1. INTRODUCTION

1.1.    According to the authorities given by the Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (‘Official Gazette of BiH’ no. 17/99) The Office for Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (hereinafter: Audit Office) has performed an audit of financial statements (including the management’s decisions), and financial operations of THE PARLIAMENTARY ASSEMBLY OF BOSNIA AND HERZEGOVINA (hereinafter: Parliament) regarding the financial year 2001.

1.2.           Audit was planned and performed in a period from November 26, to December 11, 2001, and from March 19, to April 4, 2002, according to generally accepted audit standards, as well as standards of International Organization of Supreme Audit Institutions – INTOSAI (‘Official Gazette of BiH’ no. 05/01).

Audit activities were aimed on obtaining of reasonable ground to estimate if Parliament’s financial statements represent a fair and true view of operations during the year and of the status at the end of the year. Management of Parliament is responsible for financial statements. The responsibility of Audit Office is to express the opinion about Parliament’s financial statements, and based on performed audit, to report about the following:

• if the accounts have been made according to the valid legislation;
• do the annual accounts represent a fair and true view of operations during the year and the status at the end of the year;
• on economy, efficiency and effectiveness with which the institutions have been using public funds for performing their functions.

1.3.           We consider that the audit we performed gives a reasonable basis for expressing our opinion.  

2.     AUDITOR’S OPINION

2.1.         In our opinion, regarding Parliament’s financial statements audited, for year 2001, we give a qualified opinion, since we haven’t had sufficiently reliable basis, to in whole, with no reserve, confirm that Parliament’s financial statements give a true and fair view of the situation on all important aspects.

Audit Office expressed a qualified opinion because of reasons mentioned in items 2.2., 2.3., 2.4. and 2.5. 

2.2              Audit Office expresses a reserve regarding the opening balances stated in 2001, which were transferred from the year of 2000, but which were not audited, since in a certain measure they could influence on reality and objectiveness of financial statements for year 2001.

2.3.           Inventory of fixed assets, as well as an adequate recording in 2001 was not performed according to the Law rules and regulations, so all fixed assets of Parliament were not completely noted in bookkeeping records.

2.4.           During the audit of operations in 2001, it was found the bookkeeping of incomes in 2000 in an amount of 150.352,00 KM that is not consonant with bookkeeping principle of modified accrual basis, namely, bookkeeping of incomes in a balancing period in which incomes were originated.

2.5.           Audit has found that budget managing was not organized at the satisfactory level, since it have been found certain overdraws related to the Law on Execution of Budget. The given overdraws relate to budget items ‘Expenditures for materials and services’ and ‘Contracted services’.  

3.     AUDIT FINDINGS, NOTICES AND RECOMMENDATIONS

3.1.    Internal Controls System

3.1.1.  Missing rules and procedures

Audit has found that Parliament did not sufficiently developed and defined system of internal controls of the management, as a set of procedures and measures providing the accuracy and regularity of financial transactions, their full accordance with the laws and regulations, as well as the protection of the property. 

Lacks noted relate to the following:

• Inadequate monitoring of the execution of the budget, that means permanent monitoring and analyzing of expenditures actually made in comparison to expenditures planned, and taking of preventive measures in order to realize expenditures in an amounts approved by the budget.
• Non-existence of certain written internal rules and procedures that would define certain sorts of expenditures, as well as insufficiently precise and clear existing rules and inconsistent use of existing rules.
• Incomprehensive inventory lists of properties and insufficient neatness of bookkeeping records for all categories of fixed assets (own, donated and other fixed assets)

It is an opinion of the Audit Office that weaknesses in internal control are, first of all, the result of insufficient understanding how important is establishing of internal controls.

Because of inadequate internal control system, unauthorized expenditures, losses and other irregularities could easily happen.

It is an opinion of the Audit office that Parliament should provide qualitative monitoring of the execution of expenditures in their total amount and by budget items.  

It is also an opinion of the Audit Office that it is necessary to give some additional efforts in order to define all kinds of expenditures in a more clear and more accurate way, and to set system of internal control up to the higher level than existing.

3.1.2. Stationary procurement procedures

Because of weaknesses of internal control system there were violations of regulations during procurement of stationery.

Audit has found that, during procurement in stationary (procurement in 2001 was 51.945,76 KM) the legal procedures of public invitation for tender were not respected, as Article 16. of the Law on Execution of Budget foresaw it.

Procurement without performing the procedures of public announcement could have, as its consequence, the market preference of certain bidder, as well as procurement at noncompetitive prices.

It is an opinion of the Audit Office that all budget users should be obliged to perform the procedures of public announcement and public selection of best bidder for all annual procurements of fixed assets, materials and services in an amount over 10.000 KM.

But, it must be said that regulations regulating this issue are not sufficiently precise and clear. Because of that, the Audit Office suggests that finding a solution could be one of the future activities of the Parliament.

3.1.3.  Personal documentation and account of salaries

During performing the audit we have found that personal dossiers were not completed and updated and that, in a certain number of cases, original documentation has not been attached that might be indicator of wrong personnel policy. We find it permissible having in mind that it is impossible to establish effective internal control system without a good personnel policy.

By an insight into personal documentation, we have noticed, in a certain number of cases, that years of employment stated in employee’s work booklets do not correspond to the ones being used for account of salaries, while in a smaller number of cases, no evidence on accurate number of years of employment was found. This is another proof of weaknesses existing in internal control system.

Inaccurate account of salaries, besides influence on the amount of expenditures for salaries, could also provoke negative reactions of employees eventually injured.

Incomplete and non-updated personal documentation could directly influence on salaries account accuracy, since the evidence on years of employment have direct influence on accounting of salaries.

Audit Office has recommended to the Parliament to complete personal documentation in order to obtain relevant evidences on accurate number of years of employment used while performing account of salaries.

We suggest to the Parliament to urgently start with completing and updating of personal dossiers according to regulations regulating this issue.

3.1.4.   Temporary service contracts and Annexes of Contract

We have found that Parliament have engaged some of employees by on temporary service contracts, as a rule, and after the Contract have been expired engagement of the same employees was performed by on Annexes of Contract, which is not appropriate to the nature of Parliament’s activity.

By on temporary service contract, only as an exception, and not as a rule, employee that is employed on a full time basis could also be engaged.

Finding no solution for the problem mentioned, according to legislation, could have a negative influence on economy and efficiency of Parliament’s operations.

It is our opinion, that this practice should be avoided in a long period during the year.

Audit Office suggests that, in a case where engagement of employees by on temporary service contract is justified, the Parliament should apply the legal options that ensure consistent application of law provisions.

3.1.5.  «Holiday Inn hotel» Court case

During the audit, Audit Office has performed an insight into documentation regarding to the Court case with ‘Holiday Inn hotel’, as the accuser, and Parliament, as the accused. Within documentation shown, we have found the existence of Judgment of Municipal Court of Sarajevo, no. 922/98, from November 16, 2000, by which the accused (Parliament) is obliged to pay, to the credit of accuser (‘Holiday Inn’) an amount of 101.293,00 KM for hotel services.

In January 18, 2001, Parliament has lodged a complaint on Judgment mentioned above. 

Audit Office has recommended that, in a future, and because of uncertainty on result of Court case, Parliament should perform planning of funds for this purpose and in a case of confirmation of first instance judgment. Parliament should also examine the reasons that leaded to the case in order to avoid these cases to be repeated in the future. The Council of Ministers of Bosnia and Herzegovina should be acquainted with this case.

3.2.   Budget managing system

During the audit of operations for 2001, we have found that budget managing was not performed at the satisfactory level, meaning that the audit has found some deficiencies in budget planning system, and certain weaknesses in system of internal control of budget realization, according to the Law on Budget Execution for 2001.

3.2.1.  Budget planning and budget execution

During the audit, it has been found that budget of the Parliament for 2001 was 3.946.084,00 KM, while additional amount of 94.978,00 was approved by reviewed budget for 2001, which makes total amount of 4.041.062,00 KM. Parliament has realized budget for 2001 in a total amount of 3.865.768.00 KM, that presents 95,66% of amount planned. Analyzing budget planned and those actually realized, as well as reviewed budget for the last year, we have found that budget was not prepared in a quality and thorough way, because an adequate and relevant parameters have not been taken as a starting point in budget planning. This, first of all, relates to the budget item ‘Salaries of employees’ manifesting disproportion of number of employees planned to be employed and those actually employed. So, planning and reviewing of budget was based on 95 employees, while there were 69 employees actually employed. 

Audit Office has recommended to Parliament more precise, more qualitative and more thorough approach at all levels in future planning of the budget in order to perform its operations in the most positive and qualitative way. 

3.2.2.   Exceeding of budget items

While performing the audit, we have found that budget managing was not performed at the satisfactory level, since it has been found certain exceeding of individual budget items in comparison with fund approved according to Law on Execution of Budget for 2001. Significant exceeding mentioned above, relate to the following budget items: ‘Material and services costs’ in an amount of 402.776,00 KM or 92,58% more than it was planned and ‘Contracted services’ in amount of 28.806,00 KM or 24,88% more than amount planned (See the Table).

COMPARATIVE OVERVIEW OF PLANNED AND EXPENDITURES MADE IN 2001 

It is an obligation of Parliament to respect the provisions of budget for 2001, both, in its total amount and amounts adopted by individual budget items. The audit has found insufficient efficiency of Budget Execution Control System.

Audit Office has recommended to Parliament to thoroughly perform the analysis of reasons that caused exceeding of individual budget items in order to avoid irregularities to be repeated in a future.

3.3.   Financial-accounting operations

By an insight into financial-accounting documentation and operations, it has been found its incomplete accordance to accounting regulations, principles and standards. The most significant irregularities were: violation of the principle of modified accrual basis, return of non-used income to Treasury’s account, recording of the fixed assets and financial assets, and other small omissions.

3.3.1.    Recording of incomes from 2000 in the year of 2001 

Audit Office has found that incomes allocated for the year of 2000 in amount of 150.352,00 KM, have been recorded in the ledgers of Parliament as incomes for 2001, which is not in accordance with law regulations and principles regulating this issue, meaning the principle of recording of income in a moment incomes happen, but not in a moment income is being received.

The violation of this principle has direct influence on accuracy of Parliament’s financial statements, as well as Consolidated statement on budget of Bosnia and Herzegovina.

The violation of the principle of modified accrual basis of accounting, in the future, will directly influence on accuracy and objectiveness of financial statements.

Audit Office has recommended to Parliament to consistently apply the principle of modified accrual basis of accounting, meaning the income is being recorded in an accounting period in which they were allocated.

In addition, Audit Office suggests to Parliament to undertake activities and to oblige the Council of Ministries (Treasury) to regulate this issue as soon as possible, so that the financial report would give fair view of status and serve purpose intended.

3.3.2. Showing the surplus of income over the expenditures according to Instruction of Ministry of Treasury

During performing the audit, we have found that Parliament has shown the surplus of income over the expenditures and liabilities towards the Treasury in an amount of 65.100,00 KM. According to Instruction of the Ministry of Treasury, Parliament has created liability on returning of surplus shown. 

Audit Office has recommended to Parliament that dynamics and the way of return of surplus shown should be accorded with the Ministry of Treasury, so that Instruction mentioned above would be applied consistently.   

3.3.3.  Inventory of fixed assets on 31st of December 2001

While performing the audit of operations for 2001, it has been found that inventory of fixed assets and certain recordings after inventory foreseen by the Law, have not been performed according to accounting regulations and standards.

Analysis of statements on inventory performed has found existence of certain funds that have no bookkeeping value, as well as donations that were not recorded in the ledgers of Parliament, that is not in accordance to law regulations regulating this issue (mainly, it is about computer equipment).

Inventory of assets and their resources performed with improper quality and comprehensiveness could have a negative influence in the future, so that annual financial statements would not be presented in a real and objective way.

Audit Office has suggested to Parliament, as an indispensability, to comprehend all assets, in all shapes of appearance, during making an inventory, and to record them in the ledgers. For those assets that have not the bookkeeping value Parliament should form the commission in order to estimate the value of assets mentioned.

3.3.4.  Status of financial assets on 31st of December 2001

The status of financial assets on 31st of December 2001 that is shown in the Parliament’s ledgers is 127.385,00 KM. Analyzing the structure of financial assets shown, we have noted an amount of 81.031,54 KM on account no. 1291011000240627 at ‘Central profit bank d.d. Sarajevo’, where assets mentioned were situated for one year (extract no. 25 from April 26, 2001; after this day there was no transactions on this account). In annual report it has been stated that Ministry of Treasury has blocked assets mentioned.

Audit Office did not have an insight into relevant written evidences relating to blockade of assets mentioned done by the Ministry of Treasury.

Audit Office has suggested to Parliament’s management to perform thorough analysis of status of account of amount mentioned, and to analyze the reasons of blockade for the period of almost one year, and, in coordination with the Ministry of Treasury, to urgently find the solution for assets blocked.   

3.4.         Report on information system

Audit Office has recommended to Parliament’s management to create IT strategy, as well as clear charges in managing and developing of information system, and to create written standards for system analysis, maintenance of system’s software and control of data, that all should result with more effective use of information system.    

4.        CORRESPONDENCE

After the audit, in May 22, 2002, Report on Audit was delivered to Parliament, and, within the foreseen time frame, Parliament has delivered remarks (regarding the Report on Audit) on which Audit Office gave its response.

5.          SUMMARY

During performing the audit for 2001, Audit Office has noted that:

Parliament did not consistently respect provisions of the Law on Executing of budget for 2001, so the audit has found certain exceeding of individual budget items (‘Material and services cost’).

Accounting recording of budget incomes allocated in 2000 and which were recorded in the year of 2001, is not in accordance with the principle of modified accrual basis, meaning that the income are being recorded in an accounting period in which they are allocated.

Having in mind that there is no sufficiently effective internal control system in the Parliament, prescribed by management, we express the opinion that it should be provided the higher level of internal control system in order to achieve more efficient operation according to legislation. 

Inventory of fixed assets was not performed in accordance to Law on accounting, meaning that principle of comprehensiveness of inventory of fixed assets was not respected neither certain recording after the inventory have been performed.

Audit Office wants to thank to the management and to Parliament’s employees for cooperation and help offered to auditors during performing the audit.