site.btaLocal Governments Fail to Update Their Properties’ Value, National Audit Office Finds

Municipal properties are often recorded at their lower tax-assessed value instead of a fair value, closer to the market price. This is one of the most common systemic weaknesses identified in the annual financial statements of municipalities, according to the 2025 National Audit Office's consolidated report on the financial statements of public sector organizations for 2024.

The report has been published on the Audit Office's website and submitted to the Minister of Finance, as well as to the chairperson and members of the Parliamentary Budget and Finance Committee for consideration.

According to the report, the financial impact of the National Audit Office's audits amounted to nearly BGN 2.205 billion in corrected accounting errors in municipalities' annual financial statements. Although there is a positive trend toward a reduction in the overall number of errors, the Audit Office notes that municipalities' financial reports continue to show significant systemic deficiencies that distort the true picture of financial management.

The consolidated report does not specify the total number of municipalities that made errors specifically in the revaluation of municipal properties. However, this issue has been identified as a systemic weakness in the financial audits for 2023, 2022, 2021, and 2020 as well.

In 2024, seven municipalities accounted for 55%, or approximately BGN 555.056 million, of the total value of improperly recognized assets in municipal balance sheets.

The tax assessment value, at which properties are recorded in accounting balance sheets, may be used at the initial recognition of assets, but only as long as it serves as a reliable indicator for determining the so-called fair value of the respective property, based on market criteria, in line with the regulatory requirements of the Ministry of Finance, the National Audit Office says.

Under the Municipal Property Act, municipal properties cannot be sold at a price lower than their tax assessment value. However, when that value is too low, it could potentially create conditions for assets to be purchased at artificially low prices.

Another systemic weakness in the annual financial statements is the incorrect accounting treatment of municipalities’ equity participation in commercial companies. Errors are also made in recording changes in the share of investments. As a result, municipalities’ financial statements inaccurately present shares, stocks, and related revenues. This issue has been identified in audits of financial statements since 2016.

Another of the most frequently occurring errors is related to asset depreciation, including incorrect calculation of expenses, omissions in charging and derecognition, and incorrect parameter settings.

Eight municipalities account for 42% of the total amount of incorrectly reported expenses in the Statement of Revenues and Expenditures (SRE) for 2024, where depreciation accounts for a major share. The incorrectly reported expenses in the SRE for these eight municipalities alone amount to nearly BGN 141.4 million. This specific systemic weakness has been officially identified and reported by the National Audit Office in audits of annual financial statements for 2017, 2018, 2019, 2020, 2021, 2022, and 2023.

Thanks to the audits of the National Audit Office, corrections totaling BGN 1.130 billion were made in municipalities’ 2024 financial statements, including BGN 909 million in assets and BGN 221 million in liabilities, the institution notes. These corrections ensure a fair representation of the financial position of each municipality. Complete and accurate financial reporting enables sound management decisions at both local and national level.

The National Audit Office also recalls that it does not only identify violations but also actively assists in their correction through several mechanisms: adjustments during the audit process, methodological support and recommendations, notification of competent authorities, and monitoring of new systems.