C O N T E N T
1. AUDITOR’S OPINION
2. SUMMARY
3. FINDINGS AND RECOMMENDATIONS
3.1. Internal controls system
	Internal accounting controls
	Management's internal controls-conflict of interest
3.2. Budget control system
	Income from budget
	Revenues from operations
3.3. Accordance with the applicable laws and regulations
	Operational costs
3.4. Financial statements
	Income statement
	Balance sheet
3.5. Accounting
3.6. Correspondence with the client
4. Attachments
	Income statement for a period from 01/01/2000 till 12/31/2000
	Balance sheet on 12/31/2000

1. AUDITOR'S OPINION

1.1.  We have performed an audit of financial statements and operations (including the decisions of the management) in THE TELECOMMUNICATIONS REGULATORY AGENCY of Bosnia and Herzegovina (hereinafter: The Agency), for a financial year 2000. It is our responsibility, according to the generally accepted audit standards and the standards of the International Organization of Supreme Audit Institutions - INTOSAI, to perform an annual audit of public accounts, and according to the Article 13., of the Law on Auditing of Financial Operations of the Institutions of Bosnia and Herzegovina (Official Gazette of BiH number 17/99) to report of 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 of the status at the end of the year;
• on economy, efficiency and effectiveness with which The Agency has been using public funds for performing its functions.

1.2.  It is the responsibility of The Agency to fulfill its legal obligations in an effective way and according to valid laws and regulations. Agency's management is also responsible for the financial statements. We performed an audit according to the generally accepted audit standards and INTOSAI standards. These standards require for an audit to be planned and performed in order to achieve reasonable ground to estimate if the financial statements represent a fair and true view of the operations during the year and the status at the end of the year. That is why audit was examining a sample of significant transactions and the decisions of the management. We have not been examining nor we have submitted a report on audit of financial statements of the Agency for a year 1999, since these reports have not been made.

1.3.  As it is explained in a Chapter 3.4.1., income in an amount of 62.600 KM was not shown in a report period for a year 2000, even though they belong to that period. It has been estimated that the income and receivables in the financial statements on December 31, 2000 were shown to be less for 62.600 KM, and the stated income over the expenditures on December 31, 2000, was underestimated for the same amount.

1.4.  In Chapter 3.4.2., The Agency's ledgers, and by that the financial statements as well, on December 31, 2000 do not show (contain) a special vehicle for measuring of frequencies, of a nominal value of 274.232 USD. It was estimated that based on this, fixed assets and capital in financial statements on December 31, 2000, were shown to be lower for 577.653 KM. Also, there was no inventory list of assets, assets sources, accounts receivable and payable with a status on December 31 made, which might have significantly influence the audited financial statements.

According to our opinion, because of the significance of the issues stated in paragraphs 1.3. and 1.4. up here, the financial statements of The Agency for year 2000 do not represent a fair and true view of the financial operations during the year and the status at the end of the year.

2. SUMMARY

During performing of its mandate, audit has established certain weaknesses within the internal controls system that influence the economical use of funds, accuracy of financial reports, accordance with the laws and regulations and the protection of the property. The separation of duties regarding the recording and controlling of financial documentation and regarding the managing and executive function at The Agency management has not been provided.

The Agency did not take appropriate measures and activities in a cooperation with the Ministry of Treasury in order for all the income, and especially expected revenues from operations that the Agency collects according to the Law on Telecommunications to be encompassed within the Budget of the BiH Institutions, and in order for the expected expenditures according to the planned categories to be encompassed by the Plan of Budget.

Regarding the control function of The Agency over the expenditures made for year 2000, certain irregularities have been stated related to use of funds, which influence the economical and efficient management of public funds.

Financial reports of The Agency for year 2000 are significantly incorrect in the part that relates to the income stated as lower in an amount of 62.400 KM belonging to the reporting period, and related to the lack to report (show) in the ledgers a special vehicle for measuring of frequencies, the value of which calculated in KM makes 577.653 KM.

Agency did not make an inventory list of assets, asset sources, accounts receivable and payable with December 31, 2000, which might have influenced the audited financial statements, especially related to the comprehensiveness of the stated fixed assets.

Audit has also established certain formal faults in the accounting records of The Agency, where the financial changes and the bookkeeping documents have not been recorded in the ledgers as the accounting rules and principles foresaw it to be done. But, the stated irregularities have not influenced the expressing of the auditor's opinion.

3. FINDINGS AND RECOMMENDATIONS

3.1. Internal controls system

Audit has found certain weaknesses in the internal controls system, which influence the economic use of funds, accuracy of financial statements, accordance with the applicable laws and regulations and the protection of property.

The Agency does not have own internal controls that the management prescribes as a set of measures and procedures that provide the accuracy and regularity of recording of financial changes and their accordance with the regulations and the protection of the property.

3.1.1. Internal accounting controls

The Agency did not provide, in a sufficient amount, separation of duties between the recording and control of financial transactions. As a newly established institution, The Agency did not provide sufficient number of employees working on financial-accounting tasks, so that up till September of 2000 these tasks have been performed by an external service of Council of Ministers, with a reimbursement, and from September 2000, two workers employed in The Agency are doing these tasks.

3.1.2. Management's internal controls - conflict of interest

Leading and Management of The Agency was a responsibility of Managing Board, the three members of which (out of total of six) were at the same time the directors of departments. They have participated in the decision-making and at the same time were the ones executing these decisions. This way of managing does not provide separation of function (duty) of manager from the function (duty) of executive, which makes the control over the adoption and implementation of the decisions and the monitoring of the entire operations of The Agency impossible.

Agency has to adopt its internal rules as a set of procedures and measures that shall provide the compliance with the applicable laws and regulations. Operations of The Agency have to be secured by appropriate separation of duties in an area of recording and control of financial documentation, and in an area of management and executive function related to the managing of The Agency.

3.2. Budget control system

During the year 2000, Agency was partially financed from the budget, and partially from the revenues made according to the Law on Telecommunications, from the reimbursements for the telecommunication services and reimbursements for the issuing of frequency licensees.

3.2.1. Income from budget

Income planned from budget during the year 2000 for the cover of costs of the functioning of The Agency were 200.000 KM. Purpose of use of this income was not precisely defined within the budget.

Income planned was delivered to an account of The Agency, and in year 2000, 182.400 KM were delivered, which was shown in the financial statements. Last part, in an amount of 17.600 KM was allocated in January 2001, and it has not been shown in the financial statements for year 2000, even though it related to income from budget for year 2000.

Based on this, in its financial statements for year 2000, The Agency underestimated the income from budget in an amount of 17.600 KM.

In December 1999, Agency was allocated, from the 1999 budget, 100.000 KM, and in January 2000 50.000 KM, which makes a total of 150.000 KM. Funds planned in 1999 budget were 200.000 KM. Income realized from 1999 budget and a part of expenditures from 1999 were encompassed within the financial statements for year 2000.

3.2.2. Revenues from the operations

According to the Law on Telecommunications, and based on reimbursements for telecommunication services and by issuance of frequency licenses, Agency has collected revenues in an amount of 563.616 KM.  

Stated revenues have not been planned in BiH budget for year 2000.

Agency did not present, in the financial reports for year 2000, revenues from January of 2001 which relate to the last trimester of year 2000 in a total amount of 45.000 KM.

Based on this, The Agency underestimated in its financial statements for year 2000, its revenues from the operations in an amount of 45.000 KM.

Total of revenues collected was used for covering of Agency's expenditures for year 2000 in an amount of 673.559 KM, and for the procurement of the equipment in an amount of 176.988 KM.

Stated expenditures were not planned according to the types of purpose in a year 2000 budget.

Agency did create own Financial Plan for Year 2000, but the stated Plan was not encompassed by year 2000 budget.

In the following table we give the overview of income made and expenditures of The Agency in year 2000, with a percentage of participation of individual categories in relation to total income and expenditures and in relation to planned categories in the budget:

OVERVIEW OF INCOME AND EXPENDITURE OF THE AGENCY FOR YEAR 2000

The Agency should take measures and activities in cooperation with the Ministry of Treasury in order for all the income, and especially expected own revenues based on Law on Telecommunications to be encompassed by the budget. Also, The Agency should, on the basis of total of planned income, plan its expenditures individually, which should also be encompassed by budget, so that the use of funds stays within the limits foreseen within the budget.

3.3. Accordance with the applicable laws and regulations

The Agency, as a budget user operates according to the laws and regulations that are being applied by other budget users too. According to this, The Agency should operate according to the regulations and the decisions brought by relevant state institutions, without its independence being jeopardized

3.3.1. Operational costs

Control of expenditures made in The Agency for year 2000 has established certain irregularities in use of funds related to so called "thirteen salary" in December 2000 that was increased for 30% in comparison to the Council of Minister's decision. Expenditures based on this were 24.978 KM. There was also payment made as a reimbursement for religious holidays in an amount of 1.000 KM per employee, which was not in accordance with the decision of the Council of Ministers, which foresaw 500 KM per employee. Effect of that payment higher than allowed was 7.000 KM.

Established irregularities seen as a whole do not additionally influence the accuracy and reliability of financial statements, nor to the auditor's opinion. The Agency's management attention was directed to these irregularities in order for them not to happen in the future.

As a budget user, The Agency should respect stated limits when using the funds, established by the Council of Ministers, that way securing that the public funds are being used in economic, efficient and effective way.

3.4. Financial statements

Audit has examined financial statements of The Agency for year 2000, and that is Balance Sheet and Income Statement, and obtained sufficient evidence to evaluate The Agency's financial statements. Audit has established that the issued financial statements of The Agency for year 2000 do not present in all the aspects, the status of assets and asset sources, the income of The Agency, and the difference of income over the expenditures.

3.4.1. Income statement

As it was already mentioned in Chapter 3.2., The Agency did not present in its financial statements for year 2000 the income from the budget and revenues from operations that belong to the period ending on December 31, 2000, as follows:

• Last part of income from budget for year 2000, allocated in January of 2001, in an amount of 17.600 KM, was not presented in the financial statements for year 2000, even though they relate to year 2000.
• Invoiced reimbursements for the rights of use of license for the international telecommunications   services in January 2001, in an amount of 45.000 KM, relate to last trimester of year 2000, and as follows, they should have been presented in the financial statements for year 2000.

Based on this, The Agency has underestimated the income, in the Income Statement for year 2000, in a total amount of 62.000 KM, and at the same time, in the Balance Sheet it underestimated accounts receivable.

Based on this, The Agency has stated, in its financial statements for year 2000, the difference of income over the expenditures to be lower for an amount of 62.600 KM.

3.4.2. Balance sheet

Agency did not make an inventory list of assets, asset sources, accounts receivable and payable, with the status on December 31, 2000, which might influence the accuracy of recording of fixed assets and its comprehensiveness in the financial statements for year 2000.

By control audit procedures we found the payment of forwarding services for special vehicle for measuring of frequencies, and the vehicle has not been recorded in The Agency's ledgers. Customs value of the vehicle is 274.232 USD. Within further procedures we were given a customs declaration for a vehicle, invoice and the contract. Documents relate to a donation of "International Telecommunication Union", Geneva, Switzerland (ITU), which made a payment for the vehicle according to an invoice, to "Rhode & Schwartz" – Munich – the deliverer of the vehicle. According to the contact, ITU is obligated, for the needs of The Agency and with its consent, to engage a contractor to deliver, install, test and issue a license for use of special vehicle for measuring of frequencies (MMSDFS).

Stated vehicle was not recorded in The Agency's ledgers, nor it has been included in the financial statements of The Agency for year 2000.

Based on that, calculated by average exchange rate of KM in relation to USD, on December 31, 2000 (1 KM = 2,10644 USD), Agency has underestimated its fixed assets and capital for an amount of 577.653 KM, which presents a material fault in The Agency's financial statements for year 2000.

Agency should complete all the relevant documentation necessary for recording of the vehicle in the ledgers (invoice, contract, customs declaration, proof of ownership), calculate the depreciation and re-valorization of the vehicle and record the procurement value and depreciation in its ledgers.

Agency should perform a regular annual inventory listing of assets, asset sources, accounts receivable and payable at the end of the year, and should accord the actual status by inventory list with the lists recorded in ledgers.

3.5. Accounting

Agency did not record certain financial changes in its ledgers in a way the accounting regulations and principles foresaw it to be done. Formal irregularities stated by audit relate to following:

• Costs of daily allowances and transportation costs for business trips have not always been individually recorded to the belonging expenditure items, but were recorded as a sum to the item – business trip accommodation;
• Agency does not record the incoming invoices into the Incoming Invoices Ledger, and the audit was not able to establish if all the incoming invoices from year 2000 were recorded in that year.

Agency is obligated to keep its ledgers in a way the accounting rules and principles in use regulate this to be done.

3.6. Correspondence with the client

By its letter number: 01-011-186/01 from August 28, 2001, Audit Office has announced the audit of The Agency describing the objectives and methods of audit, as well as defining the mutual obligations and responsibilities. After the audit performed, a version of report on audit for The Agency was made and delivered to the client, with a request for The Agency to give its opinion on a report on audit within 15 days.

In a timeframe foreseen, The Agency delivered its written remarks on report on audit explaining that The Agency is an independent regulator, not a part of any ministry, and that it is not entirely a budget user, and as such it does not have to follow limits in use of funds as other budget users.

Remarks of The Agency that relate to certain exceeding in use of funds, justifying them by individual provisions of the Law on Telecommunications, without previously established true meaning of legal norm, is an attempt of covering of inadequate behavior in spending of funds. Calling upon the decisions of the Council of Ministers, and at the same time violating these decisions presents an attempt to justify the established irregularities without proper ground. We do not consider the remarks made to be an argument ground and we conclude that there is no such legal basis that provides such a financial independence of The Agency that allows it to make operational expenditures on its own, without control and systematic solutions.