ALBANIA INTERNAL FINANCIAL CONTROL

3.3.2 Internal financial control

3.3.3.1 Legal framework

The systems for financial management, financial control and audit

of the Albanian public sector are in a period of rapid transition. An
There have been a
number of recent upgrading of these sectors has already been initiated and in some
changes in internal areas a new legal framework has been set up. Issuing new laws,
financial control. however, is one thing, and applying them and fostering new basic
management values in line with the intentions and ambitions of
these laws, is something else.

The Organic Budget Law no. 8379, adopted in 1998, requires a

decentralised system of internal control by assigning primary
responsibility for internal control to each budget spender. At the
same time, it gives the Ministry of Finance the right to inspect all
accounting records of budget institutions, special funds and local
authorities. The Minister of Finance is authorised to determine the
inspection procedures, and such inspections can be conducted
periodically and/or without previous notice.

Some important gaps exist in the financial control system, e.g. there
is no requirement for a double signature nor a systematic ex ante
There are some Treasury control for all expenditures. The preparation of a new
serious gaps in the budget law has accordingly been discussed during the past year,
system. which would offer the possibility, among others, to fill this gap.
However, the amendments have been removed from the
Government’s agenda until the summer of 2004.

The regulation on financial control, dating from 1984 and based on

a planned economy, is not applied, but it has not been formally
abolished either. This regulation deals with some of the gaps
mentioned above. Internal control at both the Treasury and budget
spending unit levels are otherwise regulated in various ways by
different rules and decrees. The Ministry of Finance is currently
carrying out a mapping activity aimed at getting a better overview of
the overall internal control requirements.

Each budget institution is required to have a finance office

responsible for first-level control in the budget institution. The
finance officer insures the completeness of documentation,
availability of budget allocation, and compliance with department
rules. The Treasury exercises the following ex ante controls over
selected expenditures: verification of documents as to correctness
and completeness; availability of budget appropriation; and cross-
verification with receipts (taxes deducted at source and its
subsequent deposits).

The Albanian Government established in 2000 (Government

Decree No. 217 dated 5 May 2000) a central ‘Public Internal

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Financial Control’ structure in the Ministry of Finance and

decentralised ‘Financial Control’ units in line ministries and central
institutions.

In 2003 (Law No. 9009 of 13 February 2003 on Internal Audit of the

Public Sector) internal audit was more clearly defined and the
structure changed. The formerly named Public Internal Financial
The MoF provides Control Department was renamed ‘General Directorate of Public
overall guidance to Internal Audit’ (GDPIA) within the Ministry of Finance. This
ministries. directorate is now responsible for the overall methodological
guidance, supervision and quality assurance of the internal audit
function in the entire country and has professional authority over all
internal audit units. The GDPIA is responsible for the operative
internal audit function within the Ministry of Finance.

The internal audit units in line ministries and other public units have
audit responsibilities only for their respective unit. The new
legislation provides a regulatory framework for the GDPIA and
defines the objectives, scope, and functions of internal audit, as
well as the rights and responsibilities of internal auditors.

According to the External Audit Act, the Supreme Audit Institution

(SAI) is also responsible for supervising internal audit.

3.3.3.2 Institutional framework

With regard to internal financial control, the Treasury has

government-wide responsibility for budget supervision and internal
Treasury checks all
control. All payment orders are checked and verified against the
transactions before
payment is made relevant appropriation, any recorded commitment, available
balance of funds, and the original documents by Treasury staff
before processing of the payment. Currently, data is entered
manually into ledgers, but this will be replaced during the first half of
2004 by a new computerised system.

In accordance with the Law on Internal Audit, an Audit Committee

to advise the GDPIA has been created, and a Government Decision
on its functions was prepared recently. The Internal Audit
Directorate in the Ministry of Finance has 22 staff. There are 117
internal auditors spread across the administration, 95 of whom
operate in ministries.

Internal auditors are still not professionally trained and carry out
activities of a financial inspection type. There is no uniform system
of implementation and the internal auditors lack guidance and
technical capacity to perform adequate audits to internationally
accepted standards. The central co-ordination function to help
guarantee uniform application of audit methodology across
ministries is still in its early days. An Internal Audit Manual has
recently been drafted, although there are still discussions about the

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Internal Audit Charter.

There is currently insufficient and inconsistent understanding at

There is confusion both administrative and political levels of what public internal
between internal
audit and internal financial control and internal audit actually mean. A number of
control. internal auditors, in fact, perform internal control.

Furthermore, within government institutions, internal control is often

seen as the responsibility of specific central level functions. The
concept of responsibility has not yet been internalised as applying
to everyone.

3.3.3.3 Reform agenda and capacities

The necessary elaboration of a Public Internal Financial Control

(PIFC) policy has not yet been placed on the political and
administrative agenda. Laws and regulations in the area are not
consistent. Various donors have been assisting the Ministry of
Finance with the preparation of individual reforms, but there is no
coherent strategy or action plan. An integrated strategy for reform
should be developed. However, external and internal audit have
elaborated a roadmap for their own development and are assisted
by donor projects.

3.3.3.4 Assessment

A Public Internal Financial Control (PIFC) system, establishing a

comprehensive and consistent legal framework, is still lacking,
creating uncertainties and sometimes confusion. A consistently
reliable system for Public Expenditure Management and Public
Internal Financial Control, based on values and standards in line
with good European practice, has yet to be developed. Financial
management and control concepts are still in the early stages and
in need of development and modernisation. Managers in budget
spending units must be given the necessary tools for carrying out
their responsibilities.

3.3.3.5 Recommendations

It is recommended that current resources, mainly within the Ministry

of Finance, be applied to strengthen the elaboration of policies and
establishment of a legal framework for PIFC, prerequisites for its
implementation. This activity should be carried out preferably before
the amendments to the Organic Budget Law are addressed.

3.3.3.6 External assistance

A CARDS 2001 project to introduce a sound and modern system of

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public internal audit and to define internal control standards has

been launched.

In addition, projects to encourage sound financial management

within the public sector are in progress under the auspices of the
World Bank and DfiD/UK.

No donor activities currently support directly public internal financial

control.