Accountable_Governance_Assessment_Final_Report_Novus_Consulting.pdf

Final Report

Accountable Governance Assessment

Prepared by:

Novus Consulting

Prishtina, Kosova, October 2015

Project Information

Draft Final Report

Organization: Novus Consulting

Mailing Address: rr. Zenel Salihu #28, z. 4, 10000 Prishtinë, Kosovë

Telephone/fax: Telephone: (+386) 49 576 576

Web: www.novusconsult.net

Geographical focus: Kosovo

Duration: Three weeks

Date of submission: October 07, 2015 http://www.novusconsult.net/

Table of Contents

List of Acronyms

Executive Summary

Introduction

Review of Current Situation and Initiatives Legal Framework in Budgeting/planning Annual Budget Preparation Process Organization of the Budget Execution Donor and Project Activities The oversight process Oversight by nongovernmental institutions Transparency at the Local Level

Results from Field Research Key findings from the Survey Key findings from the Focus Groups

Conclusions Planning Expenditure Oversight General Conclusions

Bibliography Annex 1: Methodology Annex 2: Survey Compilation of Data Annex 3: Focus Groups Compilation of Data Annex 4: Legal Framework on anti-Corruption Annex 5: International Good Practice

Abbreviations

ACA – Anti-Corruption Agency

AmCham – American Chamber

BO – Budget Organization

BRK – Budget of the Republic of Kosovo

CPA – Central Procurement Agency

CSO - Civil Society Organization

EULEX- European Union Rule of Law Mission

EU – European Union

KDI – Kosovo Democratic Institute

LPFMA – Law on Public Financial Management and Accountability

IMF – International Monetary Fund

MTEF - Medium Term Expenditure Framework

MoF- Ministry of Finance

NDI - National Democratic Institute

NDS – National Development Strategy

OPM – Office of the Prime Minister

OAG – Office of the Auditor General

PEFA – Public Expenditure and Financial Accountability

PRB – Procurement Review Body

PPL – Law on Public Procurement

SME – Small and Medium Enterprises

USAID – US Agency for International Development

Executive Summary

This assessment, commissioned by USAID, analyzes the state of transparency of public institutions of Kosovo both at the national and local level. Particular attention is given to the procurement and budgeting units of local public administration. What is presented in the following pages is an analytical description of institutional transparency enriched with statistical data for each specific assessment requirement and review of ongoing actions and activities resulting in increased transparency at the country level undertaken by international and national institutions and non-government agencies. This assessment aims to deliver an analytical description on the state of transparency in Kosovo by providing detailed snapshot of the situation, while proposing policy interventions and actions at the local level that aim to address lack of transparency by bringing together local government, businesses and civil society organizations.

Transparency and anticorruption appear among the most important issues for the future of the country to both policymakers and ordinary citizens in Kosovo. It is believed that having a transparent and accountable government leads to better future for the country both in terms of social and economic outcomes. However, rhetoric and reality are often at odds.

Regardless of the beliefs expressed by the public and other stakeholders on the importance of transparency, corruption remains relatively widespread and represents one of the main challenges facing Kosovo on its path to sustainable development. Corruption is reported as one of the main barriers to sustainable growth and development in most analyses and public opinion polls. The latest EU progress report published in 20141, notes limited progress in fighting corruption combined with low readiness of political elites to accept and support an independent judiciary.

At the same time, the research presented in this report shows a widespread belief that things are not going in the right direction with regards to transparency and accountability. This is further substantiated by a strong distrust in the work of public institutions on the part of citizens, with few exceptions.

Despite these sentiments, there have been an increased number of initiatives by public institutions2 with the support of donors and civil society to address this situation. Our research has shown a strong linkage between these initiatives and improvement of public perceptions of corruption. Clear examples are the municipalities of Prishtina and Gjakova, the first municipalities to have approved integrity plans.

1 EU (2014) Kosovo Progress Report 2014, available at:

http://ec.europa.eu/enlargement/pdf/key_documents/2014/20141008-kosovo-progress-report_en.pdf

2 E.g. by the Ministry of Finance, Anti-Corruption Agency, Public Procurement Regulatory Commission, and the Office of Auditor General, among others.

http://ec.europa.eu/enlargement/pdf/key_documents/2014/20141008-kosovo-progress-report_en.pdf

This development regarding the approach to transparency and accountability is a result of a number of developments linked with Kosovo state-building.

The institutional development of Kosovo can be considered to be in its early stages. As such, the complexity of adopting legislation, systems and procedures has exceeded the ability of administration to implement them. At the same time, the ability of public to follow and participate in this process has been negligible. This report shows that while legislation is in place, both the administration and public fail to make use of it, thus allowing for corrupt practices to arise in the system. Most of our respondents were not fully aware of their role in the transparency cycle and their ability to be part of the processes, such as right to information, opportunities to participate in the planning process and ability to use publicly available information to play an oversight role. Also, most respondents noted that Civil Society Organizations (CSOs) and Media do not play a good enough role in increasing transparency.

Moreover, the general public trust in both CSOs and Media has deteriorated substantially in the past years, therefore their credibility has suffered. Thus, the level of public participation and transparency especially at the local level of governing is quite low.

The approach to addressing these challenges has followed a similar pattern to the development of the institutional context. Most of the anti-corruption initiatives outlined in this report have been implemented as a result of donor or external pressure, without full buy-in by local institutions and leaders. Just recently, these initiatives have started to be seen as flagship projects by some local leaders. Notable examples can be found in “Integrity Plans” at the local level and initiatives around e-procurement and centralized procurement taking place at the central level.

Given these issues, it is recommended approaching the issue of transparency and accountability in a holistic manner. Programs should be implemented in all stages of public planning and expenditure. Specific initiatives should address:

Participation at the planning stage - More work needs to be done directly with citizens to get them engaged in the planning stages of the public spending policies. A notable initiative in this area is the concept of participatory budgeting. While the possibility exists in Kosovo’s legislation, its implementation has been lagging behind. What does this look like in practice?

Reduce administrative complexity at expenditure stage especially in relation to public procurement – The legislative framework has become too cumbersome to be well implemented by a relatively inexperienced administration with a high turnover of staff. As such it should be simplified and appropriate systems should be implemented to lower transaction complexity and the possibility of malicious activity. In this area, the concept of E-Procurement should be explored further. A number of countries (including Albania and Georgia mentioned later in the report) have been implementing paperless systems of procurement leading to less corruption and more oversight.

Increase economies of scale in public procurement – for a small country and a small number of experienced professionals, Kosovo had too many agencies dealing with procurement of same supplies. The current initiative of the centralized procurement is meant to address this issue.

Further support (especially in training and monitoring) could be useful for full and functional implementation of this initiative. Initiatives at the local level could be used as pilot initiatives to be applied nation-wide. Since the largest share of procurement and budget expenditure is spent at the national level and regulatory and legislative bodies are at the central level, the problem of corruption in procurement has to be addressed top-down.

Support the oversight capacities at both local and central levels – as mentioned before, there are a number of good initiatives in civil society dealing with the issue of accountability and transparency such as initiatives by FOL and GAP. They should be supported to do more. At the same time, these initiatives should support the civil society at the local level as well. Right now, with few exceptions, the capabilities of local CSOs to work with the public and provide an oversight function to the municipality are greatly under resourced.

Support the oversight role of the media at all levels – to date, media have proved effective at drawing attention to issues around transparency and accountability. Further support is required to increase their capacities to get involved at all stages of public funds planning and expenditure.

Media should have more professional capacities to get involved in the ex-ante processes and not only to report ex-post-- something that will also in turn enhance their credibility and their potential to play a role in increasing of transparency.

Finally, any future intervention by both domestic and international actors should address the public administration capacities at all levels of governance. To date experience has shown that adopting laws and setting up institutions is not enough. Greater professionalism and competence is required for the establishment of a modern framework of transparency and accountability.

Attracting competent professionals and providing on-going training for staff should represent the cornerstone of reform approach towards less corruption and more transparency.

Introduction

This assessment outlines the findings gathered through desk research and literature review as well as through field research and focus groups conducted with major stakeholders. It tries to provide answers to four basic questions of concern for the project: What is the current situation regarding the accountability system in Kosovo? What is currently being done to address the gaps by the government and other actors? Which are some of the best practices identified internationally? And finally what can be further done to improve the situation in Kosovo?

One of the challenges to this report is the distinction between the national and local due to two reasons: first, issues identified are common to both levels of governance and second, the amount of discretionary budget spending at local level is significantly lower than at national level. This challenge applies to policy analysis, however in relation to the field research and perception of citizens and stakeholders the report will make a clearer distinction between two levels due to the ability to gather better information through data collection with questionnaires, interviews and focus groups.

The accountability system has been defined as comprising of three major areas: Planning and Budgeting of public funds, Execution or spending of public funds with specific focus on public procurement and oversight systems, including auditing and independent oversight by the civil society and other organizations. The findings show that Kosovo currently faces challenges in each of these policy areas. While decent institutional and legal framework exists on paper, its implementation remains challenging and provides opportunity for corrupt practices.

The rest of this report is organized as follows: initial review of the current situation in each of the mentioned areas followed by identification of gaps and outline of some of the current initiatives taking place, at the same time outlining some good practices internationally. The second part of the report summarizes some findings from the field research (details in annexes) and finally presentation of recommendations on how to address the challenges.

Review of Current Situation and Initiatives

In the area of public expenditure planning, Kosovo has developed a sound legal framework based on international best practice. This has been driven mainly by international donors and other financial institutions such as IMF, USAID and EU.

Legal framework in budgeting/planning

The main regulatory framework for fiscal matters in Kosovo is the Law on Public Financial Management and Accountability (LPFMA) – Law No. 03/L-048. It regulates the basics of the different stages of the budget process including the officials and institutions being part of the public financial management system.3

Concerning budget formulation, the LPFMA regulates the preparation of the Medium Term Expenditure Framework (MTEF), the Preparation and Review of Proposed Budgets and Appropriation Requests, including timelines, guidelines for budget circulars, and the setting for the proposed Budget of the Republic of Kosovo (BRK).

The LPFMA sets detailed planning procedures and timelines to be followed by both Central Level and Municipal Level. These guidelines are reinforced on yearly basis by the issuing of Budget Circulars outlining yearly specifics of budget planning such as government and municipality priorities, budget ceilings and financing instructions. Meanwhile, the process is

3 Law No. 03/L-221 (2010) and Law No. 04/L-116 (2012).

monitored and guided by the respective departments in the Ministry of Finance namely Central Level Budget Department and Municipalities Budget Department. The LPFMA also sets out responsibilities and roles for different positions within Budget Organizations, especially in relation to financial planning, approval of expenditures and financial oversight. As such the LPFMA together with the PPL represent the main body of legislation related to transparency and accountability.

Annual budget preparation process

Annual budget planning starts with the identification of Government priorities. These priorities are set out in the program of the government and would ideally be part of a broader National Development strategy.

The Government had put down the latest policy priorities in its “Program of the Government of the Republic of Kosovo 2015-2018”4. However, that document is only a collection of the Government’s objectives and does not present any strategy. With support of EU5 funds the Strategic Planning Office at the Prime Minister’s Office (OPM) is drafting the National Development Strategy (NDS). The NDS is organized around four pillars covering government priorities and targeting Human Capital, Good Governance and Rule of Law, Competitive Industries and Infrastructure. The Good Governance and Rule of Law pillar covers also the issues around addressing current gaps in public procurement.

However, the NDS is still in public consultation phase and needs to be approved by the Government as soon as possible thus streamlining government planning process towards addressing current challenges on the path towards sustainable development.

On the structural end even though legal basis exists, some of responsibilities are not clearly defined between sector ministries and the Strategic Planning Office at OPM. Also, within sector ministries, there is no clear process for developing strategies. Plans are produced, but they are not coordinated and consulted with the other sector ministries within the Government. Especially the planning of activities and the planning of finances do not interlink properly.

Following the approval of the priorities and submission of budget proposals by the budget organizations, the Government submits it budget proposal to the Parliament for discussion and approval.

Regarding the Parliamentary Approval of budget, certain aspects of the parliamentary procedures have to date not been clearly defined and need improvement within the process.

For example, there are no clear provisions, neither in the LPFMA nor in the Rules of Procedure of the Assembly, on reporting procedures both prior to submission to the Assembly and thereafter. It is not clear whether periodical reports have to be approved by a committee or even the plenary sessions or are just meant to be submitted to the assembly for information.

4 Office of the Prime Minister of Kosovo (2015): The Program of the Government of the Republic of Kosovo.

5 EU funded project “Support to Kosovo’s Strategic Planning” managed by European Union Office in Kosovo, Implemented by CPM Consulting Group Estonia.

Furthermore, latest PEFA Assessments6 have continuously noted that parliamentary involvement in budget planning happens only at the stage when the government approves budget, thus limiting the ability of the assembly to provide inputs at the planning stages.

At the level of municipalities the process is quite similar to the central level, with the exception that the budgets are approved by Municipal Assemblies and the role of the Parliament is limited.

Initially municipalities formulate a Medium Term Expenditure Framework, in which they incorporate all budget proposals from different departments within the ceilings provided by the Ministry of Finance. Following the approval of the MTEF, Municipalities prepare yearly budget proposals according to the timeliness provided by the Ministry of Finance. It should be noted that since Municipalities have their own source revenues, they have a degree of freedom in planning especially in the area of capital expenditures.

Municipal budgets are part of the overall budget submitted by the government to the parliament.

Organization of the budget execution

Two laws are generally used during the execution of the budget or expenditure of public funds:

the Law on Public Financial Management and Accountability (LPFMA) and public procurement law (PPL).

The main problems which were identified by the Office of Auditor General (OAG) in this phase are: inadequate planning of expenditure by the relevant institutions at the central as well as local levels, asset management, implementation of capital projects and the procurement process itself in particular.

The reports of the Office of the Auditor General, in the past three years noted that the central and local governments have failed to make planning of the meaningful budget expenditures, and as a result money has been transferred from one budget line to another, which as explained above can be done without any need for approval by the Assembly.

Another issue highlighted in these reports is public procurement. In general it is said that the government has not implemented a single centralized procurement or a framework contracting system. The impact of this deficiency is the loss of ability of the public sector to achieve economies of scale and save on cost.

On the other hand, although the PPRC reports that the procurement system is making progress from year to year and is becoming more transparent, annual reports of the OAG reveal that the implementation of the procurement framework is not at a satisfactory level. Furthermore, the OAG has systematically identified numerous violations and irregularities, in particular with the preparation of tender dossiers, the evaluation phase and in the implementation phase.7

Thus, the procurement process remains a challenge for the government of Kosovo.

Significant weaknesses in the OAG's report for 2014 are a repetition of those of 2013, 2012 and 2011 of which were:

6 PEFA (2013) Government of Kosovo Self-Assessment 7 OAG (2014) Annual audit report 2014, page 33

• The award of contracts to irresponsible economic operators;

• The award with contracts without the commitment of funds;

• Purchase not in accordance with the budget law / administrative guidelines; E.g. initiate the procurement procedure without the commitment of funds; accepting the deliverables without a proper professional opinion.

• Delays in the implementation of the contract;

• Payments for Goods and Services from the Capital Investments;

• Purchase Order made after receipt;

• The performance guarantee does not cover the period of implementation;

• Lack of Admission Committee;

• Contract awarded without procurement procedure;

• Lack of signatures on the Declaration of Needs;

• Purchase contrary to the technical specification;

• Certification of payment without sufficient evidence;

• Exceeding the limit for overtime work;

• Needs Assessment weak; and

• No penalties / penalties for not fulfilling contractual requirements.

These deficiencies allow opportunities for corruption practices in the procurement process. The EU Progress Report (2014) has also flagged these issues. The issue of defining and implementing technical specifications is seen as the main problem. The report also talks about corruption cases that are currently being treated in EULEX, where nine cases were sentenced to cases of corruption.

Moreover, EULEX has several ongoing investigations into public procurement-related corruption8. Corruption in public procurement is a recurring issue and public perception of the transparency and fairness of public procurement has deteriorated. Overall, the legal framework generally complies with EU standards and is non-discriminatory. Nonetheless, the capacity of all bodies involved needs to be further improved. It is important to avoid long periods during which key positions are not filled. Contract management and planning capacity need to be strengthened.

Awareness needs to be raised as regards public procurement procedures and their implementation, and corruption needs to be addressed more effectively by Kosovo authorities.9

At the same time, there have been a number of initiatives and projects to address issues in the public procurement process.

8 It should be noted here that incidence of corruption cases related to procurement reported is much higher at the central level than at municipal levels.

9 EU (2013) Kosovo Progress report, 2013, page 33

Donor and Project Activities

The Kosovo Public Procurement System and Institutions have been supported by several EU funded projects such as “Reform of the Public Procurement System in Kosovo (2008-2009)” and “Improving Administrative Capacities in the Area of Public Procurement in Kosovo (2012- 2015)”. Further support has been provided by other institutions and donors, such as the World Bank including the project “Enhancing the Implementation of Public Procurement Project10” implemented in the period February 2013 – February 2016.

An EU funded project, "Support to Public Procurement Reform in Kosovo”11 implemented between 2009 to 2012 has assisted in the development of the public procurement system for Kosovo ensuring that the system is compatible and up-to-date with EU Standards and promotes efficiency and transparency in the use of public funds. The project supported four Kosovo institutions: 1. Public Procurement Regulatory Commission; 2. Public Procurement Review Body; 3. Central Procurement Agency; 4. Kosovo Institute for Public Administration. The overall objectives of this support were related to drafting primary and secondary legislation, modernization of the training system for Procurement Officers, managerial and organizational reviews of the public procurement institutions and on the job training and coaching. Some of the most important achievements with the support of this project include: The new Public Procurement Law, in force from October 2011; the secondary legislation, in force from January 2012; the new organizational structures, and working procedures for PPRC, PRB and CPA; Training Programs, which have will influenced more than 520 Procurement Officers.12

The National Public Procurement Strategy 2015-202013 has been drafted with support of EU funded Project “Improving Administrative Capacities in the Area of Public Procurement in Kosovo” aiming to Improve the Public Procurement system through on-going monitoring and implement the necessary regulatory changes; Strengthen the public finance approach; Increase transparency and efficiency and, improve the flow of information; Follow current trends (green procurement, socially responsible procurement, e-procurement, support of SMEs); Further develop the human capital involved in public procurement; Stay in line with the changing EU directives. This strategy was intended to be approved by the end of 2014, however to date it has not been approved by government. Even though the strategy is not formally approved yet, some legislative reforms have been drafted.

Kosovo has in place an Electronic Governance Strategy 2009-2015, consisting of several objectives to achieve within its vision in the field of e-governance including here state e-portal;

electronic registers; e-administration; e-cadastre; e-statistics; e-employment; e-procurement; e-

10 See: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/ECA/2015/07/14/090224b082ff4e81/1_0/Rendered/ PDF/Kosovo000Enhan0Report000Sequence003.pdf 11 A three year EU funded project, "Support to Public Procurement Reform” was concluded on 2012.

12 The project is implemented by PLANET S.A in consortium with BIP, Crown Agents and the International Procurement Agency.

13 See: http://krpp.rks-gov.net/krpp/PageFiles/File/draftLS/2014/00- National%20Public%20Procurement%20Strategy-v3_ENG.docx http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/ECA/2015/07/14/090224b082ff4e81/1_0/Rendered/PDF/Kosovo000Enhan0Report000Sequence003.pdf http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/ECA/2015/07/14/090224b082ff4e81/1_0/Rendered/PDF/Kosovo000Enhan0Report000Sequence003.pdf http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/ECA/2015/07/14/090224b082ff4e81/1_0/Rendered/PDF/Kosovo000Enhan0Report000Sequence003.pdf http://krpp.rks-gov.net/krpp/PageFiles/File/draftLS/2014/00-National%20Public%20Procurement%20Strategy-v3_ENG.docx http://krpp.rks-gov.net/krpp/PageFiles/File/draftLS/2014/00-National%20Public%20Procurement%20Strategy-v3_ENG.docx

ID; e-tax; e-commerce; e-customs; e-health etc. The strategy is accompanied by an Action Plan for Implementation of Electronic Government Strategy 2009-2015, including specific activities and actions to implement strategy. So far, some developments have been achieved on implementation of objectives of this strategy.

The Government of Kosovo is working on the implementation of centralized procurement and e-procurement. Recently (2015) an administrative instruction for implementation of central public procurement procedures was issued by the Government.14 This was the precondition for the implementation of centralized procurement procedures for specific items of common use as required by Law on Public Procurement. Seems that there was no political will to implement centralized procurements and furthermore Central Procurement Agency capacities were also weak. Concerns about the implementation of Centralized Public Procurements are continuously raised by EU through Kosovo Progress Reports.15 The implementation of Centralized Public Procurement was supported by projects financed by World Bank and EU; however, their implementation in practice is still to come. CPA has already started few procedures; however, they are facing difficulties in their implementation.

Even though Kosovo legislation allows implementation of E-procurement, so far it was not implemented. At the end of 2014 with the support of World Bank, the Government has started the “Development or Customization of Transactional Modules for e-Procurement System.” The project is financed by the World Bank for the Ministry of Finance, respectively the Commission for Public Procurement of the Republic of Kosovo, within the Project of modernization of public administration. A Croatian company has been selected to implement this project.16 The project goal is to implement a platform for electronic public procurement. This platform will support end-to-end processes of public procurement, starting with procurement planning, the implementation of procurement procedures and finally contract implementation and payments.

The project scope is the development or customization of transactional modules for e-procurement system, including ICT infrastructure and contract management information system.

It is foreseen that the system will support the processes of procurement, electronic auctions, and processes for addressing complaints. An associated training plan is envisioned for Procurement Officers/Agents from all government bodies at the central and local levels.

The oversight process

The oversight framework of public finance consists mainly of the Assembly of Kosovo, Office of the Auditor General and Internal Audit functions within public institutions. The Kosovo Anti- Corruption Agency within its mandate for prevention of corruption and conflict of interest on exercising public functions is considered a player also.

14 Administrative Instruction (grk)-No. 02 /2015 for the implementation of central public procurement procedures.

15 EU (2014) Kosovo Progress Report 2014, p. 35, available at:

http://ec.europa.eu/enlargement/pdf/key_documents/2014/20141008-kosovo-progress-report_en.pdf 16 . The project has obtained strong international competition from more than 10 bidders (or consortium). See:

http://www.worldbank.org/projects/procurement/noticeoverview?id=OP00028336&lang=en http://www.worldbank.org/projects/procurement/noticeoverview?id=OP00028336&lang=en

The Kosovo Assembly through its mechanisms, such as the Commission for Oversight of Public Finances and the Commission for Budget and Finance, oversees the expenditure of public funds in order to increase the level of transparency of the expenditure and to ensure citizens that public money is used on the value for money principle.

This oversight is based on the yearly reports of the Office of the Auditor General (OAG) and through conducting hearings by the Committees with relevant institutions such as Ministries, Municipalities and other independent agencies. In this way, the Committee makes the Executive responsible to implement the audit recommendations, which consist of improving the effectiveness of pubic expenses. The OAG in itself is currently facing difficulties, since the new Law regulating OAG has not been passed since 2013 and for more than a year OAG is operating without an appointed Auditor General. Consequently, the Deputy Auditor, who usually deals with quality assurance, holds the position of the Auditor General, and performs his duties, even though he is not officially appointed to that position. This has impacted both internal capacities of the OAG and the legitimacy of the Auditor General.

According to the LPFMA the Minister of Finance is obliged to prepare financial reports and submit them first to the Government for review, and then to the Assembly, but no later than 30 days after the end of each quarter17. Moreover according to Article 46 of the LPFMA the MoF is required to prepare and submit to the Government and the Assembly the final budget report for the previous fiscal year no later than March 31. The final budget report is prepared by the Treasury Department and includes all the information required according to the LPFMA, i.e.

information on receivables and payments, assets, financial liabilities, a comparison of the information with two previous years, any outstanding obligations, capital assets, the situation of government loans, the number of employees etc.

These reports are usually approved by the assembly after short discussions. It is worth mentioning that historically the reports are approved without having one critical opinion from the General Audit Office. In this regard the oversight system does not function. Later when those reports are audited, they are once again put up for discussion at the plenary sessions. This process itself is time consuming and does not provide any added value, because the Commission for Oversight of the Public Finance (COPF) has to review these reports and give its opinion on them after they have been approved by the parliament, which means that nothing can be changed after they are already approved.

The Office of the Auditor General has legal independence for the audit based on the law.

However, the recommendations made by this office are still not taken seriously by the Executive.

Similar recommendations have been found in three recent reports (reports for 2011, 2012, 2013) addressed by this office and directed to the Executive, but were unfortunately not taken into account. Moreover, in the 2014 OAG report the Auditor General has addressed the same recommendations. At the same time the percentage of OAG recommendations addressed by the institutions of the Executive has decreased from 2013 in 2014 from 33% to 32%.

17 Republic of Kosovo (2008): Law on Public Financial Management and Accountability, Article 45.1; p. 35.

Most of the recommendations by the OAG are directed towards addressing the issues identified earlier. Examples of recommendations related to this report are as follows18:

• Government should implement the centralized procurement system and approve the list of articles to be procured through this system so it can benefit from economies of scale.

• Parliament should ensure that the government addresses the gaps in legislation to fully implement the e-procurement system.

• Attention should be given to financial and non-financial asset registration and management within each institution.

• Parliament should ensure that the Government implements the recommendations of the OAG, not only for the current year but also for the years before.

A similar situation can be noted in the internal audit function within the Executive. They [internal auditors] face a limited independence due to dysfunctional audit committees in many institutions. Not addressing the recommendations from the management for systemic issues that can be a source of corruption is the main fact that shows the lack of interest to improve governance of public money, as well other important issues of the procurement process, such as:19

- Not applying a centralized procurement for the same items that need to be procured from various government institutions of Kosovo,

- Not applying the approximate amount of suppliers during the evaluation of tenders, which is requested by PPL.

- Establishment of discriminatory evaluation criteria; and

- Problems in project implementation etc.

Another important body within the oversight of the expenditure processes, especially in regards to procurement, is the Procurement Review Board. The Procurement Review Board (PRB) was not operational from August 2013 up to March 2014, when the Assembly appointed the Board’s new members. The Assembly disregarded the recommendation of the Independent Selection Board, which had concerns regarding some of the appointees, including an ongoing corruption investigation.20 Meanwhile, the suspension of PRB operations has created considerable delays and backlogs in processing complaints. The issue is considered to be a problematic one also by the Anticorruption Agency, since the process of appointing the board members is political.21 Furthermore, there are corruption allegations for elected members of this institution.22

18 OAG (2015) Annual Audit Report 2014.

19 The central harmonization unit of internal audit, report for 2014 20 EU (2014) Kosovo Progress Report 2014, p. 34, available at:

http://ec.europa.eu/enlargement/pdf/key_documents/2014/20141008-kosovo-progress-report_en.pdf 21 Interview with Head of Anti-Corruption Agency Mr. Hasan Preteni, Prishtina 16. 09. 2015.

22 Ibid.

In a recent report on the work of the Anti Corruption Agency (ACA) for 2014, it is noted that the Agency has developed preliminary investigation procedures in a total of 304 cases, where 56 of them were transferred from the previous year, and in 2014 they filed 248 new other cases. 131 of these cases have been sent to the prosecution and police for further processing, 11 cases were sent to competent administrative authorities with a request to initiate disciplinary proceedings, 102 cases have been closed, while 52 cases are pending.23 Agency is playing an important role on the declaration of property by senior public officials as required by legislation.24 According to the head of Agency, the future role of ACA shall be focused more on control of declared property by senior public officials rather in the preliminary criminal investigations.25

Regarding the prevention of corruption, more specific attention has been given to the activities planned under the Strategy for the Prevention of Corruption and its Action Plan 2013 – 2017.

This document was reviewed in 2013 and serves as strategic framework for the work of the Anti- Corruption Agency. Specific objectives and tasks have been reported as implemented; however the number of tasks not implemented, partially implemented or not reported is high.26 Only 47% of planned activities for year 2014 were reported by public institutions as fully implemented.27

Those statistics do not provide the information to evaluate the qualitative implementation of these measures.

According to the Public Pulse Report published by UNDP in 2015, Corruption remains one of the top three most important problems for Kosovans. Therefore, a large number of respondents think that large-scale corruption is prevalent in many institutions. The institutions that are perceived to have the highest prevalence of large-scale corruption include: healthcare providers 52% (compared to 56% in November 2014), Kosovo Electric Corporation 45% (compared to 39% in November 2014), Courts 43%, Customs 39% (compared to 33% in November 2014), the central administration/institutions 38.5%, the Privatization Agency of Kosovo (37%) etc. Kosovo Police, International Organizations and banks are perceived to be the least corrupt institutions.

Twenty percent of Kosovans believe that large scale corruption is present in the Kosovo Police and International Institutions, whereas 24.3% (compared to 17% in November 2014) think that it is present in banks.28

Finally, data published by Transparency International29 in 2014 shows that Kosovo (together with Albania) has the highest perception of corruption in the region, even though only about 16%

23 Anti-corruption Agency (2014), Annual report 2014, page 5, available at: http://akk-ks.org/repository/docs/Raporti%20vjetor%20final%202014%20-%20versioni%20shqip%20%281%29.pdf 24 Law no. 04/L-050 on Declaration, Origin and Control of Property of Senior Public Officials and on Declaration, Origin and Control of Gifts of all Public Officials as amended and supplemented by Law no. 04/L-228 (entered into force in 2014);

25 Interview with: Hasan Preteni, Director of Anticorruption Agency, Prishtina, 16. 09. 2015.

26 Anti-Corruption Agency (2014) Annual Report 2014, p.18, available at:

http://www.akk-ks.org/repository/docs/Raporti_vjetor_final_2014_sq.pdf 27 Ibid.

28 UNDP (2015) Public Pulse Report –IX, April 2015, p. 7-8, available at:

http://www.ks.undp.org/content/dam/kosovo/docs/PublicPulse/pp9/PPR9_Anglisht.pdf 29 http://www.transparency.org/country/#KOS http://www.akk-ks.org/repository/docs/Raporti_vjetor_final_2014_sq.pdf http://www.ks.undp.org/content/dam/kosovo/docs/PublicPulse/pp9/PPR9_Anglisht.pdf of population has admitted to ever paying a bribe.30Nevertheless, a huge majority of interviewees believe the government is too inefficient in fighting corruption (61%).

Oversight by non-governmental institutions

A number of non-governmental organizations have been active in the area of anti-corruption and transparency. Most prominent among them is the FOL movement, which has established a number of online platforms to follow the work on public institutions. FOL has also worked on publishing reports about the work done by anti-corruption institutions and it has engaged with the public to increase public awareness of transparency and accountability issues. The platforms developed by FOL provide accurate and useful data on the current stage of corruption cases investigated by police/prosecution and also in regards to the final results in the court.31

Kosova Democratic Institute (KDI) has published the Public Procurement Transparency Index in 2015. According to “Public Procurement Transparency Index”32 issued in 2015 by Kosova Democratic Institute (KDI), a spin-off of National Democratic Institute (NDI) and local partner of Transparency International in Kosova, the Government of Kosovo for 2014 demonstrated a low level of transparency on public procurement. According to these findings citizens, media and businesses were not provided documents which are essential for public procurement. This report assesses the disclosure of procurement documents and information by the Government of Kosovo. The index consists of 23 indicators across five categories of public procurement, namely: access to public documents, budgetary transparency, procurement transparency, transparency in public auctions, and complaints to the procurement review body. The findings of this index show that critical documents are not published on web-sites of ministries. Budget, financial reports, procurement plan, but also tender and auction announcements are not accessible online. In assessing the level of transparency in public procurement KDI tested the access to public information through official requests. Out of the 20 institutions, 9 responded within the legal deadlines, nine were late in their response and two ministries did not respond at all to the requests. According to these findings most of Ministries are not transparent also regarding their budgetary issues, including publication of their budget in websites, publication of financial reports, audit reports, and procurement plans.33

Media have also played an important role in reporting on corruption. Most prominent cases can be found in the KALLXO.com initiative which encourages citizens to report their encounters with corruption and follows-up with journalist investigation and reporting.

GAP Institute is a local think tank, has also been active in the area of transparency and accountability. Based on the report “Kosovo Budget – transparency and forms of budget reporting” done by GAP in 201334, it is seen that the reports on expenditure of the budget by the

30 Accessible at : http://www.transparency.org/country/#KOS_PublicOpinion 31 See at: http://levizjafol.org/folnew/platformat/ 32 Public Procurement Transparency Index, Kosovo democratic Institute, March 2015, http://www.kdi-kosova.org/publikime/13-indeksi-i-transparences-ne-prokurimin-publik.pdf 33 Ibid. p. 10.

34 GAP (2013) Kosovo Budget – Transparency and Forms of Reporting, http://www.institutigap.org/documents/84490_AnalizaperbuxhetinENGfinal.pdf http://www.kdi-kosova.org/publikime/13-indeksi-i-transparences-ne-prokurimin-publik.pdf

Ministry of Finance to the Assembly of Kosovo are not appropriate and do not offer an outlook on transparency in regards to spending of public money. Quarterly and annual reports from the Ministry of Finance are general and the tables with total expenditures for categories are unclear and not transparent.

Further, if we look into the level of budget organizations, publishing of expenditures from the ministries of the Government of Kosovo is very limited. Out of 19 ministries (the number of ministry in 2013), only the Ministry of Justice publishes the budget expenditures in a detailed form on a ministry level. Other ministries are satisfied with providing some notes on budget expenditure within the overall annual report of the particular ministry. The practice of not publishing the budget expenditures is also followed by the Office of the Prime Minister, the Assembly of Kosovo and the Office of the President.

This trend, of including the budget expenditures in the annual report, can be observed also in a large number of independent institutions that incorporate those expenditures in the annual reports. However, the number of independent institutions that provide better reports on expenditures is greater than the number of ministries in the Government.

The same situation with regard to publication of budget expenditures is observed in the local level. Out of 37 municipalities of Kosovo, only the Municipality of Malisheva published quarterly, six-monthly, and annual financial statements on budget spending for 2012. Only, the Municipality of Prizren has allowed having access on detailed budget spending for 2011. More recent data have not been published by GAP or any other organization.

GAP Institute has also worked on an online platform enabling all interested parties to view how the budget is spent by each organization funded through Kosovo Budget. The platform “How does the state spend our taxes?”35 is followed with specialized reports bringing data closer to the citizen.

Transparency at the local level

GAP has also worked on the budgeting behavior of municipalities. In a report titled “Budgeting Practices in Six Municipalities in Kosovo” published in 2014 they note that even though according to Law on Local Government Finance, the Mayor is directly responsible for publication of financial reports, none of the municipalities have published reports as required by law.

Another issue at the local level is the issue of hiring of new staff. According to Auditor General not all municipal personnel was been hired according to the procedures stated in the Civil Service law and based on merit. This issue should be carefully handled by the Administration Departments in Municipalities, and by doing so sequentially assists municipalities to comply with the law and avoids hiring incapable individuals that do not necessarily offer qualitative services to the municipality and its citizens.

35 www.institutigap.org

The LPFMA states that all municipalities and other budget organizations should be audited externally. Therefore, the yearly recommendations provided by the Office of Auditor General to each individual municipality should be addressed and implemented as soon as possible so as to avoid municipal mismanagement, dragging current problems into the future, and have an inefficient municipality.

All the necessary reports required by the law such as quarterly, semi-annually, annually reports of revenues and expenditures, and internal and external auditors’ report, amongst others, should be available to the public; more precisely, all the aforementioned reports should be published on the websites of each municipality. This in turn increases municipal transparency and increases confidence in the individuals and the party that administers the municipality.

While there has been progress in the use of official municipal web-pages to make more information available to the public, according to OAG most municipalities do not publish their executive decisions or regulations in the web-pages. There is more online transparency on the budget but again the budgets are made transparent after they are approved and not in their draft state, when there is neither time for input nor are the mid-term budget reviews transparent online, in most municipalities. Most local governments do not publish their expenditures every three months as it is legally required.

In 2014, UNDP as part of its anti-corruption program supported by Swiss Development Cooperation Agency provided support to two municipalities (Prishtina and Gjakova) in developing Integrity Plans. According to Kosovo’s Anti-Corruption Strategy 2013 – 2017 adopted by the Kosovo Assembly, all public institutions are required to develop and implement the Integrity Management Strategies. The idea of these plans is to identify areas that are most vulnerable to corruption within each institution and to work on developing and installing integrity planning in their daily work plans.

From the data collected from the interviews and the focus groups, Kosovo institutions do not aim for involvement of non-governmental stakeholders in the budget discussions, such as civil society or independent experts, and business associations, and other contributors to the Kosovo budget. Hence, the drafts and budget proposals have largely been unilateral and without the possibility of public discussion, which limits the possible contributions related to prioritizing public expenditure. Also, the description of government goals on spending in the macroeconomic analysis part of the budget lacks a proper economic and informative analysis, primarily for the members of the parliament, and then also for the general public.

Furthermore, data from the focus groups specifically concludes that the quality of discussions regarding the drafting of the budget by participants, especially by media, who are heavily criticized by all groups, is fairly unprofessional. Civil Society Organizations’ presence also at times indicates fictive heads of organizations with leading political party affiliations, in these public hearings.

Results from field research

Following the initial desk research, a survey and focus groups have been conducted to identify perceptions and patterns of issues existing among stakeholders.

Key findings from the survey36

Majority of people believe that things in Kosovo are going in the wrong direction. While corruption remains highly important in their opinion (19%), unemployment is the biggest worry of Kosovo public (62%).