfactory documentation about the use of the funds.

In addition the OAG has comments to the Ministry of Foreign Affair’s follow-up of grants to projects via Norwegian organisations. The OAG notes that lack of documentation on decisions has resulted in an inadequate basis for ensuring that allocated funds are spent as intended.

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