C O N T E N T
1. AUDITOR’S OPINION
2. SUMMARY
3. AUDIT FINDINGS AND RECOMMENDATIONS
3.1. Management's system of internal controls
	Missing rules and procedures
	Internal control department
3.2. Budget management system
	Revenues and division of expenditures within the budget
	Renting and adaptation of office premises
3.3. Application of laws – procurement of fixed assets.
3.4. Information system
3.5. Corresponding with the client
4. ATTACHMENTS
	Balance sheet
	Income statement – profit and loss account
	Overview of donated assets in year 2000

1. AUDITOR'S OPINION

1.1. The Office for Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (hereinafter: Audit Office) has performed an audit of financial statements (including the management's decisions), and financial operations of  THE STATE BORDER SERVICE OF BIH (hereinafter: SBS), regarding the fiscal/financial year 2000.

Audit was performed in a period from September 9, to October 12, 2001, and based on provisions of the Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina ('Official Gazette of BiH' no.17/99).

It is within the mandate of Audit Office, to perform an audit of financial statements, according to generally accepted audit standards (INTOSAI standards, published in 'Official Gazette of BiH' no. 05/01), in order to evaluate if they have been presented in a true and fair way.

Management of SBS is responsible for financial statements, and the responsibility of Audit Office is to express the opinion about these statements, based on audit performed.

According to the Audit Law (Article 13., paragraph 4.), while reporting on public accounts, it is our responsibility to report:

• if the accounts have been made according to the valid legislation;
• do the annual accounts represent a fair and true view of operations during the year and of the status at the end of the year;
• on economy, efficiency and effectiveness with which the institutions have been using public funds for performing their functions.

1.2. Audit procedure has been performed according to generally accepted audit standards and INTOSAI standards, which means that the audit was planned and performed in order to achieve reasonable ground for estimating if the financial statements represent status in a fair and true way. That is why the audit has examined samples of significant transactions and the decisions of the SBS management. Audit had encompassed application of legislation and other regulations, organization of SBS, and financial – accounting operations of the SBS.

In our opinion, financial statements audited present a fair and true view of status in all significant aspects of financial operations, but, without intention to further give qualified opinion, we would like to stress the issue of procurement of fixed assets that has not been performed, in year 200, according to legal provisions (see Chapter 3.3.1. of this Report).

2. SUMMARY

Audit Office has performed an audit of financial operations of SBS according the Audit Law and INTOSAI standards, taking into consideration the general conditions of the environment in which the SBS existed and functioned, in year 2000, when there were financial – accounting regulations missing at the BiH institutions level, and when the control and monitoring mechanisms foreseen by law weren't fully operational.

Faults have been stated and recorded  in the phase of planning of budget, where the SBS has been classified as "Other users" category, without the expenditures being divided by items, which made it impossible to monitor and to make comparison analysis of the expenditures planned and really made, for year 2000, according to budget items.

Audit findings confirm that in the year 2000, the management's system of internal controls was not organized at the satisfactory level, bearing in mind the fact that the SBS started working in June of 2000.

Audit has established certain irregularities during the making of Contract for renting the office premises for the SBS Main Office in Lukavica, so it recommended the relevant authorities to re-examine the legality of the procedures in making of this contract. It was recommended to the SBS management to re-examine the contents of the Contract and to initiate negotiations with the owner of the premises in order to reduce the prices by Contract, considering the amount of state funds invested in these premises.

Audit has also established that the legal procedures have not been followed, while procuring of fixed assets. SBS has performed the procurement of fixed assets by an invitation for bids to three or more bidders, but it did not perform the procedures of public announcement as Law on Execution of Budget of the Institutions of BiH, Article 16, foresaw it. ('Official Gazette of BiH' no 10/00).

3. AUDIT FINDINGS AND RECOMMENDATIONS

3.1. Management's system of internal controls

Audit has established that the SBS did not have sufficiently developed and established system of internal controls that should be established by management as a set of procedures and measures providing the accuracy and regularity of recording of financial transactions, their full accordance with the laws and regulations, as well as the protection of the property.

3.1.1. Missing regulations and procedures

Audit has established that at the SBS level, procedures and regulations have not been brought that would precisely define individual expenditure categories, in order to achieve more efficient and rational operations.

Audit Office has recommended to the SBS to urgently adopt, either on its own (until such time these issues are regulated at the level of the Council of Ministers), or in cooperation with the Council of Ministers, permanent or provisional regulations and procedures precisely defining the expenditures in the categories of most common and biggest expenditure items of budget.

3.1.2. Internal Controls Department

According to the Rulebook on provisional internal structure, there is an Internal Control Department functioning within the SBS, which is directly responsible to the SBS Director.

Main task of the Internal Controls Department is internal investigation regarding the professional performance of official duties within the SBS.

Audit Office has recommended to the SBS management to consider the possibility of widening of scope of work of the Internal Controls Department to include the area of financial – accounting operations of SBS, especially since the SBS is currently the biggest budget user, and in order to achieve more efficient operations and control of operations according to legislation.

3.2. Budget management system

3.2.1. Income and division of expenditures within the budget

Income of SBS planned in 2000 were 17.000.000 KM, and they related to the revenues from budget in an amount of 6.000.000 KM and revenues from donations in an amount of 11.000.000 KM.

Income planned from donations in an amount of 11.000.000 KM was not realized in year 2000.

Assets donated as 'in kind', SBS have received, in a year 2000 the, from UNMIBIH , assets in an amount of 1.200.268 KM and from the Ministry of Interior of Sarajevo Canton, an amount of 101.012,26 KM. Overview of assets donated is given as an Attachment 3.

Audit Office has established that in the year 2000, there was no exceeding of funds planned by budget as whole.

It was not possible to perform a comparison analysis of expenditures planned and actually made, since the Law on Execution of Budget for Year 200, puts the SBS under the category of "Other users", so that the purpose of use of funds was not clearly defined (types of expenditures that the SBS can make for its operations and the amounts by categories were not defined).

This caused difficulties for the management of SBS when it comes to budget management, since they were not able to monitor and follow actual expenditures in comparison with what was planned.

Audit Office recommends that in the future it has to be obligatory for expenditures to be divided into items, in order to achieve more efficient and rational management over the funds allocated, and the more efficient control of use of funds for purposes intended, as well as for analysis of expenditures planned and actually made by categories.

3.2.2. Renting and adaptation of office premises

Audit has established that the entire amount paid for rent for all the rented premises of SBS in year 2000, was 175.501,64 KM.

SBS has made following contracts for renting of premises: Energoinvest and Technical Faculty from Lukavica – Main Office, High School Capljina – Border Crossing of Doljani, Alija Alijagic Agriculture Enterprise – Border Crossing Izaèiæ, Enterprise Vezionica – Zvornik – Border Crossing Zvornik.

Renting of premises necessary for work of SBS was continued in 2001, so that finally it was concluded that the SBS does not own a single facility as its property, but is renting all of its premises. Currently, SBS is monthly paying some 50.000 KM for renting of premises, which represents a significant burden for the budget of the institutions of BiH.

Audit Office recommends to SBS, to reconsider the possibility, in cooperation with the Council of Ministers, of building of own facilities, or to try to find some other, more appropriate solution of the problem of renting of premises, which would, in the future, reduce the costs of renting.

Audit has established that the adapting of office premises in Lukavica, where the SBS Main Office is settled has been done by Grbavica Construction Enterprise – Srpsko Sarajevo. Contract number II-01/00 signed on February 8, 2000, was made by the Ministry of Civil Affairs and Communications on behalf of SBS. Contracted value of works was 241.459,95 KM.

This Contract was signed just a day before the SBS Director was appointed, so, during the audit, Audit Office did not receive from SBS a complete information on procedure used for making of this contract, so we were not able to see if the legal procedure regulating this area was followed.

While talking to relevant representatives of the Ministry of Civil Affairs and Communications of BiH, we stated that the legal procedures of public invitation for tender were not respected, while making of Contract for adaptation of office premises of the Main Office in Lukavica.

At the same time, the provisions of the contracts made related to renting of premises do not define special reduces in price of use of the adapted premises.

Even though it was established, finally, on March 8, 2000, by on a Decision on Basic Principles of Structure, Functions and Mandate of SBS, adopted by the Presidency of BiH that the SBS has to function as an independent state agency, Audit Office did not have an insight into valid evidence and decisions that could verify the mandate of the Ministry of Civil Affairs and Communications to sign the above mentioned Contract.

Audit Office has recommended to SBS to reconsider the existing Contract on renting of premises in Lukavica, regarding the price, and taking into consideration that relatively high amount of state funds has been invested into the adaptation of the above-mentioned premises. Furthermore, Audit Office has recommended further attention of relevant institutions that should establish the legality status of the adaptation of premises and the conditions under what this Contract was signed.

3.3. Application of laws – procurement of fixed assets

Expenditures made for procurement of fixed assets were stated in the ledgers in an amount of 638.601, 66 KM and they relate to following procurements:

Audit findings confirmed that the procedures for procurement of specified fixed assets, and which are above 50.000 KM, were not performed in accordance with the Article 16. of Law on Execution of Budget ('Official Gazette of BiH' number 10/00). SBS did collect several bids, by an invitation for bids to different bidders, and after the selection of best bidder, it signed the contracts, but it did not publish a public announcement for tender.

Audit Office had stressed to the SBS management that the procurements of fixed assets should be regarded integrally, at the level of yearly needs, and that the point of public announcement is to satisfy the essence of legislation regarding the procurements and public selection of best bidder.

SBS management is responsible for consistent application of Law on Execution of Budget, especially of Article 16., that relates to publishing of public announcement for tender.

3.4. Information system

SBS functioning is significantly dependent of use of information systems, so the Audit Office did the analysis of functions and organization of the existing information system. Even though there is a significant need, SBS currently does not have a unified information system that would encompass the SBS HQ and all the local departments and border crossings.

Audit Office had established certain weaknesses in the existing information system functioning, that might influence the efficiency and reliability of operations, and it gave following recommendations in order to remove those weaknesses

-  issues of organizational control and control of files and software (necessity of adoption of internal, written standards for development and maintenance of information system, system analysis and maintenance of the system software as well as of written procedures related to access and protection of data was stressed to the SBS management).

-  issues of installing of software and security of application software (it was stressed to the SBS management that it is necessary for certain changes to be made at the existing financial accounting software in a way that would allow every change within financial operation that has been earlier recorded, should be recorded in the system, as annulment of the previous one, and that it is necessary to keep records on every intervention and change in the original code of the application software).

3.5. Correspondence with the client

Audit Office has announced audit of SBS by its letter number: 01-052-192/01 with a given description of audit objectives as well as with defining of mutual obligations and responsibilities. After the audit has been performed, Report on audit was made and delivered to SBS for their comments, with a note that they should send their comments regarding the Report on Audit.

Within the foreseen time frame, no comments were delivered regarding the Report on Audit.

Attachment 1

Balance sheet of SBS on December 31, 2000[2]

Attachment 2

Income statement - profit and loss account of SBS in a period from February 2, to December 31, 2000[1]:

Attachment 3

Overview of assets donated in year 2000 by UNMIBIH and MOI of Sarajevo Canton for a permanent use to SBS

[1] This table gives an overview of the original data Ministry had expressed in its financial reports for year 2000.

[2] Table gives an overview of original data that the SBS had officially presented in its financial statements for year 2000.