Public Sector in Bosnia and Herzegovina ENHANCEMENT

1. Public Sector in Bosnia and Herzegovina ENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

2. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Objective of the presentation: To provide participants of the 19th ICGFM Conference with review of past, current and future status of the management’s systems of internal controls in public sector of Bosnia and Herzegovina, seen through a prism of the supreme audit institutions practice ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

3. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Founding and start up of Supreme Audit Institutions operation in Bosnia and Herzegovina: • Constitutional structure of Bosnia and Herzegovina • Three SAIs linked by INTOSAI standards, common interests and projects • SAIBiH, SAIFED and SAIRS were established during 2000., operational start in 2001. • Coordination Board and the first Decision – adoption of INTOSAI standards • Partner Project with SNAO in the area of the institutional capacity building • INTOSAI Membership (Seoul, 2001) and EUROSAI (Moscow, 2002) ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

4. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Our capacities and operations: • Independence of 3 SAIs – priorities and occasional problems with Budget • Human resources and capacities (total number of employees is 102, out of which 71 are auditors) • Financial Audit and Compliance Audit – the first independent controls in BiH • Public audit reports in function of strengthening of democratic role of Parliament • First reports on accounts of 2000 produced for less then 12 months from the day of establishment of SAIs (98 reports); Total of 124 reports on accounts of 2003 were submitted by December 2004. • Trainings and PA Pilot Project will start in Sep. 2005. • The first Peer review report – Agency SIGMA (May/June 2005 final version) ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

5. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS For detailed information on visions, mission, objectives, mandate, operations, plans, audit reports and other issues, please refer to the following web sites: SAIBiH www.revizija.gov.ba SAIFED www.saifbih.ba SAIRS www.gsr-rs.org ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

6. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Internal controls of the audited clients The most frequent and most significant findings of the auditfor the period 2000-2005: • Internal control environment • Procurement system management (goods and services) • Project management • Financial management, and • IT system management ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

7. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Weaknesses and drawbacks related the client’s control environment... • Appointments, responsibilities, mandates, ethical qualities... • Competencies of key staff, distribution of responsibilities • Management style, management decision making processes and modes • Internal rules, procedures, routines, control activities, • Identification of risk, monitoring • Internal control, internal inspection and internal audit • Plan of Activities and Program; monitoring of realization • Frequent changes in organizational structure and management • Internal system of communication and organizations culture • Internal and external reporting ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

8. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Weaknesses and drawbacks related to the procurement system management • Long-lasting, inherited problems and practice • Fragmented procurements • Transparency; abuses in relation to public competition • Evaluation with no previously set up criteria • Joint procurements • New law(s) ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

9. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Weaknesses and drawbacks related project management.... • Lack of basic/initial definition of the projects • Project Budget often published without breakdown of Expenses • Responsibility for implementation and reporting • Projects documentation... • Procurements for project... • Engagement of government officials and foreign experts • Other... ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

10. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Weaknesses and drawbacks related a client’s financial management... • Budget Projections is(not) based on consumption analysis • Different practices of an institution budget execution monitoring • Timely warning on available funds; realization of obligations • Lacking legal framework, procedures, regulations, instructions • Control of expenditures • PROPERTY, inventory lists, opening balances ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

11. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Weaknesses and drawbacks related toIT system management • IT strategy, plans& content • Administrative and organizational control • Procurement of IT equipment and software • Security and protection of IT systems • Security and protection of electronic information • Procedures and control over data input in FIMS ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

12. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Changes of environment: Public Finance Sector Reform and external audit support • Introduction of Treasury system • Treasury single account • Financial Information Management System • Parliamentary discussions that resulted after publicizing of the first audit reports • Disclosing of the first audit report to public • Awareness of presence of a control, and first actions by the Prosecutor’s Office ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

13. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Changes of environment: Public Finance Sector Reform and external audit support (2) Ministry of Finance BiH, FBiH and RS • Capacity building projects in cooperation with US Treasury Department and USAID • Problems in Budget planning process, 'inherited' budgets • Budget execution – rare examples of exceeding of the Budget • Budget projections not harmonized with approved funds and amount of factual realization (frequent changes of the structure, frequent rebalances, and needs of newly established institutions...) • Lack of systematic regulations, instructions, procedures • Establishment of the internal audit for Treasury has been postponed • Due to the lack of systematic regulations and procedures , number of clients has adopted internal regulations for the most frequent expenditures; great differences in approach, criteria, applied solutions and control procedures and monitoring are noticeable ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

14. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Changes in external environment: Public Finance Sector Reform and external audit support (3) • Audit of the State-owned companies • Special Audits (2002/2003) • Big problems in internal control system functioning • Reports containing indication on losses of public money to the great extent, deals amongst linked persons, etc. • New Law on the State-owned Companies (2004) • Mandatory introduction and establishment of internal audit • Role of SAI-s ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

15. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Changes that have been declared or being expected in near future: • Enhancement of public procurement process through application of the new Law on Public Procurement • Improvements in Treasury operations (system of prior notification and confirmation of expenditure; enhancement of the system of budget planning and projecting; enhanced system of calculation of public servants salaries...) • Number of instructions, rules and procedure proposals issued by the Ministry of Finance has increased • Guides for establishment of efficient internal controls have been prepared and distributed to public institutions • Implementation of the new Law on accounting and audit should result in reform and de-monopolization of existing education and certification system for auditors in commercial sector • Adoption procedures for new laws on audit of BiH institutions and Law on Public Sector audit in RS and FBiH are ongoing • Establishment of the first internal Audit Associations is expected ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)

16. Public Sector in Bosnia and HerzegovinaENHANCEMENT OF INTERNAL CONTROL SYSTEMS SUPPORTED BY THE THREE SUPREME AUDIT INSTITUTIONS Discussion Questions Comments Proposals ICGFM 19th Annual Conference & Training; May 2005 Miami, Florida (USA)