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
	Transparency of programs
	Missing rules and regulations
3.2. Budget control system and exceeding of budget
	Renting and adjustments of the premises
3.3. Application of laws
	Non-recorded liabilities
	Procurement of capital assets
	Employment procedures
4. REFUGEES PROGRAM FINANCED BY BUDGET
4.1. Division of funds
4.2. Use of funds
5. UNHCR PROGRAMS
5.1. Project: Refugees – asylum centers
	Exceeding of budget and individual budget lines
	Use of funds for purposes different than originally planned
5.2. Project: Support to the Ministry
5.3. Conclusions and recommendations
6. Correspondence with the client
7. ATTACHMENTS
	Balance sheet
	Income statement
	Overview of division of funds regarding the Refugees Program Financed by Budget

1. AUDITOR'S OPINION

1.1. Office for Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina  (hereinafter Audit Office) has performed audit of financial statements (including the decisions made by the management) and financial operations of the MINISTRY FOR HUMAN RIGHTS AND REFUGEES (hereinafter: Ministry) regarding the fiscal/financial year 2000.

Audit has been performed in a period from June 13, to July 30, 2001 and based on the provisions of the Law on Audit of Financial Operations of the Institutions of Bosnia and Herzegovina ('Official Gazette of BiH', number 17/99).

It is a responsibility of the Audit Office to perform the audit of financial statements in accordance with the generally accepted audit standards – INTOSAI standards – published in 'Official Gazette of BiH', no. 05/01) in order to estimate if they have been presented in a true and fair way.

Management of the Ministry is responsible for the financial statements, and the responsibility of the Audit Office is only to express the opinion on these reports based on audit performed.

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

• if the accounts have been made in accordance with the valid legal regulations;
• do the annual report present a fair and true view of the operations during the year and the status at the end of the year;
• o economy, efficiency and the effectiveness of use of public funds by the Ministry regarding their functions.

Audit procedure has been performed in accordance with the generally accepted audit standards and the INTOSAI standards, which means that the audit has been planned and performed in order to obtain reasonable grounds in order to estimate do the financial reports present the status in a fair and true way. This is why audit has examined samples of important transactions and decisions by the Ministry's management. Audit has encompassed the application of legal and other regulations, Ministry's internal structure – organization, and the financial-accounting operations of the Ministry.    

1.2. We believe that the audit performed gives reasonable grounds for expressing of our opinion:

Regarding the financial reports made in the Ministry for Human Rights and Refugees, we give a qualified report, since we haven't had enough of reliable evidence to entirely, without reserve, confirm that the financial reports of the Ministry show, in all significant matters, a realistic and fair view of financial status and the changes in financial status.

1.3. We gave a qualified opinion because of the following reasons:

• Audit has established that the liabilities made in year 2000 in an amount of 179.709,04 KM have not been recorded in a bookkeeping records;
• Audit has established violation of certain legal procedures and regulations.

2. SUMMARY

Audit Office has performed an audit of financial operations of the Ministry in accordance with the Law on Audit and INTOSAI standards, and has taken into consideration general conditions of the environment in which the Ministry was functioning, in year 2000, when there were missing financial-accounting regulations at the level of Bosnia and Herzegovina, and when the mechanisms of control foreseen by laws weren't fully operational.

We have noted and recorded lacks related to budget planning, and especially when reporting on Refugees Program financed from budget, which was not planned with clear and concrete objectives and tasks.

Audit findings confirm that there were significant irregularities and lacks regarding the spending of budget funds, and that the management's internal controls system was not efficient enough.

Audit Office has established that the programs that the Ministry was implementing in year 2000 weren't transparent enough, because there were no appropriate regulations and procedures of the distribution of funds, nor there was relevant evidence from final users of these funds being used for their original and proper purpose.

These programs have been addressed separately, in Chapters 4 and 5, because of the specific problems they are linked with.

It has been stated that there were certain weaknesses in reporting procedures, which weren't prescribed and organized in an efficient and functional way, and which represented huge difficulties regarding the management of the Ministry. This certainly caused number of irregularities that were recorded during the audit.

3. AUDIT FINDINGS AND RECOMMENDATIONS

3.1. Management's system of internal controls

During the audit, Audit Office has found and recorded significant lacks in management's internal controls system (controls that are established by the management) of the Ministry. Irregularities and lacks relate to following: non-existence of internal regulations and rules for many sorts of expenditures (representation costs. PTT costs, use of Ministry's vehicles, use of stationery), certain weaknesses have been stated in co-ordination and reporting procedures, and related to the transparency of projects that the Ministry has implemented, as well as within the procurement procedures for goods and services that are not in accordance with legal regulations.

It is an opinion of the Audit Office that the management of the Ministry has not been entirely fulfilling all the necessary requests that they are obliged to within their administrative jurisdiction according to the existing legal regulations.

3.1.1. Transparency of programs

While auditing the Refugees Program we have established that the level of transparency of this program is not sufficient. When saying this, first of all we think that the regulations, conditions and procedures for distribution of funds to final users weren't established clearly and precisely, nor the distribution criteria applied was made public.

We have stated that the Ministry does not have satisfactory reporting procedures, neither related to periodical reporting nor related to the submission of final reports on the implementation of project.

Audit Office recommends clear defining of conditions, rules and procedures for distribution of funds in future implementation of projects, in a transparent way. Audit Office recommends that these should be made public, and that the procedures of permanent monitoring and reporting on implementation of projects should be introduced. We also suggest the establishment of practice of defining of public projects by precise and measurable objectives and efficient financial-accounting monitoring.

3.1.2. Missing rules and procedures

Audit has established that the Ministry did not adopt the Internal Structure Rulebook, nor the rules and procedures that would precisely define certain expenditure categories that would help it to function in a more efficient and rational way.

Audit Office recommends to the Ministry to adopt the Internal Structure Rulebook as soon as possible, and to, either on its own, or in cooperation with the Council of Ministers, adopt interim or standing rules and procedures that would precisely norm the spending within the categories of most frequent and biggest expenditure items within the budget.

3.2. Budget control system and exceeding of budget

Audit has established insufficiently efficient system of internal controls related to budget within the Ministry, as well as poorly organized reporting system, that eventually caused the exceeding of budget. 

Totally planned expenditures for current operations according to the year 2000 budget for this Ministry were, and they were actually made in an amount of 1.036.104,88 KM (without the liabilities that have not been recorded). 

Client did not persistently follow provisions of budget and the Law of Execution of Budget, which precisely define categories and amounts of certain expenditures, so that in certain cases exceeding was made at certain budget items (i.e. reimbursements for the employees).

Exceeding of certain expenditure categories was financed by redistribution from other expenditure items that were executed in amounts less than planned, as well as from the funds that were planned for other purposes, which presents violation of Article 11 of the Law on Execution of Budget.

Reason for this phenomenon lies partially in the planning of the year 2000 budget itself, having in mind that the plans of sufficient quality weren't made, and because of the fact that this is a newly established Ministry functioning from July of 2000.

Reimbursements for the employees were planned in an amount of 55.290,00 KM, and were actually made in an amount of 201.589,00 KM, which makes 264,60 % exceeding when compared to plan, which presents a violation of Law on Execution of Budget.

Structure of reimbursements:

Audit Office has established that the religious holidays allowance was partially paid out of funds intended for the Refugees Program, in an amount of 51.451,80 KM.

Ministry is obligated to follow the provisions of budget and Law on Execution of Budget, meaning it has to accord the expenditures with the funds planned.

Reimbursement of funds from one budget item to another is possible only with consent of the Council of Ministers.

Audit Office recommends to the Parliamentary Assembly to take appropriate measures for in order to obtain more rational, efficient and legal managing of budget funds.

3.2.1. Renting and adjustment of premises

Ministry has solved the problem of lack of office premises by making a contract number 8/00 on July 8, 2000 with «Šipad – Šumaprojekt» Ltd. Sarajevo which regulates following items: price of renting, electric power costs, water and communal services costs, central heating and security services.

According to the contract, monthly expenditures for renting were 23.070,00 KM (30 KM x 769m2). Audit Office has established that the Ministry did not pay contracted amounts of 130.940,90 KM with December 31, 2000.

According to the contract, Ministry had paid costs of adjustments of the premises in a total of 29.691,50 KM.

By making an insight into the existing documentation in the Ministry, we have stated that there was neither public invitation for bids regarding the renting of premises nor an invitation to tender for adjustment of premises.

It is an opinion of the Audit Office that the Ministry should have had announced public invitation for bids for renting of premises and the adjustment of premises, considering the total amount of the investment made.

Also, we recommend that the problem of the liabilities that have not been paid yet to be solved as soon as possible, in order to avoid possible new liabilities that might be caused by court case or sue.

3.3. Application of laws

Ministry's management has, on several occasions violated existing legal regulations, and they bear certain degree of responsibility related to this. But, there is a fact that the legislation in certain cases was not clear and precise enough, which made management's decision making harder.

Audit findings in the area of application of laws include violations or inconsistency in cases of execution of budget, lack to record the liabilities, procurement of capital assets, and the employment procedures in the Ministry.

3.3.1. Liabilities that have not been registered - recorded

Audit Office had established that the Ministry did not register the liabilities that were created during the year 2000 in an amount of 179.709,04 KM. This directly influences the truthfulness and fairness of financial reports that were subject to audit.

Lacks and faults made violate the provisions of the accounting rules, principles and standards, so the status given does not represent a realistic view of liabilities created during the year 2000.

In the future, Ministry would have to record all the liabilities created during the year, according to the principle of modified accrual basis of accounting, so that the financial report would give a fair and true view of status.

3.3.2. Procurement of capital assets

Ministry has received, from budget reserve funds, an amount of 80.644,00 KM for procurement of capital assets, and the Ministry has spent, for that purpose, an amount of 98.376,00 KM. Costs for procurement of capital assets were related to procurement of the office furniture and the equipment, air conditioning devices, and the voice and data transmission equipment and devices.

Audit has established that the Ministry did not respect legal procedures during the procurement of capital assets. This represents a violation of Article 16 of Law on Execution of Budget («Official Gazette of BiH», no.10/00).

Ministry's management is responsible for consistent application of Law on Execution of Budget, and especially, Article 16, which relates to announcing of public tenders.

3.3.3. Employment procedures

In a year 2000, 67 new workers have been employed. By an insight into the personnel files we stated that 29 workers have been employed without public vacation notice, which is not in accordance with the legal regulations.

Ministry, meaning its management is responsible for consistent application of valid legal regulations related to the employment of new personnel.

4. REFUGEES PROGRAM FINANCED FROM BUDGET

Funds in an amount of 1.951.510,00 KM were allocated to the Ministry for the purposes of Refugees Program.

Auditing of this Program was difficult because the Program itself was not clearly and precisely defined from the very beginning, meaning that the scope and objective of the Program were not defined, nor was the structure of expenditures within the amount allocated.

4.1. Distribution of funds

Audit has stated that the amount of 1.951.510,00 KM was split – divided into three parts, as follows

Audit Office had no insight into the documentation – records based upon which we could verify the above-mentioned division of funds for the refugees. It is an opinion of the Audit Office that there was simply a "gentlemen's agreement" made between the Ministry managers regarding the distribution of funds.

4.2. Spending of funds

Audit Office had established that the distribution of funds system functioned on the basis of decisions made by the Ministry's management.

Funds were transferred to following users:

Within the funds allowed for the Refugees Program, there was a project implemented, of manufacturing of prefabricated houses for the Bosniac and Croat returnees to Republic of Srpska.

In order to implement this project, a contract was made with the GLOBAL LTD – LIMITED LIABILITY COMPANY – WYOMING, Split – Croatia, Finland office, about the delivery of 130 prefabricated houses, out of which 120 were delivered. The price per piece was 7800,00 KM which makes a total of 936.000,00 KM.

Ministry signed a contract for the assembling of these houses with the enterprise INTERNEON and based upon this contract, it paid an amount of 34.000,00 KM.

Audit Office has established that the Ministry did not announce a public invitation to tender related to the implementation of this project. This represents a violation of Article 16 of Law on Execution of Budget.

By an insight into the documentation available, we have noticed that this documentation is not proper and updated, and that it mainly contains copies of the documents, so we could not entirely verify whom the final users are, and especially, who is a proper owner of the manufactured prefabricated facilities.

Audit Office recommends preparing of final report on a project of prefabricated houses and its submission to the Ministry's management, and the establishing of the proper owners of the facilities built.

From the funds available for the Refugees Program, the project of repair of housing facilities for the Serb returnees to Èapljina municipality was implemented, location of Klepci, in an amount of 354.434,00 KM.

Based on a tender, job was awarded to INTEGRAL INŽINJERING Ltd. from Laktaši, and the documentation available regarding the implementation of the mentioned project is proper and updated.

Within the funds approved for the Refugees Program, support to legal and natural persons were stated in an amount of 609.524,20 KM.

Funds were allocated to a large number of municipalities and the returnees associations, but the Audit Office did not have an insight into complete and relevant evidence on further monitoring of these funds and their purposeful use.

Audit Office recommends establishment of precise records and is of an opinion that it is necessary in a future to ask for feedback information on how the funds have been used, with the presentation of relevant evidence.

5. UNHCR PROJECTS

Ministry has implemented, in the cooperation with the UNHCR, a project called "Refugee - Asylum Centers" (00/AB/BSN/CM/270(d)) and a project called "Support to the Ministry for Developing the Capacities Necessary for Taking over of Full Responsibility in Coordinating all the Activities Related to Refugees and Persons Seeking Asylum"  (00/AB/BSN/RP/370/n4).

In order to implement these projects UNHCR has allocated funds in an amount of 1.589.737,00 KM to the Ministry for the project 00/AB/BSN/CM/270(d), 1.419.737,00 KM and 170.000,00 KM for the project 00/AB/BSN/RP/370/n4.

Within the financial audit of projects we performed a review of the accounting records of the projects, in order to check if the accounting of administrative and operational costs have been in accordance foreseen by the budgets approved by UNHCR.

5.1. Project - Refugee - Asylum Centers - 00/AB/BSN/CM/270(d)

Objective of this project was taking care of the refugees from SRY and the asylum seekers in BiH in six of refugee centers and the establishing of legal regulations - legislation in the area of immigration and asylum.

Audit Office has stated certain number of irregularities within the implementation of the project, i.e. exceeding of budget and individual budget lines, use of funds for purposes that were not originally planned, and irregularities in sorting out of individual items by budget lines.

5.1.1. Exceeding of budget and individual budget lines

Expenditures planned for the implementation of project 00/AB/BSN/CM/270(d) were 1.419.737,00 KM, and according to a report of the Ministry, they were actually made in an amount of 1.414.672,82 KM. But, this amount does not include the liabilities created in year 2000, in an amount of 186.009,31 KM, so that the report made does not represent a fair and true view of the financial status (note: liabilities are shown as a separate item of the report).

When one includes into the report the liabilities created in a year 2000, we can state that there was an exceeding of budget in an amount of 180.945,13 KM or 13,1%.

Audit has established that several budget lines within the budget were exceeded. Following table gives an overview of major exceeding in relation to planned funds.

Reasons for exceeding should be first of all looked for in the weaknesses of the Ministry's internal control system, and the managing of project, which was not organized in a rational and functional way.

Ministry is responsible for consistent application of the approved budget, meaning to secure that the funds are being used for the items they were intended, and in an amount planned, and for the eventual exceeding, it is obligated to previously perform procedures prescribed and to ask for a written approval by UNHCR. Audit Office recommends organizing of the internal controls system in a more efficient way, in order to timely eliminate all the irregularities when it comes to implementation, monitoring, reporting procedures and financial-accounting records.

5.1.2. Use of funds for the purposes different than originally planned

We performed the analysis of the major accounts in order to establish if the money has been spent according to the regulations and the provisions of the project.

It has been established that there are certain expenditures that were not foreseen by budget, and that were, while making the financial report, distributed among different budget lines, which undoubtedly implicates the use of funds for purposes other than originally planned.

Audit has established that the following significant expenditures are not in accordance with the project budget: procurement of windows, invoice no.39-10/00 from October 17,2000 in an amount of 10.065,00 KM by GRAMIS; installment of fence, invoice no. 3/00 from December 31,2000 in an amount of 35.300,00 KM by INTERNEON, reimbursements for the employees of the Ministry for participating in the project in an amount of 32.950,00 KM; reimbursement for work of the Refugees and Displaced Persons Commission in an amount of 6.500,00 KM, Decision no 02-289-0/00 from October 17,2000; representation costs invoice in an amount of 5.646,25 KM.

5.2. Project: Support to the Ministry - 00/AB/BSN/RP/370(n4)

Expenditures planned for the implementation of this project were 170.000,00 KM and they were actually made in an amount of 169.333,84 KM.

Generally, there was no exceeding of budget, except for the exceeding at the reimbursements, which was made possible, because the other budget lines were executed in amounts less than planned.

Funds planned for reimbursements, according to project were 90.000,00 KM, and the Ministry had made them in an amount of 124.300,00 KM, which represents an exceeding of 31,1% or 34.300,00 KM, thus violating the project provisions.

Also, while auditing this project, we established that the financial report includes the expenditures made after December 31, 2000, in an amount of 8.625,10 KM, which is not in accordance with project.

According to the project provisions, it has been foreseen that it will end on December 31, 2000, which means that only the expenditures made by that date can be included in a financial report, and which were planned by budget.

5.3. Conclusions and recommendations

We recommend that in a future it is necessary to clearly and precisely define the personnel that shall be involved in this project, with concrete tasks, and especially to name the person in charge of coordination of this project.

To provide the higher level of transparency of the program so that it would be clear and indubitable who, and in which way is spending the money, which are the procedures that are followed while selecting the contractors, employment of personnel and other significant issues.

We recommend, once it is stated - discovered that the system of internal controls and the implementation of program is not going on properly, that there should be an ad hoc written report requested, in order to be able to timely influence the irregularities within the project, and to take appropriate preventive measures.

It is our opinion that the UNHCR should in a future organize short educational training in the area of project implementation, financial-accounting monitoring, and the reporting procedures.

When speaking of the liabilities that were not resolved - paid, and other unsolved issues between the Ministry and UNHCR, Audit Office recommends that one should try to solve these so that it would be satisfactory to both sides, and would be to the benefit of the asylum seekers and refugees, and when the concrete responsibility is discovered, taking of appropriate measures foreseen by law.

Because of the weaknesses stated within the control functions of the Ministry, we suggest that the possibility of future implementation of financial structures of such projects through the Ministry of Treasury should be taken into consideration.

6. Correspondence with the client

By its letter number 01-052-123/01 from May 15, 2001, Audit Office had announced the audit of the Ministry with description of objectives and defining of mutual obligations. After the audit was finished, a report was made and sent to the Ministry with a note that the Ministry should give its opinion on the text of the report within 15 days.

Within the foreseen time frame, Ministry did not deliver any remarks to the Report on Audit.

[1] This table gives an overview of the original data Ministry had expressed in its financial reports for year 2000.

[2] This table gives an overview of the original data Ministry had expressed in its financial reports for year 2000.