The State Audit Institution (SAI) expressed a qualified opinion on the Annual Financial Report of "Water Supply and Sewerage" Herceg Novi for 2024 and an adverse opinion on the regularity audit of that municipal enterprise.
The opinion was adopted by the Collegium consisting of: member of the SAI Senate, Vesna Mihailović (head of the Collegium) and President of the SAI Senate, Siniša Čađenović (member of the Collegium).
"The company booked the amount of accrued interest of 5.765 euros in the other accrued income account, although it did not make an advance payment of the entire interest, but pays interest according to the received calculations, i.e. interest is a cost of the period (financial expense) according to the plan of received due dates and invoices. As of December 31, 2024, the company did not make provisions for compensation and other employee benefits for severance pay and jubilee awards," the statement reads.
The audit of the regularity of the operations of "Waterworks and Sewerage" identified "non-compliances that have a material and pervasive effect".
"Inconsistencies were identified in relation to: the Law on Utilities, the Law on Management and Internal Controls in the Public Sector, the Law on Audit, the Law on Labor, the Law on Corporate Income Tax, the Law on Public Procurement, the Rulebook on the detailed content of the annual program for performing utilities and the annual report on the implementation of the annual plan for performing utilities, the Rulebook on the manner and deadlines for conducting an inventory of assets and liabilities of a legal entity, the Rulebook on the organization and implementation of the inventory, the Rulebook on the chart of accounts and the content of accounts in the chart of accounts for legal entities registered for performing economic activities and other legal entities, and the Rulebook on the conditions and manner of using official vehicles and the Instructions for completing the application for determining corporate income tax," the SAI adds.
"When preparing the Annual Program for Performing Utility Activities, as well as when preparing the Annual Report on the Implementation of the Program for Performing Utility Activities, the Company did not comply with the provisions of the Rulebook on the detailed content of the annual program for performing utility activities and the annual report on the implementation of the annual program for performing utility activities and did not include all the prescribed elements. The audit determined that the Company did not appoint an audit committee, even though it was obliged to do so pursuant to legal provisions. It was also determined that the Company did not prepare a Management and Control Improvement Plan, in accordance with the obligation under the Law on Management and Internal Controls in the Public Sector, and that the Annual Report on Activities for the Implementation and Improvement of Management and Controls was not prepared," the statement reads.
They also said that "Vodovod i kanalizacija" Herceg Novi did not inform the labor inspector about the introduction of overtime work in 2024, in accordance with the Labor Law, and when hiring employees assigned through the Employment Mediation Agency, it did not inform the Union in accordance with the Law.
"The audit determined that during 2024, the Company had cash in its treasury that exceeded the amount prescribed by the Decision of the Executive Director as the treasury maximum. It was also determined that the stated share capital in the Company's business books differs significantly from the recorded share capital in the Central Register of Business Entities, and it was also determined that the Company had not conducted an asset valuation in the last five years. An inspection of the business books and documentation also determined that during 2024, the Company did not settle its obligations under a long-term loan, which was fully due in 2020, and as of December 31, 2024, the outstanding debt under this loan amounted to 1.624.773 euros," the DRI writes.
"It was also determined that in the Income Tax Return, contrary to the Rules on the Form and Content of the Tax Return for Determining Corporate Income Tax and the Instructions for Completing the Income Tax Return for Determining Corporate Income Tax, the Company stated the amount of 114.477,20 euros in item 5 Depreciation costs reported in the income statement, while in the Statement of Comprehensive Income for the period from 01.01.2024. to 31.12.2024. in item 210a it stated the amount of depreciation of 1.028.176 euros. The audit also determined that the Company did not make any provisions for the court proceedings that were ongoing as of 31.12.2024.," they add.
The SAI also says that "Water Supply and Sewerage" concluded the largest number of service contracts for jobs for which job positions were systematized or for performing tasks that can be roughly identified in the Rulebook on Systematization and Organization of Jobs that was in effect at the time the contract was concluded.
"The company did not report procurements in the amount of over 10.000 in the Report relating to direct procurements up to 8.000 euros, and also, upon reviewing the Report on simple procurements under 8.000 euros, it was observed that the subject of public procurement was divided, in such a way that instead of an open procedure/simple procurement, the procurement of goods was carried out through multiple invoices from the same supplier, by directly selecting the subject of procurement from a specific bidder and accepting the invoice/contract. In accordance with the provisions of the Rulebook on the method of implementing simple procurements, the total annual value of procurements of goods, services and works up to 8.000 euros can amount to a maximum of 300.000 euros for contracting authorities whose Public Procurement Plan amounts to over 1.000.000 euros. Given that direct procurements amount to 632.598,79 euros including VAT, and the total value of the Plan is 1.406.460 euros, it was determined that the limit set for the implementation of simple procurements under "8.000 euros," writes the DRI.
They said that, in relation to the twenty issued recommendations, the company is obliged to develop and submit to the State Audit Institution by January 30, 2026 an Action Plan for the implementation of the recommendations, and by June 30, 2026 a Report on the actions taken based on the developed and submitted recommendations.
"The final report on the audit of the Annual Financial Report of DOO "Vodovod i kanalizacija" Herceg Novi for 2024 was submitted for information to the Board of Directors of the Company, as the management and leadership body, the Municipal Assembly of Herceg Novi as the founder of the Company, the Committee on Economy, Finance and Budget of the Parliament of Montenegro and the Committee on Tourism, Agriculture, Ecology and Spatial Planning of the Parliament of Montenegro," the statement reads.
The content of the final report is available on the official SAI website.
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