Part I: Summary

In 2008 the Commission of Audit conducted a performance audit on the setting up, relocating and renovating works of the educational and youth activity centres of the Education and Youth Affairs Bureau (DSEJ, according to the Portuguese abbreviation) analyzing whether those works were carried out based on comprehensive and detailed studies and whether due prudence was exercised on the financial resources application and, consequently, presenting audit opinions and suggestions which could be taken as references by other public departments when they intend to carry out similar works and, in this way, achieving the objective of effective application of public resources.

1.1 Audit findings and opinions

1.1.1 Lack of budgetary control

1.1.1.1 DSEJ did not prepare overall budget for projects of setting up, relocating and renovating educational and youth activities centres so that it was unable to control and maintain costs within the estimated budget. The awarded prices of five out of seven projects were over-budget by the range of 490 thousand patacas to over ten of millions patacas (from 16.45% to 135.95%).

1.1.1.2 DSEJ ignored the principle of economy and ran into luxurious spendings when procuring building materials, furniture and equipments for these centres.

1.1.1.3 With no reasonable motive, the Psycho-pedagogical Support and Special Education Centre was relocated from its original its premises after having been renovated and modified less than 18 months, with an investment totaling 1.1 million patacas, and still in good conditions.

1.1.2 Lack of management control

1.1.2.1 DSEJ didn’t enter into contract or sign any written agreements with the project companies to protect its own rights and used to “pay before receiving the goods”. This practice didn’t allow DSEJ to control the project companies’ work or demand compensation for problems they were responsible for, which lowered the work dynamism of the project companies.

1.1.2.2 The designs were concluded with long delays. The projects for Continuing Education Centre and for Bairro do Hipódromo Youth Activities Centre were delayed by 3 years and 2 months and 2 years and 6 months, respectively.

1.1.2.3 Open tenders were launched without sufficient budget, resulting in the award of works pending on subsequent budget allocations. This gives the builders, under the applicable law, rights to demand price revision which, in turn, increases the risk of higher building costs.

1.1.3 Abusive application of clauses in Decree Law 122/84/M

1.1.3.1 DSEJ had no written rules or mechanism for the project companies’ selection procedure. The practice of DSEJ is direct-awarding with no prior written price quotation. The audit results revealed that all designs awarded between January 1, 2003 and June 30, 2008, were through this way, and 60% of them were awarded to project company A, that was less efficient and often had to be reminded of project delivery dates.

1.1.3.2 The audit found that among the 8 designs awarded directly, with no written price quotation were justified by “timeline for the design is tight”; yet only one was concluded on time, all the rest were delayed by 11 times to 41 times in relation to the initial deadlines.

1.1.3.3 Lacking a comprehensive and detailed plan, DSEJ usually took the suggestions of the project company in selecting furniture and equipment of certain brands and models from exclusive agents. Even in relation to the office furniture with ample supplies in the local market, in terms of quantities and brands, DSEJ invoked related legal clauses to exempt from asking for written price quotation and awarded the procurements of goods of specific brands to their sole agents.

1.1.4 Doing jobs that should be left to the department responsible for public works

By taking over jobs in which it is not specialized at, DSEJ invests huge amount of manpower and time on project designing and works execution and control. Nevertheless, results in terms of economy, efficiency and effectiveness are far from satisfactory.

1.2 Suggestions of the Commission of Audit

1.2.1 Before engaging building, relocation and renovation works for their facilities, public departments should establish a cost control mechanism, ponder in depth on the need of the works, estimate the sectorial and total costs of the works according to the principle of economy and set an upper limit on them.

1.2.2 For safeguarding the public departments’ own rights, they should enter into contract or sign written agreements with the project companies, that clearly detail, amongst others, the content of the project, the costs, the date of completion, the penalties and the payment method. An adequate mechanism should also be created to certify whether the project companies concluded the works in accordance with the contract clause before initiating the payment procedure.

1.2.3 Public departments should follow rigorously the principle of prudence when utilizing financial resources and only launching public tenders when sufficient funds have been secured for the respective projects.

1.2.4 The exemption clauses in the Decree Law 122/84/M should only be invoked in justified and reasonable situations.

1.2.5 Public departments should deploy resources in areas of their exclusive function and leave all other tasks to the respective competent departments.

1.3 Management responses

1.3.1 In its reply, DSEJ said it welcomes comments from all social sectors regarding its activities and services, and that it had analyzed carefully the audit suggestions presented in the report and made an in-depth review of the tasks and procedures involved. It also said, by the moment the reply was being drawn-up, the drafting of instructions and procedures governing the launch of public tenders and acquisition of goods and services has been concluded, covering the followings: establishment of a point-system regime and definition of written assessment rules to regulate the assessment regime on project companies; taking as references the “Instructions on calculating fees for design projects of public works” and the list of builders maintained by the Land, Public Works and Transports Services Bureau; conducting internal audit on financial spendings.

1.3.2 Regarding budgetary control, DSEJ indicated that it would take the cost estimated on the final project as reference for controlling the project costs. Nevertheless, regarding acquisition of furniture and equipment, compliance with the principle of economy should not be judged solely through price. Durability, maintenance costs, effects on the users’ health and integration into the environment, amongst others, should also be taken into account.

1.3.3 On the launching of public tender for the building works of Bairro do Hipódromo Youth Activities Centre without sufficient funds in the budget, it was explained that the budget allocated to DSEJ within PIDDA (Plan of Investment and Expenses for the Administration Development) had been cut by 67% making the residual funds insufficient for the works. However, the law does not stipulate the availability of the totality of the required funds as a condition to begin a tender process. DSEJ further explained that by that time a request for budget revision to cover all the expenses has already been submitted according to the legal procedure. On alterations to the design, DSEJ explained that change was necessary in order to meet the growing needs for night services from youngsters working on shits.

1.3.4 The execution of works and the procurement of equipment and services complied rigorously with the terms of the Decree Law 122/84/M. Open tender and written request of price quotation were conducted; cases by which those procedures were waived were minimal and that usually related to supplementary procurement.

1.4 Overall comments

1.4.1 In any audit conducted by CA, relevant laws and regulations constitute important audit criteria. Regarding effective application of public resources, CA has always upheld the observance of legality above all. The public finance management system is an organic system, its juridical norms complement and control each other. Whilst complying with juridical norms, basic principles should also be observed. It would not be just for any organization to selectively adopt rules acting in their favour. History tells us that extensive and prior analysis of pre-conditions and clear explanation of the motives are crucial to the effective application of public resources, particularly when one intends to use exemption clauses.

1.4.2 The promotion of reasonable application of resources, based on the principle that the application of public resources must be legal, is one of the core activities of the Commission of Audit. The Commission of Audit believes that compliance with laws is elementary to the management and application of public resources. When this requirement is fulfilled and, at the same time, the application has taken into account the actual situation and was reasonable, then the objective of a good application of resources has been achieved. Solemn speeches may temporarily justify luxurious spendings, but the fact is: unrealistic and impractical installations and equipment will necessarily lead to regrettable wastage.

1.4.3 The financial resources are heavily dependent on the Region’s revenues and, as past experiences showed, the revenues of the Region are dependent on a multiple external factors. As such, besides legality, the use of public resources should also abide with the principle of “manage with prudence and spend only on what really matters”.

1.4.4 In the long run, the practice of the public departments becomes an operation model, which, from a positive perspective, can be considered an effective model derived from a long period of trial and error. However, if a mechanism of successive review is not in place, the operators of this model could come to feel being perfect, don’t feel the need to upgrade, begin to drift away from reality and even going against the principles; in the present case, it means a progressive deviation from the basic principle in the application of public resources — “manage with prudence and spend only on what really matters”. Showing off victories or self-justifying with a small number of cases would not contribute to identify existing deficiencies in the working model and consequently to its improvement. Matters involving public money should be analyzed with due care and an adequate balance between the economy and the social needs should be sought and achieved. Unnecessary “show-off” works should be avoided.

1.4.5 The public departments should prepare budgets which are operational and, at the same time, responsive to social needs. On budget execution, significant alterations and revisions should be avoided, as well as low execution rate and other damaging situations to stable financial operations.