1.       BACKGROUND 

1.1.           In the exercise of powers given to us by the Law on audit of the financial operations of the Institutions of Bosnia and Herzegovina (Official Gazette, No. 17/99), Audit Office for auditing of the financial operations of the BiH Institutions (hereinafter referred to as: the Office) has carried out the audit of the financial reports and operations (including the leadership decisions) of the MINISTRY OF FREIGN TRADE AND ECONOMIC RELATIONS OF BOSNIA AND HERZEGOVINA (hereinafter referred to as: the Ministry) regarding the financial year 2001.

1.2.           In the period from 07.01. to 16.01.2002 and from 13.05. to 24.05.2002, audit was planned and carried out in compliance with generally accepted audit standards and standards of the International Organization of Supreme Audit Institutions – INTOSAI ('Official Gazette of BiH', No. 05/01). Audit activities were directed towards the achievement of reasonable basis for evaluation whether the financial reports of the Ministry represent the exact and true preview of the operations during the year and the state at the end of the year. The financial reports are under competence of the Ministry leadership. It is a responsibility of the Office to introduce our opinion on the financial reports of the Ministry and, on the basis of the conducted audit, inform of 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 DGS's use of resources while performing its functions. 

1.3.           We find that our audit provides a reasonable basis for expression of our opinion. 

2.                 MIŠLJENJE REVIZORA 

2.1.         According to our opinion, the audited financial reports give true and fair preview of the state in all important aspects of the financial operations. However, without intention to qualify our opinion, we wish to draw the attention to the paragraphs 2.2., 2.3. and 2.4.

2.2.           Office was not bale to be present during the listing of the assets and resources on 31.12.2001. For this reason, we express reserve on the conducted listing of the assets and resources that could have an impact on reality and objectiveness of the financial reports in 2001.

2.3.           Audit has found that the Ministry did not, in all important aspects, implement the Article 16 of Law on budget execution, regulating the field of procurement of the fixed assets, materials and services (public announcement).

2.4.           Office is not able to assess the outcome of the court processes against the ministry in more cases, so we hereby express our reserve regarding the possible financial consequences in relation with the court decision.  

3.       REVIEW OF THE FINDINGS AND RECOMMENDATIONS OF AUDIT OF THE ACCOUNT IN THE YEAR 2000 

The office has carried out the audit of the Ministry operations in 2000, on what there was a Public Report made. Audit of the operations in 2001 has found that during the same year (2001) in majority of the cases, the Ministry acted in compliance with the recommendation of the Office. Therefore, there was a positive progress made in financial – accountancy operations of the Ministry.  

Realized recommendations 

• Final report on the realization of the Project EXPO 2000 was made.
• Ministry revenues were realized on the basis of issuance of the EUR form for the year 2000 and returned to the Ministry of Treasury.
• There was no exceeding of the budget, neither in the total amount nor according to the budget sections.
• UNCC – Programmed of war damages compensations form the war Iraq-Kuwait is being realized through the Ministry of Treasury.
• Expenses of the project of joining the WTO are delineated from the expenses of the Ministry.
• Rules on internal organization of the Ministry were made during 2002.  

Ongoing activities: 

• Allocation of the assets on the basis of the war damages by the Government of Sarajevo Canton, which makes the transfer to the final beneficiaries.

 Unfulfilled recommendations: 

• Internal control system is not defined satisfactorily (recommendation to come up with the rules and procedures for telecommunication expenses, expenses for representation and accommodation expenses of the employees, was not respected). 

4.       FINDINGS, REMARKS AND RECOMMENDATIONS OF THE AUDIT OF ACCOUNT IN 2001 

4.1.   Internal control system 

4.1.1. Lacking rules and procedures 

Audit has found that Ministry hasn’t got a completely and sufficiently developed and precisely defined internal control system of the leadership, as the set of procedures and measures as a set of procedures and measures providing the correctness and regularity of the evidence on financial transactions, their full accordance with the laws and regulations as well as the protection of environment. Non-existence of the efficient system and insufficient development of this system have an important impact on management and control of the budget expenditure in accordance with the laws and regulations, more precisely the management with public assets aimed for the specific purposes.

Lacks are found in the following:

• non-existence of the formal internal rules  and procedures  that would define certain (and usual) types of expenditures, (telecommunication expenses, representation expenses, accommodation of the employees etc.), as well as insufficiently precise and clear existing rules and procedures;
• Weaknesses in the system of procurement of the fixed assets, materials and services, when the procurements were not done in accordance with the legal provisions regulating this field. 

Office has advised the Ministry to establish the efficient system of internal controls as soon as possible and for the purpose of more efficient and rational operations; a system that would remove all the possible irregularities and omissions in the work of the Ministry. 

4.1.2. Procedures of procurement of the office material and special services 

Audit has found that the Ministry, besides other procurements during the year, when procuring the office material (in the year 2001, there was a procurement of material in the amount of 16.829.66 KM) and when concluding a contract for special services (mainly contracts for translations) in the amount of 40.256,93 KM, did not implement the procedure of public announcement and selection of the best bids as foreseen in Article 16 of the Law on budget execution in 2001. Having the procurements without public announcement, public institutions can bring to the market preference for one contractor only in relation with others; to the purchasing on the basis of non-competitive prices; to the eventual abuse of the authorizations and corruption as well as other undesired consequences. 

Budget users are obliged to implement the procedure of public advertisement and selection of the best contractor in all procurements of the fixed assets, materials and services whose value exceeds 10.000 KM per year. 

4.1.3. Court processes 

With an audit of the operations in 2001 , we have found that there is a certain number of the court processes against the Ministry (related to the dismissal of 39 employees; the unpaid books; and four minor charges in total amount of cca 26.000 KM). Some of these processes are impossible to avoid. However, leadership of every public institution can reduce the possibility of omissions and violations of the Law for the smallest measure, by establishing the continued and complete system of internal controls.  

Ministry is advised to analyze the causes for these court processes and make a detailed preparation for the court hearings, as well as introduce the Council of Ministers on the these cases and their outcomes.  

4.2.   Budget management system 

4.2.1. Budget planning and execution 

Budget of the Ministry in 2001 initially amounted 3.225.086,00 KM, but with the re-balance in 2001, the additional amount of 467.378,00 KM is approved, which makes the total of 3.692.464,00 KM. ministry has realized the budget in 2001 in total amount of 3.464.308,00 KM, which is 93,82% of the planned amount. Having analyzed the problematic of budget execution, we found that the budget was not fully realized, neither in total nor according to the budget lines, as presented in the following chart:

COMPARATIVE PREVIEW OF THE PLANNED AND REALIZED EXPENDITURES IN 2001   

Office has recommended to the Ministry to prepare to complete analysis of the budget execution, in total amount as well as according to the budget lines, for the purpose of more rational and efficient planning of the needs and operations of the Ministry. 

4.2.2. Participation in Zagreb fair 

Assets planned for the budget line «Zagrebaèki velesajam» in 2001 amounted 100.000 KM, and the project is realized in the amount of 99.021,98 KM, which is 99, 02% of the planned amount. We wish to emphasize that only part of the project of BIH presentation at the Jesenski Zagrebacki Velesajam (Fair) as the country/partner, so we had no insight into total realization of this project.

We have found that the documentation of the part of the realized project is not fully transparent, what refers to the invoices delivered by the contractor with no precise specification of the work that was conducted. Selection of the companies that provided services was not done in a transparent way. Public money spent on the projects of the state institutions must be equally treated, and is under the code of transparency, monitoring and control that are valid for the “regular” budget expenditure (material expenses, expenses of the employees, etc.). On the contrary, BiH institutions would, without any reason, have two systems of expenditure measurement and survey over the expenditure of the budget assets during the budget year.

Office has advised the Ministry to have the sufficiently transparent accountancy documentation on the realization of the project, with complete follow-up documentation and the arranged specification of the conducted services. We have also suggested the obligation to implement the Article 16. of the Law on budget execution, which regulates the procurement of the assets, materials and services.  

4.3.    Information system of the Ministry 

During audit of the IT system, Ministry was recommended to: 

• Decide on and adopt the general IT strategy that would make the basis for further information system development and upgrading, in compliance with needs;
• Decide on and choose the resources and set the deadlines for draft of the overall plan  of information and technology system; set the standards for projects management and prepare feasibility study  with complete documentation;  and
• Make internal rules on data storing and protection, making the back-up copies and, if possible, procure the additional equipment in order to make back-up copies in an adequate way. 

5.       OTHER REMARKS 

During audit, the Ministry’s attention was drawn to:

• Take the necessary steps with reference to the surplus of revenues over the expenditures (51.643,83 KM), in compliance with the instruction issued by the Ministry of Treasury and standardize the dynamics and the way how to return the introduced surplus of assets into the budget;
• the fact that it is not in all cases of the official trips abroad “on invitation” (when the organizer covers the expenses) that the documentation contains the specification of how many percents of the expenses are covered by the organizer;
• the fact that some of the contracts (regulating the way and terms of accommodation of the employees, that Ministry pays the expenses for) are lacking in the accountancy documentation. 

6.       CORRESPONDENCE  

Upon finalization of the audit, the draft Audit Report was sent to the Ministry on 14.06.2001. On this occasion, there was a meeting organized in the Ministry and discussion (debate) on the most important issues of the conducted Audit. Ministry did not send any formal comments on the Report on Audit, within the set deadline. 

7.       RESUME 

Cumulative preview of the most important findings and recommendations of the audit of account in 2001:

• Ministry hasn’t got developed rules and procedures for certain expenses (telecommunication expenses, representation expenses and accommodation expenses);
• Legal procedures were not respected in all cases of procurement of the materials and services;
• Accountancy documentation on participation in Zagreb Fair was not sufficiently transparent;
• Ministry did not have an adequate administrative and organizational control over the IT system / components, nor overall IT development strategy.

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