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 Ministry of Civil Affairs and Communications (hereinafter referred to as: the Ministry), as well as the audit  of the state commissions  (hereinafter referred to as: the Commissions) concluded with state found on 31.12.2001. The financial reports are under competence of the Ministry 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 Archive's use of resources while performing its functions.

1.2.           Audit is planned and carried out in the period from 28.01. to 15.02.2002.  (Previous audit), and in the period from 10.06. to 12.07.2002 (final audit) and in compliance with the generally accepted audit standards and standards of the International Organization of Supreme Audit Institutions – INTOSAI ('Official Gazette BiH', No. 05/01). These standards require that the audit is done in a way to collect enough proofs that would reasonably provide the reliable basis for the financial reports, which do not contain major errors. The audit involves checking through the use of sample method, evidences that make the basis for the amounts presented and published in the financial reports. Audit also includes the evaluation of the used accountancy principles, implementation of the laws and provisions as well as the evaluation of an overall preview of the financial reports. 

1.3.           We find that our Audit provides the reasonable basis for expressing our opinion.

2.      AUDITOR’S OPINION

According to our opinion, financial reports in all important aspects  represent the realistic and objective preview of operations during and at the end of the year, except for the effects of certain sections on the financial reports and they refer to the following:

2.1.      Real state of the listed fixed assets of the Ministry is not standardized with book-keeping state found on 31.12.2001 (Paragraph 3.2.1. of the Report);                  

2.2.    Fixed assets procurement and service procedures are not, in all cases, in compliance with the Laws and regulations, announcement of public tender collection of bids. (Section 3.2.2 of the Report). 

3.      REVIEW OF THE AUDIT FINDINGS AND RECOMMENDATIONS IN THE YEAR 2000

Audit Office has carried out an audit of operations of the Ministry in 2000, on what there was an official Report submitted. The Report indicates the weaknesses and gives recommendations (instructions) on how to remove those weaknesses. Ministry was suggested to analyze the report and remove the lacks in order to avoid their re-appearance in further operations.

Having audited the account of 2001, we have found that there was an important progress made in operations of the Ministry and in majority of cases they have followed the instructions issued by our Office.

Realized recommendations:

• integral functioning of the management mechanism of the Ministry is established;
• single financial reports for the Ministry are prepared and submitted;
• single accountancy is established and single account plan is applied;
• there was no overpass in total budget assets and the requests are submitted to the Ministry of Treasury and the Council of Ministers for the overpass of certain expenditure sections in order to standardize the expenditures;
• yearly plan and program of the Ministry is prepared;
• All revenues are sent to the account of the Ministry of Treasury (Single Treasury Account - JRT). 

Ongoing activities:

• adoption of the rules and procedures of expenditure for certain categories of expenses;
• standardization of the lists and notes on listing of fixed assets, referring to the assets whose status was not resolved with the transformation of the Ministry;
• Establishment of central evidence of passports and CIPS project. 

Non-realized recommendations:

• procurements in 2001 were done without public invitations for tenders;
• not all fixed assets received as the donations in the previous period were put into evidence.

4. FINDINGS, REMARKS AND RECOMMENDATIONS OF 2001 ACCOUNT AUDIT  

During the audit of the Ministry, we have separately reviewed the financial reports and financial operations of the Ministry, as well as the financial reports and financial operations of five commissions that operate within the Ministry. This refers to: Demining commission, State Border Commission, Regulatory Agency for communications, Commission for review of the status of naturalized persons, Temporary Commission for elections and appointments as well as the special project under title “Special purposes – passports”.

4.1. Internal control system

Audit has found certain weaknesses in the internal management control system in the part related to: survey of the budget planning and execution in the Ministry; lack of rules and procedures that regulate the expenditure of some of the budget Sections; control and survey over the budget execution of certain commissions and projects as well as some lacks in accountancy department. Although there were many activities undertaken in this direction, Ministry still has no fully developed and precisely defined system of internal controls as a group of steps and measures that are to provide the correctness and regularity in evidence of financial transactions and provide their full compliance with laws and regulations, the protection of ownership in the part, which refers to the Ministry as well as in the part referring to the Commissions.

Ministry is recommended to provide such internal controls system , which would improve the control activities over the budget execution and provide continued monitoring and  proper expenditure of the budget assets in relation with the amounts approved by the budget , for the Ministry as well as for the commissions within.

4.1.1. Lacking rules and procedures

Audit has found that the Ministry did not come up with the internal rules and procedures that would efficiently and rationally regulate the expenditure in following fields: telecommunication expenses, representation expenses, transport and parking expenses, expenses of accommodation of employees, expenses for maintenance of vehicles, etc. Likewise, there was no internal Rule or the Instruction on listing of the assets and resources that would specifically define the ways and terms of listings.

Should the aforementioned Rules be adopted and the substantiated expenses monitored with simultaneous analysis of the approved amounts and realized resources, the reliable basis for the efficient survey over the budget execution would be established.

It is recommended to the Ministry to urgently, independently or in cooperation with the Council of Ministers, adopts the temporary or permanent rules that precisely nominate the expenditure of the major expense items in the Budget.

Fixed assets listing

Ministry has provided the yearly listing (state of account) of fixed assets concluded with 31.12.2001, prepared  the notes on listing and made the decisions on which basis they have made certain evidences in operation books of the Ministry. Since the “Shared balance” of the Ministry was not previously prepared since the transformation of the Ministry separated the Department of budget and Department of Human Rights and Refugees, there is a risk of appearance of surpluses or lacks in fixed assets.

Also, the documents such as the listings of the fixed assets and notes on listings / states of accounts (referring to the fixed assets whose status was not resolved by the described transformation of the Ministry) were not standardized and verified   by the other side. Therefore, the Ministry has transferred certain fixed assets to the Ministry of Treasury and the Ministry of Human rights and Refugees (Decision No: 01/1-560/01) without obtaining the signatures of both sides, and put into evidence the same assets according to the Ministry books.

Likewise, having tested the fixed assets (by using the sampling method), we have found that the state of account does not comprise all the fixed assets of the Ministry.  This primarily refers to the fixed assets from donations received in the previous years and equipment for passports located in entity Ministries of Internal Affairs.

Listing of fixed assets and resources is a binding process implemented at the end of the year for the purpose of standardization of the real state with book-keeping state and it influences the reality and exactness of the reports (state balance). Simultaneously, the listing (state of account) is very important from the aspect of providing the protection of public assets and properties. If the Ministry does not urgently establish the control over the ownership, there is a risk that again in the following calculation years - the list will not comprise all the fixed assets, as well as the risk that the fixed assets may be alienated.

Ministry is recommended to establish the control system through which it would provide the listing of all assets, obligations and claims, and resolve all the disputable ownership issues with the Ministry o Treasury and Ministry of Human Rights and Refugees.

4.1.2. Procurement procedures

Audit has found that during the procurement of assets, materials and services  in 2001, whose value exceeded the yearly amount for 10.000 KM, there was no implementation of the stipulated procedures of public invitations for tenders and selection of the best bids (example: office material, amounting 76.379 KM, services of reparation and vehicle maintenance, amounting 62.146 KM and other expenses). 

This way of procurement of goods and services is not transparent and could result with procurements on non-current market prices as well as with favoring certain providers or contractors.

Ministry is recommended to sum up all the yearly needs for procurement of fixed assets, materials and services, and should their yearly value go under the Article 16 of the Law on budget execution in 2001, it should implement a procedure of public announcement and this way provide the transparency in this process.

4.2. Budget management system

With amendments and changes to the Law on budget execution in 2001, Ministry was approved the budget (together with other programs for special purposes) amounting 5.010.992 KM. This planned amount is realized up to 4.462.329 KM or 89, 05 %. For the aforementioned period, Ministry was approved the budget of 3.469.032 KM while the Ministry substantiated the expenditures in the amount of 3.355.555 KM, which is 96, 73% of the planned level.

Having analyzed the budget execution of the Ministry in 2001, we have found that budget is not completely realized, in total as well as in individual budget sections. It was also found that the Ministry did not exceed the overall expenditures approved with the budget re-balance. However, the exceeding took place in certain sections, i.e. categories of expenditures and we wish to draw the attention to the following: reimbursement of expenses of the employees amounting 49.858 KM and claims or reimbursements of expenses for the Assembly delegates amounting 3.595 KM.

COMPARATIVE PREVIEW OF PLANNED AND SUBSTANTIATED

EXPENDITURES IN 2001

In compliance with an Article 11 of the Law on budget execution of the Institutions of Bosnia and Herzegovina, Ministry has submitted a request for standardization of analytical and syntactical sections of expenditures with the purpose of revenues (No:01/1-83/02), but the procedure stipulated by the Law was not finalized.

Having in mind that the processes of budget adoption in Institutions of Bosnia and Herzegovina as well as the processes of adopting the eventual rebalance are complicated and expensive, it is totally irrational to use all the time the nominal amounts of budget sections that have no specified and proven level of correctness and reliability.

Office found that in the process of planning there should be a lot more professional attention paid and this refers to the Ministry as well as to all the budget users in JRT (Single Treasury Account).

Ministry was recommended to respect the clauses of the Law on budget execution of the Institutions of Bosnia and Herzegovina and to undertake timely restructuring procedures before the end of the year (in accordance with Article 11 of the Law on budget execution) in order to provide the necessary decision making for the correct evidence of all the changes registered in the books of operations.

4.3.     Financial – accounting operations

4.3.1. Financial reports

Besides its financial reports, the Ministry has prepared and forwarded to the Ministry of Treasury the financial reports of the commissions and those are: Demining commission, State Border Commission, Regulatory Agency for communications, Commission for review of the status of naturalized persons, Temporary Commission for elections and appointments as well as the special project under title “Special purposes – passports”.

Statement on surplus of the revenues according to the instruction issued by the Treasury

In compliance with the instruction of the Ministry of Treasury, the level of revenues is brought down to the level of the expenditures in evidence. State balance indicates an obligation for redemption of means amounting 134.984 KM into budget, but those means were not returned into the account of the Ministry.

Office has recommended to the Ministry to standardize the way of stating and reimbursing the surplus of the means or assets into the Single Treasury Account with the Ministry of Treasury, for the purpose of decent implementation of the aforementioned Instruction.

Ministry has paid the total amount of 12.300 KM as a view of assistance to various organizations and projects and this was give to: Bijeljina municipality for the reconstruction of the school building (amount of 5000 KM), Association of young Serbs from Srbac (amount of 4000 KM), International league of humanists from Teslic (amount of 2.000 KM) and Association for affirmation of ARS village from Srpsko Sarajevo (amount of 1.300 KM).

Payments of the above listed assistances were made on the basis of the approval issued by the Minister, without the verification of the Ministry of Treasury.

Office found that the Ministry should make the proper decisions when making this type of payments that should also be controlled by the Ministry of Treasury.

4.4. Information system          

Administrative and organizational control over IT system

Ministry did not define clear terms of references for certain working position of information and technology management and development on the level of the whole Ministry that could result with the risk of possible discordance and incompatibility between various information sub-systems in the Ministry. At the same time, Ministry did not create the development IT strategy as recommended in the Audit report in 2000. This document should be the basis for information system development in the whole Ministry, by summing up the needs and plan for the appropriate procurements.

Furthermore, the Ministry did not pay attention to the software license during previous procurement and installation of the software, so we wish to draw the attention to the risk of having legal consequences of the protection of author’s rights and unforeseen maintenance expenses of the non-licensed software’s.

Ministry is recommended to prescribe the clear terms of references (duties and responsibilities) for the information system management and development at the level of the whole Ministry as well as the strategy that should make the basis for decisions on plans of information system establishment, definition of resources and terms of execution and conduct of such projects, etc.

Data protection and creation of back-up copies

The audit has found that the Ministry did not adopt the internal rules on data protection and obligations to create back-up copies and that the back-up copies were not created regularly and in an organized manner. The possibility to lose the important data, works and information is therefore increased and this could influence the efficiency of Ministry operations.

Ministry was recommended to come up with the internal rules on data storing and protection as well as on creation of back-up copies, and to monitor their application.

5.       SPECIAL PURPOSE PROGRAMS OF THE MINISTRY FOR COMMISSIONS AND PROJECTS

5.1.   Background

Budget 2001 has approved the assets for the commissions and Regulatory agency for telecommunications, which was under competence of the Ministry, in total amount of 650.000 KM. With the rebalance of budget, there was an additional amount of 100.000 KM approved for the Electoral Commission, as well as 911.960 KM for maintaining the passport issuance system and 50.000 KM for CIPS Project. Therefore, the total budget approved for the abovementioned commissions and programmes in 2001 amounted 1.771.050 KM. It was substantiated in the amount of 1.261.686 KM, i.e. 71, 24% of the planned. The assets are realized through the account of the Ministry since the above commissions had no status of the legal entity.

COMPARATIVE PREVIEW OF PLANNED AND SUBSTANTIATED

EXPENDITURES IN 2001 FOR COMMISSIONS AND PROJECTS UNDER MINISTRY’S COMPETENCE

5.2. Findings and recommendations

Audit findings are given in this chapter and classified according to the most important irregularities and lacks related to the following commissions and projects:

5.2.1. Demining Commission

Commission for deminign was approved the budget of 170.000 KM in 2001, and during same year – the substantiated budget amounted 151.039 KM. |Besides the budget revenues, this commission has substantiated non-taxed incomes amounting 1.380 KM. Total expenditures in 2001 amounted 169.134 KM.

Document “Calculation of revenues and expenditures” indicates the surplus of expenditures over the revenues amounting 15.825 KM. This amount was covered by the surplus of the revenues from the previous years (68.132 KM). In compliance with Ministry of Treasury instruction, this commission has reduced the revenues at the level of expenditures and presented the surplus of revenues in 2001, amounting 51.417 KM. The aforementioned figure of the revenue surplus, Commission has presented in Balance as an obligation for debt redemption into the budget, but did not carry out the reimbursement into the account of the Ministry of Treasury until the date audit ended.

Office has recommended to the Ministry to standardize the way of stating and reimbursing the surplus of assets into the Single Treasury Account with the Ministry of Treasury and for the purpose of decent implementation of the aforementioned instruction.

Although Commission had no exceeding of budget during the audited period, we have found that the internal control system was not at the satisfactory level yet. We wish to highlight the following:

• There was no full establishment of an adequate survey over the financial operations of BHMAC, i.e. there was no continued monitoring of the expenditure from donations. We wish to stress that this is about the administrative – professional service of the Commission for demining that all the donations were realized through;
• There was no adequate monitoring of evidence and fixed assets account state that were allocated to the Commission for demining from the donations (Japan and USA donations) and transferred to the MAC;
• Calculation of salaries is not documented with verified lists of arrival to and departure from the work, what could cause the irregularities in calculation and payment of salaries and compensations, as well as influence the truth and objectiveness of those data in financial reports.

Office did not audit BHMAC in 2001, but the latter was audited by an Audit institution “Recon” engaged by the board of BH MAC donors.

Office has recommended to the Commission to urgently establish the updated control and monitoring system over the expenditure of donations (in all forms) and to organize the reporting system and increase the level of transparency in this form of public assets expenditure.

Since the evidences on presence at work represent on of the essential documents for calculation of salaries, Commission was recommended to urgently apply the practice  of keeping the evidence on presence at work because this is an important data for calculation of salaries and compensations of employees.

5.2.2. State Border Commission of BiH

Yearly budget of Commission in 2001 was approved and amounted 170.000 KM. Substantiated revenues of the Commission refer to the budget revenues amounting 169.897 KM and substantiated surplus of revenues over the expenditures from the last year, amounting 34.218 KM.  The expenditures in the same period were in the amount of 200.475 KM.

Audit has found that the Commission did not have a developed and precisely defined internal control system, established as a group of procedures and measures providing the exactness and regularity of evidence on financial transactions and their full accordance with the laws and provisions.

State Border Commission of BiH did not return the surplus of the last year’s revenues into the budget, but used it partly on the current expenditures (in the amount of 23.138 KM), and partly to cover the surplus of expenditures in actual period (11.080 KM). Since there was a surplus of expenditures in 2001, amounting 19.333 KM, there was no cover for expenditure surplus amounting 8.253 KM. We have found that this amount contains the unfulfilled obligations (debt redemption) to the 'Printex' Sarajevo provider for fixed assets procurement. 

It was also found that the Commission did not register the part of obligations from 2001, amounting 24.762 KM. This amount comprises the unpaid compensations to the members (for months X, XI and XII), amounting 22.338 KM and the unpaid invoices to the providers, amounting 2.424 KM (telecommunications, representation, waste management).

Office has recommended that Commission should start the procedure through its Ministry towards the Ministry of Treasury in order to provide means for debt redemption before the start of the proceeding before the Court due to the complaint of the provider.

5.2.3. Programme of support to the passport issuance

For the Programme, whose official title of position is: “Assets for maintenance of passport issuance system”, the rebalance of budget approved the amount of 911.960 KM, which was realized in 2001 up to 378.895 KM. Besides these realized assets, Programme had realized the allocations from the budget reserve in the amount of 65.000 KM, which is a total of 443.895 KM realized in favor of revenues. The substantiated expenditures of the Programme amount 434.102 KM and refer to the procurement of equipment (273.378 KM) and operational expenses (170.518 KM). The difference in assets, amounting 9.793 KM is presented as the surplus of revenues and the aforementioned amount was to be returned to the assets of the Ministry of Treasury.

Audit found certain lacks in management and evidence of the expenses of this Programme, out of which we indicate the following:

• Previous recommendation of the Office to establish the central evidence of passports before the abolishment of so called “old” passports was not implemented. Due to this, we have found that the state of so called “old passports is in discordance for 23.000 of passport booklets;
• Programme/ ministry has no updated evidence on the number of passports with DKP network and in Entity Ministries of Internal Affairs, not the efficient and effective control and monitoring system over the latter;
• Documentation, which served as the basis for the evidence keeping, did not have the signature and the stamp of the Controller from the Ministry of Treasury;
• Documentation and evidence of issued passports is not neat and updated and the authorizations for taking over the passports were not complete in all cases (example: the exact number of the passports that should be overtaken was not specified and this number would reduce the risk and possibilities of abuse of this authorization).

Again, the Office has recommended to the Ministry and the Council of Ministers to urgently establish the efficient system of evidence and monitoring as well as the survey over the issuance of passports (central evidence of passports) in order to avoid the re-appearance of described omissions.

6.       CORRESPONDENCE

Upon the finalization of audit, on 22.07.2002, the Report was sent to the Ministry in order to get their opinion and comments on Report.

The Office will inform the Presidency of Bosnia and Herzegovina and BiH Parliamentary Assembly on eventual reply.

7.       RESUME

We have carried out an audit of the Ministry’s operations through auditing the individual systems, revision of the financial reports and operations of the Ministry in total, as well as through revision of the financial reports and operations of the Commissions under competence of this Ministry where there are separate book-keepings for each of them.

Audit has found that there was no efficient monitoring over the budget execution in the Ministry, which considers regular monitoring of the expenditures in relation with the approved assets from the budget, neither in the Ministry nor in the Commissions under its competence.

Ministry did not exceed the total expenditures approved by the budget re-balance. However, the exceeding took place in the individual sections within overall approved expenditures. The biggest exceeding as such took place in the section “compensation to the employees” in the amount of 467.858 KM, which is 49.858,00 KM i.e. 11, 95% more than approved amount. Ministry was given an authorization from the Council of Ministers for standardization of expenditures. However, it did not receive the opinion of the Ministry of Treasury or the decision of the Council of Ministers until the finalization of our audit.

Although there was an important progress during the period under audit, yet upon having an insight into the accountancy documentation, it was found that certain operational changes were not in the evidence of operation books as stipulated by the accountancy rules.

The Office hereby wishes to thank the leadership and the employees of the Ministry for their cooperation and assistance provided to us during audit.