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 Council of Ministers of Bosnia and Herzegovina - Services (hereinafter: Services) presenting the status on 31st of December 2001.

1.2.           Audit was planned and performed in a period from March 11, to March 22, 2001, 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 Services represent a fair and true view of operations during the year and of the status at the end of the year. Management of Services is responsible for financial statements. The responsibility of Audit Office is to express the opinion about financial statements of Service, and based on the 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 Services 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, financial statements of Services on 31st of December 2001 represent a fair and true view of operations during the year and the status at the end of the year, except of effects which on financial reports have an items relating to the following: 

2.2.    We have not been examining nor we have submitted a report on audit of financial operations of Services for 2000. The opening balances on 1st of January 2001 present final balances on 31st of December 2000, which were not encompassed by the audit and for which we do not express an opinion. 

2.3.    Vehicle ‘Audi 100 2E’, which is completely depreciated, was not recorded by an inventory listing of assets on 31st of December 2001, but separately from the Balance Sheet of Services, so based on that, the deficiency of assets that is not explained was found.  

2.4.    By the date the audit was finished, surplus of incomes over the expenditures in a total amount of 116.595 KM, have not been returned to the account of the budget of Bosnia and Herzegovina, and return of these assets is still uncertain.

3.       FINDINGS, REMARKS AND RECOMMENDATIONS OF THE AUDIT OF ACCOUNTS FOR 2001

3.1.    Internal control system 

The audit has found certain weaknesses in an internal control system of Services, related to the set of activities and measures created by the management and employees in order to achieve reliable financial reports and performing of operations in accordance with the Law. Faults have been stated in the part related to budget management and budget execution. Also, the audit has found non-existence of certain regulations regulating spending of individual assets, as well as procedures for approval of budget funds used. Weaknesses in an internal control system as well as insufficient development of system mentioned, have significant influence on budget managing and control over the spending of budget funds, meaning management of public funds intended for strictly determined purposes.

3.1.1. Handling

The responsibilities and authorities in the system of handling over financial and operational activities of Services of the Council of Ministers, were not precise defined by the Law on Council of Ministers and the Standing orders of the Council of Ministers. This relates to insufficient transparency of authorities and responsibilities of secretors handling over individual Services of the Council of Ministers, as well as precise separation of responsibilities within public funds handling (common and individual competencies).

Audit Office has recommended to Services, in spite of insufficiently defined Law provisions, and in order to provide more efficient performance of its operations, to establish, through its internal regulations, clear responsibilities and authorities of handling structures of Services, as well as an adequate division of responsibilities in order to achieve coordination between Legal, Administrative, Material-Financial and Information Service and the Chairman’s Cabinet. 

3.1.2. Monitoring over the budget execution

Efficient monitoring over the budget execution, which relates to comparative analysis of expenditures made in comparison with budget funds planned, has not been entirely provided. Monthly financial plans were not regularly delivered to the Ministry of Treasury. The expenditures recorded during the year have encompassed only expenditures paid and not unpaid ones. Reliable basis for efficient monitoring over the budget execution during the year, could not be given without performing of previous analysis of expenditures made in comparison with those planned and without presentation of budget expenditures made, but not paid.

It has been recommended to competent Service to monitor regularly, by month, budget execution in comparison with budget planned in order to provide budget execution in amounts allowed by budget plan. In the future, Service has to estimate justifiability of individual expenditures of all Services of the Council of Ministers and to provide spending in amounts planned by the budget. It has been recommended to Material-Financial Service of the Council of Ministers to record calculated but unpaid liabilities/expenditures according to modified accrual basis principle, meaning that expenditures are being recognized in an accounting period in which the liability is originated.

3.1.3. Regulations and procedures on spending

Audit has found that Services had not establish regulations related to the costs of use of personal vehicles for official purposes, use of cellular phones, representation costs and gifts and professional education and training.  Also, Services had not established procedures on approval of expenditures made, so that invoices for expenditures stated have not been always properly approved and verified by the person which made an expenditures and responsible person that should approve expenditures mentioned.  

The lacks stated could cause irrational use of public funds and use o funds for purposes that were not originally planned unapproved procurement of assets and services and other eventual misuses of public funds. Meanwhile, Services has provided procedures on approval of expenditures evidencing that expenditure have been actually made based on the Law.

It has been recommended to Services to make its internal regulations as soon as possible, to the day these regulations are brought by the Ministry of Treasury.

3.2.    Budget execution

Total amount of expenditures planned, according to budget adopted and before changes and amendments of the budget, was 948.576 KM. After adoption of reviewed budget for 2001, the expenditures increase was 69.156 KM, so that total amount of budget for 2001 was 1.017.732 KM.  Expenditures made of the Services, for 2001,  amount 954.380 KM, that is 63.352 KM less than planned or 94% of what was planned.

Services did not exceed total of expenditures in comparison with budget for 2001, except exceeding under the item ‘Contracted services’ in an amount of 19.960 KM. Exceeding stated is a consequence of recording of depreciated loan to the Ministry for Human Rights and Refugees, by on a Decision of the Ministry of Treasury, in an amount of 45.000 KM, which were recorded as an outstanding expenditures in 2001.

The following table shows an overview of budget Execution of Services for 2001:       

By analyzing of budget execution, presented in the table above, it could be found that the level of expenditures made is in approximation to the budget before changes and amendments were adopted (reviewed budget). We stress that, during planning of budget items, Services did not take into consideration non-distributed surplus of income from previous year in an amount of 185.814 KM.

It has been recommended to Services to give more attention to the planning of budget items in the future, in a way that budget planned would include real annual needs. It was also recommended that it is necessary for assets for operation of the Council of Ministers Chairman Cabinet to be planned by purpose of assets. It is necessary for each of budget item, shown as a sum, to be defined its structure in order to provide use of item mentioned for purposes different than originally planned. 

3.3.    Financial reports and accounting 

Opening balances of Services present final balances for 2000, which were not covered by the audit, and which, in a certain measure, influence on final balances for 2001.  That is why we do not express an opinion for opening balances stated in the balance Sheet for 2001.

Within the ledgers of Services, motor vehicle Audi 100 2E, which is completely depreciated, has been recorded on fixed assets, and it was transferred to recording separately from the balance Sheet.

By inventory listing of fixed assets on 31st of December 2001, vehicle stated has not been recorded, meaning that it is not a property of the Council of Ministers. Correspondence between the Council of Ministers and Technical and Administrative Service of Federation of Bosnia and Herzegovina has found that vehicle stated is a property of the Government of Federation of Bosnia and Herzegovina, that it has been registered as a property of the Government of Federation of Bosnia and Herzegovina, and that it has been transferred without reimbursements to the Office for Solving of Status Issues of Refugees and Displaced Persons from Republika Srpska – Doboj – East.

Accordingly, the Audit has found that vehicle stated has been recorded in the ledgers of Services separately from the Balance Sheet, but according to an Inventory listing of assets it was not entered as a property of Services. Based on that, we found that there is a lack of assets (vehicle), which was completely depreciated, but which does have a certain market value.

The audit has recommended to Services that they has to take activities on solving of lack mentioned, and in order to provide compliance of the ledgers with actual status based on reliable documentation provided.

Income statement - profit and loss account

Total income of Services made in 2001 was 954.379 KM and it mostly relates to the revenues allocated from the budget which on 31st of December 2001 amount 883.041 KM. 

Incomes have been increased for an amount of 40.881 KM based on Requests for transferring of assets performed after 31st of December 2001. Previously, in the ledgers of Services, it has been recorded the liability toward budget based on surplus of income from previous years, in an amount of 75.714 KM; incomes recorded increases even more the surplus of incomes and total liability of Services related to return of surplus of income to the budget, and which on 31st of December of 2001 amount 116.595 KM. This increase of incomes and liabilities from the budget, which, at the same time, influences on increase of the liability from the budget previously made is not consistent and accustomed, causing an uncertainty on return of total liability stated. 

The Audit Office has recommended to Service, because of problems related to allocation of assets, to accord dynamics of return of assets in cooperation with the Ministry of Treasury.

Total expenditures of Services made in 2001 were 940.065 KM. By controlling of expenditures made we found certain irregularities that do not influence to financial reports, but which might influence the economical and efficient management of public funds.

Audit Office had informed the Service (Services) management about such examples and recommended higher control over the expenditures that relates to the following:

• realization of part of expenditures without delivering of request to the Treasury, meaning without Treasury's verification and approval;
• payment of individual expenditures have not been approved by management's decisions of the Services.;

It has been suggested to Services to respect the procedures prescribed by the Law on Treasury which relate to the control over the expenditures in a way that all payments related to the expenditures and loans given have to be in accordance with purposes foreseen by the budget and have to be approved by the Ministry of Treasury. Furthermore, Audit office has recommended precision of rules on individual assets use and definition of criteria on use of budget funds approved.

Statement on capital costs and financing

Statement on capital costs and financing for the period from January 1, 2001 to December 31, 2001, in all materially significant aspects, does present fair and true statement of fixed assets procured during the year and their financing from the budget, except notes related to individual procurements of fixed assets during the year (audio recorder, computer, printer and cellular phone) which were performed without collecting of bids and selection of best bidder.  (9.239 KM).

Procurement without procedures prescribed, performed by public institutions, could cause favoring one of the bidders in comparison with other ones; procurement of goods/services at noncompetitive prices; eventual misuse of authorities and corruption; and other consequences.

It has been recommended to Services to, in the future, perform planning of procurements based on annual needs, as well as performing of procurements in accordance with valid provisions of the Law on Budget Execution and regulations on procurements. In a case of procurement of the same types of fixed assets, it has been recommended encompassing of total needs and announcing of public invitation for selection of the best bidder.

3.4.    Information system

While performing the audit of IT system we found the following findings and recommendations: 

• Taking into consideration that Services do not have an IT strategy adopted, it has been recommended to management of Services to create an IT strategy that would be base for further informatization, and to prescribe clear responsibilities of managing and development of IT system in order to strengthen administrative and financial control.
• Audit Office has recommended to Services to make its internal regulations on keeping and protecting of data, as well as making of copies and, according to their abilities, to purchase additional equipment so that copies could be made in an adequate way.

It was recommended to management of Services to make a decision on creating of plan of ideas on informatization, which would include standards for project managing, as well as the feasibility study with complete documentation.

4.       CORRESPONDENCE

After the audit was finished, on May 18, 2002, Draft report was delivered to Services. On May 31, 2002, Services delivered its written reply containing a certain explanations and recommendations for corrections before issuing of the report. By its letter no. 01-400-233/02 from June 19, 2002, Audit Office has announced Services on its attitudes, and has made a decision on report’s final content.

5.       SUMMARY

Audit of accounts of Services for year 2000 has not been performed. The summary of audit’s most significant findings and recommendations related to accounting year of 2001 refers to the following:

• An existence of certain weaknesses within internal control system related to handling and monitoring of budget execution;
• Services did not create an internal regulations, regulating individual expenditures nor it were found the procedures on approval of expenditures made;
• Vehicle ‘Audi 1002E’ has not been recorded by an inventory listing of fixed assets on 31st of December 2001. and it was recorded in the ledgers of Services separately from the Balance Sheet;
• It has been recorded the liability toward budget based on surplus of income on 31st of December 2001, in an amount of 116.595 KM, which return to budget account is uncertain;
• We found certain irregularities in spending and payment of budget funds, which were performed without previous verification and approval given by the Ministry of Treasury;
• While procuring the individual fixed assets, procedures on selection of best bidder have not bee respected;
• We found certain weaknesses of information system, for which adequate internal procedures were not found.  

Audit Office wants to thank to the management and to employees of the Council of Ministers for cooperation and help offered to auditors during performing the audit.