1.      BACKGROUND

1.1.           In the exercise of powers given to us by the Law on audit of the financial operations of the Institutions of Bosnia and Herzegovina (Official Gazette, No. 17/99), 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 STATE BORDER SERVICE OF BOSNIA AND HERZEGOVINA (hereinafter referred to as: DGS) regarding the financial year 2001.

1.2.           In the period from 08.02. to 14.02.2002 and from 12.06. to 12.07.2002, 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 DGS 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 DGS leadership. It is a responsibility of the Office to introduce our opinion on the financial reports of the Ministry 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 DGS's 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, financial reports of DGS in the year 2001 are realistically and objectively presenting the financial position of the DGS and they are in compliance with the laws and overall accepted accountancy standards as found on a day of 31 Dec. 2001, except for the qualification effects comprised in paragraphs: 2.2, 2.3. and 2.4.

2.2.           Office had no opportunity to be present during the listing of the assets and resources conclude with day of 31.12.2001. Therefore we hereby express our reserve regarding the listing of assets and resources that may have an influence on reality and objectiveness of the financial reports in 2001.

2.3.           Audit has found that DGS did not properly apply the Article 16 of the Law on budget execution, regulating the field of material and services procurements (Public announcements for 1.242.562 KM).

2.4.           With audit of operations in 2001, we found that due to putting into evidence the material donations in the account of revenues there was an unequal ness and surplus of the revenues of 4.039.894 KM appeared in relation with the expenditures, although those revenues were planned in the budget.

3.         REVIEW OF THE FINDINGS AND RECOMMENDATIONS ON AUDIT OF THE ACCOUNT FOR THE YEAR 2000 

Office has conducted an audit of operations of DGS in 2000 and prepared a Report on the latter. Audit has found certain irregularities as described in the Report and DGS was advised to reconsider them and undertake certain activities in order to avoid the re-appearance of the irregularities and omissions in further operations.

Audit of operations in 2001 found that DGS acted in compliance with instructions of the Office in majority of the cases and that there is a positive progress in the DGS operations.

Realized recommendations:

• Decisions were made on limitations of the expenses and this has improved the internal control system;
• There was a division of the expenses in the budget;
• Tenancy Agreement for the Main Office in Lukavica is reviewed;
• All the forms of financial reports were prepared as stipulated by the Law;
• Corrections were done on the software, so that all the changes in evidence are automatically registered.

Ongoing activities:

• Review of  the solutions for office premises;
• Reconsideration of the qualitative models of work of the Internal Control Department.

Unfulfilled recommendations:

• Procurements of material and services were done without public announcements.

4.      AUDIT FINDINGS, REMARKS AND RECOMMENDATIONS ON AUDIT OF THE ACCOUNT FOR 2001

4.1.    Internal Control System

4.1.1. Rules and procedures for expenses 

Audit has found that DGS hasn’t got a completely and sufficiently developed and precisely defined internal control system of the leadership, as the set of procedures and measures as a set of procedures and measures providing the correctness and regularity of the evidence on financial transactions, their full accordance with the laws and regulations as well as the protection of environment. Non-existence of the efficient system and insufficient development of this system have an important impact on management and control of the budget expenditure in accordance with the laws and regulations, more precisely the management with public assets aimed for the specific purposes.

The lacks found in Internal Control System in 2001 reflect in the following:

• The existing internal rules and procedures made in the form of decisions offering insufficiently precise definition of the terms of creation, approval and evidence keeping on certain types of expenditures (telecommunication expenses, representation expenses, accommodation expenses for the employees and other);
• non-existence of the formal, clear and precise rules and procedures for the use of official cars (It is found that there were certain rules, on use of the official car,  made during 2002);
• non –existence of sufficiently precise and clear rules and procedures that would, in more qualitative way, define who has the right and what is the scope of the rights on “compensation / reimbursement of transport expenses from the work and to the work”. Since there is a digression in some numbers (in number of kilometers), between the data provided by the Units (JDGS - Jedinice državne graniène službe)  and data used by the accountancy department, it is found that there is a need for existence of precisely defined and established control of data
• weakness in the procurement system of fixed assets, materials and services, which was not done in compliance with Article 16 of the Law on budget execution that regulates this particular field (there were no Public Announcements for 1.242.562 KM).

Office found that DGS should provide the additional activities towards the establishment of the more clear and precise internal control system as soon as possible, with and aim of more efficient and rational operations, so that the efficient internal control system would remove and overcome all the irregularities  and illegalities in DGS work. We wish to highlight the need for precise regulation of the use and maintenance of official cars (state found on 31.12.2001 was 89 with the tendency of further procurements) having in mind the high expenses of use and maintenance of the official cars.

4.1.3.Procurement procedures for  fixed assets, materials and services

Audit found that during procurement in 2001, of services and materials in total amount of 1.242.561,79 KM, (see the Chart), legal procedures that indicate the public announcements for the selection of the best bid were not respected and the selection was made through the invitation, which is not in compliance with Article 16. of the Law on budget execution in 2001.

Consequence of procurements without public announcements can lead to the trade preference on one supplier/ provider in relation with the others and on non-competitive prices.

DGS leadership is obliged to decently implement the Law on budget execution, especially Article 16, which regulates the procurement of fixed assets, goods and services on the basis of the Public advertisements in order to provide the transparency and market equality.

4.1.4.Internal Control Department

Audit has found that Internal Control Department did not have a plan and programme of work for 2001. Likewise, we have found that Rules on internal control operations were issued in November 2001, what has disturbed the efficient and regular operations. Having analyzed the yearly Report which addressed 50 cases, we hereby confirm that those were cases mainly related to the police work (referring to the violation of the rules on competence, operations, procedures and behavior of employees), which is fully supported by this Office, but yet we suggest the extension of powers.

The consequence of the Internal Control Department functioning yearly plan and programme of work, as well as without the Rules on operations, could be the weaknesses and irregularities in work.

Office has recommended binding preparation of the Plan and Programme of Work of the Internal Control Department for every year, as well as submission of quarterly reports on realization of the plan and programme.

DGS leadership is recommended to reconsider the possibility of new models of operations as well as the expansion of the scope of work of the Internal Control Department (example: control of the procurement procedures, control of implementation of the adopted rules and procedures, control of the listing of resources, control of the transport expenses and other). It is also proposed to DGS to reconsider the possibility of strengthening of the Department in technical and human capacities, and to pay special attention to the permanent training and education of the staff employed in Department. 

4.1.5.Rule on internal organization of DGS and establishment of the notary office

Audit of the operations for 2001 found that DGS still applies the Rule on temporary internal organization of DGS. Functioning on the basis of the Rules on temporary internal organization of DGS could have long term negative consequences on rationality and efficiency of operations.

Having in mind that it was two years since the appointment of the leadership of DGS, we have recommended the issuance of the Rules on internal organization of DGS as soon as possible, for the purpose of rational, more efficient and proper operations.

Furthermore, we have noticed that the protocol, i.e. reception of the mail and archive of DGS, is not functional and insufficiently organized (protocol is in the Cabinet of the Director, while archive is not located in one place, nor it is neatly organized). This could have negative consequences on organization and functional character in operations.

Office finds that this way of work and level of organization of this department is not satisfactory nor could it satisfy the modern criteria of office operations.

Office suggested that DGS should reconsider the possibility of forming the notary office within DGS and regulate it with the Rules on internal organization of DGS, having in mind the size and needs of DGS.

4.2.            Budget management system

During revision of operations in 2001, we have found that budget management was not fully satisfactory, i.e. the audit has found certain lacks and weaknesses in internal control system and there were many of the procurements of the fixed assets, materials and services without having a public announcement. 

3.2.1. Budget planning and execution

During audit, it was found that DGS budget in2001 amounted 20.000.000,00 KM, and upon re-balance in 2001, additional amount of 23.015.538,00 KM was approved, which makes a total of 43.015.538,00 KM. DGS has realized the budget in 2001 in total amount of 30.808.105,00 KM, i.e. 62,99% of the planned amount. Having analyzed the problem of budget execution, we have found that budget was not fully realized at the level of DGS. The most important digression in relation with plan was found with budget item “Capital expenses”, which refers to the donations. We have highlighted the exceeding of 107,24% (for 2.359.389 KM in relation with the planned amount) in item / section “Expenses for material and services', where it was confirmed that there was no additional expenditure of the budget means, but that this is about the evidence of donations in equipment and uniforms.

Non-adequate planning of budget could cause the difficulties in achievement of the planned tasks in financial indicators as well as in execution of the planned DGS tasks.

COMPARATIVE PREVIEW OF THE PLANNED AND SUBSTANTIATED EXPENDITURES IN 2001 

Office recommended that problematic of planning and budget execution should be approached in better organized way in the future , with more realistic and qualitative parameters at all levels, and conduct a quality analysis of the budget realization in total and according to the separate budget items. It was also suggested to DGS to reconsider the possibility of procurement of adequate and efficient means for communication and data exchange on all border crossings, for the purpose of more efficient work of DGS.

4.3.                 Financial – accountancy operations

4.3.1.              Account of revenues and expenditures in 2001

With an audit of operations in 2001, we have found that in the yearly financial reports, i.e. the Account of the revenues and expenditures,  DGS has introduced the surplus of the revenues over the expenditures in the amount of 4.039.894,00 KM. Introduction of surplus of revenues over the expenditures is the result of the book-keeping evidence on donations in account 731000 – “Foreign Assistance" in the amount of 6.132.900,00 KM (structure of the stated amount comprises 2.422.158,00 KM of donation in uniforms and equipment, and capital assets in the amount of 3.710.742,00 KM ). This way of evidence keeping on donations in capital assets is, according to the words of the DGS employees, done on the basis of interpretation of the Instruction issued by the Ministry of Treasury and approved by the latter.

Audit had no insight into the formal document on the approval.

In this case, the evidence of the capital, material donations on the accounts of the revenues has resulted with the enormous surplus of the revenues over the expenditures (in the amount of 4.039.894 KM) and this / in the case when such grant , or donation was planned in advice and foreseen in the budget as the revenue of that calculation year.  This unusual solution was the result of the lacking accountancy standards for public sector, which were not prescribed or adequately developed for all levels of public administration.

Office will recommend to the Ministry of Treasury to reconsider this matter and in the view of precise, detailed instruction inform all the users of the budget. Simultaneously, we draw the attention of DGS to urgently and in cooperation with the Ministry of Treasury define the solution for the presented surplus of the revenues in the amount of 4.039.894 KM.

4.3.2. Introduction of the surplus of revenues over the expenditures according to the Instruction issued by the Ministry of Treasury             

During audit, we have found that DGS realized the surplus of the revenues over the expenditures amounting 18.746,00 KM, as per the Instruction issued by the Ministry of Treasury no obligation was created to return the presented surplus of revenues over the expenditures, which is not in accordance with the aforementioned instruction.

Office has advised DGS to standardize the way of presenting and returning the realized surplus in assets with the Ministry of Treasury, for the purpose of proper implementation of the aforementioned instruction.

4.3.3.            Accountancy documentation

Having an insight into the accountancy documentation, we have found that within Class 6 – Expenditures- there was , in several cases, an evidence on inappropriate accounts (expenses of the representation were in the evidence of a/c No 613915 – other services in the amount of cca 25.000,00 KM as well as the expenses for official cars registration on a/c  613713 – material for repairs and maintenance of equipment in the amount of 9.840,00 KM, which is not in compliance with account plan), and smaller number of evidences was done on the basis of the copies of invoices as well as  on invoices without specification of services that were provided.

Non-evidence of the expenses in the proper accounts (as stipulated by the account plan and accountancy standards) is to negatively reflect on transparency and preview of the financial reports (individual cases).

Office finds that all the operational changes should be comprised and put into evidence of suitable accounts in accordance with the account plan and accountancy standards, and the accountancy should have only neat and exactly specified bookkeeping I.D. with complete original documentation.

4.4. Information system

During audit of IT system, DGS is advised to:

• Pay attention that the standards on database use are distributed to all the users who need them and provide the implementation of these standards.

5.   CORRESPONDENCE

Upon finalization of the audit, the Report on Audit was sent to DGS on 19.07.2002, and DGS has addressed their remarks and notes in the Report within the deadline.  Office has replied on the letter on 29.07.2002 and gave certain clarifications and proposals and made the final decision on the Contents of the Report.

6.   SUMMARY / RESUME

Cumulative preview of the most important findings and recommendations of audit of account in 2001:

• Internal control system, prescribed by the leadership, was not established and defined in a satisfactory manner.
• Procurement procedures of fixed assets, material and services in 2001 were not carried out in accordance with the Law on budget execution in 2001, i.e. there were no public announcements.
• DGS had difficulties in realizing the budget and achieving planned tasks in 2001, since only 62, 99 % of what was planned in the budget is realized.
• In the Account of revenues and expenditures, DGS has introduced the surplus of revenues over the expenditures, in the amount of 4.039.894, 00 KM, which is a result of the bookkeeping evidence on capital donations in Class 7 – revenues, where there was no currency inflow. 

Office hereby wishes to thank the leadership and the employees of DGS for their cooperation and assistance provided during audit process.