Audit of the management of public resources during

slide1. Audit of the management of public resources
during the state of emergency (16.03.2020 – 15.05.2020)
- special report drawn up by the Romanian Court of Accounts
at the request of Romania’s Parliament

Director
Cristina Breden 1<br>
slide2. CONTENT I. Introduction
II. Legislative context
III. Audit activity and findings
IV. Audit conclusions
V. Audit recommendations 2<br>
slide3. I. Introduction The global pandemic triggered by the new coronavirus placed society into a state of total uncertainty. The lack of control and of a known and proven response resulted in untried measures being introduced, often impaired by improvisation. There was no state in the world in a similar situation which could be identified as a perfect model to be followed.
Citizens of all states expected, more than ever, a coherent and sound response from the public authorities, regarded as the central pillar in the management of the emergency situation. Each individual was faced with the unknown in its most acute form, being forced to function in a situation never experienced before and for which he/she had no training.
Public institutions have their own systems of operation, hold reaction mechanisms, some faster and more efficient than the other, but we cannot talk about a perfect mechanism anywhere. 3<br>
slide4. I. Introduction Romania was no exception in this global landscape, trying to manage this health crisis with its own resources and its own experience. In an attempt to build up its response mechanisms to such a crisis, only specific examples from various countries, by different sectors could make up a concrete guideline.
The Romanian Court of Accounts, as the supreme audit institution, has sought in its actions not to compromise the joint public efforts of response to the crisis. The institution has to cope, in its turn, with the same challenges and to answer correctly, transparently and rapidly to the general expectations.
In this context, by mid-May, the personnel in charge of the audit have engaged in a large-scale action of verifying the way in which public resources were applied during the state of emergency. The driver of this action was Romania’s Parliament, by Decision no. 4 of 16.04.2020, decided that within 60 days after the cessation of the state of emergency (16.03.2020 – 15.05.2020), the Romanian Court of Accounts should conduct an audit of the management of public resources during the state of emergency and to present to Parliament a report of its findings, as well as its conclusions and recommendations. 4<br>
slide5. II. Legislative context The specific needs of this period imposed the setup of a new regulatory framework, or the supplementing of existing legislation, so as to provide an adequate legal basis for an efficient management of public resources. Romania’s President issued two Decrees regarding the introduction/extension of the state of emergency on the whole territory of the country for a 30 day period.
The issuance of the first decree was on March 16th 2020 and aimed at preventing the epidemic from spreading. It imposed a restriction on the circulation of people and goods on Romania’s territory, banned public events, introduced social distancing measures, restricted cross-border circulation of people and goods, suspended restaurants activity, and so on. The decree provided for emergency measures in the fields of public order, economy, health, education, labor and social protection, justice and foreign affairs, ordered by the Minister of Internal Affairs by nine military ordinances, with the agreement of the Prime Minister.
On April 14th 2020, Romania’s President issued the Decree for the extension of the state of emergency by a further 30 days. During that period, three more military ordinances were issued. 5<br>
slide6. II. Legislative context Both decrees established new assignments for some public authorities and institutions, which required additional expenses from public funds to prevent and fight against COVID-19 and required amendments to their budgets.
Consequently, during the state of emergency, several regulatory documents were issued, mostly of primary (39 documents) and tertiary level (75 documents), which aimed at putting into practice the measures established in the annexes of the two decrees issued by Romania’s President.
The COVID-19 pandemic has major consequences on public finances in Romania, as the public funds play not only the major role in the actions meant to prevent the virus from spreading, but also in supporting the economy, which is seriously affected during this period.
The effort of European institutions must also be added to the national effort, which offered a temporary flexibility in the fight against the pandemic and the support of the national economy, making available to the member state budgetary instruments completing the national effort. 6<br>
slide7. II. Legislative context To mitigate the shock generated by the evolution of the pandemic, Romania accepted a reduction of its budgetary income by a series of fiscal measures and by reducing economic activities generating income. At the same time, public resources were mobilized to support the economy in continuing productive activity, committing exceptional expenses to fight against the pandemic and to amortize the economic shock.
A first measure adopted by the Government was the supplementing of funds dedicated to the payment of
rights for social services put in place as a result of the total or partial halt of activity during the state of emergency - RON 2,052.3 million;
health programs, emergency procurement of sanitary equipment/materials, capital transfers, risk incentive for medical staff - RON 3,796.4 million;
the Budgetary Reserve Fund at Government’s disposal - RON 3,000 million; 7<br>
slide8. II. Legislative context the state aid scheme to support SMEs activity in the context of economic crisis generated by the pandemic - RON 200 million. The scheme of state aid consists in granting state guarantees in favor of each beneficiary participating in the program for one of the following categories of credits:
loans to finance working capital, without interest, commission and banking charges related to the state-secured credit up to maximum 90%, granted to a micro-company or small enterprise;
loans for investments and/or one or more loans for working capital, without interest, commission and banking charges related to the state-secured credit up to maximum 80% of the value of granted financing to the other SMEs, respectively medium size enterprise.
The maximum cumulated value of the state-secured funding which could be granted to a beneficiary within the Program IMM Invest Romania cannot exceed RON 10 million.
the National Program of Local Development - RON 1,000 million;
emergency medical supplies- 480 million;
expenses for the fight against the spreading of infection - RON 200 million; 8<br>
slide9. II. Legislative context subsidies granted to companies in the Transport, Infrastructure and Communications sector - RON 135 million;
guarantees to loans contracted by companies in the agricultural sector - RON 100 million;
fees of public defenders and goods, products and services to prevent highly infectious diseases - RON 20 million;
procurement of protection equipment and disinfection materials required by the county sanitary veterinary authority and for food safety - RON 34.7 million;
equipment, including licenses and IT applications for the increase of the Service of Special Telecommunications` capacity to meet the requests for communication services and IT received from the state authorities and institutions involved in the fight against the coronavirus pandemic, as well as for STS design of communication systems and applications required by the Ministry of Internal Affairs, Ministry of Health and local authorities to communicate in real time and permanently with the quarantined or isolated individuals - RON 27.5 million;
transport expenses to Romania of Romanian citizens in quarantine on the territory of other states - RON 6.5 million. 9<br>
slide10. II. Legislative context To these funding sources of expenses for the prevention and control of the pandemic, we should also add donations and sponsorships, in cash or/and in kind, received by public institutions of central public administration during the state of emergency, worth a total of RON 55 million, plus the amount of RON 159.6 million representing donations and sponsorships, in cash and in kind received by the local public administration. These amounts increase the budgetary income and expenses, the entities having the obligation to use such funds in compliance with their destinations requested by their provider. According to the law of public finances, the institutions which received and registered donations and sponsorships have the obligation to present, annexed to the account of quarterly budgetary execution, the statement with the amounts received and used in these conditions and which increased the income and expense budget.
Based on the documentation conducted at the beginning of the audit missions, according to the data provided by entities, the value of the contracts dedicated to public procurement during the state of emergency amounted to RON 1,026.2 million: “Medical equipment, pharmaceutical products and personal care products” (43%), followed by “Security equipment, fire-fighting, police and defense equipment” (19,5%) and expenses for “Clothing, footwear, travel articles and accessories (12,5%). 10<br>
slide11. III. Audit activity and findings In June 2020, 700 external public auditors conducted 949 compliance audit missions at 284 public entities of the central public administration and at 665 public entities of the local public administration.
The assessment of the financial impact is shown in the chart below: 11<br>
slide12. III. Audit activity and findings 825 cases of misconducts, irregularities and/or errors were identified, as follows: 12<br>
slide13. III. Audit activity and findings It is obvious that the largest part of them was related to the quality of economic-financial management. Identified was misconduct related to the commitment, liquidation, ordering and payment of budgetary expenses in noncompliance with legal provisions in the field of social assistance, salary rights establishment, including the adds-up, bonuses and of other rights granted to public servants, to the contractual personnel, to individuals in management positions and to the personnel occupying public dignity positions.
Misconduct generating additional income were identified in 20 cases and relate to the failure to apply contractual clauses regarding collection of delay penalties when deadlines under the contracts were not met.
Misconduct generating prejudices were identified in 243 cases and relate to the expenses of personnel, the wrong establishment of salary rights, including of adds-on or payment of some operations contracted by not executed or not supported by justifying documents.
Financial-accounting misconduct which affected the accounting records or the performance of current operations of the entity regarding: registration of inlet/outlet operations of some patrimony elements; organization and keeping up to the date of patrimony records; records of budgetary and legal commitments, making the settlements to justify subsidies, drafting and approval of operational procedures (work instructions) related to the identified procedural activities; planning and performance of public procurement, establishment of budgetary reserve fund of local authorities. 13<br>
slide14. IV. Audit conclusions 1. At public institutions with no assignments during the state of emergency, no deviations from legality and regularity in the use of public funds, nor errors and deficiencies were found out or they were corrected and removed during the audit missions.
2. As for the organization and performance of the awarding procedures of public procurement contracts during the state of emergency, to cover the needs included in the List of products for stocks of medical emergency, the duration of the award procedures was reduced, given the urgency of their achievement. It is worth mentioning the European Commission`s Guideline regarding public procurement in the emergency situation related to the COVID-19 crisis, which recommended the possibility of substantially shortening the duration of award procedures, the use of the negotiation procedure without publicity or the use of alternative solutions as a rapid procurement of goods, services and works is required to cope with the crisis. 14<br>
slide15. IV. Audit conclusions 3. As for the health system, it is worth mentioning that before the state of emergency, the Romanian Court of Accounts had already warned about some aspects to be improved, especially in emergency situations. These were mainly related to:
 the fact that medical equipment procured by healthcare service providers was not used or was transferred to other suppliers;
 the fact that at the end of 2015 the reported unused available funds amounted to RON 522 million;
 the Reserve for special situations was not established in compliance with the quantities of technical-medical products which remained smaller than the legally provided ones;
 the occupation rate of sanitary personnel, showing that the medical personnel was distributed in territory without considering a minimum of criteria, such as the “number of inhabitants in the respective zone”. Thus, there still exists a shortage of doctors by specialism, the deficient specialisms being: anaesthesia and intensive care, emergency medicine, infectious diseases, meaning the very specialisms which were in the first line during the emergency period in the fight against COVID-19. 15<br>
slide16. IV. Audit conclusions The crisis of medical personnel is still present and exists in all hospitals, and the hiring without contest, for the limited period of the state of emergency did not bring into the system a significant number of medical staff. There were no secondments, except in the hospitals to which military medical personnel were sent.
The general conclusion of the audit of the health system, considering the context in which the operations were conducted, is that there were no serious errors, except for the following:
- wrong procurement way practiced by CN UNIFARM SA which, at the end of the state of emergency, registered very large stocks of materials;
- absence of stocks of medical reserve led to procurement at uncompetitive prices and from unverified suppliers so that, although financial resources were allocated, they were deficiently and uneconomically used in some cases;
- the legislative process specific to the state of emergency had some gaps which were removed “on the way”;
- the procedural vacuum was felt and recognized in the health system, and therefore even during the state of emergency specific operational procedures were still being issued. 16<br>
slide17. IV. Audit conclusions 4. The Economy and business environment
Out of the total 64,282 SMEs which registered applications/requests with the National Guarantee Fund of Credits for Small and Medium Sized Enterprises SA – IFN (FNGCIMM) on 25.06.2020 the bank approved 5,488 applications, representing 8.5%. On the same date, out of the approved applications by the bank (5,488) FNGCIMM issued 1,451 guarantee contracts, standing for 26.4% of the approved applications by the bank, related to 1,418 SMEs.
Up to 25.06.2020, guarantee contracts worth RON 588 million had been issued, representing 3.9% of the ceiling of RON 15 billion. FNGCIMM approved extensions of the previously issued guarantees amounting to 9,263 within the Program Prima Casă (First Home) and to 110 within other programs conducted by FNGCIMM.
During the state of emergency, the Ministry of Economy, Energy and Business Environment (MEEMA) also took measures in the economic field, mainly to assure the business continuity of some companies and national companies under its coordination. These were the Company for the Electric Power Production in Hydro Power Stations HIDROELECTRICA, the National Company of Mineral Waters SA and the National Company for the Control of Boilers, Pressure Vessels and Hoisting Equipment – CNCIR SA, Cernavodă Nuclear Electric Central Station and the Commercial Company Conpet SA. 17<br>
slide18. IV. Audit conclusions 5. In Transport, the state of emergency had a major impact on its activity and financial sustainability. Following the traffic restrictions imposed during the state of emergency, the number of regular flights operated by the National Company of Romanian Air Transport ``TAROM” decreased by 79.42% during March-May 2020, as compared to the same period in the previous year. This decrease was from 4,665 flights in March – May 2019 to 960 flights in April 2020, with no domestic flights. TAROM requested state aid for the damages caused by the COVID-19 epidemic, to assure the required liquidities to cover the minimal current expenses for activity continuity during the period 01.03.2020 - 31.12.2020. 18<br>
slide19. IV. Audit conclusions 6. In the social assistance field, the audit identified a few cases of payments made without compliance with the legal framework, without observance of eligibility conditions as well as other undue payments to individuals who interrupted their activity, concomitantly with collection of income from other sources. The identified illegal or undue payments related both to the wrong application of the legal framework by the verified entity, and to its non-unitary application and represents below 1% of total payments.
In labor force occupation and social insurances for unemployment, the employers who reduced or interrupted, totally or partially their activity submitted 292,441 applications for assistance. This was for 2,483,890 employees whose individual labor agreements were suspended, of which the applications for 2,067,970 employees were approved, and the applications for 6,044 beneficiaries were rejected and for 409,876 beneficiaries the applications were under way of solving. The identified misconduct consisted of illegal/undue payments to employees who: do not have individual labor agreements registered in the general ledger of employees, do not have individual labor agreements suspended; submitted the monthly income statement from salaries to employers and do not have suspended individual labor agreements registered in the general ledger of employees. Also identified were cases of payments of amounts higher than the allowance due, according to legal provisions, as well as payments standing for the allowance paid to some employees who had two individual labor agreements concluded and whose employers simultaneously applied for allowance. 19<br>
slide20. IV. Audit conclusions The allowance for parents was granted to mitigate the social effects of the suspension of school courses, by assuring the required resources so that one of the parents could take care of the child/children at home, without losing their job. For each free day, the employer pays an allowance worth 75% of the basic salary corresponding to a working day, but not more than the correspondent of 75% per day from the gross average salary gain used to substantiate the budget of state social insurances. Out of the total 19,885 applications submitted for the allowance for parents, about 68% (13,549) were granted, about 31% remained unsolved, and below 1% were rejected (134). The deviations identified consisted in payments of allowances settled to employers whose employees requested free days paid to supervise the children, while the other parent had no income declared to by the employers from individual labor agreements, nor were registered with active individual labor agreements during the same period, but also to individuals whose labor relations were suspended and were not entitled to this allowance.
The illegal/undue payments made for the two categories of rights result from the wrong application of the legal framework by the verified entity and represent about 0.05% of total payments. 20<br>
slide21. IV. Audit conclusions 7. More legislative measures related to general actions to mitigate and control the spreading of the COVID-19 pandemic, were aimed at assuring public order and security, and established additional assignments to the following public entities: Ministry of Internal Affairs and its structures, General Inspectorate for Emergency Situations, National Administration of State Reserves and Special Issues, Ministry of National Defense and its structures, National security institutions (Romanian Intelligence Service, Service of Special Telecommunications and Foreign Intelligence Service), National Authority for Management and Regulation in Communications, Ministry of Foreign Affairs.
In general, the Ministry of Internal Affairs and its subordinated structures achieved their additional tasks received during the state of emergency, with a few exceptions. At the other public institutions of the defense system, public order and national safety, no deviations from legality and regularity were found.
8. The local authorities and their subordinated institutions made the required efforts to mitigate the population’s risk of getting ill by the virus SARS-CoV-2, by procuring medicine, sanitary equipment and materials, medical equipment, devices with disinfectant solutions, regular disinfection of public spaces, assurance of spaces for persons’ isolation and quarantine, assurance of the required goods for vulnerable persons, in this way contributing directly to the protection of the general public interest, that of assuring population’s health. 21<br>
slide22. IV. Audit conclusions 9. Regarding the internal managerial control system, the analysis of the verified public entities showed the need to improve the activity of the institutions during a crisis period, of the legislative framework, of communication relations and inter-institutional collaboration.
This exceptional situation visibly and obviously brought to light the importance of the internal managerial control system by the measures taken by the leaders for:
the assurance of entity’s continuity in the conditions of putting in place the state of emergency, which imposed circulation restrictions, forced several entities to close their gates or limit the number of employees physically present at office, to instate tele-work, to assure sufficient space for distancing, to cope with the increased work volume with an insufficient number of personnel; work in shifts, elaboration of a business continuity plan;
risk management – fast and dynamic analyses were required of the newly-occurred risks, which related, among others, to the assurance of employee’s health at the work place, to prevent diseases and coronavirus spreading; intelligent allocation of resources, in an economic and efficient way. At national level, measures were required to prevent and respond in view of reducing the consequences of COVID-19 pandemic in three sectors: health, education, and social services. At the same time, major changes occurred at a budget level. The income to the state budget registered a significant fall, while the expenses went up on the background of the efforts to support the business environment to mitigate the pandemic effects; 22<br>
slide23. IV. Audit conclusions procedures elaboration – this situation, triggered by an extremely contagious disease, revealed the importance of having clear and comprehensive procedures, of knowing them and observing them by all those involved. Thus, the smallest risks of infection within the doctors and the auxiliary personnel was manifest in the hospitals of infectious diseases, which already had procedures implemented to limit the infections. In the other hospitals, the measures and procedures put into practice were not sufficiently understood observed, leading to the occurrence of outbreaks. At the same time, increased attention should be paid to the procedures for public procurement during the state of emergency, given the special situation which could leave room for irregularities and unjustified expenses;
control activities: assurance of a safe internet connection for employees, authorized access, additional measures of IT security, mitigation of cyber-attacks risks, updating the policies of IT security. 23<br>
slide24. IV. Audit conclusions General conclusion
A global and domestic crisis brings into light all the shortcomings of a system, but at the same time also shapes up the available resources of a country, either in human, professional, governing and organization capital.
Romania’s Government acted rapidly and took measures in time to restrict the spread of coronavirus, so that the introduction of the state of emergency reduced the number of cases in Romania during the restrictions period, as compared to other European states (Italy, Spain, Great Britain), and the health system is able to cope with the infections.
Except for the systemic deficiencies and the deviations from the legal norms identified in some cases, during the conducted audits, in most cases, the local authorities and their subordinated institutions used public resources and funds for the prevention and fight against COVID-19 pandemic in compliance with the purpose, objectives and assignments provided by the regulatory documents related to the state of emergency. 24<br>
slide25. V. Audit recommendations Any difficult and challenging situation also includes opportunities. This period of pandemic, which imposed citizens’ social distancing and isolation at home, could also be used to pay increased attention to some domains which could contribute to the rise of resilience, innovation and solidarity in the public system:
1. setting up the Plan of interinstitutional intervention and collaboration at national level with a view to increasing the capacity to react in case of a public health emergency and not only; elaboration of a national plan, which should clearly and explicitly regulate the activities and procedural phases to be followed in emergency situations, setting up and delimiting the competences of specialist compartments and structures to be involved in the management of emergency situations, the structural relations between them, as well as the assignments of the entitled persons, according to legal regulations, to intervene in such situations, considering the specificities of the emergency situations;
2. setting up some procedures for action and funding in emergency situations to streamline communication, to correlate information and the material, human and financial resources required, to shorten the intervention times, as well as the access time to the allocated funding sources. 25<br>
slide26. V. Audit recommendations 3. identification and instating some mechanisms to motivate directly involved personnel in assuring some fundamental activities during the state of emergency/state of alert, setting up clear criteria for awarding some benefits and identifying all the categories of potential beneficiaries.
4. digitalization of public institutions, especially of the ministries, which have significant interaction with the public: Ministry of Public Finances, Ministry of Labor and Special Protection, Ministry of Health, Ministry of Internal Affairs, etc., so that they can use the resources of digital technology and avoid, as much as possible, physical contact with people. A better coordination is needed, especially IT (by digitalization) between all the structures with assignments in emergency situations.
5. digital education of all the involved factors in the process to assure the aptitudes, knowledge and competences required by a digital era. Romania has a lot of steps to take in this direction, especially related to groups at risk, such as rural communities, families with low income, etc.; 26<br>
slide27. V. Audit recommendations 6. certainly, this crisis will bring about a rethinking of fiscal and budgetary policy, both at a European level and at a national level, the target being a simpler, more equitable, more efficient and transparent system which should consider the transformation induced by technology and digitalization, but also the new situations. In this context, exceptional budgetary rules should be established, specific and applicable only in emergencies to pay expenses from public funds, as well they should be recorded in a distinct budgetary chapter, so that to assure the unitary application of exceptional rules. The existence of a single distinct budgetary chapter, including all the expenses required in emergency situations, including those conducted in other emergencies than the pandemic (floods, earthquakes, fires, other natural calamities, etc.), would also create the chance to assure the stocks of materials, equipment but also the transparence of public resources spending in such cases. In this way, the suspicion of illegal/uneconomic spending of such resources would also be reduced;
7. improvement of the substantiation and drafting of the income and expense budget according to the assignments of the authorities of local public administration, according to the law; 27<br>
slide28. V. Audit recommendations 8. revision of the legal framework incident to the emergency situation before instating the state of emergency, but also of the adopted one during that period (laws, government ordinances, military ordinances, administrative orders) and harmonization of its provisions, so as to avoid legislative gaps or general construing of some restrictive provisions.
9. optimization of procedures for centralized public procurement and of the distribution ones, so that the products are available, depending on the needs, to all involved structures.
10. occupation of vacancies in the public health system by doctors, specialists in epidemiology, hygiene and laboratory medicine; organizing contest for the vacant jobs of specialist doctors in public health units;
11. substantiated national redistribution of the jobs of specialist doctors, at the same time with the establishment of a collaboration, sustained by legal regulation, between the Ministry of Health and the local authorities regarding the assurance of the conditions for the installation, accommodation and transport of doctors/medical staff; 28<br>
slide29. V. Audit recommendations 12. the Ministry of Health should have a clear record of health care providers involved in fighting against pandemic effects and establish the required stocks of emergency materials, as well as a rapid distribution system of the respective means in the territory;
13. assurance of a permanent service, so that the intimations, requests, information and issues raised by the petitioners get an answer in the shortest time possible;
14. establishment and maintenance of the medical reserve at national level; building up a medical reserve available to local authorities, as well as of some safety stocks in the ambulance services for 60-90 days to shorten the distribution circuit in special situations.
15. strengthening the internal managerial control system and improvement of the organization and coordination of the specific activities in view of assuring the required resources to cover the expenses occasioned by taking some measures and decisions to prevent and fight against the epidemic.
16. public-civil and public-private partnerships to assure cooperation and the exchange of information regarding the social priorities, public resources and the existing legal framework, the available resources in the society and which could be attracted in view of supplementing the efforts from public resources. 29<br>
slide30. Thank you for your attention! 30<br>