1.  BACKGROUND 

1.1.    Audit Office for auditing of the financial operations of the BiH Institutions (hereinafter referred to as: the Office) has carried out the audit of the financial reports and operations (including the leadership decisions) of the Department of Civil Aviation of BiH (hereinafter referred to as: BH DCA) regarding the financial year 2001.

1.2.    In the period from 12.11. to 20.11.2001. and from 05.03. do 15.03.2002, audit was planned and carried out in compliance with generally accepted audit standards and standards of the International Organization of Supreme Audit Institutions – INTOSAI ('Official Gazette of BiH', No. 05/01). Audit activities were directed towards the achievement of reasonable basis for evaluation whether the financial reports of the BH DCA represent the exact and true preview of the operations during the year and the state at the end of the year. The financial reports are under competence of the BH DCA leadership. It is a responsibility of the Office to introduce our opinion on the financial reports of the BH DCA and, on the basis of the conducted audit, inform of the following: 

• Whether the accountings are done in accordance with effective laws and provisions,
• Whether yearly budgets represent the exact and true preview of the operations during the year and condition at the end of the year,
• Economy/thriftiness, efficiency and success in BH DCA use of resources while performing its functions. 

1.3. We find that our audit provides a reasonable basis for expression of our opinion. 

2.  AUDITOR’S OPINION

2.1.    According to our opinion, revised financial reports give fair and true preview of the state in all important aspects of the financial operations, except for the Paragraphs 2.2. and 2.3. where we remain sustained.

2.2. Office remains sustained regarding the introduced starting balances in 2001 that were transferred from the year 2000 and not revised, since they could influence the reality and objectiveness in financial reports in 2001. 

2.3. We also express reserve regarding the listing of the fixed assets in 2001, since we were not present during the latter because the listing was completed before the engagement of the Audit Office for the final audit of operations in 2001. 

3. FINDINGS, REMARKS AND RECOMMENDATIONS OF THE AUDIT

3.1.   Internal Control system

3.1.1. BH DCA management and leadership

During revision we found that the crucial lack in the DCA operations in 2001 is actually inefficient system of management and leadership, which dates from the previous years.

This problem was resolved couple of times during 2001, but we feel that it has not been resolved in a qualitative and efficient way, because BH DCA is currently managed by the temporary administrator (appointed by the Council of Ministers), whose authorizations refer only to the conduct of the routine operations without clear powers and responsibilities. Besides, the term “routine operations” is not clearly defined either.

From the point of the internal controls, this is a huge lack if we know that the leadership has a key role in the creation of the control environment as the pre-condition for the other components of the system of internal controls. Our opinion is that non-existence of the efficient system of management and control could result with the negative consequences on legal operations of BH DCA.

Office advises the Parliament to make an influence on the Council of Ministers to urgently appoint and establish the management of BH DCA in compliance with the legal provisions.

Office has suggested to BH DCA to establish an efficient system of management and operations with clear authorizations, responsibilities, concrete tasks and goals, as soon as possible and for the purpose of more efficient and rational work.

3.1.2. Lacking rules and procedures

Audit has found that the Rules on internal organization were not adopted at the level of BH DCA, nor the rules and procedures that regulate the use of the cars, telephone lines, representation, accommodation of the officials and other material operations.

Besides making difficult the process of audit, the lack of these rules can result with the appearance of the unauthorized and untargeted expenditure of the assets as well as with a number of other irregularities. 

Office has suggested to BH DCAU to adopt the rules and procedures that would precisely nominate the expenditure in the category of the most often and biggest budget lines, for the purpose of more efficient and rational operations.

3.1.3. Personal documentation

While checking the correctness of the calculation of salaries, we have found that personal files of employees are not complete and updated, and in majority of cases - there is no original documentation. We have noticed that in four cases of personal files, there was no absolutely no documentation enclosed. This could be an indicator of relations of administrator towards the human resources. Should we take into consideration that the correct staff policy is an important basis for good internal controls, then such condition is evaluated as unacceptable.

Incomplete and not updated personal documentation could have a direct influence on the exactness of the salary calculations, since the proof of the years of working experience directly influence the calculation of the latter.

Office suggested to BH DCA to complete the personal documentation in order to have the relevant proof on the years of work, when calculation the salaries.

We have also recommended that BH DCA should urgently start with the arrangement of the personal files in compliance with the provisions regulating this particular field.

3.1.4. Employment of the workers on the basis of Short Service Assignment Contract

We have found the practice of employment of the workers on the basis of Short Service Assignment contracts for a conduct of temporary and occasional works, for the period of more than one year. This is not in compliance with the legal provisions regulating this field.   

Should this problem not be resolved in compliance with the legal provisions, this could have negative influence on the economy and the efficiency of BH DCA operations.

Office feels that such practice should be avoided in long-term basis.

Office has recommended to BH DCA the implementation of the legal options that provide the decent implementation of the laws regulating this field.

3.2.    Budget management system

Special attention of the Office is paid to the budget planning and execution in 2001 and the following chart is to introduce the preview of the initial budget, budget execution, realization and index.

3.2.1. Budget planning and execution

BH DCA budget in 2001 amounted 876.480,00 KM, and re-balance in 2001 approved the additional amount of  119.746,00 KM, which makes the total of 996.226,00 KM. BH DCA has realized the budget in total amount of 662.480,00 KM, which is 33,5% less then planned budget in 2001.

Having analyzed the parameters from the Chart, we have concluded that the budget re-balance is not done in quality way and with sufficient analysis of the input parameters. Example for this is section ‘expenses for materials and services’ (see the Chart) where disharmony between the spent and planned assets foreseen in the budget is clearly visible in total amount and rebalance approved the additional means for the same section in the amount of 72.746 KM. We have also noticed that with the budget line ‘Salaries of employees’ the budget is approved on the basis of 27 employees and not on the real number of employees, which is 21. Rebalance in 2001 did not bring in the changes in the budget section ‘Salaries of employees’ although it was planned on the basis of the real number of employees - 21, and not on the basis of the number of employees according to the budget in 2001 (27). 

COMPARATIVE PREVIEW OF THE PLANNED AND REALIZED EXPENDITURES IN 2001 

Office recommended that the problematic of budget planning should, in future, be addressed in a more qualitative and detailed manner on all levels and for the purpose of realistic and quality planning within the BH DCA itself as well as on a higher levels where budget is adopted.

3.2.2. Expenditure of the money realized on the basis of Air Force navigation provided services, concluded with 31.12.2000

Audit of operations in 2001 has found that the Ministry of Treasury has transferred the means to BH DCA in the amount of 1.364.120.13 KM and on the basis and in favor of compensation for the services of Air Force navigation provided to the airplanes flying through the air space of BiH, concluded with the date of 31.12.2000. Since this is about large sum of money, which is currently located at the account of BH DCA , we find that they should urgently prepare the project related to development of Civil Aviation, which would be financed from these assets.

We find that in the conditions of the lack in financial means (resources) it is not logical that such large amount of money is on the account and does not bring any benefits.

Office suggests to the Parliament to demand from the Council of Ministers to issue a concrete program with clearly stated and reachable goals, which would define the realization of the assets for Civil Aviation development.

3.3.    Financial – accountancy operations

3.3.1. Non-justified advance payments and obligations concluded with the state found on 31.12.2001

Audit of the operations has found that received but unjustified advance payments for official trips concluded with 31.12.2001 amounted 9.600,00 KM, which presents the violation of the Article 14. of the Decision on salary calculation and material rights of the employees in the Council of Ministers , ministries and other departments of the Council of Ministers of BiH. 

Bearing in mind that those were unjustified advance payments for a longer period, BH DCA management is advised to urgently take the necessary steps  to justify amounts taken for the advance payments and provide the proper justification of the future advanced payments, in accordance with the aforementioned regulations. 

The obligations are created (concluded with the state found on 31.12. 2001) in the amount of cca. 6.000,00 KM, for all types of travel expenses. On the basis of those, the money for advance payments was issued in 2002 in favor of the official trips (expenses in evidence from 2002 were justified and covered with means from 2001).

Office has advised BH DCA to have a decent implementation of the accountancy rules in compliance with the principle of modified creation of event, which states that the expenditures are comprised in the evidence of the period during which they aroused.

3.3.2.  List of assets (state found on 31.12.2001)

With an audit of  the listing of fixed assets in the BH DCA, we have found that certain fixed assets are registered out of the balance, they are of non-defined origin (ownership) and those are donations from the previous years. 

The consequence of having the financial reports without thorough and complete listing of assets could be a negative reflection on reality and objectiveness of the financial reports.

Office has suggested to the leadership of BH DCA that it is urgently needed to make additional efforts in determining the real owner of the aforementioned assets and provide the suitable evidence keeping on the operational books , in compliance with the provisions regulating this field for the purpose of fair and true presentation of the assets and their resources. 

3.3.3. Accountancy

We have found that BH DCA did not carry out the accountancy activities fully and in accordance with the accountancy rules, principles and standards. Major omissions are:

• wrongly taken data on the work in the past, when calculating the salaries;
• un-neat evidence of arrivals to and departures from work;
• omissions in evidence keeping on the expenses of representation, compensation for transport and conversion expenses;

Valid accountancy evidence is the basic source of information necessary for analysis, planning and decision making. Should this evidence not be arranged properly and remain incorrect, the risk of omission appearance, embezzlements and wrong decisions is increased.

It is recommended to BH DCA to manage the accountancy in compliance with the existing regulations, standards and principles. Herein, it will create good basis for internal controls functioning and quality decision making.  

3.4. Realization of the project – credit for procurement of the navigational equipment BP 12 EBRD   

Having analyzed the problematic of procurement of the navigational equipment through the credit  of EBRD dated 02.04.1998 and bearing in mind the fact that this about the extremely high project value (contracted value of the project is in the amount of 3.465.000 USD) as well as the unjustified tardiness in realization of this project (non-standardized financial and other relations between the entity departments that the equipment is aimed for –  one of the reasons) we formed an opinion that this project should have been approached with a lot more responsibility of all relevant subjects involved in this project.

The reason why the credit was not realized until today and what are the negative consequences of this should be found. Office feels that there should be an expert analysis of the aforementioned project.

Office had no insight into the relevant proofs that would support the claim nor did it get the impression that all misunderstandings are removed.

Office advised the BH DCA to pay full attention to the monitoring of the realization of this project and include all the relevant subjects at the highest level in order to make the equipment functional as soon as possible. Due attention should also be paid to the timely staff trainings to operate with this equipment so that it could be  used in a better way and give effects, as foreseen. 

3.5.    Information system

In its operations, BH DCA has a daily use of computers and largely depends on IT systems use due to daily collection of information through the Internet. All computers operate under licensed system Windows 95 and 98 have MS Office installed (for which they have no license).

Office found that BH DCA does not have formal standards referring to the use of computers, data protection and control, programmers, back-up copies creation and IT project management.

Office has recommended to DCA leadership to create IT strategy and prescribe the standards related to the use of computers, data protection and control, programmers, back-up copies creation and regulate IT project management. 

4.   CORRESPONDENCE

Upon finalizing the audit, Report on audit was sent to BH DCA on 22.05.2002, and BH DCA did not extend any objections on the Report within the deadline.

Audit hereby wishes to thank the leadership and employees of the Archive for the co-operation and assistance provided to us during the auditing.