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 the MINISTRY FOR EUROPEAN INTEGRATIONS OF BOSNIA AND HERZEGOVINA (hereinafter: Ministry) related to status on December 31, 2001.

1.2.           Audit was planned and performed in a period from April 15 to April 23, 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 Ministry represent a fair and true picture of operations during the year and of the status at the end of the year. Management of the Ministry is responsible for financial statements. The responsibility of Audit Office is to express the opinion about financial statements of the Ministry, 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 picture of operations during the year and the status at the end of the year;
• on economy, efficiency and effectiveness with which the Ministry has been using funds for performing its functions. 

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

2.         AUDITOR’S OPINION

2.1.        In our opinion, financial reports of the Ministry on 31st December 2001, do present a fair and true picture of the operations during the year and the status at the end of the year.

3.       RETROSPECTIVE ON FINDINGS AND RECOMMENDATIONS OF THE AUDIT OF ACCOUNTS FOR 2000

Audit Office has performed the audit of operations of the Ministry for 2000, on which it has made a public Report. By the audit of operations for 2001 it has been found, in a large number of cases, that operations were in accordance with recommendations earlier given by the Audit Office:

Realised recommendations:

• The Ministry perform regularly, by the month, analysis of expenditures realized in comparison with the budget, in order to avoid exceeding within execution of the budget;
• The expenditures of operation for 2001 were cut-off correctly in an accounting period to which they belong on 31st December 2001, considering that the audit for 2000 had found incorrect cut-off of expenditures on 31st December 2000;
• The Ministry has performed inventorying of the assets and liabilities on 31st December 2001, and has accorded real status with bookkeeping status, that was not done in the year 2000;
• The Ministry has performed accounting of depreciation of the equipment procured in 2000 and 2001, that was not done for the assets procured in 2000;
• The Ministry’s expenditures realised in 2001 are being recorded in a moment they happen and not in the moment they are being paid, as they were recorded in the the performed audit in 2000;
• Bookkeeping entering of business/financial changes in 2001 is being performed through computer bookkeeping programs, but not manually as it was performed in 2000 when certain lacks within bookkeeping records were found (non-existence of analytic recordings etc.). 

Unrespected recommendations: 

• The Ministry has brought certain decisions, but has not adopted internal regulations on use of personal vehicles for official purposes, transportation costs, cellular and fixed phones, and representation costs in a way that would precisely define rules of spending, criteria, conditions and exceptions in order to avoid wrong interpretation and misuse of assets that might happen.

4.         FINDINGS, NOTICES AND RECOMMENDATIONS OF THE AUDIT OF ACCOUNTS FOR 2001  

4.1.      Internal control system 

The audit has found certain lacks within internal control system in a part the relates to certain regulations regulating spending of individual assets and to procedures on approval for the used budget funds. Internal control system is being found by the management of the institution as a set of activities and measures that provide accuracy and regularity of financial transactions’ recording, their full accordance with laws and regulations, as well as protection of the property. Lacks within the system and insufficient development of this system have a significant influence on management and control of spending of the budget funds – the public funds intended for precisely defined purposes.

The audit has found:

• The Ministry has brought certain number of decisions and has adopted precise Rulebook on Professional Education and Training of the Employees, but this model was not used for regulation of spending of budget funds for use of vehicles for official purposes, regulation of transportation costs, use of cellular phones and representation.  
• The Ministry has not entirely found the procedures on approval of costs made, so all invoices for the mentioned costs were not properly approved and verified by the person which made costs nor by the person in charge that should approve these costs.

It has been recommended to the Ministry to make precise internal regulations in order to regulate individual expenditures until the time these regulations are made by the Council of the Ministers/the Ministry of Treasury. In addition, it has been recommended to the Ministry to adopt the procedures on approval of expenditures providing evidence that concrete expenditure was really made and based on the law.  

4.2.      Budget execution  

Total expenditures planed for the Ministry, according to the adopted budget, before the budget adjustment, were 1.713.396 KM. After the adjusted budget for 2001 was adopted, the expenditures were increased for 173.313 KM, so the total amount of the 2001 budget was 1.888.709 KM. The realised Ministry’s expenditures for 2001 were 1.823.350 KM that is 65.359 KM less than planned, so the realization is 97% of the plan. Besides the funds approved by the budget for 2001, special funds from current reserve of budget funds in an amount of 25.500 KM were approved to the Ministry and by decision of the Council of the Ministers, as well as OHR’s donation in an amount of 11.792 KM. Funds were used for covering the travel costs of delegation of Bosnia and Herzegovina on the Stability Pact for Southeast Europe Regional Conference held in Romania.  

The following table gives an overview of the execution of the Ministry’s budget for 2001:
Amounts in KM  

* According to the Ministry’s data, planning of budget items has been performed based on 64 employees (that present real number of the Ministry’s employees). 

The Ministry has performed, in a realistic way, planning of budget expenditures in comparison with real number of employees and their realistic needs. However, the Ministry did not entirely prepare its operational aims and activities to be performed in 2001 in comparison with assets planned from the budget and for the Ministry’s operation. That means, it has not been found an adequate system of monitoring over the effectiveness of the Ministry’s employees’ work, based on precisely defined management and performers’ responsibility by activities and assets available for performing of operational aims.

It has been recommended to the Ministry to perform in advance the planning of its operational aims and activities, parallel with an amount of assets planned which the Ministry should use for concrete activities.  

4.3.      Information system 

The Ministry uses the organized information system where IT strategy was made and adopted by the management, and by which complete informatization of the Ministry is being performed. It has been recommended to the Ministry, in order to provide more efficient use of information system, to accelerate making the following procedures:  

• Procedures on use of PC’s and networking;
• Rules on data’s safe-keeping and protection;
• Procedures on e-mail’s use;
• Rules on IT projects managing;
• Procedures on procurement of the equipment. 

5.         OTHER NOTICES  

During the audit, the Ministry’s attention has been drawn to the following:

• Regarding surplus of income stated within the status on 31st December 2001 in an amount of 2.332 KM, and according to the Instruction of the Ministry of Treasury, the Ministry should undertake an adequate activities and accord dynamics and way of return of assets mentioned into the budget;
• During control of expenditures realized there have some small irregularities been found. That should be urgently corrected by the management and not to happen in the future (it has to be obligatory for all requests for expenditures to be delivered to the Ministry of Treasury; use of personal vehicle for official purposes only according to management’s approval and based on a criteria regulating the amount of reimbursements; strict respect of provisions of the Ministry of Treasury’s decisions relating to the payments of reimbursements for transportation during the weekend for those employees separated from the families; regarding expenditures for forms and paper in an amount of 7.066 KM and administrative materials costs in an amount of 8.241 KM, the procurement of stationery was performed from several contractors, and only in a particular cases competitive bids were collected).  

It has been recommended to the Ministry to make precise rules on use of individual assets and to define criteria on use of funds approved by the budget. Regarding the individualy made procurements, i.e. procurement of stationery according to annual plan of procurement, it has been stressed that it is necessary to announce a public tender for selection of the best bidder.

6.         CORRESPONDENCE 

After the audit was performed, on May 18, 2002, Draft version of the report was delivered to the Ministry. On May 28, 2002, the Ministry has delivered its written reply including certain explanations and recommendations for corrections of the Report before its issuing. The Audit Office has announced the Ministry on its attitudes by the letter no. 01-400-234/02 from June 19, 2002, and has made decision on Report’s final content.  

7.         SUMMARY 

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

• The Ministry does not poses sufficiently precise regulations regulating individual expenditures, nor the procedures on approval of expenditures;
• Non-allocated surplus of income with status on 31st December 2001, has not been presented as a liability and was not returned to the budget account;
• Regarding the Ministry’s control functions over the expenditures made in 2001, certain irregularities during budget fund’s use and payments were found, which relate to approval of expenditures by the management and establishment of the criteria that precise spending;
• Selection of the best contractor for material costs was not performed in all cases;
• Certain weaknesses within internal control system of the Ministry (lack of adequate internal procedures) were found.

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