In addition to city institutions like schools, sports centers etc, the Kohtla-Järve's leadership should also have the city government itself, plus its departments, audited, as their economic activities have not been analyzed in any detail in recent years, the audit office reported.

While several internal auditing measures were carried out during the period covered by the audit, mainly by the auditors of the Kohtla-Järve City Government and, less frequently, by the city legislature's audit committee, these audits took place almost exclusively in agencies managed by the city in any case.

Ines Metsalu-Nurminen, Director of Audit of the National Audit Office, said: "It is unjustified that a city government, which has the largest procurements and the majority of the spending of the city system, including more than 60 percent of the management costs, has remained essentially untouched by internal control measures."

The problem with the city institutions is that while they are inspected, the Kohtla-Järve leadership does not take the shortcomings they find seriously, so the same mistakes constantly recur, the audit office says.

The National Audit Office audited the internal control system of Kohtla-Järve in comparison with the recommended guidelines for organization of internal control systems of local governments, which summarize the accepted views on the internal control system of a local government.

When set against these guidelines, Kohtla-Järve has problems, the office says, primarily with the key elements of the monitoring system – risk assessment, transparency of activities and their monitoring.

According to the National Audit Office, there is essentially no risk assessment in Kohtla-Järve, while a well-considered development of the internal control system is not possible without it. The functioning of the system has not been analyzed in Kohtla-Järve, population around 35,000, so the city leaders do not have a comprehensive view of its shortcomings as a result.

The National Audit Office finds that the set of rules established in Kohtla-Järve to mitigate corruption risks is inadequate compared with the guidelines.

For example, there are no rules in the city's internal procedures specifying how to avoid delegating a decision or an action to a subordinate in the case of a conflict of interest, or how to avoid a situation in which an employee performs an important task alone, is not supervised, and is not assigned a substitute because he or she rarely takes vacation.

The National Audit Office considers that the lack of competition in transactions with city property is a risk area. In the case of the largest procurement (€12.5 million) and the largest sale of city property (€0.6 million) in the period audited, only one tender was received in each case.

The National Audit Office did not assess the lawfulness of these transactions, but looking at the terms and conditions of the procurement and other circumstances, comparison with the practice of other local governments raises the question of whether Kohtla-Järve has done everything necessary to take advantage of competitive conditions, the national auditor says.

For example, in order to promote competition in procurement, the object of that procurement could have been divided into parts on the basis of both content and territory, within the same procurement procedure, as recommended by the Public Procurement Act.

However, in the case of the sale of city property in question, the intention to sell could have been announced in national publications or online portals.

The National Audit Office advises Kohtla-Järve's city government to merge the purchases of the agencies it manages and carry out centralized procurements via the public procurement register, to attract more tenders.

Currently, for example, the city's 19 educational establishments each purchase food, office supplies and other similar items separately, although the content of the purchases is the same from one institution to another.

The audit showed that, in most cases, the procuring authorities have not examined the market beforehand and have not requested several tenders.

The National Audit Office advises the Kohtla-Järve City Council, ie. the legislature rather than the executive, to develop internal control procedures or an operating model that follows the principles of the recommended guidelines for organization of internal control systems of local governments.

The municipalities of Viimsi, Saku and Lääne-Nigula, for instance, have procedures such as these in place, and the development of these procedures is a good opportunity to think through the guidelines in the context of one's own work organization and give them practical meaning.

The Kohtla-Järve City Council promised to take the advice on board, and also submitted a detailed action plan to the National Audit Office to solve the problems identified in the audit.

Background

Under the terms of the Local Government Organization Act, all of Estonia's 79 local government authorities must have an internal control system in place. Their existence must be ensured by the municipality or by the city or rural council, and the municipality or city government is responsible for their implementation and effectiveness.

The legislation does not specify exactly what a local government has to do to set up and implement an internal control system, but the "Recommended guidelines for organization of internal control systems of local governments" were prepared following the order of the Ministry of Finance, in 2018.

To generalize on these guidelines, an internal control system is a comprehensive set of measures which covers both the lawfulness and appropriateness of activities and ensures (a) the verification of compliance with legislation; (b) the protection of assets against damage that could result from waste, misuse, mismanagement and the like; (c) the expediency of an agency's activities in the performance of its functions; and (d) the collection, storage and disclosure of accurate, timely and reliable information about an agency's activities.

The structure and functioning of the internal control system Kohtla-Järve were assessed in the audit on the basis of the guidelines. The structure was assessed by the National Audit Office as at the time of the audit.

The National Audit Office evaluated the performance of the system on the basis of the activities and transactions (procurement, transfer and making available of property) over the period January 2022 to June 2023.

The activities of city-owned companies in Kohtla-Järve (for example, the city is one of the two founders of the Ida-Viru Central Hospital, which employs around 1,300 people) were not analyzed during the course of audit.

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