1.      INTRODUCTION 

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 ACCREDITATION INSTITUTE OF BOSNIA AND HERZEGOVINA (hereinafter: Institute) presenting the status on 31st December 2001. Management of the Institute is responsible for financial statements. The responsibility of Audit Office is to express the opinion about financial statements of the Institute, and based on the performed audit, to report about the following: 

• 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 the status at the end of the year;
• on economy, efficiency and effectiveness with which the Institute has been using public funds for performing its functions. 

1.2.           Audit was planned and performed in a period from July 17 to July 19, 2002, 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). These standards request planning and performing of the audit in a way that would obtain enough evidence which gives us a reasonable ground to estimate that financial statements do not contain significant errors. The audit includes examinations by recording of samples on which the presented and issued amounts in financial statements are based. The audit also includes estimation of used accounting principles, significant estimations of management as well as estimation of the entire presentation of the financial reports. 

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

2.       AUDITOR’S OPINION

2.1.         In our opinion, financial reports do present fair and true view of financial position of the Institute on 31st December 2001, the results of its operation and cash flow for the period ending on that day, except for the effects on financial reports which were caused by the following:  

• Because of delay of payments from the budget, incomes from the budget for 2001 were undervalued within the Institute’s financial reports in an amount of 22.982 KM, taking into consideration that a part of requests for transferring of assets from the budget was not presented as the income within the Institute’s ledgers. Assets were allocated on the Institute’s account on April 24, 2002. At the same time short-time reserve of incomes was undervalued in the same amount (item 5.); 
• The liabilities based on reserves for procurement of the equipment from the budget funds for 2001 as well as other liabilities in total amount of 17.727 KM were not presented in the ledgers for 2001. At the same time, and on the same basis, short time reserves of expenditures (liabilities) were undervalued for the same amount (item 5.); 
• For an amount of difference of apportioned income and expenditure (liability), surplus of income over the expenditures has been presented as lower for an amount of 5.255 KM.

3.       GENERAL INFORMATION 

The Institute is an institution of BiH which was found on November 30, 2002 according to the law on Establishment of the Institute as well as Law on Accreditation of BiH (‘Official Gazette of BiH’, no. 29/00). Mentioned laws regulate the obligations and mandate of the Institute.

The Institute’s operations have not been audited before.

On 31st December 2001, the Institute has had two employees. The Director of the Institute was appointed on December 22, 2000, by Decision of the Council of Ministers. The other employee coming from the Measurements, Patents and Licenses Institute was engaged during 2001 as Senior Expert. Currently, the Institute still has the two of five employees foreseen by systematization.

4.1.               Internal control system  

Audit Office has found certain lacks within internal control system in a part that relates to certain regulations regulating the spending of individual assets, invoicing of incomes from services of own activities and procurement of equipment. Internal control system is being found by the Institute’s management as a set of activities and measures that provide accurate and regular evidence of financial transactions and their full accordance with laws and regulations. Lacks within internal control system and insufficient development of this system have significant influence on managing and control of use of budget funds as well as own assets.  

The audit has found that:  

• The Institute has not created certain rules regulating spending of budget funds for reimbursements for external experts (reviewers), daily allowances and transportation costs for reviewers, use of cellular and fixed phones etc.

Non-existence of mentioned rules and criteria could influence on economy and effectiveness of public funds use.  

Audit Office has recommended to the Institute to create precise criteria for spending by internal regulations until the time these regulations are brought by the Council of Ministers of BiH/Ministry of Treasury.  

• The Institute has not adequately defined the procedures on invoicing of services of its own activities and presentation of these assets in the ledgers. The contracts on accreditation signed with users of services do not include pre-invoice value of work/service specified by the type of work. Invoices delivered to the users do not contain number of days of expert supervision and users estimation documented with user’s confirmation on estimation/supervision time. Finally, stated invoices are not being presented (recorded) in the ledgers of the Institute as liabilities for performed services, but instead they are being presented only as unpaid services.  

Stated irregularities could have influence on accuracy and comprehensiveness of incomes from services. In addition, the Institute does not posses data on invoiced incomes that were not paid. 

It has been recommended to the Institute to establish the procedures evidencing the accuracy and comprehensiveness of own incomes from services and their presentation in the ledgers before the mentioned incomes are paid up. 

• Basing on approved budget for 2001 the Institute has realized procurement of fixed assets (equipment) in total amount of 24.404 KM, where individual procurement did not exceed an amount of 10.000 KM. Procurement of equipment has not been planned in total amount because allocation of assets from the budget for capital costs was not certain. Audit Office has found that during selection of the contractor the Institute has not performed comparative analysis of delivered pre-invoices for individual deliveries of possible alternative contractors.

Procurement that have been performed without collecting and analyzing of competitive bids could cause favorism of certain contractor in comparison to the others, procurement of equipment at non-competitive prices, eventual misuse of authorization and corruption. 

Institut has been warned that, during the procurement of fixed assets, it should bring together the resources and services of the same kind on annual level, provide offers of varous suppliers for all the procurements less than 10.000 KM, and make a comparative analisys of the offers. If the value of annual needs is higher than 10.000 KM, the Institute has to apply prescribed procedure that relates to announcement of public invitation to tender and to the selection of the best bidder. 

4.2.    Execution of Budget  

According to adopted budget as well as the adjusted budget, the Institute’s total expenditures planned were 160.427 KM. The Institute’s expenditures realized in 2001 were 77.792 KM, that is 82.635 KM less than amount planned or 48% of planned realization. The Institute’s budget projection planned for 2001 has been performed on the basis of the two employees, which was the accurate number of employees in 2001.  

OVERVIEW OF THE INSTITUTE’S BUDGET REALIZATION IN 2001

Amounts in KM 

• the expenditures reserved for the capital costs from the budget of 2001, which were not presented in the ledgers amounts to 16.802 KM 

5.               FINANCIAL STATEMENTS AND ACCOUNTING

Incomes from the budget in an amount of 22.982 KM that relate to 2001, have not been entirely presented within the Institute’s financial reports. The requests for transferring of assets from the budget (no. 10, 15, 16 and 17) in total amount of 22.982 KM were not entered in the Institute’s ledgers. This action of the Institute is partly excusable because the Ministry of Treasury transferred the assets with a delay, finally on April 24, 2002, so these incomes were not certain. At the same time, short time reserves of incomes were undervalued in the same amount.  

The liabilities in an amount of 16.802 KM based on reserves for procurement of the equipment from the budget funds for 2001 have not been presented within the Institute’s ledgers (8.702 KM - according to the invoice of the contractor ‘Printex’ Sarajevo and 8.100 KM – according the pre-invoice of ‘Alem sistem’ contactor), as well as other non-calculated liabilities in an amount of 925 KM (contracted services 725 KM and bookkeeping services – 200 KM). Total amount of liabilities and reserves that were not presented was 17.727 KM.

Taking into consideration non-presented income cuts in an amount of 22.982 KM and non-presented cuts of liabilities/expenditures in an amount of 17.727 KM, the difference in an amount of 5.255 KM presents lower surplus of the Institute’s income over the expenditures. By including stated amount within the Institute’s surplus of income over the expenditures which was already found in an amount of 3.236 KM, total amount of surplus of income over the expenditures amounts to 8.491 KM.

It has been recommended to the Institute to, in cooperation with the Ministry of Treasury, accord the dynamic of assets return to the account of budget of BiH. 

6.                CORRESPONDENCE 

After the audit was finished, on July 24, 2002, the Report was delivered to the Institute in order for the Institute’s opinion and comment on Report to be obtained.  

Audit Office will inform the Presidency of BiH and the Parliament Assembly of BiH on eventual reply.  

7.                 SUMMARY 

Summary of the most significant findings and recommendations of the audit for accounting year 2001:

• The Institute has not made certain regulations regulating the spending of assets for reimbursements for external experts (reviewers), regulation of daily allowances and transportation costs, use of cellular and fixed phones etc.; 
• The Institute has not adequately found the procedures on invoicing of incomes from own activities and their recording in the ledgers; 
• During procurement of the equipment, the Institute has not provided alternative bids for procurement of the equipment in an amount lower than 10.000 KM in order to examine competitiveness of bids of selected contractors.;   
• Because of payments delay, incomes from the budget that relate to the end of 2001, were undervalued within the Institute’s financial statements for 22.982 KM. At the same time, short term reserves of incomes were undervalued for the same amount;   
• The liabilities based on reserves for procurement of the equipment from the budget funds for 2001 as well as reserves for other liabilities in total amount of 17.727 KM have not been presented in the ledgers for 2001.  

The Audit Office wishes to thank to the Institute’s management and the employees for cooperation and help offered during performing the audit.