C O N T E N T
1. AUDITOR’S OPINION
2. SUMMARY
3. AUDIT FINDINGS AND RECOMMENDATIONS
3.1. Management's system of internal controls
	Managing of budget
	Missing regulations
3.2. Budget control system and exceeding of expenditures
	Exceeding of budget
	Operational costs
3.3. Financial statements
	Balance Sheet and Income Statement
	Capital costs statement (procurement of equipment)
3.4. Accounting
3.5. Correspondence with the client
4. ATTACHMENTS
	Overview of expenditures planned and executed for a period from 07/01 to 12/31 2000
	Gross income statement for 2000
	Gross balance sheet of assets and asset sources for 2000
	Overview of expenditures made in 2001, and shown in 2000
	Material recording of assets procured in 2000 and 2001

1. AUDITOR'S OPINION

1.1. We performed audit of financial statements and operations (including management’s decisions) in MINISTRY FOR EUROPEAN INTEGRATIONS of Bosnia and Herzegovina (hereafter: Ministry) for financial year 2000. It is our responsibility to perform an annual audit of public accounts in accordance with generally accepted audit standards, and in accordance with Article 13 of Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (Official Gazette number 17/99) inform of following:

• has the bookkeeping been done according to the existing legal regulations;
• do the annual reports present a true and fair view of operations during the year, and the status at the end of the year;
• on economy, efficiency and effectiveness with which the organization has been using public funds for performing their functions.

1.2. It is a responsibility of a Ministry to fulfill its legal obligations in an effective way, and in accordance with existing laws and regulations. Management of the Ministry is also, responsible for financial statements. Audit was performed in accordance with generally accepted audit standards and INTOSAI standards. These standards request that the audit has to be planned and performed in order to obtain reasonable grounds to estimate if the financial statements present a fair and true presentation of operations during the year and status at the end of the year. That is why audit has examined a sample of significant transactions and management’s decisions. We did not perform examining, nor we have submitted Report on audit of financial statements of the Ministry for year 1999, since the Ministry started working in July 2000.

1.3. In Chapter 2. of this Audit Report, findings include unauthorized exceeding of certain expenditures and undertaking of liabilities regarding the procurement of the equipment in an amount of 74.119 KM that has not been planned in year 2000 budget.

1.4. In Chapter 3.3. of this Audit Report, financial statements that have been subject of audit do not represent accurate and truthful view of operations during the year and status at the end of the year in a part that relates to the expenditures accounted and paid, and that originate from January and February 2000, in a total amount of 125.667 KM. Ministry has shown, on that basis, in the financial statements for year 2000, expenditures to be higher and the financial assets originating from budget to be lower for the mentioned amount. On the same basis, for the part of expenditures that relate to the procurement of the equipment, Ministry has shown in its financial statements for 2000, capital costs and its sources as higher for 47.106 KM, and fixed assets and capital as 27.013 KM lower.

According to our opinion, except for the reserve stated in paragraphs 1.3. and 1.4. up here, financial statements present fair and true view of operations during the year and the status at the end of the year.

II. RESUME

While performing its mandate, audit has stated certain weak points in the internal control system, that relate to the managing and handling of budget funds, and that should be established by the Ministry's management in a more efficient way. Stated weak points are most stressed in the area of planning and estimation of justifiability of certain expenditures and control over the execution of certain expenditures in relation to the funds planned by budget. As a consequence, exceeding has happened in the items: reimbursements for the employees, travel costs and costs of renting of premises, when compared to the planned budget.

Beside what is already mentioned, audit findings relate to the expenditures made for the procurement of equipment in amount of 74.119, even though these were not planned in year 2000 budget. Also, Ministry has not made an inventory list of mentioned equipment by December 31, 2000, nor has it accounted the depreciation value for the equipment procured during the year 2000.

From the budget funds for year 2000, Ministry has paid expenditures that were made in January and February of 2001 in a total amount of 125.667. KM, which means that they stated expenditures as higher on December 31, 2000. By showing expenditures made in January and February 2001 in the financial statements for year 2000, Ministry has wrongly stated the surplus of income over the expenditures for an amount of 125.667 KM that has not been returned to budget.

Certain irregularities have been stated regarding the use of funds that have influence on economical and efficient managing of public funds, related to the control functions of the Ministry over the expenditures made for year 2000.

Audit has also stated certain formal faults in the accounting records, where the financial operations - status changes and the bookkeeping documents have not been recorded in the ledgers the way it is foreseen by the accounting regulations that are being used. But, established irregularities did not influence the auditor's opinion expressed.

3. FINDINGS AND RECOMMENDATIONS

3.1. MANAGEMENT'S SYSTEM OF INTERNAL CONTROLS

3.1.1. Managing the budget

Audit has stated certain weaknesses in the internal control system that relate to the managing and handling of budget funds, which means that they should be used in an economical and efficient way, and that they should be within the limits according to the budget plan.

Ministry did not plan nor estimated justifiability of business trips abroad in a period from July 2000 to February 2001, for which the expenditures were made in an amount of 104.941 KM. Also, Ministry did not pay enough attention in order to prevent exceeding in other expenditure categories like procurement of the equipment that was not foreseen by budget or the reimbursements for the employees.

Ministry should plan in advance and estimate justifiability of every of future expenditures and has to analyze the realization of expenditures in regard to budget plan on monthly basis.

3.1.2. Rulebooks

Audit has stated that the Ministry does not have established rules regulating use of budget funds for:

• use of personal vehicles for official purposes,
• use of cellular phones,
• representation costs and gifts,
• professional education and training.

Ministry should bring internal rules and precise the use of funds to the day these regulations are adopted at the Council of Ministers level.

3.2. BUDGET CONTROL SYSTEM AND EXCEEDING OF EXPENDITURES

Totally planned expenditures according to the revised budget were 700.000 KM. Totally planned expenditures of the Ministry were 700.000 KM. Expenditures have been made in an amount of 697.773 KM, which is 2.227 KM less than planned, or 99,6% of what was planned.

Ministry did not exceed total of expenditures planned in a revised budget, but there was exceeding on certain expenditure items - categories, charged to other items that were executed in the amounts less than planned.

Exceeding for the reimbursements for the employees which was mainly caused by the decision of the Council of Ministers [1] for the reimbursement for food supplying and religious holidays, which were made in an amount of 87.275 KM. But, the Ministry has failed to perform comparison analysis in regard to planned expenditures and to ask for authorization to exceed the budget from the relevant institutions before actually making a payment.

Exceeding of travel costs and leasing was made as a consequence of insufficient control of expenditures by the Ministry, which did not perform justifiability analysis for each trip abroad.

Procurement of the equipment was done consciously even though the Ministry was aware that the funds for this purpose were not planned within the budget.

By making the exceeding and creating the liabilities that were not planned by budget, Ministry has violated the provisions of the Law on Execution of Budget of the Institutions of Bosnia and Herzegovina and the International Liabilities of Bosnia and Herzegovina for Year 2000.

Ministry is obligated to respect provisions of the Law on Execution of Budget and to accord the costs with the amounts approved, meaning obligated to use the funds up to the amount and for the purposes stated by the budget of the institutions of Bosnia and Herzegovina and the international liabilities of Bosnia and Herzegovina.

It is necessary that the Council of Ministers accords its decisions regarding the payment of certain reimbursements to the employees with the expenditures planned for that purpose before actual making of the decision, and for the Ministry, it is necessary to estimate its possibilities.

3.2.2. Operational costs

By control of expenditures made in the Ministry for year 2000, certain irregularities have been noted which have no influence to financial statements but can influence efficient and economic use of public funds.

Audit Office had informed the Ministry management about such examples and recommended higher control over the expenditures (examples were related to: maintenance and registration of vehicles that do not belong to the Ministry, amount of 3.136 KM, advance payments for business trips to the persons that were not employed by the Ministry, amount of 1.600 KM, etc.).

Ministry has to evaluate justifiability of every of individual expenditures and to provide that the public funds are used in an economic, efficient and effective way.

3.3. Financial statements

Audit has examined the accuracy and truthfulness of financial reports for year 2000, and those are: income statement - profit and loss account, balance sheet and the capital costs and financing statement. Audit has established that the published financial statements of the Ministry do not fully present a realistic and objective in all the aspects the status of assets and asset resources and the operation results.

3.3.1. Income statement - profit and loss account and balance sheet

It has been stated that the profit and loss account does not objectively and realistically show the results of business operations of the Ministry with the situation given on December 31, 2000, and which relates to following:

• Expenditures accounted and paid in an amount of 125.667 KM, and which were made in January and February 2001, shown in an income statement - profit and loss account and in balance sheet for year 2000.

On that basis, expenditures in an amount of 125.667 KM were stated to be higher in a Profit and Loss Account and shown as lower for the same amount in a Balance Sheet as money assets and capital (surplus of income over the expenditures).

Based on this irregularity shown in financial statements for year 2000, Ministry has violated provisions of Law on Execution of Budget of the Institutions of Bosnia and Herzegovina and the International Liabilities of Bosnia and Herzegovina for Year 2000.

Ministry was obligated to return the funds to budget in an amount of 125.667 KM, or the Ministry of Treasury was supposed to decrease the amount of regular appropriations from budget to the Ministry for the amount mentioned since these are the expenditures from year 2001 and they belong to next accounting period.

3.2. Statement on capital costs (procurement of equipment)

Ministry has made a procurement of equipment in a year 2000, in an amount of 24.120 KM, and in 2001 in an amount of 49.999 KM, which makes a total of 74.119 KM, and it was shown in the financial statements for year 2000.

Assets given without reimbursement in year 2000, in an amount of 2.893 KM weren't shown in the Ministry ledgers, nor they were shown in the financial statements for year 2000.

Total value of procured equipment, including the assets given without reimbursement is 77.012 KM.

It has been established, on that basis, that the Statement on Capital costs and Balance Sheet do not show the results of business operations of the Ministry objectively and realistically, with the status on December 31, 2000, and this relating to following:

• Ministry should have present value of the equipment procured in an amount of 27.013 KM on December 31, 2000, and in the Statement on Capital Costs 74.119 KM have been shown. On that basis, Ministry has shown, in its financial statements capital costs and capital costs resources as higher for 47.106 KM.
• Ministry did not show in a Balance Sheet at December 31, 2000, value of procured equipment in year 2000, which is 27.013 KM, so it has stated fixed assets and capital as lower for 27.013 KM.

Ministry did not do an inventory listing of equipment, stationery and financial assets on December 31, 2000, thus violating existing law regulations regulating annual inventory listing of assets and asset sources and their according with the ledgers.

Ministry did not accounted depreciation of the equipment procured for year 2000, thus violating existing legal documents regulating regular depreciation of the equipment according to the depreciation rates prescribed.

Ministry is obligated to perform regular annual listing of assets and asset sources and to accord their status with the ledgers.

Assets given without the reimbursement should be recorded in the Ministry ledgers according to the data on their value on procurement and the depreciation value.

Ministry has to regularly account the depreciation of the equipment to the debit of capital.

3.4. Accounting

Ministry did not record financial changes and bookkeeping documents in its ledgers the way the accounting regulations that are being used foresee them to be done. Formal irregularities stated relate to following.

-  Ministry does not record the financial changes in a moment they happen, but in the moment they are being paid;

-  Bookkeeping records are not analytically divided, and do not contain all the data foreseen, so it is hard to make a checking of the correctness of data entered (regularity of bookkeeping entering).

Ministry is obligated to keep the ledgers the way the applicable accounting regulations that are being used regulate it, so that the financial changes would be presented in a clear and proper way.

3.5. Correspondence with the client

Audit Office had announced the audit by a letter number 01-040-146/01 on 11th of June 2001, describing the objectives and the audit methods, as well as defining the mutual obligations and the responsibilities. After the audit was performed, a version of a Report on Audit was made, with a request that the Ministry is supposed to give its response on this Report in 15 days.

In a foreseen period, the Ministry did send remarks on a Report saying that the Ministry, instead of paying so called "thirteen salary", procured some equipment and made certain expenditures which means that it "changed the purpose" of funds, which can not be treated as an unauthorized spending.

Audit Office did not adopt the remarks made by the Ministry.

The standpoint of Audit Office regarding this issue stays the same. Basis of all this is the fact that the financial reports of the Ministry were not presented correctly, meaning that the Ministry should have presented the revenues larger than expenditures in an amount of 125.667, and on that basis to return the non-used funds to the Treasury account, or to inform the Ministry of Treasury which would than reduce the regular transactions from the Budget in a year 2001 for an amount of surplus. Audit has established that neither of these was done, but instead that some equipment was procured and certain expenditures made in year 2001, and all of that was presented in the statements for year 2000 Audit standpoint on this issue would be the same even if the "thirteen salary" was paid instead.

Original text of remarks and response to those remarks has been delivered to the Parliamentary Assembly of Bosnia and Herzegovina.

[1] While analysing the decisions of the Council of Ministers regarding the reimbursements for the food supplies and the religious holidays, Audit Office has understood the provisions of mentioned decisions in a way that the Ministry of Treasury will sum up so called "savings" and "financial possibilities" of the users, and then start with payments of these reimbursements, or that every user will do the same at its own level. When it comes to the audited exceeding of the reimbursement costs, we have established that neither was done.