1. BACKGROUND

1.1.    We have audited and revised the financial reports and operations of the Ministry of Foreign Affairs of Bosnia and Herzegovina (hereinafter referred to as: the Ministry), concluded with the condition found on 31 Dec. 2001. These financial reports are under competence of the Ministry. It is our responsibility to introduce our opinion about these financial reports on the basis of the conducted audit, therefore in compliance with an Article 13 of the Law on auditing the financial operations of the Institutions of BiH (Official Gazette of BiH, No:17/99) we hereby inform on 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 Ministry's use of resources while performing its functions.

1.2.    An audit is conducted in the period from 13/05/2000 to 07/06/2000, in accordance with overall accepted auditing standards and standards of the International Organization of the Supreme Auditing Institutions INTOSAI. These standards require for the audit to be planned and conducted with an aim to achieve reasonable basis of evaluation - whether the financial reports represent the exact and true preview of operations during the year and condition at the end of the year.

1.3.    The audit research has covered the Head Office of the Ministry in Sarajevo and five state-consular Missions (hereinafter referred to as: the Missions), whose documentation is stored in the Head Office in Sarajevo, and those are: Embassy in Amman, Embassy in Budapest, Embassy in Canberra, Embassy in Ottawa and Embassy in Rome.

1.4.    Our audit is liable to a risk that important mistakes and irregularities will not be revealed due to a fact that some documentation was not covered by an audit and it refers to the remaining Missions, whose documentation is stored in the Head Office or the Missions whose documentation is kept abroad. 

1.5.    Having the control of an entity comprised within, we believe that audit has collected enough proof to introduce our opinion.  

2. AUDITOR’S OPINION

According to our opinion, financial reports of the Ministry of Foreign Affairs in the year 2001 are realistically and objectively presenting the financial position of the Ministry and they are in compliance with the laws and overall accountancy standards on a day of 31 Dec. 2001, except for the effects comprising the Sections that refer to the following:

• Consular taxes collected by the Missions abroad in 2001 were not regularly paid into budget of Bosnia and Herzegovina and were partly kept in the Missions (paragraph 4.1.1);
• Real condition of listed fixed assets of the Ministry (fixed assets in Head Office in Sarajevo and fixed assets in the Missions) is not in compliance with the book-keeping condition of fixed assets on 31 Dec. 2001 (Section 4.1.3);
• Foreign currency inflows into the count of the Head Office in Sarajevo were not transferred (paid into) to the Single account of treasury (Jedinstveni raèun trezora / JRT), but just registered into operation books of the Ministry, what has partly influenced the appearance of revenue surplus over the expenditures (Section 4.1.4);
• Taxes and contributions from salaries of Mission employees abroad were calculated for the year 1999, 2000 and 2001, but not paid in to the public revenues regular accounts of Bosnia and Herzegovina.  (Section 4.1.5);
• Procurement procedures of fixed assets and services were not all conducted in compliance with provisions of the law or announcing public tenders and through the collection of the competitive bids.  (Section 4.1.6); 

3.  PREVIEW OF THE CONDUCTED AUDIT IN 2000

Audit Office has carried out the audit of the financial reports of the Ministry, in the year 2000, and found certain irregularities and spuriousness based on which the Ministry was given recommendations on how to remove those irregularities.  

Preview of the realized recommendations or instructions, the ongoing activities as well as those instructions that were not yet realized, refers to the following:

Realized recommendations:

• Central account of the Ministry in Munich for the year 1999 and 2000 is listed and put into evidence contrary to balance, and as for the year 2001 / central account was listed and presented in operation books and thus comprised within the financial reports of the Ministry for the year 2001;
• The evidence of passports is founded on the basis of reports extended by the Missions abroad, therefore the Ministry keeps track and evidence on quantity of the passports according to serial numbers of the passports taken, issued (printed) passports, abolished passports and passports in total. Evidence contains monthly and accumulative data throughout the given year;
• Consular taxes collected in the Head Office of the Ministry in Sarajevo during 2001 and on the basis of the issued affidavits, were paid in into the budget account;
• Found travel claims, concluded with date 31 Dec. 2000, amounted 443.574 KM, were claimed only at the beginning of 2001;
• Un-evidenced cash raised from the cashier for indisposed employees concluded with 31 Dec. 2000 amounting 532.534 was debit sided at the cashier at the beginning of the year 2001, with fulfillment of obligations towards the indisposed employees;
• Certain corrections of evidence were done at the beginning of 2001 due to wrongly presented balance positions in 2000 (debt redemption in Head Office for 109.240 KM, difference in course in London Embassy of 62.637 KM);
• December salary in 2000 was not entered into evidence before the beginning of the year 2001;
• Problem of indisposed employees is resolved during 2001;
• Ministry has issued the decisions on salaries of the employees in the Head Officer of the Ministry;
• Final preview of balance positions concluded with 31.12.2000 were correctly transferred as the starting condition on 01.01.2001.

ONGOING ACTIVITIES:

• Unpaid consular taxes in the Missions abroad were still partly kept in the Missions, however an obligation of consular taxes, concluded with date of 31 Dec. 2001, amounting 4.546.120 was acquitted at the beginning of 2002;
• Part of internal financial relations between the Head Office and the Missions abroad is standardized and put into evidence in 2001, while the standardization of the remaining part of the internal relations is in process;
• Taxes and contributions on the salaries of employees in the Missions abroad were calculated for 1999, 2000 and 2001. The debt on this basis is introduced in the operation books of the Ministry, only for the year 2001. Total debts or liabilities were not settled as yet; 
• Regular monthly monitoring and reports by the Missions abroad done on the basis on the revenues and expenditures during one month were not confirmed in 2001. With the beginning of 2002, the Missions start with forwarding regular monthly and cumulative reports on achieved and planned revenues and expenditures to the Ministry Head Office;
• Ministry did not set the rules of expenditure (for individual categories of expenses) that precise the expenditure and define the expenditure criteria. Some decisions were made only at the end of December 2001;
• Ministry has put into evidence the operational changes during 2001, according to old a/c (account) plan. Transfer to a new a/c plan is carried out at the beginning of 2002.    

Non-realized recommendations:

• The real condition of the listed fixed assets is not standardized with the condition stipulated in operation books of the Ministry on 31.12.2001, which was confirmed to be an irregularity with the condition presented in 31.12.2000;
• Survey of the budget execution according to the types of expenses was not conducted due to impossibility to cover data of all the organizational units (Head Office and 53 Missions). This lack causes the maladjusted accountancy program unable to recoup the individual expenses of all Missions and  Head Office into the cumulative expenses of the Ministry;
• Ministry did not prepare a consolidated  financial report that considers the exclusion  of internal financial relations between the Head Office and Missions;
• Financial documentation is not fully liquid and authentic, and it is not complete for some of the Missions that extend their documentation into Head Office;
• New organizational scheme of the Department of finances, that would provide the qualitative conduct of the financial and accountancy operations, has not yet been implemented;
• Transformation of internal inspectorate department of the Ministry into the internal audit department, which would largely assist the external auditing, has not been carried out.

 4.   AUDITOR’S FINDINGS, REMARKS AND RECOMMENDATIONS

 4.1. Internal control system

Establishment of the quality internal control system that comprises the composite of procedures formulated by the leadership and employees aiming to prepare the reliable financial reports, to operate in compliance with the law and environment protection, is especially important in large organizational units, such as the Ministry of Foreign Affairs.

Although there’s been a progress in this field, yet it can no be claimed that the Ministry of Foreign Affairs has a reliable internal control system. On the contrary, our notes speak of many weaknesses of this system that are most visible in the field of tax payment, asset listings, transaction evidence and respect of regulations. 

4.1.1. Collection and payment of consular taxes

In 2001, the Missions have had the currency inflow, from the consular taxes abroad, amounting 12.192.688 KM. When we add 1.244.330, 00 KM to this amount, the incumbency (obligation) on the basis of consular taxes in 2000 is amounting 13.437.018 KM, which represents the total obligation of the Ministry towards budget of BiH.

Out of the aforementioned amount, there was 8.890.898 KM paid into the account of the BiH budget by 31.12.2001, therefore the debt of the Ministry towards budget amounts 4.546.119 KM, concluded with 31.12.2002.

This obligation (debt) is settled at the beginning of 2002, when the Ministry of treasury transferred the regular subsidies for financing the DKP (Diplomatic and Consular Missions) network abroad in 2001, amounting 8.065.000 KM, and the Head Office of the Ministry has issued the instructions to all the Missions for debt redemption on the basis of collected consular taxes, thereof the total obligation of the Ministry in line with the charged consular taxes in 2001 was paid in into the account of BiH budget.

In compliance with Law on administrative taxes, the Ministry was obliged to pay in all the charged and collected taxes into the account of the budget-treasury.

Ministry justifies the detention of consular taxes by Diplomatic and Consular Missions network as due to the non-regular warrants issued by the Ministry of Treasury. 

Having analyzed the warrants, we have found that monthly Treasury warrants were carried out in parts (trenches), and the last trench during every month was in two months tardiness since the date of submission of request for transfer of means.  

Besides the objective difficulties that refer to the regular financing of DKP network from the budget, such detention of consular taxes done by the Ministry can result with non-regular financing of the budget of BiH and it represents a disrespect of the laws and provisions.

The Missions that do not substantiate inflows from the consular taxes, or when those inflows are much lessened, could be put in an unequal position in comparison with the Missions that do substantiate this inflow and have an opportunity to use these means in the case when the regular budgetary subsidies are lacking.

Preview of the charged and transferred taxes into budget of BiH is presented in the chart below:

PREVIEW OF THE TAXES CHARGED AND TRANSFERRED IN TO BiH BUDGET IN 2001

Chart No. 1                                      Amounts presented in KM

We have recommended to the Ministry to regularly inform the treasury on its obligations based on consular taxes and should they have the treasury permit, they could use these assets in compliance with the approved budget and Law on budget execution.

Audit was given the reasonable assurance regarding the difficulties aroused during the payments (levies) of the incomes derived from the consular services into account of the budget as well as the financing of the Ministry from the budget  as well as that the Ministry of Treasury is introduced with the with the problem of tax detention in the DKP network.

Having in mind the difficulties in implementation of the Law on administrative taxes, the audit office proposed to the Parliament of Bosnia and Herzegovina to define more precisely some of the Articles of the Law (terms of tax payment, responsibilities, sanctions, etc.), and way how to transfer these taxes into budget of Bosnia and Herzegovina (for example: direct transfer onto account of the budget and not in foreign currency account of the Mission abroad).

4.1.2. Passport evidence

Ministry substantiates mayor part of incomes/revenues from the consular services through sale of the passports abroad. Due to large importance of these incomes, audit office pays a special attention to this matter.

Ministry established certain internal controls related to the passports in comparison with the year 2000, which primarily refer to the natural evidence of the passports on the basis of the reports submitted by the DKP network.  Ministry keeps track of the monthly condition of the debit sided, sold and annulled passports, according to the serial number and passports registered in some of Missions, monthly, cumulatively during the year and at the end of the year.

In the findings for the year 2000, audit office has highlighted the problem of overall comprehensiveness of revenues from consular services, which considers that the ministry that the Ministry should determine whether all the incomes from the consular services are presented in the operation books, in other words – whether all the quantities of the sold passports, visas etc., are in accordance with charged and presented amounts of incomes from the consular services. Audit office derivative example, which is not fully precise since the audit office used only one price of the passport, looks like this: In 2001, Ministry has printed 55.733 passport booklets  X 210 KM = 11.703.903 KM of income from the issued passports.

Ministry did not establish this type of control throughout or at the end of the year, although the Audit office calculative operation gives approximately the same  amount of the collected incomes from consular services, which makes 12.192.688 KM according to the operation books of the Ministry (as evaluated, surplus refers to other types of the consular services).

The lack of the aforementioned internal controls can result with an incomplete evidence of the inflows from the collected consular fees abroad in the operation books of the Ministry. 

Audit office has recommended to the Ministry to provide the standardization of the natural and security evidence of consular services maintained by the Department of consular affairs, with incomes from consular fees registered in the operation books.

4.1.3. List of fixed assets 

Fixed assets list is a binding process conducted at the end of the year for the purpose of standardization of real condition and book-keeping condition.

Ministry has made a regular yearly listing (state of account) of the fixed assets in the Head Office in Sarajevo and in the Missions abroad. However, the lists of fixed assets are not in accordance with the state of fixed assets in Ministry books. According to the book-keeping data, total procurement value of the fixed assets amounts 18.069.192 KM, correction – the value amounts 6.501.141 KM, and current fixed assets value of the Ministry amounts 11.568.051 KM.

Since the Ministry did not confirm that the real state (according to listing) is in compliance with the state presented in operation books, there is a risk of lacks or surpluses of fixed assets. On this basis, Audit office is not able to verify the abovementioned fixed assets values.

Due to non-existence of standardization between the real state and state of fixed assets in books of the Ministry, there is an increased risk of appearance of fixed assets lacks or surpluses that were not verified by the listing (the state of account) nor were they investigated.  

We have recommended to the Ministry to standardize the lists/state of accounts of all Missions and Head Office with the states registered in the Ministry books, to investigate on eventual surpluses or lacks of fixed assets and implement appropriate evidence entries.

4.1.4. Foreign currency inflow from abroad

Having the bank accounts checked, we found that there was a foreign currency inflow to the Ministry of Foreign Affairs account in Union Bank in Sarajevo, amounting 1.626.890 KM, and through the central account in Munich it amounted 333.000 KM.

Substantiated foreign currency inflows refer to the following:

• Contribution (levy) from the Central account in Munich (party No. 8001) made on 12/03/2001 paid into the Ministry account with UNION Bank in Sarajevo amounted 370.000KM (370.000DEM). Ministry has issued the warrant for party 8001 closure  on 23.07.2001;
• Contribution (levy) from the Central account in Munich (party No. 8004) made on 02/02/2001 paid into the Ministry account with UNION Bank in Sarajevo amounted 953.152 KM (746.944 CHF). Ministry has issued the warrant for party 8004 closure on 23.07.2001. since the account state of this party is 0,00;
• Cash payment transferred from Vienna, carried out on 26.04.2001 in favor of Ministry on the account in UNION Bank Sarajevo, according to the Ministry internal control, amounted 303.738 DEM. Converted in KM;
• Contribution of 333.000 KM (150.000 USD) from the account of Embassy in Kuala Lumpur is made on 02.08.2001 to the Central Ministry’s account in Munich (party No. 8000), according to Ambassador’s note.  The assets were not used, concluded with account state found on 31.12.2001 (party No. 8000), which is still in function with an aim to regularly finance the Diplomatic and Consular Missions abroad. 

Audit Office did not manage to confirm the origin of these assets due to a lack of proofs, while the employees of the Ministry informed us that those assets are the consequence of the Ministry state settling, the internal inspectorate operations, adding that those assets are the remain from the previous years. Therefore, when we asked for the clarification of the origin of the means extended from the Embassy in Kuala Lumpur, we were replied to that these means were simply found and transferred onto the account, while the cash that was brought from Vienna probably points at the money, which was kept in the special cashier upon signing the Dayton Peace Agreement and the transformation of the Ministry.

Ministry did not pay in the substantiated foreign currency inflow from abroad, in total of 1.959.890 KM, on the Single Treasury account as stipulated in the Article 5. Paragraph 2, of the Law on treasury of the Institutions of Bosnia and Herzegovina.

Separate amounts are standardized with confirmed balance received from Union Bank, Sarajevo. Foreign currency account with union bank was closed on 26.02.2002, and the rest of the assets, amounting 112.166 KM, were transferred in to the Single Treasury Account.

Central account with Deutsche Bank Munich is in accordance with the received balance confirmation from the Bank in Munich.

The assets are stored in operation books of the Ministry and used to provide normal functioning of Diplomatic and Consular Missions network abroad; they amounted 689.794 KM while the rest was used for debt redemption to the suppliers and to pay the compensations to the indisposed Ministry employees.

Registered foreign currency inflow has partly increased the surplus of revenues over the expenditures and total surplus of the revenues over expenditures amounts 5.634.601 KM, as stipulated in Balance of Ministry state concluded with date of 31.12.2001.

We have cautioned the Ministry that it is bind to make the complete and timely contributions payments into the Single Treasury Account, in compliance with the instructions by Ministry of Treasury and as stipulated by the Law on treasury of the BiH institutions.

The Law on budget execution and treasury instructions specified that total surplus of the revenues over the expenditures represents the obligation of the Ministry in order to reimburse the assets on the account of the budget.

We have recommended to the Ministry to standardize the dynamic of the assets reimbursement with the Ministry of Treasury, due to problematic faced in transferring the means from budget.

4.1.5. Taxes and contribution on salaries of the employees in DKP network

In the last year’s report, we have found that the Ministry did not make the settlement, evidence and payment of taxes and contributions on the salaries of employees of the DKP network.

In the year 2001, the Ministry has carried out the complete calculation of taxes and contributions in 1999, 2000 and 2001, taking into consideration the net earning basis of the employees in Head Office of the Ministry in Sarajevo.

Calculated taxes and contributions on this basis make:

·       in 1999, calculated 1.265.315 KM,

·       in 2000, calculated 1.490.015 KM,

·       in 2001, calculated 2.048.059 KM

                              Total:     4.803.389 KM

Calculated amounts of taxes and contributions in 1999 and 2000 were not included in the operation books of the Ministry as an obligation, while the amount in 2001 was calculated in as an obligation (concluded with 31.12.2001), and in accordance with instruction for transfer of means from the budget it was approved by the Ministry of Treasury.  The assets/means were not consigned during an audit.

On this basis, total obligations on taxes and contributions of the employees in DKP network in 1999, 2000 and 2001, were not settled (paid) in the prescribed accounts for the payment of the public revenues.

This matter could cause the interruption of the pension and disability insurance payment for the employees in DKP network.

From the Audit office’s point of view, the obligations that were not presented and do refer to 1999 and 2000 (amounting 2.755.330 KM) represent the potential obligations or debts of the Ministry and they may appear in the forthcoming period. Likewise, the total debt redemption, amounting 4.803.389 KM, is not certain regardless to the fact that the Ministry of Treasury approved the payment of obligations on this basis and for the year 2001 (amounting 2.048.059 KM). 

Audit office has recommended to the Ministry to resolve this problem as soon as possible and in cooperation with the Council of Ministers and the Ministry of Treasury.

4.1.6. Procurement procedures

Direct consequence of weakness in internal control system of the Ministry is a disrespect of the provisions regulating the assets procurements, services and operations resigning.

Thus, for some procurement of fixed assets, materials and services, whose value exceeded 10.000 KM per year, Ministry did not go through the procedure of public announcements and selection of the best provider/contractor, as defined by the Article 16 of the Law on budget execution in the year 2001. This primarily refers to:

• procurements of office material (total value of procurements from the provider “Teget” Sarajevo amounts 56.672 KM, and from the provider "Svjetlost komerc" Sarajevo : 35.664 KM),

The selection of the best provider of office material is done through the public announcement (invitation for bids) in December 2001, but the procurements from the selected provider did not take place in 2001.

• computer equipment procurements (total value of procurements from “Godimerc” Sarajevo provider amounts 16.262 KM),
• vehicle procurements (value of procurements from "Taliæ komerc" – Zenica provider amounts  39.720 KM),
• maintenance and reparation of buildings (total value of works undertaken by "Al inženjering"  contractor amounts 15.855 KM ),
• maintenance and reparation of vehicles (total value of reparations by "AC Quattro" contractor amounts 32.169 KM),
• Visual communications establishment – headlines, etc. (Value of services provided by "Gir   Design" Sarajevo amounts 22.433 KM).

Consequence of not following the stipulated procurement procedures could be the irrational use of the public resources and favoring just certain providers or contractors.

We have cautioned the Ministry that they must respect the stipulated legal procedures when procuring the fixed assets, materials and services, and hence provide full transparency of this process.

4.1.7. Rules and procedures

Audit has found that Ministry had no firm rules and procedures that specifically define individual expenses such as: telecommunication expenses, official vehicles use expenses, representation expenses, gifts-purchase expenses, specialization and training seminars, etc.

In stead, there were several decisions made at the end of 2001, limiting certain types of expenses.  However, these decisions did not precise the criteria of expenditure and permit issuance procedures, that could influence the rational use of public resources. 

Audit Office has recommended to the Ministry that, aside from the decisions made in 2001 on certain expenses, it should come up with Internal Rules for all important public assets expenditures, which is to define the criteria and precise the rules of expenditure. 

4.1.8. Financial documentation

Ministry did not provide the complete liquid and authentic documentation that presents the operational changes in book of operations. Having controlled the documentation, the audit has found that some of the accounts of Ministry were not properly verified and signed by the relevant authority or the authorized person, in the moment when the expenses were made. Likewise, there was no approval for payment issued by the competent body or by the Head Office of the Ministry for some of the payments in the Missions, in cases of certain expenses and compensations.

It was also found that some of operational changes were not registered in the books of operations of the Ministry and on the basis of the authentic and original documentation, thus the evidence was done on the basis of the copies of invoices, preliminary invoices or provider’s letter of offer.

The lack of these controls could result with an unauthorized procurement of goods and services that will be paid or with the payments that are not approved. 

We have reminded the Ministry that the operational changes must be put into evidence of the operation books and on basis of the original and authentic documentation that is to prove the arise of the operational change, which must be approved and verified with signature of authorized persons, approving the payment and proving that goods procurement or the service provision was really carried out.

4.2.         Budget control system

4.2.1. Survey over the budget execution

Total planned expenditures of the Ministry, according to the adopted budget in 2001, amounted 42.403.023 KM. Substantiated expenditures of the Ministry in 2001 amounted 42.408.976 KM, which is to show that there was 5.953 KM spent more than initially planned or 100,01 %.

Ministry has based the planned categories of salary expenses on the basis of foreseen number of employees in compliance with systematization of posts/positions (which foresees 532 of employees). However, the real number of employees in the ministry is 449.

Ministry did not overpass the total amount of planned expenditures in budget (transgressed amount of 5.953 KM is not material), but certain categories of expenditures were overpass and those are: salaries of employees (2.246.183 KM, which is due the registered obligations and taxes on employees in DKP network), contracted services (595.748 KM), ongoing grants (21.922 KM) and capital expenses (734.268 KM). 

Ministry has missed to conduct the comparison analysis in relation with planned amounts in budget and demand from the competent institutions the approval for recast of some of the items in the budget, before they made payment of the aforementioned expenditures.

Preview of the budget execution in 2001 is shown in the following chart:

PREVIEW OF BUDGET EXECUTION IN 2001 

Chart No. 2.                                                  Amounts in KM       

* Total for 2001 is 850.000 KM. The rest of 650.000 KM is executed in the year 2000.

Ministry is not able to have the efficient survey over the budget execution by monitoring the budget execution according to the structure of the expenses planned in budget. Monitoring of budget execution can only be carried out as an overall monitoring in relation with total approved budget.

Survey over the budget execution, according to the structure of expenses, was not done due to impossibility of having the cumulative bookkeeping cover of data of all the organizational units (Head Office and 53 Missions). This lack is causing the unconformity in accountancy program, which has no opportunity to unite the individual expenses of all Missions into cumulative expenses of the Ministry that would be compared with planned categories of expenses in budget.

The aforementioned lack could, in the future, because the exceeding of certain categories of expenses in relation with planned categories in budget.

Ministry is recommended to provide cumulative financial data during year (primarily expenses) of all organizational units and to regularly (monthly) standardize such data with planned categories of expenses foreseen by the budget. In order to realize this recommendation, Ministry must get the proper software for bookkeeping, which would provide the cumulative cover of all individual databases.

We have also suggested that when planning budget paragraphs, the Ministry is to make such planning so that the projected Sections and paragraphs would contain the real needs of the Ministry with reference to the existing number of employees and planned activities to be undertaken.

4.3.         Accountancy

4.3.1. Expenses from the previous years

In 2001, the Ministry has introduced the expenses from the previous years and paid them during he same year (2001) in total amount of 181.463 KM, so the registration of the operational changes was not done in the calculation period when the operational changes took place (accountancy principle of modified event appearance).

Evidence of expenses from previous years has resulted with introduction of increased expenses and obligations in 2001 and their redemption and payment with the budget assets aimed for the expenses of the current year.

Ministry is warned that all operational changes aroused in the proper calculation period must as well be introduced (calculated) in the same period, as stipulated by the accountancy provisions and regulations, principles and standards.

4.3.2. Consolidation of financial reports and internal relations

By 31.12.2001, Ministry did not prepare the consolidated financial reports that consider the cumulating of all organizational units with exclusion of internal financial relations. Internal relations within Ministry appeared between the Head Office and some of Missions (DKP) so the claims of Head Office form DKP were, at the same time, the obligations or debts of DKP towards the Head Office and vice versa.

Such relations exclude each other but, prior to this, they must be standardized, i.e. equal.

Ministry has prepared the cumulative financial report without exclusion or inter-annulment of the internal financial relations.

Simultaneously, internal financial relations that are in the evidence of Head Office were not standardized and registered in Ministry books.

With following Charts, we introduce the preview of the standardized and non-standardized internal relations:

Chart No. 3.                                                        Amounts in KM

Chart No. 3/1                                                  Amounts in KM

Non-clarified and un-conformed part of internal financial relations amounts 996.843 KM, which refers to the states from the previous years (1999, 2000).

Unconformity of internal financial relations influences the reality and exactness of financial reports of the Ministry and makes it impossible for the Ministry of Treasury to prepare the objective consolidated reports for all users of BH budget that are the basis for qualitative decision making in budget planning process.

We have recommended to the Ministry to fully resolve and standardize the internal financial relations and make all the appropriate evidencing in their operational books, and therein create the conditions for preparation and distribution of consolidated reports in compliance with positive regulations.

5.           CORRESPONDENCE

Upon completion of an audit, a draft report was sent to the Ministry, on 08.07.2002. On 17.07.2002, Ministry sent a reply with the specified clarifications related to the removed irregularities found by the Audit of the account in 2000, and measures that the Ministry undertakes for the purpose of further promotion of operations.

6.           SUMMARY / RESUME

During auditing of Ministry’s financial reports in 2001, the audit office found that:

• In comparison with previous year, ministry has made a huge progress in establishment of the internal control system although this system has not yet reached the necessary level;
• Collected consular fees in Missions  abroad were not regularly paid into budget , but partly kept in the Missions due to the tardiness of regular subsidies from budget;
• Real state of fixed assets of the Ministry is not standardized with the state presented in the operation books of the Ministry, concluded with 31.12.2001;
• Foreign currency inflows from abroad were not paid into the Single Account of the Treasury;
• Taxes and contributions, on the salaries of employees of the Missions, were not paid into the suitable accounts of public revenues in;
• Fixed assets procurement procedures and services were not, in all cases, carried out through the announcement of public tender and selection of the best bids;
• Evidences of passports were not standardized with the incomes from consular fees, in the Ministry’s books of operations;
• During 2001, Ministry did not set the rules and procedures of expenditures for certain categories of expenses;
• Ministry did not provide the efficient survey or monitoring over the budget execution;
• The expenses from the previous years are put in evidence of the operation books in 2001 and partly covered from the budget assets for the year 2001;
• Financial documentation of the Ministry is not fully liquid and authentic;
• Part of internal financial relations of the Ministry is not completely clarified and standardized.

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