Shocking details have emerged from a leaked report by Albania’s Supreme State Audit on how some commercial banks generated profits unlawfully from a scheme to exchange damaged banknotes with the central bank.

The document, which reveals how the financial system works and how it is governed, is expected to shake state institutions in Albania. The Supreme State Audit is obliged to inform the parliament, specifically the parliamentary commission for economy, of its findings.

The secret report showed that ALL2.71bn (€20mn) in damaged banknotes was changed through the scheme between January 2010 and July 2014, allowing banks to generate unfair profits of ALL542mn, broadcaster Top Channel reported on August 10.

According to the report, the scheme to exchange damaged banknotes was used illegally.

Under a September 2013 central bank decision, private banks collected damaged banknotes from citizens for 80% of their value and then handed them over to the central bank at the same discount rate. However, the report found that this rule was later broken and the central bank started to give banks 100% of the value of the damaged banknotes.

According to the Supreme State Audit, the difference of 20% went to some commercial banks as illegal profit, instead of adding to the profits of the Bank of Albania and being transferred to the state budget. The banks that profited from the scheme have not been revealed.

The report has now been sent to the Supervisory Council of the Bank of Albania. Top Channel reported that the central bank has criticised the findings presented in the report.

The starting point of the investigation was the revelation of thefts of ALL713mn in cash from the Bank of Albania. Uncovered in July 2014, this resulted in a scandal in which the bank’s then governor Ardian Fullani was detained by police, among 17 other people. In October 2015 Fullani, who was accused of failing in his supervisory duties, was cleared of abuse of office. However, a Tirana court sentenced two former central bank employees - Ardian Bitraj and Mimoza Bruzia - to length prison sentences for their role in the thefts.

The Bank of Albania’s new government Gent Sejko pledged when he was appointed in February 2015 to restore public trust in the central bank, a task made more difficult by the latest revelations.