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 STANDARDS, MEASUREMENTS AND INTELLECTUAL OWNERSHIP INSTITUTE OF BOSNIA AND HERZEGOVINA (hereinafter: Institute) related to financial year 2001.

1.2.           Audit was planned and performed in a period from July 12 to July 25, 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). Audit activities were aimed on obtaining of reasonable ground to estimate if financial statements of the Institute represent a fair and true view of operations during the year and of the status at the end of the year. 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 audit performed, 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 institutions have been using public funds for performing their functions.

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

2.      AUDITOR’S OPINION 

In our opinion, regarding financial statements of the Institute for 2001, we express a qualified opinion, since we haven’t had a ground reliable enough to confirm that the Institute’s financial statement present a realistic and objective view of status in all significant aspects. Audit office has expressed a qualified opinion because of reasons stated in the items 2.2, 2.3, 2.4. 

2.1.           Audit Office expresses reserve for opening balances in 2001 which have been transferred from 2000, and which were not subject of the audit, since in a certain measure they could influence on reality and objectiveness of financial statements in 2001.

2.2.           Audit Office was not able to be present at the inventory of assets and assets’ resources on 31st December 2001. Because of reason mentioned we do express reserve regarding the inventory of assets and their resources performed which could influence on reality and objectiveness of financial statements for 2001.

2.3.           By performing the audit we have found that total incomes realized which were stated within the Profit and Loss Account for 2001 in an amount of 2.225.337,29 KM were not presented in a realistic way meaning that they were presented as lower for an amount of 1.081.458,15 KM. 

3.      AUDIT’S FINDINGS, NOTICES AND RECOMMENDATIONS

3.1.          Managing and handling of the Institute

Audit Office has found as one of the crucial lacks of the Institute’s operation and existence an unsolved question of the institute’s management in accordance with law regulations regulating this issue.

3.1.1.  Appointment of the Institute’s management 

On December 22, 2000, the Council of Ministers has brought a Decision on Appointment of Acting Director of the Institute which says that the person appointed would act the Institute’s Director till the time the Director is appointed according to law regulations. An appointment of Acting Director of the Institute has been an adequate solution for certain period of time, but taking into consideration that this lasts for long time period (18 months), such a solution is no more adequate nor it is in accordance with law regulations.

The consequence of the Institute’s work and functioning this way, where the Director has not been appointed by the Council of Ministers and in accordance with law regulations, could negatively influence on rationality and lawfulness of the Institute’s operation.

Audit Office has recommended to the Institute to, in cooperation with the Council of Ministers, urgently actualize the question of appointment of Director and Deputy Directors in accordance with law regulations regulating this issue.

3.2.         Internal control system

During the audit of operations for 2001 we have found a certain lacks within internal control system in a part relates to certain regulations and procedures regulating spending of assets, procedures on procurement of fixed assets, materials and services. Internal control system should be found by the Institute’s management as a set of activities and measures that provide accuracy and regularity of financial transactions’ records and their full accordance with laws and regulations.

3.2.1.  Missing regulations and procedures

The audit has found that management’s internal control system within the Agency has not been sufficiently developed nor it was precisely defined.

Lacks stated regarding internal control system relate to the following:

• Non-existence of certain written internal regulations and procedures that would precisely define the conditions for occurrence, approval, accordance with financial plans, and the ways of recording of certain types of expenditures (PTT costs, representation costs, official vehicles use, use of personal vehicles for official purpose and other costs);
• Weaknesses within the system of procurement of fixed assets, materials and services which have not been performed in accordance with law regulations regulating this issue (a public announcements were not published).

Non-existence of an adequate internal control system or its insufficient development could have a significant influence on managing and control of budget funds use.

Audit Office has suggested to the Institute to, as soon as possible, and in order to provide more efficient and rational operation, establish internal control system that would preventively remove the irregularities that might happen during the Institute’s operation.

3.2.2.  Internal Structure Rulebook

By performing the audit of operations, it has been found that the Institute still applies the Rulebook on Provisional Internal Structure. The consequence of functioning on the basis of the Rulebook on Provisional Internal Structure of the Institute in a longer period of time could negatively influence on rationality and efficiency of operations.

It has been recommended to adopt an Internal Structure Rulebook of the Institute as soon as possible in order to achieve more rational, efficient and lawful operation.

3.2.3.  Procedures on procurement of fixed assets, materials and services

The audit has found that during procurement of fixed assets, materials and services in 2001 in total amount of 213.924,79 KM (see the Table) the legal procedures (regarding budget funds) prescribing public announcement for collecting of best bids were not respected, which is not in accordance with the Article 16 of the Law on Execution o Budget for 2001. We would like to stress the fact that the Institute has not been a budget user all the year (on May, the Institute got the first amount of assets from the budget according to Decision on Provisional Financing; it has also been encompassed by the adjusted budget for 2001) and the fact that certain part of its incomes the Institute has realized through its own activities. The purpose of incomes from own activities nor the way of spending of assets mentioned were defined.

The consequence of procurement without public announcement cold result with procurement at non-competitive prices as well as favoritism of certain contractors.  

The overview of procurement of fixed assets, materials and services  

Audit Office has recommended to the Institute to, in a future, consistently apply the Law on Execution of Budget for spending of all available public funds (both, assets from the Budget and those realized through performing of its own activities). Regarding the procurement of fixed assets, materials and services in amount higher than 10.000 KM at annual level, acting according with the Article 16 of Law on Execution of Budget for 2001 is obligatory.

3.3.         Budget management system

During the audit of operation for 2001, we have found that budget managing was not entirely at a satisfactory level, which in a grate part was caused by insufficiently clear and precise law regulations related to own incomes and the way of their spending.

3.3.1.              Planning and execution of Budget

According to Decision on Law of establishment of the Standards, Measurements and Intellectual Ownership Institute that was brought by High Representative Mr. Wolfgang Petritsch on November 12, 2000, it was said that financing of the Institute is being done through offering of services from its own activity and through participation from the Budget of BiH (the Article 11 of Decision mentioned).

By projection of the budget for 2001 financing of the Institute has not been planned, but instead, it was planned by adjusted budget for 2001 (adjusted budget was brought on December 28, 2001, and till the date mentioned the financing was performed on the basis of Decision on Provisional Financial Support for Continuing of BiH Institutions Operation from April 1, 2001) in an amount of 1.609.120,00 KM, while it was allocated an amount of 1.015.939,00 KM of budget funds. The Institute has realized budget for 2001 in an amount of 1.887.144,00 KM for current costs which presents 112,27% of amount planned (if we observe spending of total assets in comparison with budget approved). We have found disproportion in planning between budget funds and own incomes. We consider that budget projection has not been done transparently enough because complete analysis of needs for assets both, from the budget and from own resources was not performed. 

Situation mentioned in a great measure is being caused by insufficiently clear definition of way of own incomes use as well as their use in comparison with Law on Execution of Budget for 2001 and Decision mentioned which was brought by High Representative (there is no clear and precise regulation nor the procedures on ways of own incomes use).

The consequence of inadequate budget planning could cause difficulties in realization of tasks planned both, within financial indicators and within performing of the Institute’s tasks planned.  

COMPARATIVE OVERVIEW OF EXPENDITURES PLANED/REALIZED IN 2001

Audit Office has suggested to the Institute more qualitative and more comprehensive planing in the future (to encompass both, the budget funds and own incomes) in cooperation with the Ministry of Treasury. Especially, it is necessary to define, together with the Ministry of Treasury, the way of collecting, recording and spending of own incomes (to bring written regulations and procedures) and to realize total incomes through JRT (Unique Treasury Account). In addition, it has been suggested to the Institute future spending of assets till amounts found by the law on Execution of Budget both, at the Institutes level and by individual budget items. 

3.3.2.              Incomes of the Institute in 2001

By performing the audit of operation we have found that the Institute has realized total income in 2001 in an amount of 3.306.792,03 KM (data stated in Main Ledger). The structure of incomes realized is 1.015.939,00 KM from the budget and 2.290.853,03 KM from own resources. Within the profit and loss account for 2001 the Institute has presented total income in an amount of 2.225.337,00 KM that does not present realistic status of total incomes realized in 2001.

Difference of 1.081.458,15 KM of incomes stated within the profit and loss account as lower is the result of way of bookkeeping recording meaning that incomes were lessened for surplus of expenditures over the incomes in 2001 stated in an amount of 831.458,15 KM (loss from previous year) as well as liability based on revolving credit from 2000 in an amount of 250.000,00 KM.

The consequence of recording of incomes in bookkeeping records in this way as well as covering of losses from previous years causes non-transparency of financial reports.

It is an opinion of an Audit Office that this way of presentation of incomes in bookkeeping records, as well as covering of losses is not in accordance with accounting principles and standards. In addition, it is suggested that the application of accounting principles and standards regulating this issue should be consistent.

3.4.           Financial-accounting operation

3.4.1.    Presentation of surplus of incomes according to Instruction of the Ministry of Treasury

During the audit, we have found that within Balance Sheet, the Institute has presented non-allocated surplus of incomes over the expenditures in an amount of 338.193,00 KM, and according to Ministry of Treasury’s Instruction, it has not created the liability on return of surplus of income over the expenditures.

Audit Office has suggested to the Institute to accord the way of presentation and return of surplus of income with the Ministry of Treasury in order to achieve consistent application of Instruction mentioned.

3.5.         Information system

During the audit of IT system, the following recommendations were given to the Agency:

• The Agency should have clear responsibilities for managing and development of entire information system as well as written standards for system analysis, maintenance of systems software and control of the data in order to achieve more qualitative administrative and organizational control;
• Regarding future signing of Contracts on information system maintenance, the Institute’s management should take more care of safety of data being used and to remove lacks of contract already existing;
• The Agency should bring internal regulations on keeping and protection of data, as well as copy making, and to take care for copies to be kept in a safe place;
• The Agency should strengthen manual internal controls or to perform an adequate change of programs.  

4.       CORRESPONDENCE

After the audit was performed, on July 29, 2002, the Report was delivered to the Institute in order to obtain an opinion and remarks on Report.

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

5.       SUMMARY

While performing the audit for 2001 we have stated:

• lacks within Institute’s managing and handling, meaning an appointment of acting person for a longer period of time that is not in accordance with law regulations;
• internal control system prescribed by the management has not been found and prescribed in the satisfactory way;
• procedures on procurement of fixed assets, materials and services in 2001 were not performed in accordance with Law on Execution of Budget for 2001 meaning there was nor public announcements;
• The Institute’s total incomes realized in 2001 were 3.306.792,03 KM while they have been presented within the profit and loss account for 2001 in an amount of 2.225.337,10 KM which is 1.081.458,15 KM less than total incomes actually realized. 

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