C O N T E N T S
I. AUDITORS OPINION
II. SUMMARY
III. AUDIT FINDINGS AND RECOMENDATIONS
1. MANAGEMENT’S SYSTEM OF INTERNAL CONTROL
	NON-PLANNED REVENUE OF THE MINISTRY
	EXPO 2000 PROJECT
	MISSING RULEBOOKS AND INTERNAL REGULATIONS
2. BUDGET CONTROL SYSTEM
3. APPLICATION OF LAWS
	UNCC – WAR DAMAGES REPARATIONS PROGRAM /IRAQ-KUWAIT WAR/
	PLAN OF ACTIVITIES AND PROGRAM OF OPERATIONS OF THE MINISTRY FOR YEAR 2000
	COURT CASE
	REVENUES FROM OWN SOURCES (ISSUING OF EUR FORMS)
4. ACCOUNTING
	MISSING OF REGULATIONS AT THE LEVEL OF THE INSTITUTIONS OF BIH
	WTO AND EXPO 2000 PROJECTS
IV ATTACHMENTS
	BALANCE SHEET, 31ST OF DECEMBER, 2000
	INCOME STATEMENT, 31ST OF DECEMBER, 2000

I. AUDITORS OPINION

Office for Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (hereafter Audit Office) has performed an audit of financial statements (including the decisions made by management) and financial operations of the Ministry of Foreign Trade and Economic Relations (hereafter: Ministry) regarding fiscal/financial year 2000.

Audit has been performed in a period from 7^th of March, 2000 to 8^th of May 2001, and based upon the provisions of the Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (Official Gazette of BiH, number 17/99).

It is a duty of the Audit Office to, according to the generally accepted audit standards (INTOSAI standards, published in Official Gazette of BiH number 05/01), perform the audit of financial statements in order to evaluate if they have been presented in a fair and true way.

Responsibility for financial statements lies within the management of the Ministry, and the responsibility of the Audit Office is expressing of an opinion regarding those statements based upon the performed audit.

According to the Law on Audit (Article 13, paragraph 4), it is our obligation, while reporting on public accounts, to report about:

• 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 ministries have been using public funds for performing their functions.

The audit operations have been implemented according to generally accepted audit standards and INTOSAI standards, which means that the audit has been planned and performed in order to achieve reasonable ground to evaluate if the financial statements have been presented in a true and fair manner. This is why audit has examined samples of important transactions and Ministry management’s decisions . Audit included application of law and other regulations, organization of the Ministry, and financial-accounting operations of the Ministry. We believe that the performed audit is a reliable base for expressing our opinion.

Audit has collected enough of evidence for creating reasonable ground for following opinion:

We give a qualified opinion regarding the financial statements of the Ministry for year 2000, since we haven’t had sufficiently reliable basis to in whole, without reserve, confirm that financial statements of the Ministry give in its entire scope, a true and fair view of the situation/status on all important issues.

Audit Office expressed a qualified opinion because of following reasons:

• audit has established insufficient efficiency of the internal controls system, and insufficiency of internal regulations of the Ministry, which mostly caused exceeding in spending of budget items;
• audit has not included examination of opening balances, meaning the entering balance from year 1999;
• audit was not able to estimate an outcome of a court case between the Privredna banka d.d. – joint stock company bank, and the Ministry regarding the denied liability in an amount of 575.513,38 DEM;
• audit was not able to establish an authenticity of the accounting statements regarding the budget item intended for financial activities of admission of BiH into WTO, in an amount of 170.000 KM.

II. SUMMARY

Audit Office has undertaken audit of financial operations of the Ministry according to Law on Audit and INTOSAI Standards. Audit Office has taken into consideration general conditions in which the Ministry operated in a given environment in year 2000, when the most important financial-accounting regulations were missing, and mechanisms of survey and coordination foreseen by the Law on Execution of Budget and by the Changes and Amendments of that Law, as well as by the Law on Treasury of the Institutions of Bosnia and Herzegovina, were not fully operational. At the same time, significant deficiencies of the budget planning system at the level of Council of Ministers have been noted, especially regarding the presentation of budget items on revenues and expenditures.

Audit findings have confirmed deficiencies in planning of budget revenues and significant exceeding of the budget spending on certain budget items, which is mainly a result of inefficient and insufficient Ministry’s management control system over its financial operations.

Even though, audit has established that, because of a huge scope and significance of financial transactions registered during year 2000, Ministry should have brought its own internal regulations, but failed to do that, and failed to take preventive measures in order to prevent exceeding in budget spending, and to establish efficient internal system of control over budget revenues and expenditures.

Audit Office has established that the issue of legal successor of the ‘Konsolidacija i graðevinarstvo’ enterprise was not addressed at the Council of Ministry level.

Audit Office had questioned the right to manage revenues collected by issuance of EUR certificates. Also, audit has established that these were not planned at the beginning of a financial year. That way it was not possible to monitor their use with proper quality.

III. AUDIT FINDINGS AND RECOMENDATIONS

1. MANAGEMENT’S INTERNAL CONTROL SYSTEM

During the audit, Audit Office has found significant deficiencies in a management’s internal control system of the Ministry. These findings are i.e. non-existence of annual revenue plan, non-taking of the actions on efficiency improvement, i.e. by coordination of procurement, coordination and reporting on project activities (EXPO 2000). Furthermore, Audit Office has stated a lack of internal rules and regulations, i.e. regarding PTT expenditures, representation expenditures, travel costs and vehicles, fuel and vehicle maintenance, etc.

Non-planned revenues of the Ministry

Ministry showed revenues from issuing of EUR certificates and those collected by the war damage compensations from the Iraq-Kuwait war in its annual financial statements for year 2000 with total amount of 682.927,04 KM. But, they have failed to plan these items at the beginning of year. The omission was made at the beginning of the financial year, when these items were not planned. Revenues which are not planned timely and not included into revenue and expenditure plans present an important problem in managing budget funds, reducing that way a degree of control over budget spending as well as control over the operations of budget users. Also, even though the Ministry had collected revenues from issuing of EUR certificates according to Book of Rules on Issuance of Product Origin Certificates (Official Gazette of BiH number 11/98), and revenues from war damages reparations from Iraq-Kuwait war according to UN resolutions number 687 and 692 and UNSC S/AC.26/De.18(1994) from 24^th of March, 1994, it is our opinion that these funds belong into Budget of the Institutions of Bosnia and Herzegovina.

EXPO 2000 Project

Audit had established that the final financial statement of the National Committee on realization of Bosnia and Herzegovina participation program at EXPO 2000 has not been done. Within the plan of revenues of EXPO 2000 project, donations and contributions projections have not been made. Expenditures have not been planned by items, so the audit was not able to perform comparison analysis of the planned and expenditures made by individual items.

Missing Rulebooks and internal regulations

Beside the fact that the Council of Ministers did not regulate certain expenditures of budget users in appropriate and precise way, audit findings have confirmed that neither the Ministry took any steps regarding the adoption of internal and interim solutions in order to achieve more efficient and rational operations.

The lack of following rulebooks was established: on use of telephones (fixed and mobile network) with appropriate limitations; on use of representation and gifts; on use of official vehicles and use of personal vehicles for official purposes; on material operations; on use of accommodation for officials and other employees; on obligatory stating of objectives of business trips and obligatory submission of reports on results achieved, etc. This omission of the management's system of internal control made it more difficult to follow mentioned expenditure categories, which was the greatest cause of exceeding in budget items.

All the revenues of budget users should be planned as the revenues of the BiH Budget for each financial year, independently of their source. This Ministry, as well as all the other users is obligated to plan all kinds of revenues in cooperation of the Ministry of Treasury at the beginning of every financial year.

Council of Ministers of BiH and the Ministry have to urgently demand a final report on realization of Bosnia and Herzegovina's participation program from the National Committee. Furthermore, the Ministry has to ensure for the financial structure of Project to be closed and all the accounts opened for this purpose in the banks to be closed.

Council of Ministers of BiH should urgently adopt regulations precisely regulating mentioned budget items. In a case that this cannot be done in a short period of time, it is necessary for budget users to establish interim internal regulations on their own, which will allow the management system to follow and control the spending within the limits of items defined within the Budget.

2. BUDGET CONTROL SYSTEM

Audit had found that the Ministry’s management had great difficulties in executing the budget according to the Law on Execution of Budget due to insufficiently efficient budget control system within the Ministry. Ministry did not consistently follow provisions of Law on Execution of Budget, which resulted in exceeding of budget spending in most of budget items. According to BiH Budget for year 2000, total of planned expenditures is 4.400,000 KM. The expenditures were made in an amount of 4.761,000, meaning 361,000 KM (8%) more than it was planned.

Exceeding in budget items was financed with the money made from revenues by issuance of EUR certificates as well as from other revenues and by using funds from items where the expenditures were made in the amount lower than what was planned. In certain items exceeding compared with planned budget was over 50% like 'travel costs' (52%) or the item 'reimbursements for the employees' for 107% and 'representation costs' (45%), which is a violation of Articles 6 and 9 of the Law on Execution of Budget of the Institutions of Bosnia and Herzegovina and the International Liabilities of BiH for Year 2000.

It is opinion of an Audit Office that the Ministry has to analyze and thoroughly reviews reasons that caused exceeding in order for this not to happen again. We believe that the influence of reviewed budget for year 2000 played a great role in this problem, especially considering that the budget users, including this Ministry did not perform any expert analyses of the consequences of budget reducing by items. Additional causes for the exceeding of budget can be found in insufficiently differentiated and not precise enough Budget items in a Budget for year 2000, and also in the fact that the Ministry of Civil Affairs earlier, and later the Ministry of Treasury did not initiate control and survey systems foreseen by law.

In a table given below we give an overview of planned and realized expenditure budget items in 2000 (items that were exceeded)¹:

Audit Office recommends to the Parliament to strengthen its monitoring over the use of budget funds of the Ministry. We also recommend for the Parliament to thoroughly analyze the height of budget items within users before reviewing the Budget.

Ministry is obligated to use Budget funds for salaries and especially for the compensations for the employees up to the amount established by BiH Budget, so it is necessary to introduce economizing measures.

Audit Office recommends that at the beginning of financial year Ministry announces an Invitation for Bids, based on estimated annual needs in order to obtain a quantity discount, meaning to get office stationery and materials by lower prices. We also recommend to Ministry to issue an internal Book of Rules on use of materials, until the time this issue is solved at the Council of Ministers' level. It is necessary to introduce economizing measures for expenditures regarding the accommodation of the employees for which this right is foreseen (renting of private accommodation for several users instead of hotel accommodation, etc.

3. APPLICATION OF LAWS

Management of Ministry has violated existing laws and regulations on several occasions. However, in other cases, legislature is unclear, insufficiently defining, or it does not exist at all, which puts the Management into an awkward position.

Audit findings include for example, inconsistent application of provisions of Law on Execution of Budget (mainly regarding the exceeding of Budget), activities regarding financial reparations for war damages (Iraq-Kuwait), lacking of Plan of Operations of the Ministry for Year 2000, a court case with Privredna banka d.d. Sarajevo - bank regarding costs of opening of credentials.

Audit findings suggest that the management’s internal control system is insufficient, not efficient enough, and those findings confirm that Management had not sufficiently organized its activities in order to fulfill its administrative obligations according to the existing laws.

UNCC – War damages reparations program /Iraq-Kuwait war/

Audit has found that the fee for processing the reparation requests and covering of operational costs, was paid to the Ministry in an amount of 1%. The income of the Ministry, from this item, in a year 2000, was 223.101,77 KM (not spent). Transfer of reparation funds in an amount of 1.817.693,00 USD for the enterprise 'Konsolidacija i graðevinarstvo' had been discussed on several levels in order to establish a right on usage of the allocated funds after this enterprise has been privatized. At the end, Government of Sarajevo Canton has brought a decision number 02-05-1060/01 on 26^th of December 2000 on acceptance of funds allocated by the UN Compensation Commission regarding the war damage for privatized enterprises which have not stated those funds in their opening balances. The Government of Canton is by this decision obligated to pay the demands of the employees according to the conditions under which the UN Compensation Commission has approved these funds.

Plan of activities and program of operations of the Ministry for year 2000

During its audit, Audit Office did not get an Operations Plan and Program of Work of the Ministry for year 200 for an insight, which caused us to conclude that this document was never made. This is a violation of the provisions of Article 49 of Law on Council of Ministers and Ministries of Bosnia and Herzegovina (Official Gazette of BiH, number 11/00).

Court case

During the audit, Audit Office has performed an insight into documents of the Ministry stating that ‘Privredna banka d.d. Sarajevo’ - bank has submitted a lawsuit against the Ministry charging it for claims in an amount of 575.513,38 DEM.²

Revenues from ‘own expenditures’

Audit had established that the Ministry was collecting funds from sale of EUR forms according to the  provisions of Rulebook on Issuance of Product Origin Certificates (Official Gazette of BiH, number 11/98), which it used for financing the printing of forms and other of its activities regarding this issue. Revenues of the Ministry from this activity, was 459.825,27 KM for year 2000. Provisions of Chapter VII of the Rulebook are not precise enough in a part regarding to the financing of other activities, because they do not clearly state what belongs to those other activities. Furthermore, the prescribed obligation from the Rulebook regarding payments of 20 DEM to custom houses for each issued certificate is litigious, since it is twice than fee foreseen by Tariff number 28 of Tariff of Administrative Fees (Official Gazette of BiH number 14/99). These revenues were not planned and were used as ‘own revenues’ instead of being paid into a BiH Budget.

In order to enhance business operations of the Ministry, Audit Office gave to the Ministry following recommendation:

It is an opinion of an Audit Office that the issue of legal successor of ‘Konsolidacija i graðevinarstvo’ enterprise should have been solved at the Council of Ministers level and that the Decision of the UN Compensation Commission number S/AC.26/De.18, from 24^th of March, 1994, should have been implemented in consistent manner. Also, it is necessary to pay special attention for these funds to be directed to those that they were intended for, first of all to the employees of the enterprise on the basis of their demands regarding the salaries they have earned, and which were never paid. Office also recommends that the feedback information should be demanded from the Government of Sarajevo Canton on how these funds have been used, so that the Ministry could make a report to the UN Compensation Commission regarding the distribution and usage of these funds.

Ministry is obligated to adopt its Plan of Operations and Program of Work at the beginning of every fiscal year, with objectives clear and measurable, in order to provide rational, efficient and legal executions of tasks within the jurisdiction of Ministry, as well as in order to systematically monitor the results of work of the Ministry.

Audit Office recommends that this problem should be solved at the Council of Ministers level, with the Ministry of Treasury and Governments of Entities, having in mind that Ministry had no revenues based on transactions regarding the issuance of traveling documents.

It is necessary to cut the practice of collection and immediate use of so called 'own revenues' within Budget users, by a consistent application of UTA (unique Treasury account). Audit Office proposes that the Ministry reviews provisions of Chapter VII of the Book of Rules on Issuing of Product Origin Certificates EUR, and accord them with the Law on Administrative Fees (Official Gazette of BiH number 14/99).

4. ACCOUNTING

Lack of Regulations at the level of the Institutions of BiH

In the lack of regulations in the area of financial-accounting operations at the level of the institutions of Bosnia and Herzegovina, Ministry had been applying regulations from the Entity level. During the audit in the Ministry, a neatness of accounting statements, as well as updated and neat bookkeeping records have been noted.

WTO and EXPO 2000 projects

According to Budget for year 2000, an amount of 170.000,00 KM has been defined for the purpose of financial activities regarding admission of Bosnia and Herzegovina into WTO. Audit has established that legislative body did not foresee opening of a separate sub-account, or defining of cost structure within the mentioned amount (including possible revenues). This problem mirrored in accounting statements and caused difficulties in follow-up of use of these funds, having in mind that the Ministry had registered expenditures regarding WTO to different items.

Regarding EXPO 2000, expenditures haven't been planned by items. That way, Ministry was not able to monitor and follow-up real expenditures comparing to planned ones in an appropriate way.

Audit Office recommends to Parliament to pay special attention to lacking regulations. It is an opinion of an Audit Office that appropriate legal regulations, rules and their interpretations/explanations should be adopted by shortened procedures, or an interim decision on use of Entities regulations should be adopted.

Accounting system for this kind of projects should be established so that the Ministry can monitor and follow-up real expenditures and revenues at any time. Furthermore, it is necessary to establish a practice of defining of project elements for all public project, according to which, even before the project starts,  precise data on: manager, staff, project administration, project plan (with clear, visible, measurable and concrete objectives, phases, time-schedule, etc.), project documentation, periodical and final reporting, final project document - objectives and results analyses would be known.

IV. ATTACHMENTS

Balance sheet of the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina on 31^st December 2000³:

Income statement of the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina between 1^st of January and 31^st December 2000⁴: