C O N T E N T
I. AUDITOR’S OPINION
II. SUMMARY
III. AUDIT FINDINGS AND RECOMMENDATIONS
1. INTERNAL CONTROL MANAGEMENT SYSTEM
	Managing the Ministry and lacking Rulebooks
	Unplanned revenues
2. BUDGET CONTROL SYSTEM
	Exceeding the budget
3. IMPLEMENTATION OF LAW
	Regulations and influence of the Ministry at the level of BiH institutions
	Registry of travel documents (passports)
4. ACCOUNTING
IV. AMENDMENTS AND NOTES
	Balance sheet as of December 31, 2000
	Income statement as of December 31, 2000

I. AUDITOR’S OPINION

Supreme Audit Office of the Institutions of Bosnia and Herzegovina (hereinafter: Audit Office) has conducted auditing of financial reports and operations of the Ministry of Civil Affairs and Communications of Bosnia and Herzegovina (hereinafter:  the Ministry) for the year 2000.

Audit was done between March 7, 2001 and May 25, 2001, based on the provisions of the Law on Auditing Financial Operations of Institutions of BiH (“Official Gazette of BiH” No. 17/99). Responsibility of the Audit office is to audit financial reports and check if they are true and fair and to do it in accordance with the audit standards prescribed by the International Organization of Supreme Audit Institutions (“Official Gazette of BiH” No. 05/01). 

Responsibility for the financial reports lays on the Management of the Ministry and the responsibility of the audit office is to give its opinion based on performed audit. According to the Audit law (article 13., point 4.), when reporting about the public accounts, we are obliged to report:

• was accounting done in accordance with the relevant legislation
• do the annual reports present true and picture of operations during the year and the condition at the end of the year
• to report about the economic efficiency and effectivness of usage of the public funds by the Ministries

The audit was done in accordance with the general audit and INTOSAI standards, which means that the audit was planned and performed in order to achieve reasonable assesment as to whether financial reports show true and fair picture. Therefore, the audit was analysing samples of significant transactions and decisions of the management of the Ministry. The audit includes application of the legal and other regulation, organization of the Ministry and financial and accounting operations of the Ministry.

The audit has collected reasonable grounds for expression of the following opinion:

In connection with financial reports of the Ministry for year 2000, the Audit Office can not give its opinion because such reports do not exist.

Management of the Ministry could not present financial reports because such reports have not been made for the Ministry as a whole.

Furthermore, the Audit Office is not in position to express its opinion on financial reports of the parts of this agency (part of the Ministry in FBiH and part  of the Ministry in the RS) because giving such opinion would violate audit standards and lawful accounting and presentation of financial reports of the Ministry that are not shown as segments of one summary report, nor as one consolidated financial report.

The described restrictions in preparing auditor’s report on the lacking financial reports of the Ministry do not represent an obstacle for the Audit Office to present to public the findings of the audit made in the Ministry or its parts that operate as separate units or sub-units, in the following chapters.

II. SUMMARY

Findings of the audit conducted in the Ministry that are given in this report are classified in the order of significance of errors/omissions and relate to the management system of internal control, overstepping the budget and mechanisms for controlling budget spending, omissions in implementation of law and errors in accounting policy and in presentation of financial reports.

Audit has determined and analyzed the consequences of violation of the provisions of the law because the Management has accepted continuity and continued to organize the jobs of the Ministry in the way that in reality splits the Ministry in two separate parts: the part of the Ministry in the Republika Srpska and the part of the Ministry in the Federation of BiH.

Parts of the Ministry have realized certain categories of non-tax revenues and kept them as so-called “own revenues”.

In addition to such split operation, the Ministry has omitted to adopt rules and take measures having preventive purpose of avoiding budget overspending and establishing effective internal control of budgetary expenditures.  Generally speaking, the fact that the management of the Ministry had appropriate control over the expenditures during 2000 can not be verified.

Total budget overspending of this Ministry in 2000 was 760.282,00 KM or by 38,63% higher than the plan.  The overspending was possible because the Ministry (or more accurately, two parts of the Ministry) used the so-called “own revenues” to cover the additional expenditures.

The influences of the Ministry in exercising control of budget execution at the level of BiH Institutions have also been audited, and the findings showed that the Ministry has omitted to comply with or violated applicable provisions of law in several occasions during the audited period (until the entry into force of the Law on treasury of the Institutions), what had systematic repercussions to operation of all budget institutions at the level of BiH institutions, and especially not having appropriate evidence about issuing passports. As a result of that, the budget institutions were forced to continue implementation of the entity regulations in the area of accounting and finances. Budget users were given an open space to form the so-called “own revenues” and spend them in an uncontrolled and non-transparent way, separately from the approved budget funds.

III. FINDINGS OF THE AUDIT AND RECOMMENDATIONS

1. MANAGEMENT SYSTEM OF INTERNAL CONTROLL

The management of the Ministry has accepted the continuity and continued organizing Ministry operation in the way that practically splits the Ministry into two separate parts that work independently one from another:  part of the Ministry in the Republika Srpska (1/3) and part of the Ministry in the Federation of BiH (2/3). The audit identified and analyzed the consequences of such organization of the Ministry, as well as numerous omissions in the internal control system, among which the most important are:

• lack of unified accounting policy and unified chart of accounts for the whole Ministry;
• inexistence of annual financial plan and program of the Ministry as a whole  and submission of separate annual reports for the part of the Ministry in RS and part of the Ministry in FBiH;
• opening special balance accounts and separate operations via those accounts and separate and ineficient control of the budget spending;
• division of authorities between the Minister and Deputy Minister in line with the split in the Ministry;
• inexistence of annual financial plan of the Ministry as a whole;
• failure to take measures to improve effectiveness by, for instance, coordinating procurement, coordinating and reporting to the parts of the Ministry;

Unplanned revenues

The part of the Ministry in FBiH, during 2000, collected non-tax revenues from donations and refunds, funds from the previous year and other revenues shown in the financial reports of this part of the Ministry for 2000, and they amount to 199.651 KM. The same was found in the part of the Ministry in RS which has reported the amount of 275.114,00 KM as nontax revenues in 2000 from the fees for issuing travel documents and issuing licenses for international and inter-entity traffic. By keeping those revenues on its account, the Ministry violated the provisions of the Law on Execution of Budget of the BiH Institutions and International Liabilities of BiH for 2000 (“Official Gazette of BiH’, No. 10/00). Revenues that are not planned and included in the plans of revenues and expenditures by the budgetary institution in time are a major problem for managing budgetary funds, what reduces the level of control over budgetary consumption and control over operations of the budgetary institutions.

Evaluated individually, each of the listed omissions had its own effect on the Ministry’s operation.  Having considered them all together, the Audit Office is of the opinion that they had some serious consequences on the work of this agency and institution of the Council of Ministers of BiH and it believes that the management of the Ministry has not met the requirements that were set as their obligations as a part of their administrative responsibility, in accordance with current legislative and other regulations.

All the revenues of the budget users need to be planned for each business year, regardless of the sources of revenues.  This Ministry, just like other Ministries, has the duty to plan all kinds of revenues and income in cooperation with the Ministry of Treasury of BiH at the beginning of each financial year.

By the consistent application of the TSA (Tresury Single Account), it is necessary that the practice of collection and direct use of the so called “own revenues” , spending of the funds from the previous budget year, revenues from donations, fees and licensees be stopped.

2. BUDGETARY CONTROLL SYSTEM

Budgetary overspending

The audit found that the Ministry did not have established consistent system that enables the managing structure to have appropriate controll over the expenses during the year 2000. Due to the inexistence of financial reports and accounting at the level of the whole ministry, the audit team could not compare the actual consumption with the BiH budget. Consequently, the following chapters in the audit report will show the comparison of the aggregate ‘sub-balances’ with the adjusted Budget of BiH and individual items of the parts of the Ministry with the planned values 1/3 and 2/3 of the items in the adjusted budget¹. Total budgetary overspending the Ministry made in 2000 amounted to 760.282,00 KM, exceeding the plan by 38,63%².  Overspending was made possible by the Ministry (or, more accurately, parts of the Ministry) using the non-tax revenues mentioned under chapter 3.1.2 to cover larger part of such expenditures, as well as certain savings achieved on some line items.

The Ministry did not create necessary instructions for managing of operations and book keeping for parts of the Ministry and for the Ministry as a whole, and did not establish internal rules regarding the representation expenses, the use of Ministry’s cars and use of private cars for business, telephones (fixed and mobile) and internet expenses and separate living allowance nor it regulated this area with other rules.

The Audit Office’s opinion is that the Ministry has to perform the necessary analysis urgently, and consider in details the reasons for budget overspending so that it could be avoided in future. We believe that, besides the increase of expenses, important part of this problem was in the adjustment of 2000 budget, since the budget users and the Ministry did not perform the expert analysis of the consequences of reduction in some  budgetary items.

The following table shows an overview of planned and actual line items under which the overspending was significant:

The Audit Office recommends the Parliament to strengthen the supervision of how the Ministry uses the budget. We also recomment that the Parliament thoroughly analyse the amount of user’s budget items before making decision on budget adjustment.

The Council of Ministers should urgently adopt the rules that regulate precise norms of expenses in the categories of the most frequent and biggest items in the expenses.

In the case that it is not possible to do in a short term, it is necessary that the budget users establish temporary internal rules that will enable the management system to watch and controll expenses within the defined items limits in the Budget of BiH.

In order to prevent any future overspendings, we recommend that the Parliament obliges the BiH Council of Ministers to introduce unique additional measures of controll and racionalisation of expenses for all budget users that exceeded the budget.

3. IMPLEMENTATION OF LAWS

Regulations and influence of the Ministry in function of controlling budget execution at the level of BiH institutions

The audit of the Ministry’s operation found that this Ministry has repeatedly, during the observed period (before the Law on Treasury of the BiH institutions entered into force, ‘Official Gazette of BiH’ No. 27/00), omitted to execute, or violated applicable laws, and thereby in a systematic manner affected operation of all budgetary institutions at the level of BiH institutions. The provisions of the Law on Execution of Budget of BiH Institutions and international liabilities of BiH for year 2000 (‘Official Gazette of BiH’ No. 10/00), have not been fully applied. Those are provisions under Article 19, providing that the Ministry has the duty to supervise in-flow of funds, financial and accounting for all budgetary institutions, as well as legality and purposefulness use of budget funds; provision under Article 22, stipulating that the Ministry is obligated to conduct budgetary control of the funds used differently than intended; provision under article 25, according to which the Ministry had to adopt a rulebook on accounting and reporting method for all ministries and budgetary institutions.

Registry of passports (travel documents)

The audit found that the Ministry has not established a central registry of all issued passports, what was prescribed by articles 26-28 of the Law on Travel Documents of BiH (“Official Gazette of BiH” No. 04/97) and has not established an effective supervision over implementation of the Law on Administrative Fees and Tariff of Administrative Fees in diplomatic and consular offices representing BiH abroad (article 28 of the Law on Administrative Fees, ‘Official Gazette of BiH’ No. 14/99). This omission had its strongest reflection on the problems related to identifying budgetary revenues from issuing travel documents through the Ministry of Foreign Affairs of BiH, and having full records on travel documents (accurate number of printed, annulled and issued passports, and accurate number of stocks of blank passports).

Audit office recommends Parliament to pay special attention to the missing regulations. Office thinks that the appropriate legal regulations, rules and explainations from the area of financial-accounting operations should be made as soon as posible, or (alternatively), a decision on implementaion of the entity regulation untill the final legal acts are completed.

The Audit office recommends the Parliament to pay attention and offer support to the establishment of Ministry of Treasury functions of supervision of the budgetary institution’s expences in order to avoid mistakes from the previous period.

The Audit Office recommends to the Ministry and Council of Ministers of BiH as a whole to take urgent steps in setting up a central registry before destroying the so-called “old passports”, and particularly to establish an efficient system of registering and overseeing issuance of new passports in order to avoid the same errors in the new cycles of issuance of passports.

4. ACCOUNTING

Both parts of the Ministry were doing accounting and the book keeping like they are separate public agencies, which is not in accordance with the Decision of the Ministry no: 01/1-11/98 made 31.05.1998, and which caused separate submission of the financial reports for the year 2000. Since the regulations in the area of the financial-accounting operations on the level of BiH institutions do not exist, parts of the Ministry used regulations from the entity level.

Opening balance sheet

Decision of the Audit Office identified the financial operation of the Ministry during 2000 as the object of auditing. The audit does not cover the accounting statements and financial reports for 1999, which also make the opening balances for 2000.

IV. ANNEXES AND NOTES

Balance Sheet as of December 31, 2000

a) Whole ministry

Data not available

b) Part of the Ministry in FBiH

Balance Sheet of the part of the Ministry in FBiH as of December 31, 2000³

c) Part of the Ministry in RS

Balance Sheet for the part of the Ministry in RS as of December 31, 2000⁴:

4.2. Income statement as of December 31, 2000

a) Whole Ministry

Data not available (see points 3.1 and 3..2)

b) Part of the Ministry in FBiH

Income Statement - Statement of revenues and expenditures of the FBiH part of the Ministry between January 1 and December 31, 2000.⁵

c) Part of the Ministry in RS

Income statement - Loss and Profit statement of the part of the Ministry in RS, between January 1 and December 31 2000⁶