Strengthening Public Fund Governance through Financial Audits: Insights from the Albania Supreme Audit Institution’s Practice

Authors: Miranda Misini, Auditor, and Krisela Ngjela, Auditor, Albania Supreme Audit Institution

1. Introduction

Public finances are like the lifeblood of a country – they fund social programs, build infrastructure, and provide essential services that people rely on every day. Keeping public administration efficient and transparent is key to earning people’s trust – it’s about more than just good governance; it’s about showing citizens that their institutions truly work for them. Financial audits are the main instrument used by Albania’s Supreme Audit Institution (ALSAI) to guarantee efficiency, accountability, and transparency in the administration of public funds.

This article explores how ALSAI has utilized financial audits to strengthen public fund governance in Albania, drawing on data from 2022 to 2024. It provides an analysis of the types of financial irregularities identified, the scope of recommendations issued, and the impact of these audits on the performance and accountability of public institutions.

2. The Role of Financial Audits in Public Fund Governance

Financial audits are not merely a formality; they are a cornerstone of effective public fund governance. In the context of Albania, the Supreme Audit Institution (ALSAI) leverages financial audits as a tool to ensure that public funds are managed responsibly, transparently, and efficiently. These audits are far more than a routine exercise—they are a systematic process of evaluating how public money is spent, identifying gaps, and recommending improvements.

Ensuring Accountability. Financial audits directly hold public institutions accountable for their financial practices. By examining financial records, assessing compliance with laws, and verifying the accuracy of financial statements, the Albanian Supreme Audit Institution identifies both good practices and significant shortcomings. Financial audits conducted by ALSAI serve a dual function: enforcing accountability and revealing systemic deficiencies. These audits identify both critical irregularities and compliant practices—such as unauthorized municipal expenditures while also highlighting pervasive structural issues, including misclassification of expenditures, obsolete fixed asset registries, unreconciled treasury, and accounting records, inconsistent recognition of liabilities, fragmented financial reporting across organizational units, and under-resourced internal audit mechanisms. These recurring findings have led to corrective measures and underscore the urgent need to bolster documentation, internal controls, systems integration, and audit capacity to ensure that public funds are managed transparently, accurately, and efficiently.

Promoting Transparency. Transparency is a core principle of good governance, and ALSAI’s audits contribute significantly to it. Audit reports are published on the official ALSAI website, making them accessible to the public and stakeholders. In 2024, over 106 audit reports were published online, with more than 50,000 visitors accessing these documents. Media engagement was also significant, with 382 articles in print media and 1,448 reports in audiovisual media. This proactive approach to communication ensures that citizens and stakeholders are informed about the management of public funds.

Enhancing Efficiency. Beyond accountability and transparency, ALSAI’s audits promote efficiency by identifying areas for improvement in public financial management. Audit recommendations are not merely criticisms—they are constructive proposals aimed at enhancing processes, reducing waste, and improving resource utilization. In 2024, ALSAI issued 4,378 recommendations, many of which were aimed at optimizing budget management and strengthening internal controls.

3. Audit Insights: A Three-Year Overview

Over the period from 2022 to 2024, ALSAI conducted a total of 151 financial audits across various public institutions, including ministries, municipalities, and state agencies. These audits revealed a range of financial irregularities and deficiencies, as summarized below:

• 2022: 177 audits, including 35 financial audits, identifying unauthorized expenditures and poor budget management.
• 2023: 160 audits, including 71 financial audits, with findings of underreported revenues and weak internal controls.
• 2024: 159 audits, including 45 financial audits, highlighting mismanagement and lack of compliance with financial regulations.

Financial Irregularities Identified

The financial audits conducted by ALSAI revealed a range of irregularities that compromised the effectiveness of public fund management:

1. Unauthorized Expenditures: ALSAI uncovered millions of euros in unauthorized spending, including payments made without proper documentation, excessive procurement costs, and misallocation of funds.
2. Unreported Revenues: Several public institutions failed to properly declare revenues, leading to significant revenue losses for the state budget.
3. Inefficient Use of Public Funds: Weak internal controls and poor financial planning led to inefficient spending, including overlapping expenditures and unplanned financial commitments.
4. Misclassification of Expenses and Revenues: Public institutions recorded capital investments as operational expenses and delayed revenue recognition, distorting financial statements and undermining transparency.
5. Unregistered and Unverified Assets: A significant portion of fixed assets remained unregistered in accounting ledgers, lacked formal ownership documentation, and were excluded from depreciation schedules, thereby increasing the risk of asset misappropriation and inaccurate financial reporting.
6. Variances in Treasury and Accounting Records: Accounting records frequently did not reconcile with Treasury reports, hindering financial statement verification and complicating audits.
7. Inadequate Financial Reporting Consolidation: Institutions’ failure to combine data from lower-level units resulted in financial reporting that was fragmented and lacking.
8. Deficient Consolidation in Financial Reporting: Institutions failed to consolidate data from subordinate units, leading to incomplete and fragmented financial reporting.
9.  Ineffective Internal Audit Functions: The effectiveness of internal audit units in preventing financial mismanagement was diminished because they were usually dormant or only produced formal, non-risk-based reports.

Turning Findings into Action: ALSAI’s Recommendations

One of the most critical aspects of ALSAI’s audit process is the issuance of recommendations designed to address the identified deficiencies. These recommendations are not merely procedural—they are strategic measures aimed at strengthening public fund governance:

• 2022: ALSAI issued 5,420 recommendations, focusing on improving budget planning, strengthening internal controls, and enhancing transparency in financial reporting.
• 2023: ALSAI issued 5,759 recommendations, including targeted corrective actions for institutions with weak internal controls and insufficient financial management.
• 2024: ALSAI issued 4,378 recommendations, with an emphasis on ensuring compliance with financial regulations, improving governance structures, and enhancing accountability mechanisms.

ALSAI goes beyond simply issuing recommendations. The institution has established a robust monitoring system to track the implementation of these recommendations. This includes:

• Follow-up Audits: Conducting subsequent audits to verify whether institutions have implemented corrective measures.
• Public Reporting: Publishing the status of recommendation implementation on ALSAI’s website, ensuring transparency.

4. Conclusion

ALSAI’s financial audits are a critical mechanism for promoting good governance in Albania. By identifying financial irregularities, issuing corrective recommendations, and promoting transparency, ALSAI strengthens accountability and integrity in public fund management. However, continuous efforts are needed to enhance audit capacity, ensure the implementation of recommendations, and foster a culture of transparency in public administration. To improve audit capacity, guarantee that recommendations are followed, and promote an ethical and transparent culture in public administration, ongoing efforts are necessary. The impact of ALSAI can be further enhanced through increased public participation, digitalization of audit procedures, and inter-institutional cooperation. In the end, maintaining public finances, bolstering democratic accountability, and fostering enduring trust between the people and the government all depend on a strong and independent audit function.