SUBMISSION FROM THE AUDIT REPORT OF ANNUAL FINANCIAL STATEMENTS OF

Transcription

1 SUBMISSION FROM THE AUDIT REPORT OF ANNUAL FINANCIAL STATEMENTS OF PE»AIRPORTS OF MONTENEGRO«FOR 2009 Type of audit: Auditee: General audit PE»Airports of Montenegro«, Podgorica Subject of the audit: Annual financial statements for 2009 Audit duration: Board members: 90 auditing days Mr. Dragiša Pešić, member of the Senate Manager of the Board Mr. Miroslav Ivanišević, Chairman of the Senate member of the Board Page 222

2 1. GENERAL INFORMATION ON AUDITEE Public enterprise `Airports of Montenegro` is established on Decision on the Establishment of the Public Company `Airports of Montenegro` is issued by the Government of the Republic of Montenegro (`Official Gazette of the Republic of Montenegro` No 29/99). Statute of the Company was adopted by decision on the establishment in 2000, as well as the amends to the Statute in Pursuant to the Law on Business Companies the Company was registered on in the Central Registry of the Commercial Court in Podgorica under the number /001. The company is owned by the state of Montenegro. According to the MONSTAT`s report, the Company`s ID number is Company is registered as a VAT payer on , headed by the Director Milovan Djuričković and headquartered in Podgorica, at Serdar Street bb. Decision on the Establishment defines the certain activities of the Company, business assets, authorities of the public company, the composition, competence and election, the deadline for passing the statute and the establishment of the management bodies. The main activity of the Company is: handling aircraft, passengers and cargo at the airports :` Podgorica`, `Tivat`, `Berane` I `Zabljak` transporting passengers, baggage and cargo from the airport to the destination and vice versa maintaining runway landing paths, appliances and equipment at the airports. The Company cannot change the listed activities without the consent of the Government of Montenegro. According to the Law on Air Transport, the Company has obtained permission to use the airport for international and domestic public transport: 1. Podgorica, Decicion No 02/2-166/7-09 of and 2. Tivat, Decision No 02/2-200/6-09 of In addition to basic, the above-mentioned activities, the Company is registered for the following purposes: maintenance of aircraft, commercial aviation services, tourist procurement, travel agencies, tourist offices, provision of services by opening the Duty Free Shop and exchange office to provide hospitality and commercial services in facilities of the Company. 2. ACCOUNTING POLICY The Company has an obligation to keep its records and prepares financial statements in accordance with the Accounting and Auditing (`Official Gazette of Montenegro` No69/05 and `Official Gazette of Montenegro` No 80/08), or by decision of the direct application of International Accounting Page 224

3 standards (IAS) in Montenegro (`Official Gazette of Montenegro` No 69/02). Accordingly, International Financial Reporting Standards (IFRS) are applicable to financial statements covering the period beginning with 1. January The financial statements of the Company are presented in the form prescribed in Article 3 of the Law on Accounting and Auditing of Montenegro and in Article 22 IV of the EU Directive (No 78/660/EEC). Decision on adoption of accounting policies of PC `Airports of Montenegro` No /1 was taken on Company business records are conducted pursuant to the accounting system which is based on records in the general ledger and presents a documentary basis for the annual financial report. 3. OPINION WITH THE OVERVIEW OF DETERMINED FACTS AND GIVEN RECOMMENDATIONS The audit has established non-existence of material errors or significant discrepancies in the official financial statements presented in PC `Airports of Montenegro` for The following inconsistencies were established: the inconsistency of certain internal documents with regulations of more legal power, inconsistent enforcement of certain internal documents in business and organization, and violation of regulations governing the procurement procedures. Therefore, the competent Board of Audit expressed conditional positive opinion. 1. According to audit of business enterprises one of the established obstacles to efficient functioning is partial non-compliance with the regulations of higher legal force and incompleteness of some normative acts regulating the work of enterprises. - There is no agreement by the Government of Montenegro to amend the Statute of the Company of , although the Company requested from the Ministry of Maritime Affairs, Transport and Telecommunications in the letter of to accelerate the procedure of obtaining consent. - Regulations on internal organization and systematization don`t specify the number of employees in the individual workplaces out of which 107 workplaces are systematized (described). After examining the documents of the Company in 2009.,from 442 to 526 apprentices were employed during the summer tourism season. - The plan of personnel for is not adopted as is prescribed in the Rulebook on internal organization and systematization in Article At the systematized job on the position of Assistant for Personnel and General Administrative Affairs, work experience of one year is not in accordance with the obligation of holding a law court or the bar examination pursuant to the law on the bar exam, where the predicted period is minimum two years (`Official Gazette of Montenegro` No 52/04). Page 225

4 - There are two workplaces in the sector of financial and accounting operation systems: Associate-Coordinator for the financial and accounting operations where work experience of one year is not in accordance with the obligation to hold exams for authorized accountants pursuant to the Law on Accounting and Auditing which provides for a minimum two years (`Official Gazette of Montenegro`, No69/05 and `Official Gazette of Montenegro`, No 80/08, Article 11). - Bylaw of the Company (Art.22) provided the following: rights, duties and responsibilities of the Board members, the manner of voting, the convening of meetings, and other issues of importance for the work of Management Board shall be governed by the Rules of Procedure. The Rules of Procedure of the Management Board, which were adopted on October 13 th, 2000, No /1, determine the manner of work for the Management Board of the Company. Rules of Procedure do not specify the necessary number of members of the Board for a valid decision making, treatment of decisions made when the Chairman is not involved in it, and which of the decisions are made by a majority of votes of the members present in the Board or by the majority of the total number of the Board members. - The rights and obligations of the Supervisory Board are defined by Article 29 of the Bylaw of the Company and the rights, obligations and responsibilities of members, the manner of voting, the convening and conducting of meetings and other issues related to the work of the Supervisory Board shall be regulated by the Rules of Procedure. Rules of Procedure of the Supervisory Board was not adopted, which is opposed to the Bylaw. - Collective Agreement was not complied with the Labor Law (`Official Gazette of Montenegro`, No 49/08) within the stipulated time of 12 months from the date of entry into force of the Law (Art.177). Statement of the Company is that it is expected to pass a new general Collective Agreement in order to start with the harmonization of the Collective Agreement of the Company. Recommendations: The State Audit Institution recommends that PE `Airports of Montenegro` should amendment the Bylaw in part that relates to the powers of the Board in order to introduce the following: the commitment of the Montenegrin Government to give consent to the decisions of the Board on the distribution of the profit of the Company, and the adoption of the obligation to adopt Medium Term Development Plan of the Company with the consent of the Government of Montenegro. It is necessary to complete the Rulebook on internal organization and systematization of working posts in order to determine the number of employees in the individual workplaces. It is also important to comply with the Law on Bar Examination (`Official Gazette of Montenegro`, No 52/04) of the job description for the Assistant for Personnel and General Affairs, and the Law on Accounting and Auditing (`Official Gazette of the Republic of Montenegro`, No 69/05 and `Official Gazette of Montenegro`, No 80/08,Article 11) as regards job descriptions: Associate-Coordinator for the financial Page 226

5 and accounting issues and legal officers for financial and accounting affairs. It is necessary to apply the Rulebook in the part of mandatory annual personnel plan. To carry out amendments to the Rules of Procedure of the Management Board in order to specify the required number of Board members present for valid decisions, to review the decisions made when the Chairperson is not involved in decision making process and review the decisions which are made by a majority of votes of the members present in the Board and those made by the majority votes of the total number of board members. To adopt Rules of Procedure of the Supervisory Board. To initiate a harmonization procedure of the Collective Agreement of the Company with the Labor Law 2. It was determined that there is inconsistent application of regulations in certain cases which may have a negative impact on the organization and operations of the Company. Board members were not elected from among the employees and were not elected by April 2003.( when JAT, Belgrade, took over airports and employees at airports in Montenegro). Article 40 of the Bylaw provides the obligation of the Board to, at the beginning of the year, determine the measures and tasks to be undertaken to protect the environment. The Management Board found no such measures and tasks for Article 20 of the Bylaw stipulates the obligation of the Board to adopt research and development program of the Company, financial plan, investment decisions as well as to adopt the business report. During 2008 and 2009 the following documents are adopted at the session of the Board: financial statements for 2008 with the findings of an independent auditor (VIII Meeting, April 14 th, 2009); the Third Board Session held on November 26 th, 2007 approved Investment Plan for 2007 and The Management Board was introduced with the information on the Company`s investments in 2008 and with the Investment Plan for (VIII Meeting, April 14 th, 2009) which means that there was no decision made for Investment Plan for 2009, although the Bylaw specifies that the Board should adopt investment decisions. They have not yet realized the conclusions of the Board on the fourth session as of June 9 th,2008 to elect all members of the Board and to submit to the Management Board analysis of compliance of the Bylaw and the founding documents of the Company with the Law. The Company has initiated activities aimed at implementation of these conclusions. The conclusions of the Board from the eighth session have not been implemented preparation and presentation of the plan on the physical volume of traffic and financial plan for and report on business operations in 2008, for the next Board meeting. Members of the Supervisory Board are not elected from among employees, ever since the Supervisory Board has been formed. This means that the Supervisory Board has one member since February 11 th, 2010, and cannot perform its statutory role. According to the presented documents in 2009 there was a meeting of the Supervisory Board on March 5 th, The obligation of the Supervisory Board is, among other things, to review the accounts periodically and determine whether they are made in accordance with the regulations. For this reason, the Board should be in session at least four times a year. Page 227

6 Recommendations: The State Audit Institution recommends that PE `Airports of Montenegro` accelerates the procedure for electing all members of the Management and Supervisory Board from amongst members from the staff and invite the competent Ministry of Maritime Affairs, Transport and Telecommunications to accelerate the election of one member of the Supervisory Board which is elected by the Government of Montenegro. To accelerate the procedures for the implementation of conclusions from the meetings of the Board which are not yet implemented. To fully abide by the obligations made under the Bylaw, which specify that: The Management Board makes decisions on investments, adopt a program of research and development of the Company, brings the annual and periodic financial reports, adopts the measures and tasks to be carried out for the protection of environment; the Supervisory Board has the obligation to maintain sessions at least four times a year due to consideration of the periodic review of calculation. 3. The Audit has found that the basic assets are unrealistic and unreliably shown in the balance sheet for 2009 in the part relating to the land (the amount of million euro), for the registering the land in Tiva based on the assessment in 2000, considering the fact that since then the land prices increased, and that the land in Podgorica Airport is not presented. Land in the Airport of Podgorica is not registered in the books of the Company. From the Property Sheets obtained from the Directorate of the Property it is evident that it is a land owned by the State of Montenegro and the user is PE `Airports of Montenegro`. There are numerous charges and restrictions to the land at Tivat Airport: of the former owners and of PE `Coastal Zone` from Budva. In connection with that, the Company took the actions in Land Registry in for the Company to define the property title over this Airport. As for the land in Podgorica Airport the situation is more complex. Most of the land used by the Company belonged to the Army of Montenegro and any transfer of the Company`s income is not officially made, which makes it difficult to register land in the cadastral records. Furthermore, the spatial and urban development plan for the Municipality of Podgorica are just being prepared and it is not possible to obtain building permit for capital facilities before its adoption, which is a basic requirement for a valid registration of property in the Directorate of Property. Recommendation: The State Audit Institution recommends that PE `Airports of Montenegro` accelerates the actions and procedures necessary for registration of the land located at the Airport of Podgorica and to remove the restrictions to the land at the Airport Company of Tivat in the Directorate of Property. After completion of the registration procedures, it is necessary to prepare a study on the assessment of the land owned by the Company so that the Assets of the Company`s ledgers were properly displayed. Page 228

7 4. Confirmation for the International long-term loans and amortization plan was not submitted for credit taken from the EBRD. The Company did not show a current portion of long-term debt as current liabilities in the balance sheet. The long-term loans were presented on December 31 st, 2009 in the amount of 19,683 million euro. The loans were obtained from the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB). The Company and the EBRD signed an agreement on funding of a project to modernize airports in Podgorica and Tivat on December 12 th, 2003, for the amount of 11 million euro, with a repayment period of 15 years and a grace period of 3 years. Withdrawals were estimated at 10,235 million euro and so far 2,552 million euro was repaid. Project Agreement for the modernization of airports in Podgorica and Tivat, made on February 27, 2004 is signed by the following: The European Investment Bank (EIB), the Republic of Montenegro and the Company. The loan was approved in the amount of 12 million euros. Repayment will begin in The funds were transferred in four tranches of 3 million euro. Recommendation: The State Audit Institution recommends that PE `Airports of Montenegro` provides the amortization plan for the loan to the EBRD. Also, it is necessary to show current portion of long-term debt as current liability in the annual financial plan and financial statements, as provided by the International Accounting Standards (IAS). 5. In the process of conducting public procurements in 2008 and 2009 there were certain deficiencies in the procedures specified by the Law on Public Procurement (Official Gazette of Montenegro, No 46/06) in a number of open public procurement procedures. Public Procurement Plan for 2008 is filed in the archive of January 30 th, 2008, but with no proof that the plan is adopted by the end of last year for the year in which it is planned to implement public procurements, as specified in the Law, Article 27. The Commission for opening of bids and bids evaluation was formed after the announced call for public tender, which is contrary to Law, Article 31 (Supply number: 01/08,03/08,05/08,06/08, 12/08, 13/08). This article stipulates that the Commission prepares and implements a procurement procedure, which means that the Commission was required to, inter alia, prepare the tender documents and the text calls for public tender. Procurement No.14/ official uniform procurement. Upon appeal, the Commission for the Control of Public Procurement nullified the proceedings of public procurement and committed the Company to announce the re-procurement procedure. The Company has not acted in accordance with the instructions of the Commission and announced a new procurement procedure which is contrary to Law, Article 101. Page 229

8 The Public Procurement Contract is concluded before the deadline for filing complaints of 8 days, which is contrary to Law, Article 74 (Supply number:02/08,07/08,10/08,05/09). In a number of open public procurement procedures in 2008 and 2009 the following facts are established: An assessment of the procurement is not done well in a number of procedures with the result that the contract value is less than 23 to 81 % of the appraised value (Supply number: 02/08,05/08,07/08,12/08,13/08,01/09), while in the two processes of great value contract price increased by 10% and 16% of the appraised value (supply number:08/08,09/08). The Commission is composed of an even number of members which can lead to the eventual blockage of public procurement procedure in case of outvoting (Supply number: 04/08,11/08,17/08,03/09,05/09). Recommendations: PE `Airports of Montenegro` was required to consistently apply the Law on Public Procurement (`Official Gazette of Montenegro`, No 46/06) in order to avoid the failures identified in the implementation of public procurement procedures in 2008 and The State Audit Institution considered that the number of members of the Commission for opening and evaluating bids must be added. Although the Act does not specifically prohibit that the number of members of the Commission is even and stipulates at least 3 members, in the commentary of the Act it is stated that the number of Commission members should be added to make the case outvoting in implementing the procedure decisions. The State Audit Office considered that it is necessary to adequatly assess the value of procurement and in connection with this to undertake the Supply Market Research in order to avoid the significant difference between the estimated and realized value of public procurement. 6. In the process of the implementation of public procurement in 2008 and 2009 there was a violation of the Law on Public Procurement (`Official Gazette of Montenegro`, No 46/06) in the number of open public procurement procedures. o Supply number: 01/2008., the acquisition of airport runway sweepers - 2 pieces. The decision was made to call tenders on , a tender was announced on Public Procurement Plan for 2008 was recorded in the archives of which means that the call is announced before the Public Procurement Plan for 2008 was adopted, which is in contrary to the Law, Article 27 o Supply number:03/2008., office space leasing for a period of 1 year. The call for public tenders referred to the estimated lease price on a monthly basis which is contrary to the Page 230

9 Recommendations: Law, Article 37, where it is specified to public an estimated value of the procurement. There is no agreement with the Directorate of Public Procurement to conclude the Annex to the Contract with the contractor, which is contrary to Article 26 of the Law. o Supply number: 08/2008., works on the reconstruction and adaptation of the old terminal building at Podgorica Airport. The planned project cost was 3.5 million euro, the contract project cost after conducting an open public procurement procedure was million euro, while the value of the work performed was million or 24,9% more than the contracted value. Public Procurement Law (Article 23) allowed the conclusion of contracts without prior publication of the call for tender only with the provider who was awarded the main contract. The total value of contracts awarded for additional services or works cannot exceed 25% of the value of the Contract. There is no Feasibility Study for this capital investment, which is contrary to the Law, Article 27. and there is no consent with the Public Procurement Directorate to conclude the Annex to the Contract with the Contractor, which is contrary to Article 26 of the Law. The Annex to the Contract is signed in the amount of 13.4% of the Public Procurement for o Supply number: 09/2008., works on expanding the platform for general aviation at Tivat Airport. Contracted value of the works was million euro and the value of the works performed was million euro, or 244 thousand euro more, or 12,4%. There is no Annex to the Contract for the exceeded value, which is contrary to the Law on Obligations, Article 705 (`Official Gazette of Montenegro` No,47/08) and Law, Article 23. o Supply No 13/2008., Fuel Supply. After implementation of Public Procurement Procedure the Contract with the first ranked Company `Jugopetrol` Kotor was not signed, but it was signed a contract on credit line with the Montenegrin Commercial Bank, for fuel consumption without the amount in the Contract, which is contrary to the Law of Obligations, Article 470 and Law, Article 74. o Supply No 2/2009, Insurance of the facilities, equipment, people, vehicles and special responsibilities of the activity of PC `Airports of Montenegro`. The Contract with Lovcen Insurance was submitted in 2004, as well as the invoices in the amount of ,28 euro that are denominated at Lovcen Insurance. After the completion of the Public Procurement Procedure the Contracts were signed and implemented with Delta Generali Insurance and Montenegro Insurance, while Lovcen Insurance is not mentioned in the Procurement Procedure. o Supply No 04/2009., Procurement funds for the maintenance of hygiene. The realized amount was ,58 euro while the contracted value was ,93. There is no Annex to the Contract for the exceeded value which is contrary to the Law of Obligations, Article 19 and Law, Article 23. PE `Airports of Montenegro` is required to consistently apply the Law on Public Procurement (`Official Gazette of Montenegro`, No 46/06) and the Law of Obligations (`Official Gazette of Montenegro, No 47/08) in order to avoid infringement of those laws which have been found in the implementation of Public Procurement Procedures in 2008 and 2009, of which the most common violation of the Law was Page 231

10 signing the Annex to the Contract with individual providers without the consent of the Public Procurement Directorate. The State Audit Institution recommends for the following actions to be taken in short notice in order to eliminate the irregularities. To initiate the procedure of signing of the Annex to the Contract with the Contractor to expand the platform for general aviation at Tivat Airport. The contracted value of the work was 1,968 million euro, and the value of the work performed was 2,212 milion euro, or 244 thousand euro or 12,4% more. To sign a Contract with the Jugopetrol a.d. Kotor on the procurement of fuel according to completion of the Public Procurement Procedure No 13/08, and terminate the Contract with Crnogorska komercijalna banka a.d. Podgorica on a credit line since it was not a subject of the Public Procurement. To undertake a Procurement Procedure for selecting the best bidder for the airline insurance liability to the third parties. The Contract with Lovcen osiguranje a.d. Podgorica from 2004 which provides for automatic extension of validity, in case it is not canceled after the contracted period, is inconsistent with the basic provisions of the Law on Public Procurement. 7. The Company is involved in a number of legal proceedings as a defendant, as follows: From the large number of individuals for damages due to accidents of Montenegro Airlines aircraft at Podgorica Airport in Passengers set out the claim in the amount of 813,8 thousand euro although one of the passengers did not specify the amount in the complaint claims. From the `Cyvas General Trade` Ltd, a leading member of the consortium CCM in the process of reconstruction of the airports in Podgorica and Tivat, which submitted the request for arbitration to the ICC in Paris on the basis of noncompliance with contract obligations in an amount of 2,285 million euro. The Assessment of the legal representative of the Company is that the Company will be charged for the amount that would be considered a real compensation for the work performed. Recommendation: 8. The State Audit Institution recommends that PE `Airports of Montenegro` takes all measures and activities to a positive resolution of litigation with the Company `Cyvas General Trade` Ltd., amounting to 2,285 million euro, as it would in the event of a negative outcome lead to significant damage to the Company, and thus for the State of Montenegro. Page 232