Many problems with 2023 budget. Auditors highly critical about Rēzekne’s finances

There were many mistakes made in the development of the 2023 budget of Rēzekne municipality, as concluded in the report from the State Audit.
The audit painted a generally negative picture of the financial situation in the municipality. The main problems include insufficient assessment of the situation, reliance on the availability of funding, fragmented state of of the budget management and accounting process.
State Audit council member Ilze Bādere told BNN that Rēzekne’s financial stability caused many questions in the public space, specifically who is to blame and who should take responsibility. The focus of VK’s audit was the responsibility of Rēzekne municipality in ensuring a stable spine for financial management, accounting control, as well as ensuring regulation-compliant, transparent budget management based on reasonable forecasts and realistic intentions.

“Results of the audit indicate – it’s in Rēzekne’s own hands to ensure this situation does not repeat,” said Bādere.

VK also reports that Rēzekne’s general budget consists of budgets of nine institutions. Each one is prepared and submitted to Rēzekne Finances Office for evaluation. Budget development is ensured by the Capital investments programme and budget process management group, whose tasks include reviewing and accepting revenue forecasts, reviewing and accepting expenditure checklists, setting investment priorities, accepting the draft budget summary and moving forward with approval.
The Finance and Budget Committee contributes to the budget development process. One of the objectives of this committee is supervising and approving the municipality’s budget.
This year’s budget – from the initial request from institutions to the budget’s approval at the 10th of February meeting of Rēzekne Council, the budget project was reviewed multiple times by the Budget Management Group. The audit revealed that despite information available on the lack of budget funds on multiple positions, the controlling digit of budget expenditures, which was set on the level of 2022, was reduced further by 8%.

As a result of this, the budget was directed and approved without expenditures and resources to cover them for at least three months or without planning at least EUR 8.68 million.

At the same time, the Finance Committee, which is responsible for reviewing and approving the budget before its submission to the council meeting, is involved in budget review meetings when deciding on budget options, thus not all members of the Finance Committee may have access to complete information on the budgetary needs of the institutions, the State Audit reports.
The State Audit also found significant problems with the budget implementation and control process, including in the amendment budget preparation and approval process. Moreover – although the Ministry of Finance made multiple reminders that it is not possible to take new loans, and because Central Finance and Contracting Agency (CFLA) had previously halted financing of multiple EU structure fund-financed projects of at least EUR 3 million, neither the Budget Group nor the Finance Committee or even Rēzekne Council had corrected the previously planned but never received loans worth EUR 7.77 million. This means the real situation about the shortage of finances was not reflected in budget-related documents.
Since May 2023, when the Ministry of Finance had first turned Rēzekne’s attention towards the high loan commitments and ordered the county council to prepare a financial situation stabilisation plan. To do this, correct financial information was vital, VK notes.

The audit also uncovered the fact that Rēzekne’s prepared action plan’s inconsistency with the budget amendments, as well as significant shortcomings in the Rēzekne stabilisation plan.

VK notes that in a situation where there is no confidence about available data, it’s not possible to assess the real extent of financial obligations. The cause of this lies in both the incomplete internal control system and accounting functions in the organisation. Although there is a uniform accounting procedure in the municipality, each of the nine municipal institutions performs it separately. Also, each institution submits reports separately.
Bādere that it is critical for the municipality to establish and maintain a financial system with clear and transparent processes that provide reliable information to decision-makers.
Looking at investment projects, VK uncovered flaws with planning of Rēzekne infrastructure development projects, their implementation and financing. For example, investment projects are not always included in the development planning documents so that the necessary funding for their implementation in a given budget year can be planned in a timely manner.
When attracting funding from the EU, such as for projects intended for environmental restoration, no document or assessment was developed in Rēzekne on the possibilities of using undeveloped land and degraded territories. Rēzekne also failed to perform a road and street quality assessment. The municipality also failed to list roads and streets, maintaining which would be the top priority.
In general, the implementation of Rēzekne investment projects is not determined in order of priority to find the best solution for the needs of the population and the municipality under the conditions of limited resources.
The State Audit provided Rēzekne with three recommendations to improve its budget and financial management system and ensure transparency of financial processes and accounting control, VK concluded.
Also read: Latvian State Security Service performs search at House of Moscow in Riga
Follow us on Facebook and X!