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 and operations (including the management’s decisions), of THE CONSTITUTIONAL COURT OF BOSNIA AND HERZEGOVINA (hereinafter: Court) presenting the status on 31st of December 2001.

1.2.           Audit was planned and performed in a period from February 11, to February 15, 2002, (previous audit) and from March 18, to March 29, 2002, (audit of final account) 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 financial statements of the Court represent a fair and true view of operations during the year and of the status at the end of the year. Management of the Court is responsible for financial statements. The responsibility of Audit Office is to express the opinion about financial statements of the Court, and based on audit performed, 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

In our opinion, Court’s financial statements, for year 2001, present a real and objective view of operations during the year and of the status at the end of year, except the reserve expressed in items 2.1. and 2.2.. 

2.1.     In Chapter 4. (item 4.3.1.) of this report on audit, financial statements which were audited do not present a fair and true view of operations during the year and of the status at the end of year: first, in a part relating to expenditures in an amount 7.279,34 KM and liabilities toward contractors that have not been calculated on 31st of December 2001 and which relate to the year examined, and second, in a part that relates to budget revenues in an amount of 6.053,00 KM.  

2.2.     In Chapter 4. (item 4.2.2.) of this report on audit, findings include recording and monitoring of donated funds separately from the balance sheet. Within its ledgers, the Court has not recorded Court’s account of donations opened within JRT (Unique Treasury Account). The state of this account on 31st of December 2001 was 19.772,81 KM. Financial assets in the Balance sheet of the Court has been shown as lower in an amount stated.  

3.  RETROSPECTION ON AUDIT’S FINDINGS AND rECOMMENDATIONS FOR 2000

Audit Office has performed the audit of the Court for 2000 and has made the report on audit. The audit has found a certain weaknesses described within report and has given recommendations for removal of weaknesses found. It has been stated some positive changes within financial accounting operations.

Recommendations realized:

• Corrections of records on 1st of January 2001 have been made.
• A person being responsible for monitoring upon the budget execution and other financial accounting jobs has been engaged.

Current activities:

• The Court has requested from the Ministry of Treasury to make changes within items of expenditures and to accord them with budget classification.

Non-adopted recommendations:

• Recommendations relating to information system.
• Regulations and procedures on individual categories of expenditures have not been created.

4. FINDINGS, NOTICES AND RECOMMENDATIONS ON AUDIT OF ACCOUNTS FOR 2001

4.1. Internal control system

Audit Office has found a certain weaknesses within internal control system of Court’s management. Even though some positive changes within internal control system have been noted, it could be said that system mentioned still is not reliable enough.

Main weaknesses in internal control system are the following ones:

• monitoring upon budget execution is not on a satisfactory level;
• all regulations and procedures regulating individual categories of expenditures have not been adopted;
• non-updated and incomplete bookkeeping records;

It has been recommended to the Court to continue with creating of procedures in order to strengthen monitoring over the budget execution. At the same time, it should be created and adopted regulations regulating an individual budget categories and it should be provided recording of all transactions and operations.

4.2.  Budget management system

Within its operations, the Audit Office has especially accentuated budget planning and budget execution during 2001. Within the following Table it was given an overview of budget approved, increases, budget modified, and – budget execution and deviations. 

Comparative overview of expenditures planned and executed in 2001

4.2.1.  Budget planning and budget execution 

In 2001, the Court has been financed through budget funds of institutions of Bosnia and Herzegovina and through funds from donations.

The Court’s budget in 2001 was 1.513.430 KM, while additional amount of 437.753 KM was approved by reviewed budget, which makes total amount of 1.987.165 KM. In the same period, the Court has made expenditures in amount of 1.681.576 KM, or by 305.589 KM (85%) lower than amount planned.

Analyzing the Court’s budget planned and budget really made in 2001, we have found that financial plan of Court’s needs by type of expenditures was not completely accorded with budget classification of expenditures. This, particularly relates to: the reimbursements for the costs of employees under which were recorded salaries of judges engaged by temporary services contract and in an amount of 412.630 KM; reimbursements for the parliamentary representatives foreseen by the budget, in an amount of 344.400 KM which Court has not been recorded in the budget made. Even though the Ministry of Treasury has given to the Court an approval according to which salaries of judges could be recorded as reimbursements, these expenditures were reduced by the reviewed budget for an amount of 38.515 KM. This had an influence that resulted with exceeding of total reimbursement costs in an amount of 45.466 KM or by 10%. 

The Audit Office considers that it should be paid more attention to the planning, both within the Court and on the higher levels, where adoption is being performed, in order to achieve more real and more qualitative budget planning.

It has been recommended that, regardless of its independence and financial individuality, the Court should accord its financial plan with the budget, and should organize regular monitoring and control over the budget funds use.

4.2.2.  Donation funds

During performing the audit, we have found that, besides it has been financed from the budget, the Court has also been financed through funds from donations. But, these assets were not shown within the Court’s budget, nor were entirely recorded in the Court’s ledgers. 

Within its financial reports, the Court has presented revenues from donations in an amount of 45.168 KM. While performing the audit, we have found that amount stated relates only to the part of revenues from donations which has been used for the cover of expenditures financed from donations (for example: pays of taxes for interpreters, meeting organization costs, travel costs etc.) These assets were realized through the Court’s account and were noted in the Court’s ledgers. The biggest part of financial assets from donations has not been recorded in the ledgers nor it has been realized through the Court’s transactional account. These assets are being recorded in the Court’s additional books of evidence. Non-financial donations (the equipment) have been recorded in the ledgers.

Within additional bookkeeping records, donations have been recorded by its source, meaning in the way requested by donors. 

Donations of the governments of France and Sweden have been allocated to the OHR account and they were used for support on improvement of the Court’s functioning.  Spending, recording and monitoring of assets from these donations are being controlled by OHR, which submits the report to donor countries.  Documentation relating to these donations is situated in OHR. The Court has no documentation related to donations mentioned nor it records or monitors this documentation.

Donation of the government of USA is being realized through the OHR account, where records on use of budget for the purpose intended are being kept. The persons authorized by the Court to use budget funds are also authorized to use funds from donation mentioned. But, donation is not being recorded in the Court’s ledgers; it is being recorded separately from the Balance sheet based on documentation’s copies. 

Donations of the governments of Great Britain and Spain are being realized by the Court’s donor account, which has been opened within Unique Transaction Account (JRT). State of assets on account on 31st of December 2001 was 19.772,81 KM. But, the Court has not been recorded account mentioned within its ledgers so those financial assets in the Balance sheet were shown as a lower for an amount stated.

On its session, the Court has adopted report on use of donation funds for 2001 (Decision no. P- 43/02, from February 26, 2002).   

The Audit Office considers that according to the Law on Execution of the Budget, all assets/funds donated, regardless of origin or source of assets, should be recorded in the ledgers and presented within financial reports.

Donor assets should be planned or foreseen by the budget, regardless of the way of their disposal. That is how basic accounting principles would be respected, especially principles of budget unity, budget entirety and budget transparency.  

4.3.  Financial accounting operations

4.3.1.  Financial reports

The financial reports, the Court has been made in a form of Annual account for 2001. according to an Instruction of the Ministry of Treasury of the institutions of Bosnia and Herzegovina no. 01/692/02 from March 4th ,2002.

Income statement (profit and expenditures account)

Within financial reports of the Court for 2001, ‘Profit and Expenditures Account’, there have been presented total incomes in an amount of 1.627.639,00 KM, total expenditures in an amount of 1.681.576,00 KM and surplus of expenditures over the incomes in an amount of 5.633,00 KM.

While performing the audit, we have found that budget incomes for 2001 were presented in an amount of 1.627.639,00 KM in place of an amount of 1.633.693,00 KM that was amount really transferred to the Court’s transactional account according to the order of the Ministry of Treasury. The difference in an amount of 6.053,00 KM relates to mistake on recording of incomes in the bookkeeping records, in a way that in a place of 15.052,00 KM it was recorded an amount of 8.999,00 KM instead. (Request for transfer of assets no. 2).

It has been recommended to the Court that, all assets should be recorded in its ledgers, according to the Law on Execution of the Budget of the institutions of Bosnia and Herzegovina for 2001. The Court will also make a correction of recording of incomes in the bookkeeping records on 1st of January 2002. 

Audit has found that, within the Court’s ledgers, the expenditures have been recorded as a lower for an amount of 7.279,34 KM. The expenditures mentioned relate to the Communal Expenditures Costs for December of 2001. that have not been recorded in the Court’s ledgers, nor they were presented within financial reports for 2001 (this relates to an invoice of Administrative and Technical Service of the Institutions of Federation of Bosnia and Herzegovina, no. 1378/2001).  By regular recording of expenditures within bookkeeping records, according to the principle of modified accrual basis of accounting, total expenditures in 2001. would be 1.688.855,34 KM. This also relates to recording of the liabilities in the moment they are being paid and not in the moment they happen (for example: Invoice no. 2903/MK-01 from August 14th, 2001, in an amount of 1.056 KM – procurement of computer materials).

It has been recommended to the Court to record the expenditures within the bookkeeping records according to the principle of modified accrual basis of accounting says that expenditures are being accounted and recorded for the period in which they happen.

Balance Sheet

Within the Balance Sheet, financial assets have been shown in an amount of 3.020,00 KM. Assets mentioned have been presented as a lower for an amount of 19.772,81 KM, because in its ledgers, the Court has not recorded donor account opened to business bank within the Court’s transactional account. Status of assets on account mentioned on 31st of December 2001 was 19.772,81 KM.

According to an Instruction of the Ministry of Treasury, amounts of assets have been deduced to an amount of expenditures recorded, and it has been presented the liability on return of surplus of incomes over the expenditures into the budget in an amount of 36.361 KM. An amount mentioned has been shown within the Balance Sheet under the item Financial and Accounting Relations with Other Linked Units. But, the audit has found that the liability mentioned should be higher for an amount of budget incomes/funds donated in 2001 that were not recorded in the ledgers. 

In accordance with accounting regulations and principles, the Court should make a correction of bookkeeping records in 2002, for an amounts mentioned, and should present them within the Court’s financial reports so that financial report for 2002 should give a fair and true view of status.

4.3.2.  Accounting

The Audit has found that the Court has not recorded a certain financial changes in its ledgers in a way as regulations and principles of accounting foresaw it. Irregularities relate to the following:

• Irregular delivery of accounting documentation into Accounting Department which is not being performed through the book of delivery, so the Audit was not able to establish if all incoming invoices for 2001 were recorded in that year (for example: an invoice for communal services in an amount of 7.279,34 KM was not calculated).
• Individual decisions and invoices that present documentation enclosed to the Request for transferring of assets were not verified by the Ministry of Treasury (for example: Decision on reimbursement for engagement of the employees on the Court’s meeting, procurement of computer materials, Invoice no. 15/2001 from May 23, 2001 in an amount of 5.054,48 KM;
• The liability for individual reimbursements have not been made, so reimbursements mentioned were directly recorded as an expenditures (for example: reimbursements for contracted temporary services);
• Expenditures that have not been recorded basing upon reliable documentation (for example: copies of Invoices for airplane tickets of foreign judges in an amount of 5.851 KM);

The Court should provide accountancy in a way regulated by the Law on accounting and accounting rules and principles. All accounting transactions should be recorded basing upon reliable documentation.

4.4.  Information system 

In order to provide better and more efficient use of information system, the Court should adopt IT strategy and should prescribe written procedures and regulations on keeping and protection of data, managing of IT projects and the procurement of IT equipment.

5.     CORRESPONDENCE

After an audit performed, in May 22, 2002, Draft version of Report on audit was delivered to the Court. In June 7, 2002, the Court has sent written reply on the audit’s findings by which confirms and accepts the audit’s findings and recommendations.  

6.       SUMMARY

We have audited operations of the Court through systems of income, expenditures, assets and liabilities. By this audit, we have also encompassed significant decisions of the Court, which relate to the Court’s financial operations including conditions of the environment in which the Court was functioning.

Audit findings have been classified according to the most significant irregularities, and relating to: internal control system, mechanisms of management and control over the budget funds, irregularities in accountancy, non-existence of measures that would provide improvement of efficiency and financial reports presentation.   

By analyzing of the Court’s budget planned and those actually made, for 2001, we have found that the Court’s financial plan of needs by types of expenditures does not correspond entirely to the budget expenditure classifications. Also, planning is not being performed according to qualitative and detailed analysis, so as a consequence, donor assets were not encompassed by the Court’s budget.

Within the Court’s financial reports for 2001, in account of incomes and expenditures, the expenditures have been undervalued for an amount of 7.279,34 KM, and at the same time, the liabilities toward contractors (Administrative and Technical Service of the Institutions of Federation of Bosnia and Herzegovina ) in the same amount, were not shown within the Balance Sheet.

The budget incomes for 2001 has been shown in an amount of 1.627.639,00 KM, that is 6.053,00 KM lower than 1.633.693,00 KM of incomes actually transferred to the Court’s transactional account and according to the order of the Ministry of Treasury. The budget incomes recorded in the Court’s ledgers, as well as surplus of income that should be returned to the Treasury account have been undervalued for an amount of difference stated.

Financial assets within the Balance Sheet have been presented in an amount of 3.020,00 KM. Assets mentioned were shown as a lower for an amount of 19.772,81 KM, because has not recorded, in its ledgers, donor account opened to the financial bank within the Court’s transactional account. State of account on 31st of December 2001 was 19.772,81 KM.

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