Misstatements for BGN 2.49 billion corrected following the BNAO 2021 financial audits

In 2021, the BNAO carried out its planned 286 financial audits of the 2020 annual financial statements of budget organizations. The subsequent summary report points to a considerable number of BNAO unmodified opinions – 242 or 85% of the total number of expressed opinions. This means that the statements give a true and fair view of the financial status and performance of budget organizations. These results could be explained with the opportunity given by the BNAO to correct the established misstatements during the financial audits themselves, so that the statements serve as a reliable basis for management decisions at an institutional, regional and national level.

The corrected misstatements in the financial statements of budget organizations amount to BGN 2.49 billion.

As a results of these corrections, the BNAO expressed a qualified opinion on the annual financial statements of only 38 budget organizations. The qualified opinion means that some material misstatements in the annual financial statements have been identified, but with limited effect.

The BNAO issued only five adverse opinions (on the 2020 annual financial statements of the municipalities of Borovan, Rodopi, Ivaylovgrad, Lesichevo and the “Lyuben Karavelov” Higher School of Civil Engineering), because their number dropped by 95% as a results of the corrections made. If the corrections had not been made during the audits, the BNAO would have issued an adverse opinion on the financial statements of 96 budget organizations. The adverse opinion is formed when material misstatements or omissions of material financial information with across-the-board effect have been established. Such statements do not give a true and fair view of the financial condition, performance and financial flows of the budget organization.

The BNAO declined to express an opinion on the annual financial statement of one budget organization (“Scientific and Production Center” State Enterprise).

Some municipalities were warned against using temporary interest-free loans from foreign funds accounts. The use of such loans does not comply with the legal framework.

During the financial audits of some municipalities, cases of non-compliance with the laws and other regulations were established and the provisions of Art. 57, para. 1 of the National Audit Office Act were applied, and the relevant competent authorities were notified (the Public Financial Inspection Agency in the case of 64 municipalities and the National Prosecutor’s Office in the case of one municipality) in order to initiate appropriate action.

Again this year, the summary report has raised the question of the risk of not meeting the high standards of the International Financial Reporting Framework due to the following general considerations:

• the financial reporting requirements of budget organizations have been developed based on accounting standards intended for the private sector;
• lack of a consolidated financial reporting framework at the expense of numerous general and individual reporting guidelines

The BNAO believes that Bulgaria should follow the global and European trends related to the implementation of the International Public Sector Accounting Standards by a large number of countries, as well as the efforts to create European Public Sector Accounting Standards.