THE AUDIT REPORT ADMINISTRATIVE AND TECHNICAL SERVICE OF THE INSTITUTIONS OF BOSNIA AND HERZEGOVINA YEAR 2001

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 ADMINISTRATIVE AND TECHNICAL SERVICE OF THE INSTITUTIONS OF BOSNIA AND HERZEGOVINA (hereinafter referred to as: the Service), concluded with condition found on 31 Dec. 2001.

1.2. In the period from 01.04.2002 to 09.04.2002, 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:

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

2.1. Due to importance of issues presented in Paragraphs 2.2., 2.3. and 2.4. that are to follow up, we are not able to express the opinion on reality and objectiveness of the financial reports of the Service, concluded with 31 Dec. 2001.

2.2. We did not investigate nor submit the Report on audit of the financial reports of the Service in 2000. Data from the final account in the year 2000 represent the comparative data presented in financial reports for the year 2001, hence the starting balance of state on 01.01.2001 introduce the final balance of state on 31.12.2000, on which we shall not express our opinion.

2.3. Audit was not in possibility to be present during the listing of donation in equipment given by the Ministries within the Council of Ministers, which was taken over by the operation books evidence of the Service concluded with 31 Dec. 2001, but still physically located in the rooms of the Ministries. The value of the undertaken equipment is 1.188.951 KM.

2.4. In chapter 3.3. of this audit report, financial reports that were subject to audit do not include the value of investments into constructions, i.e. the reconstruction of the Parliament building, whose value makes 6.800 000 KM, according to the contract with European Commission as donor and ½AB Technics½, as the contractor.

Audit has found certain lacks in internal control system in the part referring to budget execution and management. Likewise, the audit has confirmed that, besides the decisions made by leadership, there is a lack of more precise rules regulating the expenditure of certain assets and procedures of approval for the expenditures from the budget. Internal control system is established by the leadership of the institution 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. Lacks in the system and insufficient development of this system have an important impact on management and control of the budget expenditure, more precisely the management with public assets aimed for the specific purposes.

Lacks found in the internal control system refer to the following findings of the audit:

Service was recommended to plan its operational goals and activities simultaneously with planning of the assets that should be used for concrete activities, so that the leadership could efficiently manage the targeted activities within the scope of responsibilities for execution of set goals. At the same time, the Service must have the capacity to regularly / monthly monitor the budget execution in relation with planned assets. Therefore, the overall expenditure comprises all the expenses and obligations but only paid expenses and obligations. The Service should also provide the complete procedure of approving the expenses, which would give the proof that concrete expense derived from and was truly based on the law. Service was, like all the other budget users, recommended to come up with the more precise internal rules for regulation of the individual expenses, besides the decisions that were made, until the Ministry of Treasury issues the new rules.

Overall planned expenses of the Service, according to the adopted budget before the re-balance amount 2.768.340 KM. Having adopted the re-balance in 2001, the expenses of the Service were increased for 485.409 KM, so the overall budget for the year 2001 was 3.253.749 KM. In 2001, Service has substantiated the expenses amounting 3.024.579 KM, which is 229.170 KM less than planned, i.e. 93% of the planned.

Ref. No.	Type of expenditures	Budget in 2001	Increase/ Reduce (+/-)	Budget changes and amendments (3+4)	Substantiated in 2001	Digression (6-5)	Index 6/5
1	2	3	4	5	6	7	8
I	Current expenditures	2.768.340	+323.537	3.091.877	2.832.339	- 259.538	92
1.	Salaries of employees	1.489.795	- 449.795	1.040.000	934.658	- 105.342	90
2.	Reimbursement of expenses to the employees	270.240	+ 115.510	385.750	254.780	- 130.970	66
3.	Reimbursement of expenses to the Assembly delegates	0	0	0	0	0	0
4.	Expenses for materials and services	936.637	+ 558.246	1.494.883	1.489.497	- 5.386	99
5.	Insurance and bank services expenses	14.145	+ 1.500	15.645	15.151	- 494	97
6.	Contracted services	57.523	+ 98.076	155.599	138.253	- 17.346	89
II	Ongoing grants	0	+ 11.872	0	0	0	0
1.	Grants to the individuals	0	+ 11.872 *	0	0	0	0
III	Capital expenses	0	+ 150.000	161.872	192.240	+ 30.368	119
1.	Spatial reconstruction/ arrangement	0	+ 60.000 *	65.000 * 11.872 *	64.117	- 12.755	83
2.	Revitalization of the el.power block	0	+ 80.000 *	25.000 *	23.940	- 1.060	96
3.	Other equipment	0	+ 10.000 *	60.000 *	104.183	+ 44.183**	174
IV	Special purpose programs	0	0	0	0	0	0
V	Total	2.768.340	+ 485.409	3.253.749	3.024.579	- 229.170	93
11.	Number of employees	86	- 12	74	75	+ 1	101

* With the decisions of the Council of Ministers, there was a re-distribution of the capital expenses between the foreseen aims and purposes, and the ongoing grants distribution into the capital expenses.

** The exceeding took place as the consequence of the claimed unforeseen assets as per decision made by the Council of Ministers and in the amount of 188.982 KM.

Table of the budget execution previews certain lacks in planning of budget sections /items in relation with the number of employees and capital expenses:

In future, Service should pay more of attention when planning budget sections, so that the planned budget would comprise the real needs of realistically employed workers, which would be sufficient for the functions performed by the Service as well as for the real needs of the “in advance” foreseen investments into the capital expenses.

Service has, as the recipient of the equipment for the Council of Ministers (donation o the European Commission in 2001), listed and put into evidence of Service books the received donations in equipment, which is yet physically located in the Ministries. Received donation assets from the European Union in 1998 were not taken over and in the evidence of the Service books, except for the Council of Ministers. Audit Office was not present during the listing of the equipment donation that was (according to the evidence) taken over and registered into the operational books of the Service on 31 Dec. 2001, but still is located in the rooms of the Ministries. Due to impossibility to be present during the listing of the abovementioned equipment, the Audit was not able to ascertain itself into the completeness of the listed equipment, and on such basis we hereby express our reserve on the total value of the undertaken equipment, in the amount of 1.188.951, 15 KM.

Service was recommended to inform the Ministries in charged for the donation in equipment to make the listing of the equipment and forward the listings to the Service, upon which there will be a standardization of the real condition of the equipment in other ministries, concluded with condition found in the operational books of the Service. The rest of the donation in equipment from 1998 should be put into evidence of the Service’s operation books.

In its books of operations, Service did not put into evidence the executed value of investments into the construction sites, i.e. the building of the Council of Ministers and the Parliamentary assembly of Bosnia and Herzegovina, and the value of the investment into the equipment and heating system. Reconstruction of the business premises (office space) for the Council of Ministers is done by the European Community represented by the European Commission as the donor and the enterprise-contractor ('AB Techniques', Sarajevo). The latter contract is concluded before the calculation period comprised in this Audit. Previous value of the investments, according to the contracts amounted around 6.800.000 KM. Ownership right over building and the land is transferred to Bosnia and Herzegovina – Joint institutions of Bah, according to the decision on determination of the function of buildings and land for the accommodation of the Institutions of Bosnia and Herzegovina, their status, terms and way of use (½Official gazette of BiH½, No. 12/99). By not putting into evidence the investment values in constructions and equipment, the Service has underestimated the fixed assets and capital in the amount of approximately 6.800.000 KM.

Service was recommended to undertake the activities on obtaining the authentic documentation on the values of investments in the construction and equipment for the building of Parliament (contracts, situation, surveys, etc.), or, if not possible, to evaluate the investment value and put into evidence of its operation books the states and conditions.

Service substantiates its own incomes that are not planned in the budget. The substantiated incomes (revenues) in 2001, on this basis, amounted 245.309 KM. The supplies with the food and drinks as well as other hosting expenses are also financed from Service’s own revenues in total amount of 211.548 KM, so there was a benefit of 33. 761 KM in 2001 on this basis. In its operation books, Service is putting in evidence only invoiced, but not charged incomes, while invoiced/unpaid incomes are registered as the revenues for the future. On the basis of this, there was 38.968 KM in evidence as the delimitation.

Audit Office recommends that the incomes (revenues) and expenses of the hosting services should be planned in the budget and that the substantiated revenues from the hosting should be used for the expenses in hosting within the procedures stipulated by the Ministry of Treasury and through the Single Treasury Account (JRT). Furthermore, the Service is advised make analysis, i.e. to reconsider the possibilities of savings by resuming the current conditions of the hosting services (legal basis and registration, additional employment of the workers, operations according to the Treasury system, taxes and other obligations, etc.) in comparison with the alternative solutions, where (on the basis of public invitation for bids) through the conclusion of yearly contracts – these works could be agreed with the professional providers of hosting services.

In December 2001, Service has obliged itself towards the supplier (½Petrol BH Oil Company½ Sarajevo) of the fuel for heating system of the building, amounting 225.690 KM, and simultaneously increased the expenses for the heating in the same amount. The aforementioned increase of the obligations and expenses, concluded with 31.12.2001, is carried out on the basis of 13 preliminary invoices from the supplier, and each of the invoices is for the quantity of 30.000 liters which is a total of 390.000 liters of fuel, which should be delivered in 2002. The selection of the supplier for these deliveries is done through an announcement of tender (invitation for bids).

The assets were transferred to the Service at the beginning of 2002 in total amount of 533.086 KM in favor of the material costs, in accordance with the demands for the transfer of assets from budget in 2001 aimed for the overall debt redemption towards the suppliers / providers in that year. Within the transferred amount, there should have been a cover of the obligation for payment of the fuel in the amount of 225.690 KM, and according to the reserve expenses and obligations stated above. Out of the total obligations for oil payment, amounting 225.690 KM, a payment in the amount of 134.610 (for around 240.000 liters) was paid in the year 2002, while the value of 70.620 KM (around 120.000 liters) of the fuel was delivered. In 2001, Service did not keep in the quantity evidence on use of the fuel for heating system of the building. According to the yearly report on expenditure of the fuel in 2001, the starting balance on 01.01.2001 was 10.000 liters of fuel; 351.091 liters was procured in total. The supplies on 31.12.2001 were 85.284 liters, so during 2001, there was 275.807 liters of fuel used in total.

Service is advised to pay the reserved obligations/expenses in 2001 (for the supplies with fuel for heating system in the rooms) from the assets in budget 2001 that were transferred at the beginning of 2002. Service is obliged to keep the evidence on goods supplies (supplies with fuel and other quantities used for the heating system), so that there is a detailed evidence on exact quantity of the fuel in the tanks. The fuel state at the end of the year should be signed and standardized with the condition (state) in the book-keeping on goods. Service is recommended to reconsider the possibility of installment of the metric facilities for calculation of the spent fuel quantities, which would be installed in the location of the tanks and boilers and accessible for evidence and control in the heating system plant. It is necessary to regularly (monthly) standardize the use of the fuel with the evidence in books of goods.

Service is advised to regularly monitor the use and the state of fuel supplies in order to avoid the procurements of the fuel or creation of the obligations for the quantities that unnecessarily exceed the needs outside of the yearly calculation period.

Taking into consideration the recommendations of the Office, the Service has carried out the return of the assets into the account of the budget, on the basis of undelivered goods (fuel) in the amount of 104.675,02 KM.

Statement on capital expenses and financing for the period from 01.01.2001 to 31.12.2001, in all the materially important aspects, represents the true and exact preview of the procured fixed assets during the year and their financing from the budget. However, the Service did not, in all cases and completely, respects the procedures of fixed assets procurement, i.e. procurement of the assets in preparation referring to the reconstructions and arrangements of the premises in the Parliament building.

Besides works on reconstruction of the complete building, the Service has done the separate arrangements of the premises in total value of 64.117 KM, which is presented in the operation books. The works were done by the contractor from Sarajevo (½AB Technics½) and according to the contracts on construction, craft, electric and technical work and one contract on the reparation and reconstruction of mini el. power station of the voltage 1x 1000 kVa, as follows:

- Contract No. 080-AB/01 dated on 28.06.2001.; value of works 8.181,55 KM (collected 3 offers)

- Contract No. 119-AB/01 dated on 24.08.2001. value of works 8.640,00 KM (tender)

Out of 10 contracts concluded with the contractor (½AB Technics½ Sarajevo), the Service has collected three concrete offers, while for one of them – there was a Public Tender for selection of the best bid. Such partial conclusion of the contracts on works, without previous planning and making the preliminary calculation for the complete arrangement of the premises, is not in accordance with Article 16 of the Law on budget execution in 2001. Having the procurements without the public announcements, public institutions could bring to the market preferences for one supplier in relation with the others; to the procurement of the goods on non-competitive prices; to the eventual abuse of the authorization and corruption, as well as other undesired consequences.

Service was asked to pay the attention to the fact that it is obliged to implement the procedure of public announcement of tender and selection of the best contractor for all procurements of the assets, in this case referring to the assets in preparation, whose value for yearly needs exceeded 10.000 KM. Audit office finds that the Service should plan its activities for the needs of arrangement of premises in the Parliament building by preparing the complete preliminary measurement and calculation of the works to be conducted, and upon this - select the best bid for the total amount on planned works, in accordance with effective regulations.

Upon finalization of audit, the Service was sent a Draft of Report on 18.05.2002. The Service has replied on 03.06.2002, and in its reply it gives the clarification and proposals for the corrections of the text of Report before its publication. Audit Office has informed the Service on its opinions with the letter; Ref. No. 01-400-235/02 dated on 19.06.2002, and made a decision about final contents of the Report.

Summary preview of the most important findings and recommendations of the Audit Office for 2001:

Audit Office hereby wishes to thank the leadership and employees in the Service for their co-operation and assistance provided to us during the audit.