THE AUDIT REPORT FOREIGN INVESTMENTS PROMOTION AGENCY IN BOSNIA AND HERZEGOVINA YEAR 2001

1.1. According to the authorities given by the Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (‘Official Gazette of BiH’ no. 17/99) The Office for Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (hereinafter: Audit Office) has performed an audit of financial statements and operations (including the management’s decisions), of THE FOREIGN INVESTMENTS PROMOTION AGENCY IN BOSNIA AND HERZEGOVINA (hereinafter: the Agency) presenting the status on 31st December 2001.

1.2. Audit was planned and performed in a period from December 12, to December 28, 2001, (interim audit) and from March 4, to March 12, 2002, (audit of closing accounts) according to generally accepted audit standards, as well as standards of International Organization of Supreme Audit Institutions – INTOSAI (‘Official Gazette of BiH’ no. 05/01).

Audit activities were aimed on obtaining a reasonable ground to estimate if Agency’s financial statements represent a fair and true view of operations during the year and the status at the end of the year. Management of the Agency is responsible for financial statements. The responsibility of Audit Office is to express the opinion about Agency’s financial statements, and based on the performed audit, to report about the following:

1.3. We consider that the audit team we performed gives a reasonable basis for expressing our opinion.

In our opinion, the Agency’s financial statements for 2001, do present, in all significant aspects, real and objective view of operations during the year and of the status at the end of the year except for the reserves stated in items 2.1. and 2.2.

2.1. Opening balances presented in 2001 have not been audited, and they, in a certain measure, could influence on reality and objectiveness of financial statements. We also were not present at inventory of fixed assets and their resources for 2001.

2.2. In Chapter 3. (item 3.2.2.) audit findings confirm exceeding within the item ‘Costs of procurement of materials and services’ in comparison with expenditures approved by the budget in an amount of 5.105,00 KM. In addition, audit findings confirm that the Agency’s management did not respect the procedures on procurement of goods and services in accordance with the Law on Execution of Budget.

3. FINDINGS, NOTICES AND RECOMMENDATIONS OF THE AUDIT TEAM OF ACCOUNTS IN 2001

The audit team has found that the Agency has no reliable internal control system that should be created by the management in order to provide regular recording of financial transactions, complete accordance with laws and regulations and protection of the property. This is, in a great part, the consequence of non-existence of adequate control environment that comprehend the philosophy and style of management’s work, organizational structure and personnel policy.

A significant influence on this status was caused by the change of management which happened during the year when the Council of Ministers released the management structure (Director General and two Deputies) from their duty, nominating a new Director General. From September 2001, Director General managed the Agency even though valid Statute and Rulebook foresaw two Deputies Director General.

It is known that changes within management structure always bring a certain risk because the new management needs time to make the acquaintance with organization.

Audit Office considers that, by intercession of the Council of Ministers, the Parliament should haste bringing of the new Statute of the Agency, and in a way mentioned, to provide for management issue to be solved that would indubitably influence on establishment of an adequate internal control system.

Performing the audit work was also made difficult because the Agency does not have adopted internal regulation on use of vehicles, phones, representation, and other costs. Non-existence of internal regulation could cause appearance of unauthorized expenditures and other irregularities.

In order to provide continous monitoring over the budget execution, the Agency should establish precise procedures on reporting and coordination with the person entrusted with bookkeeping, and which is not employed by the Agency.

It has been recommended to the Agency that, until the time this regulations are brought at the Council of Ministers’ level, it should independently adopt internal regulations on spending the most important items and should provide coordination with the bookkeeper and the Ministry of Treasury.

Internal control system’s weaknesses has caused that procurement and rental of the office premises was not performed in accordance with relevant regulation on this issue.

By an insight into documentation on procurement, we have found that public tenders were not announced as it is foreseen by the Article 16 of the Law on Changes and Amendments of the Law on the Budget Execution.

In addition, the Agency has signed a Contract for renting the office premises with a reimbursement in an amount of 7.086 KM a month, or 70.860 KM a year, without announcing an invitation for bids in order to select the most favorable prices.

It is evident that the Agency did not provide the transparency of public procurement, which raises the question of regularity of this process.

It has been recommended to the Agency that, in order to increase the transparency on public funds use, it should respect the provisions of Law on Execution of Budget, especially those articles that regulate the mentioned problem.

On the other hand, the question of procurement has not been defined in adequate way at the state level, even though the qualitative laws regulating procurement of goods, services and works exist in both of the entities.

The audit team thinks that this question should be considered by the Parliamentary Assembly of BiH as soon as possible.

During the audit team, we have paid special attention to the planning and execution of the budget. The following table shows comparative overview of the budget planned, budget increase, realization and indexes.

No	Type of expenditure	Budget for 2001	Increase/ Decrease (+/-)	Chang. and Amend. of the Budget	Realized in 2001	Deviation (6-5)	Index (6/5)
1	2	3	4	5	6	7	8
I	Current expenditures	300.000	129.570	429.570	362.748	-66.822	84
1.	Salaries of the employees	151.600	21.500	173.100	138.426	-34.674	80
2.	Reimbur. of the costs of employees	31.800	6.230	38.030	38.279	249	101
3.	Reimbur. to the Parliament representatives	0	0	0	0
4.	Material and services costs	111.600	42.600	154.200	159.305	5.105	103
5.	Insurance and bank services costs	1.000	3.000	4.000	760	-3.240	19
6.	Contracted services	4.000	56.240	60.240	25.977	-34.263	43
II	Current grants	0	0	0	0
III	Capital costs	0	0	0	0
IV	Programs of special purpose	0	0	0	0
V	TOTAL	300.000	129.570	429.570	362.748	-66.822	84
	Number of employees			12	7

By an insight into the table, it is evident that the changes and amendments of the budget have not been performed on the basis of qualitative analysis and realistic parameters, so within the item ‘Salaries of the employees’ an amount of 21.500 KM has been additionally approved, while the salaries were realized in the amount even less than the original budget, so it is evident that there was no real need for such increase. This is proved by further information that the expenditures have been realized in an amount that was less for 16% than planned.

We have also found that besides the budget funds, the Agency has used the assets from donations as additional resource of financing during 2001. However, the Agency has not presented assets mentioned within the budget, nor these assets were recorded in its ledgers.

It is the opinion of the audit team Office that more attention should be paid to the problem of planning, both within the Agency and at higher levels which adopts it, in order to achieve realistic and qualitative budget planning.

In 2001, the Agency has realized incomes in a total amount of 362.747,62 KM. The structure of incomes realized is the following: incomes from the budget in an amount of 331.506,71 KM, incomes from the property in an amount of 28.670,73 KM and other incomes in an amount of 2.570,18 KM. In the same period, the Agency realized expenditures in an amount of 362.747,62 KM, which are 16% less than the expenditures approved by the budget.

The Agency did not overstep the expenditures approved by the budget in their total amount, however, the exceeding happen within individual types of expenditures in comparison with expenditures approved by the budget for that purpose. This relates to expenditures for procurement of materials and services in an amount of 5.105,00 KM.

Audit Office has recommended to the Agency’s management that it has to organize regular control and monitoring over the budget funds use for purposes intended according to the structure adopted and to the approved amount, and regarding eventual changes, it is necessary to obtain agreement of the Council of Ministers.

The audit team has found that incomes from the property stated within financial reports have been realized on the basis of renting the office premises to the EU consultants. For renting the part of its office premises, the Agency did not sign a contract, but instead, it has repaid renting on the basis of verbal agreement between the Agency’s Director and EU consultant. EU consultant has paid the agreed amount in monthly to the Agency’s account at Raiffeisen bank.

It is an opinion of the audit team Office that, as a budget user, the Agency cannot perform this kind of transactions. It has been recommended to the Agency that mentioned transactions should be realized in accordance with the Ministry of Treasury; According to the Law on Execution of Budget of institutions of BiH the Agency is obliged to realize all incomes through transaction account which is an integral part of JRT (Unique Treasury Account).

Within the income statement – profit and loss account, non-allocated surplus of income over the expenditures from previous years has been transferred to the account of liabilities towards the budget in an amount of 23.408,31 KM. By an insight into documentation, the audit team has found that assets were not returned to the Ministry of Treasury’s account since assets on account of Hercegovacka banka were blocked.

Audit Office has recommended to the Agency that, in coordination with the Ministry of Treasury, it should take additional efforts in order to raise blockade of assets on account of Hercegovacka banka and their return to the Treasury’s account.

In the Balance Sheet, financial assets (cash in cash register and on the accounts of banks) have been presented in an amount of 85.127,00 KM. By an insight into documentation, the audit team has found an amount of 82.622,00 KM on account of the following banks: Raiffeisen bank – an amount of 28.174,86 KM, Hercegovaèka banka – an amount of 30.373,54 KM, Central profit bank – an amount of 24.074,01 KM.

Audit Office has recommended to the Agency that it should perform all financial transactions through transaction account which is integral part of JRT (Unique treasury Account) opened at Central Profit Bank. The Agency is obliged to accord as soon as possible accounts opened at business banks and to transfer assets to the transactional account.

The audit team has found that the Agency does not perform accounting in complete accordance with existing regulations, accounting standards and principles. The most significant irregularities are the following:

Accounting documentation is a base for qualitative analysis, planning and reporting. Non-existence of proper accounting records increases the risk on losses, misappropriation and faults.

The Agency is obliged to provide the bookkeeping the way it is being regulated by regulations applying in Bosnia and Herzegovina and by accounting standards and principles prescribed while all financial transactions have to be recorded on the basis of authentic documentation. This would contribute obtaining of good grounds for efficient internal controls. That is why the Parliament of BiH should insist, at the Ministry of Treasury, on establishing of qualitative accounting system for all budget users.

After completion of the audit work, on May 22, 2002, the draft version of The Audit Report was delivered to the Agency. On June 12, 2002, the audit team Office had a meeting with the Agency’s management regarding the response on The Audit Report for 2001 where findings and recommendations of the audit team were confirmed.

Audit Office has performed the audit of the Agency’s operation for 2001 through the systems of incomes, expenditures, assets and liabilities. In addition, the audit included significant decisions of the Agency related to financial operations, including the environment in which the Agency performed its operations.

Audit findings have been classified by the most significant irregularities which relate to: internal control system, mechanisms of management and control of budget funds, irregularities on keeping of accounting.

The audit team has found weaknesses within the internal control system that influence the economy, efficiency and effectiveness of budget management. The Agency did not provide an adequate division of responsibilities regarding recording and control of the financial documentation as well as manging and executive function of the Agency’s management.

Regarding the Agency’s function of control over the expenditures realized in 2001, the audit team has found certain irregularities in useage of funds, that influence on economy and use of budget funds for the original purposes. This relates to exceeding of the expenditures for procurement of stationery in an amount of 5.105,00 KM.

Moreover, the audit team has found certain irregularities within the Agency related to accounting records, where financial changes were not recorded in the ledgers the way the accounting standards and accounting regulations foresee it. However, the mentioned irregularities do not have a significant influence on financial statements and did not have an influence on auditor’s opinion.

Audit Office hereby wishes to thank to the Agency’s management and employees for cooperation and the provided assistence to the audit teamors during their work.