C O N T E N T
1. AUDITOR’S OPINION
2. SUMMARY
3. AUDIT FINDINGS AND RECOMMENDATIONS
3.1. Introduction
3.2. Management's system of internal control
	Missing regulations
	Unplanned revenues
3.3. System of budget control
	Budget funds control
	Exceeding on individual budget items
3.4. Application of laws
	Implementation of Law on Treasury
	Procurement of capital - fixed assets
	Employment and work relations
3.5. Accounting
	Irregularities in accounting
4. BUDGET OF THE INSTITUTIONS OF BOSNIA AND HERZEGOVINA
4.1. Introduction
4.2. Budget income
	Budget income - appropriations from the Entities
	Budget income - administrative fees
	Budget income - donations
	Budget income - other income
4.3. Budget expenditures
	Budget expenditures - appropriations to users
	Budget expenditures - decisions by the Council of Ministers
4.4. Weaknesses of the budget management system
	Weaknesses in preparing the budget
	Weaknesses in execution of budget
5. Correspondence with the client
6. Attachments
	Balance sheet. December 31, 2000
	Income statement - profit and loss account, December 31, 2000

1. AUDITOR'S OPINION

1.1. We performed audit of financial statements and operations (including management’s decisions) in a MINISTRY OF TREASURY OF THE INSTITUTIONS of Bosnia and Herzegovina (hereafter: Ministry) for financial year 2000. It is our responsibility to perform an annual audit of public accounts in accordance with generally accepted audit standards, and in accordance with Article 13 of Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (Official Gazette number 17/99) inform of following:

• 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 organization has been using public funds for performing their functions.

It is a responsibility of a Ministry to fulfill its legal obligations in an effective way, and in accordance with existing laws and regulations. Management of the Ministry is also, responsible for financial statements. Audit was performed in accordance with generally accepted audit standards and INTOSAI standards. These standards request that the audit has to be planned and performed in order to obtain reasonable grounds to estimate if the financial statements present a fair and true presentation of operations during the year and status at the end of the year. That is why audit has examined a sample of significant transactions and management’s decisions.

We believe that the audit performed gives reasonable basis for expressing our opinion.

1.2. Audit has established certain failures in Ministry's operations:

In chapter 4 stated funds from administrative fees in an amount of 16.301.575,00 KM and donations in an amount of 1.434.820,00 KM, were not recorded in the Budget bookkeeping records, instead data was just taken from the reports of the Ministry of Foreign Affairs. It was not possible to examine the correctness and reliability of the stated amounts by audit.

According to our opinion, except for the reserve stated in paragraph 1.2. up here, financial statements present fair and true view of operations during the year and the status at the end of the year.

2. RESUME

During the audit we have found certain failures in the internal control system, that relate to the managing and handling of budget funds, and that should be established by the Ministry's management in a more efficient way. Stated weak points mainly relate to estimation of justifiability of certain expenditures and control over the execution of certain expenditures in relation to the funds planned by budget.       

Audit findings given in this report have been classified in relation to major failures.

Audit Office is of an opinion that the management has not entirely fulfilled the requests given as their obligation within their administrative jurisdiction according to the existing legal regulations.

Ministry did not exceed total expenditures related to plan in a reviewed budget, but there was exceeding at certain expenditure categories, charged to other items that were executed in the amounts less than planned. Highest exceeding happened in the items of reimbursements to employees and procurement of capital assets.

Audit has also established that legal procedures were not followed while procuring the capital assets.

Ministry did not record financial changes and bookkeeping documents in its ledgers in a clear and comprehensive way, as the accounting regulations foresee them to be done.

3. FINDINGS AND RECOMMENDATIONS

3.1. Introduction

Audit findings in this Report have been classified according to major irregularities and they relate to: Management's system of internal control, exceeding of budget items, management and control mechanisms over the budget funds, failures in application of laws, mistakes in accounting, non-existence of the measures in order to ameliorate efficiency and presenting of financial reports.

Taking stated failures as whole, Audit Office is of an opinion that the management did not entirely fulfilled the requests that were made to them as an obligation within their administrative jurisdiction according to the existing legal regulations.

Budget of the Institutions of Bosnia and Herzegovina and the International Obligations of Bosnia and Herzegovina for year 2000 has been regarded as a separate system. Execution of Budget of the Institutions of Bosnia and Herzegovina and the International Obligations of Bosnia and Herzegovina in Year 2000 have been audited and is has been shown in Chapter 4, while the foreign debt managing will be subject to separate audit.

3.2. Management's system of internal control

Audit has found weaknesses in the system of internal controls, which are to be established by the management, as well as in the managing of budget funds. First of all, weaknesses relate to non-existing of internal regulations, co-ordination with other budget users, planning, managing and monitoring of budget funds, as well as procedures for the procurement of goods and services.

Report on Operations of the Ministry for Year 2000 was not given for an insight to the Audit Office; instead, we were only given a Report on Execution of Budget of the Institutions of Bosnia and Herzegovina and the International Liabilities of Bosnia and Herzegovina for Year 2000, which has been submitted, to the Council of Ministers.

3.2.1. Missing regulations

Audit has established that Ministry did not adopt internal regulations and procedures in order to efficiently and rationally regulate following sorts of expenditures: PTT costs, representation costs, travel and vehicle costs, accommodation costs and occasional hotel accommodation costs for the employees, vehicle maintenance, etc.

Ministry is responsible for bringing of mentioned regulations for the other users too, according to provisions of Article 11 of the Law on Treasury of the Institutions of Bosnia and Herzegovina. Ministry should urgently, on its own or in co-operation with the Council of Ministers, adopt provisional or permanent regulations that would precisely norm the usage of biggest expenditure items (to the day these issues are regulated at the Council of Ministers of Bosnia and Herzegovina).

Beside the missing regulations, Ministry has no Rulebook on Internal Structure.

Ministry is obligated to bring the Rulebook on Internal Structure as soon as possible, in order to improve the efficiency of its operations.

3.3. Budget control system

3.3.1. Control of budget funds

Ministry did not consistently respect the budget adopted for year 2000, which regulates categories and amounts of certain expenditures, so it caused the exceeding to occur in certain items (reimbursement for the employees i.e.)

Re-locating of funds within the expenditure items of Budget was caused by weaknesses in budget planning for year 2000 (non-accorded classifications of budget items and bookkeeping records), insufficiently efficient control system, as well as due to the fact that this is a newly established Ministry.

It is an opinion of the Audit Office that the Ministry should establish the causes of the exceeding and re-location of funds for expenditures, and based on that, it should take urgent measures in order to enhance control over the spending of budget funds.

Ministry should, according to the provisions of the Law on Treasury, accord the expenditure items in the budget with the expenditure items in the bookkeeping records, and it should adopt the unanimous classification of the expenditures for all the budget users in order to have unanimous recording, efficient control and management over the budget funds.

3.3.2. Exceeding of individual budget items

Totally planned revenues of the Ministry, according to the revised budget for year 2000 (without the funds for participation fees to the international organizations) were 880.158,00 KM, and were entirely allocated to the Ministry. Beside these, funds from donations and interest rates in an amount of 34.738,00 KM, as well as the budget reserve funds in an amount of 250.000,00 KM, which makes total of 1.164.896,00 KM, were allocated to the Ministry.

Ministry did not exceed total of expenditures comparing to revised budget, but exceeding did happen on individual expenditure items, which was made by use of funds from other items.

Here we list the most significant exceeding:

Exceeding for the reimbursements for the employees in an amount of 85.838,00 KM or 210,68 %, mainly relates to the reimbursements for religious holidays and food supplies, which were paid based on separate decision of the Council of Ministers from December, which defines that these reimbursements can be paid from the savings made on other expenditure items.

Expenditures for services by contracts were planned by budget for year 2000 in an amount of 106.292 KM, and were actually made in an amount of 367.810,00 KM. Major part was spent for expert's services, in an amount of 251.800,00 KM, and this relates to designing of project called: «Organization of the Council of Ministers of BiH and the Ministries of BiH» in an amount of 150.000,00 KM and project «Analysis of effects of donors' conferences for BiH» in an amount of 100.000,00 KM as well as to tax for services for making - designing of mentioned projects in an amount of 1.800,00 KM. For this purpose, Council of Ministers has brought a decision on using of budget reserve funds, and decision itself defines the contractors and the way of payment.

Audit Office thinks that the Ministry should have announced public invitation for bids in order to select the most appropriate contractor according to the provisions of the Law on Execution of Budget.

Ministry is obligated to fulfill the provisions of the Law on Execution of Budget of the Institutions of BiH and the International Liabilities of BiH, and to accord the expenditures with the amounts approved, meaning to use funds up to the amount and for the purposes stated by the Budget of the Institutions of BiH and International Liabilities of BiH for Year 2000.

Audit Office also thinks that the transfer of approved funds for expert projects stated in a total amount of 251.800,00 KM should have been implemented through the accounts of the Council of Ministers' Services, instead of the Treasury Account, since the Council of Ministers brought the decision and concluded the contract.

3.4. Application of laws

3.4.1. Implementation of the Law on Treasury of the Institutions of BiH

Audit has established that the Ministry did not succeed to entirely implement all the provisions of the Law on Treasury of the Institutions of BiH, which directly influenced the functioning of budget users at the institutions of BiH level. This mainly relates to establishment of the JRT (Unique Treasury Account) and the Main Ledger, execution of budget, and establishing of internal monitoring of budget users.

Audit did take into consideration that the Ministry was established in second half of year, and it took note of the fact that the Law on Treasury of the Institutions of BiH was adopted in September 2000. Beside this, some of the provisions of the Law were implemented afterwards, and there are ongoing preparations for the implementation of others.

Audit Office recommends to the Parliamentary Assembly to make Ministry of Treasury obligated to, as soon as possible, adopt the rules and procedures from its jurisdiction, without which it is not possible to establish unanimous recording and reporting for all the institutions of BiH, nor it is possible to manage the budget funds efficiently.

3.4.2. Procurement of capital assets

Expenditures for procurement of capital assets in year 2000 include the procurement of office furniture, air-condition appliances, voice and data transmission equipment, and procurement of vehicles.

Audit has established that, during the procurement of capital assets, weren't respected legal provisions that foresee the announcement of public invitation for bids, which represents a violation of Law on Execution of Budget of the Institutions of BiH and the International Liabilities of BiH for Year 2000.

Ministry's management is responsible for consistent application of Law on Execution of Budget, especially of Article 16. that relates to announcing of public invitation for bids - tender while making the procurement of capital assets.

3.4.3. Employment procedures

By December 31, 2000, there were 47 of employees in the Ministry. During the year 2000, 16 new were employed, out of whom 4 were appointed, and other 12 were employed without the public vacancy notice or published announcement.

Audit Office recommends to the Parliamentary Assembly to insist on application of existing rules regulating the employment area, and according to that, to require obligatory public announcing of vacancy notices or announcements while employing the workers.

3.5. Accounting

In the Ministry's Accounting Department, beside the Ministry's accounting (Ministry as a budget user), the accounting of the budget of the institutions of BiH is being done, while the accounting for the public debt servicing for year 2000 was being done in the Ministry of Foreign Trade and Economic Relations.

3.5.1. Irregularities in the accounting 

Irregularities established by audit of the accounting function relate to following:

• recording of the liabilities towards the contractors is being done in a moment these liabilities are being paid, and not in the moment they actually occurred;
• the business trip advances were not properly justified afterwards;
• notes that are part of the financial statements were not made.

Ministry is obligated to does the bookkeeping the way it is being regulated by regulations that the Ministry actively applied in order for the business - financial changes to be presented in a clear and easy-to-see way.

4. INSTITUTIONS OF BIH BUDGET

4.1. Introduction

Budget of the institutions of BiH income (hereinafter - State Budget) was planned in an amount of 280.946.000,00 KM, and were actually made in an amount of 280.192.534,00 KM which means 99,70 % of plan. From the total of State Budget, administrative budget takes 82.352.234,00 KM or 29,39 %, and servicing of public debt - foreign debt takes 197.840.299,00 KM or 70,61 %.

Accounting of budget was done in three ministries: administrative budget in the Ministry of Civil Affairs and Communications and the Ministry of Treasury of the Institutions of BiH, and the public debt servicing in the Ministry of Foreign Trade and Economic Relations.

4.2. Budget income

4.2.1. Budget income – allocations by Entities

Transfers from the Federation and from Republic of Srpska were planned in an amount of 44.600.000,00 KM, and were made in an amount of 44.600.633,00 KM, which makes 100 % of what was planned.

4.2.2. Budget income – administrative fees

Income from the administrative fees was planned in an amount of 29.700.000,00 KM, and according to the Report on the Execution of Budget for year 2000, they were made in an amount of 25.864.384,00 KM or 87,08 % of what was planned.

From total collected, amount of 9.562.809,00 KM was transferred to budget account (3.770.131,00 KM to Central Bank of BiH account in Sarajevo and 5.792.678,00 KM to budget account in Frankfurt) while the leftover amount was kept on the Ministry of Foreign Affairs account and was used for financing of DCM network. Income from the administrative fees is recorded in the Ministry of Foreign Affairs accounting record, and has been covered by an audit of that Ministry. For detailed information see Report on Audit of the Ministry of Foreign Affairs for year 2000.

4.2.3. Budget income - donations

Income from donations was planned in an amount of 11.000.000,00 KM (for State Border Service), and was made in an amount of 5.346.480,00 KM or 49,00 % of what was planned. Amount of donations made refers to the donation of the European Union for specific purpose in an amount of 3.911.600,00 KM and direct donation for the Ministry of Foreign Affairs (DCM network) in an amount of 1.434.820,00 KM.

4.2.4. Budget income – other revenues

Total of income transferred from 1999 was 5.135.711,00 KM, and outstanding and other income was 1.405.027,00 KM.

Ministry is obligated, according to Law on Treasury of the Institutions of BiH, Law on Administrative Fees, and according to Order on Payment Accounts, to collect and control all the budget income, so it is extremely important for the Ministry to establish the adequate mechanisms in order to achieve efficient collecting of this income.

Ministry should, together with the Ministry of Foreign Affairs, made a detailed report on total of collected fees in DCM network, and it should submit it to the Presidency of BiH and the Parliamentary Assembly.

4.3. Expenditures from budget

4.3.1.  Expenditures from budget – allocations to budget users

Budget of the institutions was 83.246.000,00 KM, and it was made in an amount of 82.352.234,00 KM or 99,00 % of what was planned.

An amount of 76.103.923,00 KM was transferred to budget users, and the difference in an amount of 6.248.311,00 KM was transferred as a surplus of income into the year 2001.

Funds were transferred to the users' accounts in several parts depending of incoming funds flows in the Entities' budgets.

4.3.2. Expenditures from Budget – Council of Ministers' decisions

Planned funds for budget reserve of the State Budget were 2.106.000,00 KM and funds for other BiH institutions were 900.000,00 KM were entirely spent based on decisions by the Council of Ministers of BiH.

4.4. Budget management system weaknesses

4.4.1. Weaknesses in preparing the budget

Limiting factor in preparing the budget was the lack of budget methodology at the level of the common institutions of BiH.

We have established that the needs of budget users (based on requests delivered) for year 2000, were significantly higher that the budget available. Funds allocated to budget users were decreased linearly according to funds available.

These decreases often did not reflect real priorities of the budget users' spending.

Ministry is obligated to adopt the standardized budget classification and common budget procedures based on international standards.

Beside that, it is necessary that the Ministry, while decreasing the funds, accord the priorities within the funds available with each of budget users.

5. Correspondence with the client

Audit Office has announced audit of the Ministry, by a letter number 01-040-120-2/01, containing the description of audit objectives and methods, and defining of mutual obligations and responsibilities. After an audit performed, Report on Audit was made and delivered to the Ministry with note that the Ministry should deliver its opinion on Audit Report within 15 days.

Within the foreseen time, Ministry did not deliver remarks regarding the Report on Audit.

Attachment 1

Balance sheet on December 31, 2000[1]

Attachment 2

Income statement for a period from April 17 to December 31, 2000[2]

[1] Table gives an overview of original data that the Ministry had officially presented in its financial statements for year 2000. 

[2] Table gives an overview of original data that the Court had officially presented in its financial statements for year 2000.