EC report on Kosovo mentioned counterfeiting money

Efficient implementation of managerial accountability remains a challenge for budget users both central and local. Kosovo should ensure continued implementation of international internal audit standards and better delegate management competencies to public entities.

So says the European Commission's report on Kosovo, where, among other things, it is focused on internal, external auditing, counterfeit money, financial control, and the protection of EU financial interests.

According to the report, the process of rationalising government agencies is moving slowly and is insufficient to bring about any improvement.

The implementation of the regulation for financial management and control remains inefficient, and the delegation lines and accountability are not yet embedded in the administrative culture of budget users. The law on organising and functioning the administration and independent agencies, which defines the accountability lines between the first-level rescue units and the subordinate organs, is not implemented consistently”, the report says.

Part of the Kosovo report:

Chapter 32: Financial Control

The EU promotes reform of national governance systems to improve management accountability, sound financial management of income and spending, and external audits of public funds. Financial control regulations further protect EU financial interests against fraud in managing EU funds and protecting the euro from counterfeiting.

There is a level of preparation in this field. Kosovo has made limited progress during the reporting period by adopting the new STMFP strategy (Reparation of Public Finance Management Reform) 2022-2026 and its action plan. The application of both needs to be accelerated. Kosovo must further harmonise its domestic public financial control legislation (KBFP) with the EU's best practices. In addition, implementing management accountability, including delegate of decision-making responsibilities; (ii) addressing effective internal control measures; and (ii) systematic tracking internal and external audit recommendations remain key priorities.

Parliamentary oversight of public funds management is not effective. Because the preliminary year recommendations were not fully implemented, Kosovo in next year must:

→ effectively implement the new STMFP strategy 2022-2026 and its actions regarding GDPP and external audit;

→ should draft and adopt the new Law on Public Finance Management and Accountability based on the EU's best practices and harmonise this new law with the Law on UNFP;

→ Should improve the management accountability of budget users both central and local;

→ It should improve co-operation between the National Audition Office of Kosovo (ZKA) and Parliament, making (i) improving parliamentary review of budget implementation; and (ii) following the ZKA audit recommendations consistently and efficiently.

Internal Public Financial Control

Kosovo has made some progress in improving its strategic framework for UNFP after adopting the new STMF 2022-2026 strategy and its action plan. Kosovo must make further efforts to ensure inter-institutional co-ordination and improve its framework for monitoring and reporting. Making improvements in this framework will lead to a more stable and consistent approach to implementing internal control standards. Work has begun on drafting the new STMF and accounting law. This new law must be harmonised with UNFP legislation.

Efficient implementation of managerial accountability remains a challenge for budget users both central and local. Kosovo should ensure continued implementation of international internal audit standards and better delegate management competencies to public entities. The process of rationalising government agencies is moving slowly and is insufficient to bring about any improvement. Implementation of the regulation for financial management and control remains inefficient, and the delegation lines and accountability are not yet embedded in the administrative culture of budget users. The law on organising and functioning the administration and independent agencies, which defines accountability lines between the first-level rescue units and the subordinate organs, is not implemented consistent.

The legal framework for internal control is largely harmonised with international standards, but is not being implemented enough. Financial management and budget control must be improved, following the EU's best practices. In 2022 the process of developing and adopting risk management records has continued at the central and local level. However, information on these measures in financial control processes and management remains insufficient.

As far as internal audit practices are concerned, further efforts are needed for effective implementation of internal audit standards in the public sector. Most internal audit units lack experienced and qualified staff. Internal auditing committees are not efficient and do not function properly and are recommended to reconsider their role and legal basis. Further efforts are needed to establish budget users' capacities so that they can use the methodological tools of sustainable and consistent internal auditing. Applying internal audit recommendations is limited to practice. Quality insurance methodology has not yet been systematically implemented. Administration for the training and Certificate programme of interior audiences in the public sector has been updated, but not yet approved. Therefore, there are delays in the start of the national programme for the certificates of interior audiences in the public sector. Further efforts are needed to provide continued training for interior audiences, both central and local.

The Central Harmony Unit provides methodological guidelines and co-ordinates development in the public sector of internal auditing and financial management and control. However, its capacities remain insufficient, especially in monitoring and reporting the functioning of the overall internal control system. The government approved the annual report of UNFP 2022, but its structure and scope could improve further and its recommendations could be implemented more systematically. There is no legal basis in the UNFP law regarding anti-corruption and there is no mechanism for monitoring the number of cases investigated, prosecuted and subject to judicial decisions as a result of internal audits or inspections.

External auditing

The Law for the General Auditor and the National Auditor Office of Kosovo (ZKA) is largely harmonised with standards set by the International Organisation of Supreme Audition Institutions. However, further review of the legal framework is needed to improve the function of external auditing in the public sector, for example to boost the financial and operational independence of the ZKA and remove its obligation to conduct annual financial audits of all organisations that receive a budget from the state. These legal changes are of crucial importance to improving the capacity and quality and impact of the work of auditing of the ZKA. ZKA has the institutional capacity to carry out its duties, with 164 employees, of whom 82% are audit staff, and 18% are employees offering other professional support services. Kosovo has continued to implement strategic development plan 2022-2025.

In 2022 some progress was observed after the annual auditing plan had been fully completed, with 133 audits conducted, including 3 accounting audits and 15 audits of performance. For the impact of auditing, auditers fail to effectively apply the ZKA recommendations. Of the 606 audit recommendations provided by the ZKA in 2020, 50% have been fully implemented, 5% have been implemented in part, and 45% have not been implemented. Even though co-operation between the ZKA and Parliament has improved, parliamentary review of the preparation and implementation of budget preparation must be improved. In 2022 the Commission for Public Finance Oversight examined 23 reports, two less than in the previous reporting period. Transparency and accountability of management of public funds should be provided through efficient monitoring mechanisms by the executive and parliament, including following the ZKA auditing recommendations.

Protecting EU Financial Interests

In line with “acquis”, national legislation is not yet harmonised with the Convention on Protection of EU Financial Interests, and this harmonisation will require changes in the Criminal Law. Kosovo has also not yet established a co-ordinating service against fraud (SHKKM) and a national strategy has not yet been developed against fraud for protecting EU financial interests. As Kosovo authorities do not directly manage EU funds, irregularities do not report to the Commission through the System of Incorrigible Management. While there is still no solid data on co-operation with the Commission during the investigation, Kosovo police provide co-operation on ad-hoc bases.

Protection of the euro From False

In line with “acquis”, there is up to some harmonisation with EU regulations for the system for fighting the euro counterfeit. The Penal Code considers it a criminal offence to counterfeit currency, and the Law for Central Bank regulates the fight against counterfeiting. Kosovo has a regulation for operating willing money obliging financial institutions to handle and withdraw from circulation all euro bills and coins suspected as counterfeits and hand them over to the police. Agency for Anjuta

Forenzice is responsible for technical analysis of bank notes and alleged coins as counterfeits. It has negotiated an agreement with the European Commission for Coins, but not yet for bills with the European Central Bank. In 2022, of the 2162 suspected bank notes assessed by the agency, 718 were confirmed as counterfeit, and of 12,028 coins, 10,979 were confirmed as counterfeit. There is no common electronic system for exchange, processing, analysis and reporting cases with the Central Bank and the agency. Kosovo must build key institutions' capacities to use methodological tools and exchange data with national and international authorities. All relevant institutions for the fight of counterfeit currency participate in the EU's “Pericles programme IV”.