MONTENEGRO STATE AUDIT INSTITUTION

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1 MONTENEGRO STATE AUDIT INSTITUTION SAI No: Podgorica, 28 October 2014 ANNUAL REPORT on Performed Audits and Activities of the State Audit Institution of Montenegro for the period of October 2013 October 2014 Podgorica, October 2014

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3 CONTENTS I Introductory notes 5. Audit Report on the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013 OPINION, DETERMINED IRREGULARITIES AND RECOMMENDATIONS Introduction Financial statements and mathematical accuracy Cash deposits of the state Budget receipts Fiscal final statement of accounts Budget expenditures Reserves Capital budget State property Public procurement Internal financial control system 71. II III Implementation of Recommendations from the Audit Report on the Final Statement of Accounts of the State Budget of Montenegro for 2012 Excerpts from the final audit reports on individual audits performed in the period October 2013 October Audit report Budget revenues of Montenegro from concluded concession contracts for the use of natural resources Audit report on the funding of non governmental organizations Audit report on the Secretariat for Development Projects Monitoring of the status and timeframes of investment projects Audit report on the Annual financial statements of General Secretariat of the Government for Audit report on Annual financial statements of the Central Bank of Montenegro for Report on the Agency for Tobacco Excerpts from individual audit reports on annual financial statements of political parties for 2012, which have not been included in the previous Annual report of the State Audit 159. Institution 7.1. Liberal Party of Montenegro Serbian Fatherland Party Albanian Alternative Democratic Party Party for Gusinje Yugoslav Communist Party of Montenegro Party of Pensioners, Disabled People and Social Justice People's Party Democratic Party of Unity Democratic Centre of Montenegro Democratic Serb Party

4 8. Compilation Audit Report on the Reports on the Origin, Amount and Structure of Funds Raised and Spent on Election Campaigns of Submitters of Election Lists for Local Elections held 195. on 16 November Audit Report on the Annual Financial Statements of the State Commission for the Control of Public Procurement Procedures for Audit Report on the budget funds allocated in 2013 for the funding of: National Councils via the Ministry of Human and Minority Rights and projects via the Fund for the Protection and 213. Exercise of Minority Rights 11. Excerpts from individual audit reports on Annual financial statements of political parties for Socialist People s Party Democratic Party of Socialists Croatian Civic Initiative Positive Montenegro Social Democratic Party Bosniak Party Movement for Changes New Serb Democracy Democratic Party of Unity Liberal Party of Montenegro People s Party Audit Report on the Final Statement of Budget Accounts of Municipality of Pluzine for Final Follow Up Audit Report on the Municipality of Plav Audit Report on Annual Financial Statements of Monteput d.o.o. Podgorica for Audit Report on the Final Statement of Budget Accounts of the Municipality of Cetinje for IV Other activities of the State Audit Institution 319.

5 Introduction According to the Constitution of Montenegro and the Law on State Audit Institution, the State Audit Institution (hereinafter: SAI), as an independent and supreme authority for state audit, audits the legality and effectiveness of the management of state property and commitments, the budget and all financial transactions of legal entities financed by public sources of finance, or by those sources generated from the usage of state property. The mission of the SAI of Montenegro, as an independent and supreme state audit authority, is to contribute, through the performance of audits and advisory functions, to increasing transparency, legality and efficiency in the management and use of public funds and state property and to inform the Parliament, the Government and citizens on the management and disposal of public funds and state property. The vision of the SAI is to become a professional institution which performs audits in a professional manner in accordance with the framework of international standards of auditing of Supreme Audit Institutions (ISSAI). Pursuant to Article 144 of the Constitution of Montenegro and Article 38, in conjunction with Articles 18 and 19 of the Law on State Audit Institution, the State Audit Institution of Montenegro submits the Annual Report for the period October 2013 October Submission of the SAI Annual Report aims to inform the Parliament of Montenegro on the overall activities implemented in the relevant reporting period. Achievement of this objective implies the continued commitment of the SAI of Montenegro to the further development of quality of the audit work and the provision of timely and complete information to the Parliament and the public about the results of the audits. The Annual Report of the SAI provides an overview of the audits performed in accordance with the Annual Audit Plan for 2014, the implemented activities of the SAI and the results achieved during the reporting period. The State Audit Institution has devoted special attention to the fulfilment of obligations concerning the harmonization of legislation with applicable International Standards of Supreme Audit Institutions (ISSAI) and good European practices. In this regard, the State Audit Institution has implemented the recommendation from the European Commission's Opinion, relating to the adoption of amendments to the Law on SAI in order to ensure financial and functional independence of the Institution in accordance with the requirements of ISSAIs. In July 2014, the Parliament of Montenegro adopted the amendments to the Law on SAI, which had been previously supported by DG Budget of the European Commission. The State Audit Institution has continued to fulfil the activities defined in the Strategic Development Plan of the SAI of Montenegro for With a view to further institutional development and capacity building, the SAI has organized a series of trainings in connection with the audit of local governments, the audit of annual financial statements of political parties, the performance audit, audit of final statement of accounts of the state budget as well as in connection with the application of ISSAIs in its work. The cooperation and assistance of the European Union continued in this reporting period through the implementation of the EU project "Audit Quality Control in the SAI of Montenegro", as well as through the participation of representatives of the SAI of Montenegro in international conferences, seminars, and workshops dedicated to the development of external audit. PRESIDENT OF THE SENATE Dr. Milan Dabović 5

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7 Pursuant to Article 144 of the Constitution of Montenegro and Article 38, in conjunction with Articles 18 and 19, of the Law on State Audit Institution, the Senate of the State Audit Institution, at its session held on 28 October 2014, adopted the following: ANNUAL REPORT ON PERFORMED AUDITS AND ACTIVITIES OF THE STATE AUDIT INSTITUTION OF MONTENEGRO FOR THE PERIOD OCTOBER 2013 OCTOBER 2014 According to the Constitution of Montenegro, the State Audit Institution (hereinafter: SAI) has been defined as an independent and supreme authority for state audit, which shall audit the legality and effectiveness of the management of state property and commitments, the budget and all financial transactions of legal entities financed by public sources of finance, or by those sources generated from the usage of state property. The Annual Report of the SAI represents an integrated and summarized overview of all completed activities within the framework of SAI s mandate in the reporting period October 2013 October 2014, primarily those aimed at meeting the Annual Audit Plan. The first part of the Annual Report, entitled Audit Report on the Final Statement of Accounts of the State Budget of Montenegro for 2013, presents the report on Final Statement of Accounts of the State Budget of Montenegro for The audit of the Final Statement of Accounts of the State Budget of Montenegro for 2013 includes the verification of calculation accuracy, receipts and expenditures, capital budget and financing transactions, starting from individual audits of 22 entities. The audit has rendered 16 recommendations aimed at improving the operations of budget users and strengthening fiscal discipline. Statistics of the audit of Final Statement of Accounts of the State Budget of Montenegro in the period from 2005 to 2013: Year Statistics of the audits of the Final Statement of Accounts of the Budget of Montenegro Opinion Number of Recommendations Number of Audited Entities 2005 Unqualified Unqualified Unqualified Unqualified Unqualified Qualified on financial statement; Unqualified on compliance Qualified Qualified Unqualified with emphasis of matter on financial statement; Qualified on compliance

8 The second part of the Annual Report presents The Implementation of Recommendations from the Audit Report on the Final Statement of Accounts of the State Budget of Montenegro for The third part of the Annual Report, entitled Excerpts from Audit Reports on Individual Audits performed in the period October 2013 October 2014, provides excerpts from 15 performed audits representing the most significant findings, recommendations and measures recommended to eliminate irregularities in business practices of audited entities encompassed by the reporting period. The completed individual audits rendered 231 recommendations, 39 opinions (15 unqualified, 20 qualified and 4 adverse) and 19 conclusions. Overview of financial audits Audited Entity and/or Subject of Audit Type of Audit Type of Opinion Government of MNE Final Statement of Accounts of the Budget of MNE for 2013 Financial audit compliance audit Unqualified with emphasis of matter on financial audit; Qualified on compliance Number of Recommendations 16 General Secretariat of the Government of MNE Financial audit and regularity audit Qualified on financial; Qualified on regularity 8 Central Bank of Montenegro Financial audit Unqualified 7 Agency for Tobacco State Commission for the Control of Public Procurement Procedures Municipality of Plužine DOO "Monteput" Podgorica Historic Capital of Cetinje Financial audit and regularity audit Financial audit and regularity audit Financial audit and regularity audit Unqualified on financial; Unqualified on regularity audit Unqualified 4 Qualified 18 Financial audit and regularity audit Unqualified 13 Financial audit and regularity audit Adverse 38 4 Overview of performance audits, cross section audits and follow up audits Audited Entity and/or Subject of Audit Type of Audit Number of Conclusions Number of Recommendations Secretariat for Development Projects Performance audit 7 11 The financing of National Councils via Ministry for Human and Minority Rights and projects via Fund for Protection and Exercise of Minority Rights Budget revenues of Montenegro from concluded concession contracts for the use of natural resources The financing of non governmental organizations Municipality of Plav Financial audit and cross section audit Regularity audit cross section audit Regularity audit cross section audit Follow up audit 8 recommendations are implemented, 6 are partially recommended and 6 are not implemented

9 In addition to the audits presented in the previous table, the SAI also conducted the audit of political parties over the reporting period, as follows: Annual financial statements for 2012 of the political parties that were not covered by the last year s Annual Report of the SAI, which encompassed 11 political parties. These audits resulted in 26 recommendations and 17 opinions (4 unqualified, 11 qualified and 2 adverse); Annual financial statements for 2013 of political parties, covering 11 political parties. These audits resulted in 46 recommendations and 13 opinions (6 unqualified, 6 qualified and 1 adverse) Compilation Report on the Audit of Reports on the Origin, Amount and Structure of the Funds Raised and Spent on Election Campaigns of Submitters of Election Lists at the local elections held on 16 November 2013 (for Cetinje, Mojkovac and Petnjica). It resulted in 7 recommendations. The following audits 1 will be completed by the end of 2014: Red Cross of Montenegro financial audit and regularity audit Ministry of Defence compliance audit Examination Centre financial audit and regularity audit Annual Financial Statement for 2013 of the following political parties: New Democratic Force (FORCA), Democratic Union in Montenegro, Democratic Union of the Albanians, Democratic Party, Democratic Centre of Montenegro, Serbian Democratic Party, Albanian Alternative financial audit and regularity audit Audit of Reports on the Origin, Amount and Structure of the Funds Raised and Spent on Election Campaigns of Submitters of Election Lists at the local elections held on 26 January 2014 in Ulcinj, 9 March in Berane and 25 May 2014 in 12 Montenegrin municipalities and two City municipalities financial audit Follow up audit of the Institute for the Execution of Criminal Sanctions Municipality of Mojkovac financial audit and regularity audit. All the reports on performed audits have been integrally made public at the website of the State Audit Institution The fourth part of the Annual Report entitled Other activities of the State Audit Institution presents the cooperation with the Parliament and the Government of Montenegro, international cooperation and activities on development of performance audits, as well as other activities of the SAI in the period October 2013 October As a member of the International Organization of Supreme Audit Institutions (INTOSAI 2 ) and European Organization of Supreme Audit Institutions (EUROSAI 3 ), the SAI has continued its cooperation on both international and regional level, with the aim of strengthening development of external audit in Montenegro. 1 The mentioned audits are in process. 2 SAI is member of INTOSAI since SAI is member of EUROSAI since

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11 PART I AUDIT REPORT Audit of the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013 Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit and compliance audit Government of Montenegro Ministry of Finance Proposal Law on the Final Statement of Accounts of the State Budget of Montenegro for audit days Mr Milan Dabović, PhD, President of Senate Head of Auditing Board Mr Dragiša Pešić, Member of Senate Member of Auditing Board Auditing board Members Mr Milan Dabović, PhD President of Senate Head of Auditing Board Mr Dragiša Pešić, Member of Senate Member of Auditing Board

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13 On the basis of Article 9 of the Law on State Audit Institution and the Decision of the Auditing Board responsible for the audit and composed of Mr Milan Dabović PhD, Head of the Auditing Board and Mr Dragiša Pešić, member of the Auditing Board, the State Audit Institution conducted the financial audit of the Proposal Law on the Final Statement of Accounts of the State Budget of Montenegro for The audit covered the legal part and the explanation, Report on Consolidated Public Spending for 2013, Report on Cash Flow for 2013 prepared according to the economic classification, Report on Cash Flow for 2013 prepared according to the functional classification, Report on Arrears as of 31 December 2013, a summary overview of the key accountancy policies and other explanatory information, as well as the audit of compliance of the activities and financial transactions with the laws and secondary legislation. Responsibility of the Management for the Financial Reports According to Article 39 of the Law on the Budget and Fiscal Responsibility 4, Minister of Finance is responsible for the execution of the state budget, as well as for the preparation and presentation of financial statements in line with the Rulebook on the Manner of Drafting, Compiling and Filing Financial Statements of the Budget, State Funds and Local Self Government Units 5. According to Article 40 paragraph 4 of the Law on the Budget and Fiscal Responsibility, it is the budget executor in the spending unit that is responsible for legality in the use of the funds allocated to that spending unit. This responsibility includes designing, implementing and ensuring internal controls relevant for the preparation and presentation of the financial statements without materially wrong presentations caused by fraud or by error. The Government of Montenegro and the responsible persons in the spending units are responsible for ensuring compliance of all activities, financial transactions and information entered into the financial statements with the relevant legislation. Responsibility of the State Audit Institution The responsibility of the State Audit Institution is to express its opinion about the Proposal Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013 on the basis of the audit it performs and to express its opinion on whether, in their material aspects, the activities, financial transactions and information given in the financial statements are in compliance with the current applicable legislation. The audit was performed according to Articles 4 and 9 of the Law on State Audit Institution 6, relevant International Standards of Supreme Audit Institutions (ISSAI) and the Annual Audit Plan of the State Audit Institution for 2014 No of 27 December Adhering to the International Standards of Supreme Audit Institutions (ISSAI) the State Audit Institution complied with the requirements of ethics. It planned and performed the audits in the way that provided reasonable assurances that in the report there are no materially wrong presentations of data. The audit included the procedures for obtaining audit evidence about the amounts disclosed in the financial statements, including the assessment of the risk of materially wrong presentation caused by frauds or errors. The risk assessment dealt with internal controls relevant for the development and fair presentation of the financial statements, with a view to designing the audit procedures that are appropriate in given circumstances, but not with a view to expressing opinion about the effectiveness of the internal controls. The audit included the assessment of the applied accountancy procedures and the assessment of the general presentation of financial statements. We are of the opinion that the audit evidence secured in the audit process on the selected sample of 60.10% i.e. on the amount of 963,652,728.45, are sufficient and appropriate to provide a basis for the expressed audit opinion. 4 OGM 20/14 as of 25 April OGM 23/14 6 OGM 28/04, 27/06, 78/06, 17/7, 73/10 and 40/11 13

14 Financial audit of the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013, the end of which is on 31 December 2013, established that the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013 was in all material aspects prepared in compliance with the Law on Budget and the Rulebook on the Rulebook on the Manner of Drafting, Compiling and Filing Financial Statements of the Budget, State Funds and Local Self Government Units and that it does not contain materially significant errors in the presentation of the results (deficit). Accordingly, the Auditing Board expresses its unqualified opinion with emphasis on the matter. The following matter is hereby emphasized: 1. The funds in the amount of 7,198, were allocated to the Radio and Television of Montenegro through a direct payment from the Central Account of the State Treasury and there were no records of this amount on the side of the revenues and expenditures in the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for We recommend that the Government of Montenegro and the Ministry of Finance consider the option of planning the funds for the Radio and Television of Montenegro through the annual law on budget as a transfer to institutions, individuals, non governmental and public sector; that they realize the planned funds through the General Ledger of the State Treasury and that they report about this spending within the Law on the Final Statement of Accounts of the State Budget of Montenegro. 2. The Ministry of Finance did not ensure full records of the balance and turnover of financial assets through the system of the General Ledger of the State Treasury (class 1). Therefore, we particularly indicate to the fact that it is necessary to record the balance and the turnover of the monetary transactions that are done through the accounts in the system of the Consolidated Account of the State Treasury according to Article 6 of the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities. It is recommended that the Ministry of Finance ensures the records of the balance and turnover of the monetary transactions that are done through the accounts in the system of the Consolidated Account of the State Treasury according to Article 6 of the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities. 3. General Ledger of the State Treasury records the inflow of the funds on the basis of loans and credits from national sources in the amount of 115,000,000.00, while the emissions of Treasury bills amount to 29,850, The funds in the amount of 159,858,658.00, that are related to the inflow and payment of the Treasury bills were not recorded in the General Ledger of the State Treasury and neither were the costs of the banking services for the transactions of finances based on borrowings abroad in the amount of 996, We recommend to the Ministry of Finance to record in the General Ledger of the State Treasury the expenditures based on the banking services, as well as the emission and repayment of the securities in gross amount. This should be done using the Ministry's decisions since in such a way additional costs can be avoided. The Compliance Audit of the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013 established that the spending units, users of the budget funds have not put their business activities in all their aspects in compliance with the legislation that governs budget operations in Montenegro. Therefore, the relevant auditing board expresses its qualified opinion. Basis for expressing the opinion lies in the following: 14

15 1. Total financing sources were confirmed by the inflow to the foreign currency accounts in the commercial banks and in the liquidity account intended for the inflow of funds from the emission of securities, in the amount of 333,867, and by the repayment of the principal of the debt in the amount of 158,591, Thus, the net borrowings on the basis of credits and issued securities amount to 175,525, According to Article 11 paragraph 4 of the Law on the Budget of Montenegro for 2013 (Official Gazette of Montenegro, no. 66/12) the borrowing is not clearly defined, i.e. it is not emphasized whether it is a net borrowing or a gross amount out of which the net borrowing is derived after the principal is paid. In the annual budget laws the Government of Montenegro and the Ministry of Finance have to define the limit for borrowings of the state more precisely by adding the indication "gross or net borrowing". 2. The audit established that in 2013 the budget spending was overrun by the amount of 261,155, Out of the total expressed overrun of the budget spending, the amount of 238,602, was the allowed overrun for payment of interest, repayment of the principal and expenditures expressed for the arrears on the basis of payments related to judicial rulings, expenditures financed from donations and expenditures incurred in the implementation of international contracts. Non allowed overrun amounts to 22,553, and it is based on expenditures for the purchase of securities and payment of the expenditures from the group of accounts for arrears based on judicial rulings that are above allowed according to Article 12 of the Law on the Budget of Montenegro for 2013 (Official Gazette of Montenegro, no. 66/12). It is recommended that the fiscal discipline is strengthened further and that the compliance with Article 40 paragraph 1 of the Law on the Budget and Fiscal Responsibility (Official Gazette of Montenegro, no. 20/14) is ensured. This paragraph stipulates that the spending units are obliged to use the funds within the limits defined in the Law on the State Budget. 3. Consolidated data of the spending units show that the revenues made through own activities the units undertake on the basis of the law, were used for financing expenditures of the spending unit that made such revenues. However, we are hereby indicating to the fact that such funds were used in the spending units up to the amounts made and not in line with the budget constraints defined in the annual budget plan. We therefore recommend that in the process of planning the budget through the annual budget laws the Government of Montenegro plans the amount of the revenues made through own activities of the spending units and that the revenues thus made are used in compliance with the constraints defined in the annual budget law. 4. Accounting records of the Tax Administration do not ensure the records that would be harmonized with the Rulebook on Tax Accountancy in terms of the expressed balance in the accounts of the class "1" accounts of monetary funds, class "3" accounts of public revenue payers (including the deposit accounts) and class "7" accounts of public revenues. Tax Administration has not ensured the implementation of the provisions of the Order on the Manner of Payment of Public Revenues, chapter General Provisions, Article 5, which defines the obligation that, after being identified, the payments are transferred from the clearing account to the Central Account of the State Treasury at least once a day, with the obligation to have the zero balance on the clearance accounts at the end of the day. Tax Administration is recommended to ensure consistent compliance with the legislation in the development of the Tax Final Statements of Accounts, and to harmonize regularly the balance with the General Ledger of the State Treasury and with the Central Bank of Montenegro. 15

16 5. Audit of expenditures recorded in the group of accounts 463 Repayment of Arrears from Previous Years established that the payment of expenditures is not in compliance with the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities and that the paid expenditures do not present arrears but extraordinary expenditures that were not planned in the annual budget law. It is recommended that in the group of accounts 463 Repayment of Arrears from Previous Years the expenditures for the payment of arrears not planned in the budget are also recorded, because in that case there is no possibility to pay the arrears from the budget lines approved for the expenditures. 6. According to the Statement of Cash Flows III, Pension and Disability Insurance Fund presented the earmarked revenues in the amount of 243,521, and general revenues in the amount of 144,033, Pension and Disability Insurance Fund recorded the earmarked revenues based on the data from the clearing accounts and the data from the "Recipient s statements". The Proposed Law on the Final Statement of Accounts of the Budget for 2013 stipulates that the earmarked revenues amount to 316,094,340.63, while the general revenues amount to 71,460, This is not in line with the data presented by the Pension and Disability Insurance Fund. Article 178 of the Pension and Disability Insurance Act stipulates that the expenditures of the Pension and Disability Insurance Fund are costs based on the contributions for health insurance of the pension users. Law on Budget for 2013 did not plan any expenditure in the group of accounts Contributions for health insurance of pension users. State Treasury and the Pension and Disability Insurance Fund should harmonise their data on the amount of the earmarked and general revenues expressed in the Proposed Law on the Final Statement of Accounts of the Budget for Expenditures based on the contribution for the health care of the pension users should be planned in the annual budget law according to Article 178 of the Pension and Disability Insurance Act and the Budget Law. 7. Item 134 of the Chapter X (ten) of the Directions on State Treasury Operations is not in compliance with Article 43 of the Budget Law, which is now Article 60 of the Law on the Budget and Fiscal Responsibility. It is necessary for the Ministry of Finance to harmonize its Directions on State Treasury Operations with the Law on Budget and Fiscal Responsibility. 8. Using the funds of the current budget reserve is not in full compliance with the provisions of the Budget Law and the Rulebook on Detailed Criteria for the Use of Resources of the Current and Permanent Budget Reserve. The audit identified irregularities in the implementation of Article 3 of the Rulebook on Detailed Criteria for the Use of Resources of the Current and Permanent Budget Reserve. Decisions of the Government and the decisions of the Ministry of Finance were used for reallocation of the funds in such a way that the planned funds were increased by 12,440, and reduced by 5,565, The reduction of the reserve funds led to the overrun over the allowed limit of up to 10% of the total planned expenditures the amount of which is reduced and this is not in line with Article 35 of the Budget Law. Use of the funds of the current budget reserve should be harmonized with the provisions of the Budget Law and the Rulebook on Detailed Criteria for the Use of Resources of the Current and Permanent Budget Reserve. 16

17 9. Audit of the capital budget of the Transport Directorate established that the funds in the budget item 441 Capital Expenditures were used for paying the expenditures in the amount of 1,793,486.91, while the funds from the item of current expenditures were used to pay the expenditures in the amount of 48, This was not planned in the Budget Law for Audit of the capital budget of the Public Works Directorate established that the funds in the budget item 441 Capital Expenditures were used for paying the expenditures in the amount of 5,911,815.63, which was not planned in the Budget Law for This is not in compliance with Article 11 paragraph 3 of the Budget Law. Audit of expenditures recorded in the group of accounts 463 Repayment of Arrears from Previous Years established that the payment of expenditures is not in compliance with the Regulation on Uniform Classification of Accounts for the Budget, Extra Budgetary Funds and Budgets of Municipalities and that the paid expenditures do not present arrears but extraordinary expenditures that were not planned in the annual budget law. It is recommended for the Capital Budget to be executed according to Article 11 paragraph 3 of the Budget Law, which stipulates that no expenditure from the consolidated account of the State Treasury may be paid if it is not approved in the Budget Law. 10. Audit of the management of the state property identified certain deficiencies, some of which were described in the Report on the Audit of the Proposed Law on the Final Statement of Accounts of the Budget for All spending units are recommended to ensure records of the state property in line with the Property Law and secondary legislation. 11. Audit of the public procurement systems identified recurrent deficiencies which are related to the inadequate planning of procurement, non execution of the procedures in line with the legislation and imprecise compilation of the tender documents. As for the public procurement, the State Audit Institution wishes to draw attention of the spending units to the necessity of making the public procurement system transparent and of complying consistently with the Public Procurement Law. 12. A number of recommendations given in the Report on the Audit of the Proposed Law on the Final Statement of Accounts of the Budget for 2012 and individual audit reports have not been implemented. It is recommended that in the forthcoming period the Government of Montenegro and the Ministry of Finance intensify their activities on the implementation of the recommendations given in the Annual Report on the conducted audits of the State Audit Institution for the period October 2012 October Audit of the internal financial control systems of the spending units that were subject to the audit revealed that the internal financial control system is not established on the satisfactory level, while the internal audit units started audits of certain processes. Activities on the establishment of the financial control function and the internal audit function in the spending units have to be intensified in line with the Law on Public Internal Financial Control and internal audit standards. 17

18 REPORT ON THE AUDIT OF THE PROPOSED LAW ON FINAL STATEMENT OF ACCOUNTS OF THE BUDGET OF MONTENEGRO FOR INTRODUCTION State Audit Institution conducted the financial audit and the compliance audit of the Proposed Law on Final Statement of Accounts of the Budget of Montenegro for Financial audit implies control of reliability and accuracy of financial statements. Compliance audit implies control of the compliance of operations with the legislation regulating the public spending system in Montenegro. Goal of the financial audit of the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 is to express the opinion about the level to which the financial report is true and fair. Goal of the compliance audit of the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 is to express the opinion about compliance with the legislation governing budget operations in Montenegro. Subject of the audit is the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 drafted in line with Article 51 of the Budget Law 7, Rulebook on the Unique Classification of Municipal Budgets 8 and Rulebook on the Manner of Drafting, Compiling and Filing Financial Statements of the Budget, State Funds and Local Self Government Units 9. The audit controlled the following: initial and final statement of the Consolidated Account of the Treasury; overview of the deviations from the planned amounts; report on the borrowings that were taken; report on the expenditures from the budget reserves; report on the guarantees given throughout the fiscal year; report on the capital projects; report on the implementation of the programme budget; report on the state debt and issued guarantees; report on the written off tax and non tax claims and the report on receipts and expenditures of public institutions that are not included in the Consolidated Account of the State Treasury. Audit of the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 included the system of planning, recording and reporting in the field of budget spending. Alongside the documentation and reports that were controlled in the Ministry of Finance State Treasury, the audit included individual financial statements, records and documentation by spending units. Audit of the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for 2013 included the control of the following budget spending units: Ministry of Finance State Treasury (budget management, expenditures for interest, expenditures for debt repayment, given loans and credits), reserves, Ministry of Interior, Police Directorate, Office for Fight against Trafficking in Human Beings, Customs Administration, Tax Administration, Real Estate Administration, Misdemeanour bodies, Administration for Prevention of Money Laundering and Terrorism Financing, Statistical Office, Protector of Property Interests of Montenegro, Ministry of Science, State Archives, Public Institution National Museum of Montenegro, Metrology Office, Agency for Protection of Competition, Ministry for Information Society and Telecommunications, Pension and Disability Insurance Fund, Transport Directorate and Public Works Directorate. 7 OGM 40/01, 44/01, 28/04, 71/05, 12/07, 73/08, 53/09, 46/10 and 49/10 8 OGM 35/05, 37/05, 81/05 and 02/13 9 OGM 32/10, 14/11 and 16/13 18

19 2. FINANCIAL STATEMENTS AND COMPUTATIONAL ACCURACY Accountancy system of the Budget of Montenegro is organized on the cash basis and the modified cash basis, which is in line with the Budget Law, Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities and the Directions on State Treasury Operations 10. The accountancy system is based on the records in the General Ledger of the Treasury kept in the Ministry of Finance and the accountancy of the spending units that make the basis for development of the Final Statement of Accounts of the Budget of Montenegro. According to the Rulebook on the Manner of Drafting, Compiling and Filing Financial Statements of the Budget, State Funds and Local Self Government Units, financial statement are prepared before 31 March of the current year for the previous year. The following forms are used: Statement of Cash Flows I economic classification, Statement of Cash Flows II functional classification, Statement of Cash Flows III, Statement of Cash Flows IV, Statement of Arrears, Consolidated statement of the spending unit that includes public institutions in its structure, Statement on the consolidated budget spending, Statement on the manner of spending funds after the expiry of the fiscal year and the Statement on the manner of spending the funds from the budget reserve. Audit of the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 included the audit of the structure of public spending through its execution, as well as the structure of financing and the reasons for the cash deficit. Starting from the data given in the Proposed Law on the Final Statement of Accounts of the Budget for 2013, the budget deficit was expressed in the amount of 201,262, while the adjusted deficit was expressed in the amount of 215,701, The audit established that the Government of Montenegro expressed the deficit in compliance with the Budget Law, as presented in the following table: Table 1 Adjusted deficit for 2013 Adjusted deficit for 2013 Description Final Statement of Accounts Adjustments of execution Plan Rebalance Executed Adjustment (+) Adjustment ( ) Balance Cash inflows ,01 0, ,73 0,00 0, ,73 1,1 Taxes ,24 0, ,51 0,00 0, ,51 1,2 Contributions for social care ,44 0, ,19 0,00 0, ,19 1,3 Grants 0,00 0, ,71 0,00 0, ,71 1,4 Other revenues ,32 0, ,11 0,00 0, ,11 1,5 Revenues from repayment of credits ,01 0, ,21 0,00 0, ,21 2 Cash payments ,99 0, , ,51 0, ,86 2,1 Salaries ,75 0, ,17 0,00 0, ,17 2,2 Other personal incomes ,41 0, ,27 0,00 0, ,27 2,3 Use of goods and services ,51 0, , ,51 0, ,63 2,4 Current maintenance ,05 0, ,17 0,00 0, ,17 2,5 Interests ,30 0, ,54 0,00 0, ,54 2,6 Rent ,40 0, ,81 0,00 0, ,81 2,7 Subsidies ,00 0, ,96 0,00 0, ,96 2,8 Transfers to individuals, non governmental and public sector ,23 0, ,21 0,00 0, ,21 2,9 Transfers for social care ,10 0, ,48 0,00 0, ,48 2,10 Other expenditures and reserves ,39 0, ,25 0,00 0, ,25 2,11 Loans given ,00 0, ,98 0,00 0, ,98 2,12 Capital expenditures, purchase of securities ,85 0, ,28 0,00 0, ,28 2,13 Reduction in liabilities payments ,00 0, ,10 0,00 0, ,10 2,14 Expenditures for the payment of guarantees 0,00 0, ,50 0,00 0, ,50 4 Cash deficit (1 2) ,98 0, , ,51 0, ,13 5 Sources of cash deficit financing ( ) ,98 0, , , ,13 6 Net borrowing ,99 0, , ,51 0, ,58 7 Sale of property ,00 0, ,35 0,00 0, ,35 8 Grants 0,00 0,00 0,00 0,00 0,00 0,00 9 Net changes in cash 0,01 0, ,20 0,00 0, ,20 10 Net increase/reduction of the arrears ( ) ,00 0, ,41 0,00 0, ,41 10,1 Balance of the liabilities on 31 December ,00 0, ,54 0,00 0, ,54 10,2 Balance of the liabilities on 31 December ,00 0, ,13 0,00 0, ,13 11 Adjusted expenditures ( ) ,99 0, , ,51 0, ,27 12 Cash inflows (1.) ,01 0, ,73 0,00 0, ,73 13 Adjusted cash deficit (12 11) ,98 0, , ,51 0, ,54 14 Sources of financing deficit ( ) ,98 0, , ,51 0, ,54 15 Net borrowing ,99 0, , ,51 0, ,58 16 Sale of property ,00 0, ,35 0,00 0, ,35 17 Grants 0,00 0,00 0,00 0,00 0,00 18 Liabilities to suppliers ,00 0, ,41 0,00 0, ,41 19 Net changes in cash 0,01 0, ,20 0,00 0, ,20 10 OGM 80/08, 02/09, 45/10, 15/11, 17/12 and 16/13 19

20 Budget deficit was expressed in line with Article 14 of the Law on the Budget and Fiscal Responsibility (OGM, 20/14) and the State Audit Institution did not establish any materially significant mistakes that would require changes in the expressed results. We would like to note that the General Ledger of the State Treasury did not record the costs of banking services in the amount of 996, because they were directly deducted from the funds withdrawn by the banks. The expenditures for the banking services and the negative exchange differences, deficit are adjusted for these funds and the inflow from the foreign borrowings is increased by the same amount as presented in the table above. In the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 the amount of the capital expenditures is increased. These expenditures used to be presented as the repayments of debts in the past. Thus, the way they are presented now is a result of the implementation of the State Audit Institution's recommendation about the methodology for presenting the deficit from the previous year. The audit established that the Government of Montenegro financed the cash deficit of 201,262, from the following sources: Net borrowing ,275,623.07, Sale of property... 11,948, and Reducing its deposit... 14,038, The deficit on the modified cash basis in the amount of 215,626, was financed from the following sources: Net borrowing ,275,623.07, Sale of property... 11,948, Reducing its deposit... 14,038, and Net increase of arrears... 14,363, Figure 1 Financing modified deficit 2.1. Compliance audit of the cash flow State Audit Institution checked the compliance of the budget revenues and expenditures and financing transactions with the data expressed in the Central Bank of Montenegro. It was done by checking the cash inflows and outflows through the accounts intended for the fiscal operations of the state. The check included the following accounts: Treasury General Account and Central account of the State Treasury Treasury General Account According to the Directions on State Treasury Operations, item 45 the Ministry of Finance opened the main bank account, number Out of the funds planned in the annual budget money is paid to and withdrawn from this account. 20

21 Central account of the State Treasury is the account of the State Treasury number , used for collection and distribution of public revenues in line with the Order on the Manner of Payment of Public Revenues. The accounts used for collection of public revenues (416 accounts according to the Order and the four clearing accounts, through which the funds are transferred to the Central account of the State Treasury by the spending units that collect public revenues Customs Administration, Tax Administration, Ministry of Interior and Police Directorate. The audit established that the inflow and outflow of the funds expressed in the Central Account of the State Treasury amounted to 1,345,882, The table below shows the structure of inflow and outflow of funds: Table 2 Central Account of the State Treasury CENTRAL ACCOUNT OF THE STATE TREASURY Unrecorded cash 3,260, ,226,348, Treasury General Account Tax Administration 919,005, ,260, Municipality of Herceg Novi Customs Administration 368,994, ,198, Radio and Television of Montenegro Ministry of Interior 8,599, ,342, Equalization Fund Police Directorate 4,157, ,562, Local self government corresponding taxes Accounts of the ministries, other bodies and judiciary 41,865, ,134, Other TOTAL INFLOW 1,345,882, , Errors BALANCE ,345,882, TOTAL OUTFLOW Funds collected by the units that collect revenues amount to 1,342,621.84, out of which the Tax Administration collected 919,005,317.80, Customs Administration collected 368,994,673.62, Ministry of Interior collected 8,599,251.13, Police Directorate collected 4,157,175.30, while other units collected 41,865, The amount of 3,260, is the cash that was not recorded as a cash deposit of the Government of Montenegro from the previous period and it was used for financing public spending in The total inflow of funds to the Central Account of the State Treasury in the amount of 1,345,882, was distributed as follows: the amount of 1,226,348, to the Treasury General Account; 3,260, to the Municipality of Herceg Novi as a financial support of the Government of Montenegro; 7,198, to the Radio and Television of Montenegro; 25,342, to the Equalization Fund; 40,562, to the local self government since this was the amount of their corresponding taxes; 43,134, to other users; while errors in the records amounted to 35, The funds in the amount of 7,198, were allocated to the Radio and Television of Montenegro through a direct payment from the Central account of the State Treasury and there was no records of this amount on the side of the revenues and expenditures in the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for In such a way the level of expressed public spending was reduced. It is worthwhile mentioning that by including this transaction into the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 does not increase the level of deficit, but only the level of public spending and therefore of the comprehensiveness of the budget. We recommend that the Government of Montenegro and the Ministry of Finance consider the option of planning the funds of the Radio and Television of Montenegro through the annual law on budget, as a transfer to institutions, individuals, non governmental and public sector. We recommend that they realize the planned funds through the General Ledger of the State Treasury and that they report about this spending within the Law on the Final Statement of Accounts of the State Budget of Montenegro. The funds allocated to the Municipality of Herceg Novi as financial support, were directly paid from the Central Account of the State Treasury and therefore they were not recorded in the Treasury 21

22 General Account and the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for However, the same amount from previous years was ensured through accumulation of cash from the revenues generated from land lease, a part of which belonged to the Municipality of Herceg Novi. This puts into doubt the consistency of the documentation authorizing the Central Bank of Montenegro to make the payment to the Municipality of Herceg Novi, and not its records nor the rights of the end user. Therefore the State Audit Institution did not make any adjustment of the expressed deficit by the amount of 3,260, Turnover of the funds presented on the debit side of the General Ledger of the State Treasury CTA (Consolidated Treasury Account) amounted to 1,610,225,705.13, out of which 20,882, are the deposits from the previous year; 1,255,476, are unpaid revenues; 188,516, are loans and credits from the country and 145,350, are loans and credits from abroad. Payments recorded in the General Ledger of the State Treasury amount to 1,603,381,441.53, while the cash in the end of the period amounts to 6,844, This amount of cash was confirmed by checking all accounts that were opened with the Central Bank of Montenegro and by random sample check in the Erste Bank where there are 12 accounts/sub accounts under the registry number of the Ministry of Finance. The table below shows the inflows and outflows of funds recorded in the General Ledger of the State Treasury CTA: Table 3 General Ledger of the State Treasury + Transferred balance 20,882, ,004, Gross salaries and contributions paid by the employer Transfer Central account of the State Treasury 1,226,348, ,922, Interests Other recorded as inflow 29,128, ,119, Other personal incomes Loans and credits from abroad 188,516, ,613, Other expenditures Loans and credits from the country 145,350, ,269, Expenditures for material and services TOTAL INFLOW + opening balance 1,610,225, ,415, Expenditures for current maintenance 49,868, Expenditures for services 7,928, Rent 17,425, Subsidies 14,79, Other health care rights 7,862, Other health insurance rights 383,189, Pension and disability insurance rights 64,036, Social care rights 13,086, Funds for redundancies 1,485, Other transfers 92,821, Transfers to institutions, individuals, NGOs 69,860, Capital expenditures 2,752, Loans and credits 174,025, Repayment of debt 107,230, Repayment of guarantees 60,543, Repayment of liabilities from previous years 406, Permanent budget reserve 13,720, Current budget reserve BALANCE 6,844, ,603,381, TOTAL OUTFLOW Total expressed inflows and outflows of funds in the General Ledger of the State Treasury CTA correspond to the revenues and expenditures expressed in the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013, except for the adjustment in the capital expenditures and repayment of debts for the amount of 15,433,724.57, which was used to adjust the deficit in the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for Unpaid revenues in the amount of 1,589,342, (1,610,225, ,882, ) show that the structure of collection by revenue units corresponds to the funds recorded in the Treasury General Account, which is presented in the table below: 22

23 Table 4 Structure of the unpaid revenues by revenue units Ec.cl. Description Final Statement of Accounts for 2013 Tax Administration Customs Administration Ministry of Finance and other institutions Ministry of Interior Police Directorate TOTAL REVENUE UNITS 7 Receipts 1,589,342, ,276, ,171, ,797, ,940, ,157, ,589,342, Source revenues 1,236,912, ,276, ,171, ,367, ,940, ,157, ,236,912, Current revenues 1,228,279, ,276, ,171, ,734, ,940, ,157, ,228,279, Taxes 755,696, ,657, ,038, ,696, Contributions 398,494, ,494, ,494, Fees 27,179, ,811, , ,330, ,825, , ,179, Compensations 13,233, ,423, ,809, ,233, Other revenues 33,675, , , ,593, ,115, ,019, ,675, Receipts from the sale of property Receipts from the repayment of debts Grants and transfers 11,948, ,948, ,948, ,633, ,633, ,633, ,614, ,614, ,614, Loans and credits 333,867, ,867, ,867, TOTAL 1,589,342, ,276, ,171, ,797, ,940, ,157, ,589,342, Sources for deficit financing Sources for deficit financing are expressed for the cash and modified cash deficits. Sources for financing cash deficit are expressed through net loans, inflows from the sale of property and reduction of the deposit, while financing of the modified cash deficit was enlarged by net change of the arrears towards suppliers. Structure of the sources for deficit financing on the cash basis is presented in the following table: Table 5 Deficit on the cash basis for 2013 DEFICIT ON THE CASH BASIS FOR 2013 FINAL STATEMENT OF ACCOUNTS FOR 2013 DESCRIPTION Plan presented the Audit Plan Final statement Executed Adjustment (+) Adjustment ( ) determined accounts condition = Cash deficit/surplus 127,492, ,492, ,262, ,262, Sources of cash deficit financing 127,492, ,492, ,262, ,262, Domestic financing sources without deposit 15,800, ,800, ,111, ,111, Net credit borrowings 23,800, ,800, ,792, ,792, Increase of debt on the basis of credit ,500, ,500, Repayment of the principal 23,800, ,800, ,707, ,707, Net borrowings of the securities emissions ,370, ,370, Securities emissions ,850, ,858, ,708, Repayment of the principal ,480, ,858, ,338, Sale of property 8,000, ,000, ,948, ,948, Sale of non financial assets 8,000, ,000, ,657, ,657, Sale of financial property assets ,291, ,291, Net changes in cash ,038, ,038, Foreign financing 143,292, ,292, ,112, ,112, Net credit borrowings 143,292, ,292, ,112, ,112, Increase of debt on the basis of credit 205,992, ,992, ,517, ,517, Repayment of the principal 62,700, ,700, ,404, ,404, Net borrowings of the securities emissions ,000, ,000, Securities emissions ,000, ,000, Repayment of the principal Grants The deficit expressed on the cash basis was financed from the national sources of financing in the amount of 65,111, ; from the foreign financing sources in the amount of 122,112,

24 and from the cash deposits in the amount of 14,038, National financing sources were ensured from the credits in the amount of 67,707, ; from securities emissions in the amount of 5,370, and from the sale of property in the amount of 11,948, Foreign financing sources were ensured in the total amount of 122,112,776.92, out of which 42,112, from the credits and 80,000, from securities emissions. It has to be taken into account that the securities emissions in the country were not recorded as gross but as set off amount, and therefore there are no records of the overall turnover. This is why the State Audit Institution adjusted the turnover of securities in the country by the amount of 159,858, This adjustment did not have any impact on the net borrowings or the change in the amount of the expressed deficit. According to Article 11 paragraph 4 of the Law on the Budget of Montenegro for 2013 (Official Gazette of Montenegro, no. 66/12) the borrowing is not clearly defined, i.e. it is not emphasized whether it is a net borrowing or a gross amount out of which the net borrowing is derived after the principal is paid. In the annual budget laws the Government of Montenegro and the Ministry of Finance have to define more precisely the boundary for the borrowings of the state by adding the indication "gross or net borrowing". Receipts from the sale of property recorded in the amount of 11,948,846.35, as direct payments to the Treasury General Account were confirmed in the amount of 8,041,721.66, while the rest is directed to the Budget of Montenegro in the amount of 3,907, from the Central Account of the State Treasury through the revenue module. Modified cash deficit was adjusted in line with the Budget Law by the net change in the arrears that are not borrowings in the amount of 14,363, and with the following structure: Table 6 Net change in arrears No. DESCRIPTION Liabilities as of 31 Dec 2011 Difference Liabilities as of 31 Dec 2012 Difference Liabilities as of 31 Dec = = Liabilities for current expenditures (1,1+1,2+1,3) 13,356, ,765, ,122, ,193, ,929, Liabilities for gross salaries and contributions paid by the employer 487, ,423, ,910, , ,572, Liabilities for other personal incomes 486, , ,000, , ,357, Liabilities for other current expenditures 12,383, ,828, ,211, ,211, ,999, Liabilities for transfers for social care 41,426, ,679, ,105, ,600, ,706, Liabilities for transfers to institutions, individuals and credits 5,664, ,623, ,287, ,127, ,415, Liabilities for capital expenditures 400, , , , , Liabilities for loans and credits 563, , , , , Liabilities for debt repayment 477, , ,670, ,670, Liabilities from reserves Balance of the liabilities in the end of the year ( ) 61,889, ,835, ,724, ,363, ,088, The expressed difference in the balance of arrears was confirmed by the control of the payments from the budget related to the expenditures for arrears. At the same time the increase in the liabilities for the expenditures expressed according to the economic classification was noted, as well as the net change of liabilities confirmed in the amount presented in the above table. The audit established the data that are presented in the table below: 24

25 Table 7 Records of arrears RECORDS OF ARREARS DESCRIPTION amount amount Balance on 31 December ,724, Repayment of arrears (reduction) 66,814, Increase in arrears 81,178, Balance on 31 December ,088, Opening balance of arrears reduced by repayment of arrears and increased by increase arrears results in the amount of 88,088, If the expenditures expressed on the cash basis are adjusted by the same amount, the result is the amount of the adjusted deficit as presented in the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for Table 8 Adjusted Cash Deficit ADJUSTED CASH DEFICIT Budget incomes 1,243,526, Adjusted budget expenditures 1,459,153, Cash deficit 215,626, We would like to emphasise that the State Audit Institution cannot support the statements expressed in the statement of reasons enclosed to the Proposed Law on the Final Statement of Accounts of the Budget of Montenegro for 2013 on the page 136 related to the amendments to the provisions governing the calculations of the surplus/deficit. We would like to note that the adjustment of expenditures is reduced by repayment of liabilities and increased by arrears and therefore the result is adjusted by the net effect. If liabilities are repaid next year they will reduce the expenditures, which will be contrary to the statement that the deficit will be increased two times. This opinion of the State Audit Institution is supported through the processing of the data that were analysed using the flows expressed as the changes in the balance sheet on the basis of the available data that are mostly based on the cash transactions and partly expressed accountancy categories related to the changes in the records of arrears that are not borrowings. Data on the changes in the balance sheet are presented in the table below: Table 9 Balance sheet Non financial assets 73,345, ,060, ,060, Purchase of the fixed assets and inventories 85,294, ,008, ,008, for cash 85,294, ,008, ,008, Grants Reduction of the fixed assets and inventories 11,948, ,948, ,948, Sale for cash 11,948, ,948, ,948, Depreciation Financial assets 11,285, ,841, ,841, Cash 14,038, ,038, ,038, Increase 1,749,201, ,749,201, ,749,201, Reduction 1,763,240, ,763,240, ,763,240, Liabilities 2,752, ,197, ,197, Loans given 2,752, ,197, ,197, Other loans Liabilities 189,639, ,639, ,639, Loans and credits 175,275, ,275, ,275, Credits taken and the emissions of securities 493,726, ,726, ,726, Repayment of credits and the emissions of securities due 318,450, ,450, ,450, Arrears 14,363, ,363, ,363, Net increase in liabilities 81,178, ,178, ,178, Net reduction in liabilities 66,814, ,814, ,814, Cash deficit 201,262, ,363, Adjusted cash deficit 215,626, ,205, Net value 128,421,

26 Repayment of Arrears from Previous Years in the group of accounts 463 is used for extraordinary expenditures and not for the real repayment of the liabilities. This increases the discretionary spending beyond the legally defined limit. Expenditures in the group of accounts 463 should include the repayment of the arrears for the expenditures that were not planned in the budget, because there is no possibility to pay the arrears from the budget lines approved for the expenditures. 2.3 Budgetary Overrun 66/12). Table 10 Budgetary Overrun DESCRIPTION Amount TOTAL OVERRUN 261,155, Non allowed overrun 22,553, Non allowed overrun repayment of arrears from previous years (463) 21,427, Expenditures for the purchase of securities 1,125, Allowed overrun 238,602, Allowed overrun interests 20,767, Allowed overrun repayment of the debt principal and liabilities from the previous period 201,161, Allowed overrun grants 4,223, Allowed overrun international agreements 12,449, The table below shows budget overrun by expenditure lines expressed in the economic classification: 26

27 Table 11 Budget overrun according to economic classification Econom classificati DESCRIPTI Planned in 2013 Realized in godini Difference Overrun expressed spending units Amount of nonoverrun Amount of overrun 4 Expenditures 1,375,793, ,603,381, ,587, ,155, ,553, ,602, Current Expenditures 583,010, ,567, ,556, ,544, ,544, Gross salaries and contributions paid by the employer 373,750, ,004, ,745,640, Other personal incomes 13,822, ,119, ,703, , , Others 8,465, ,993, ,471, , , Expenditures for material 28,561, ,269, ,292, , , Administrative materials 5,044, ,700, , , , Material for health care 674, , , , , Expenditures for energy 7,166, ,830, , Expenditures for fuel 10,169, ,714, , Expenditures for services 46,985, ,868, ,883, ,463, ,463, Business trips 5,986, ,632, , , , Entertainment 754, , , , , Communication services 6,509, ,275, , , , Transport services 1,096, ,065, , Consultancy services, projects and studies 18,722, ,389, ,667, ,147, ,147, Training services 1,048, , , , , Other services 7,296, ,940, , , , Expenditures for current maintenance 20,847, ,415, , , , Current maintenance of construction buildings 1,397, ,315, , , , Current maintenance of the equipment 2,605, ,255, , Interests 47,182, ,922, ,740, ,767, ,767, Interests to residents 5,364, ,403, ,039, ,066, ,066, Interests to non residents 41,818, ,519, ,701, ,701, ,701, Rent 8,109, ,928, , Subsidies 17,501, ,425, , Other expenditures 26,250, ,613, ,637, , Expenditures based on payments of service contracts 5,503, ,272, , , , Software development and maintenance 5,466, ,305, , , , Other 4,310, ,938, , , , Transfers for social care 485,569, ,967, ,601, Social care rights 64,071, ,036, , Funds for redundancies 14,836, ,086, ,750, Rights in the field of pension and disability insurance 383,999, ,189, , Other health care rights 14,792, ,792, Other health insurance rights 7,870, ,862, , Transfers to institutions, individuals, non governmental and public 94,618, ,307, , , , Transfers to institutions, individuals, non governmental and public 93,133, ,821, , ,545, , Other transfers 1,485, ,485, Capital expenditures 76,387, ,860, ,526, ,939, ,125, ,813, Capital expenditures 76,387, ,860, ,526, ,939, ,125, ,813, Expenditures for infrastructure of general importance 27,101, ,675, ,425, ,210, ,210, Expenditures for local infrastructure 7,331,00 9,811, ,480, ,889, ,889, Expenditures for construction buildings 33,848, ,134, ,713, ,712, ,712, Expenditures for equipment 6,498, ,672, , , , Expenditures for investment maintenance 902, ,738, , , , Expenditures for the purchase of securities 0.0 1,125, ,125, ,125, ,125, Loans and credits 2,766, ,752, , Loans and credits 2,766, ,752, , Repayment of debts 119,209, ,799, ,589, ,589, ,427, ,161, Repayment of debt 86,500, ,025, ,525, ,525, ,525, Repayment of securities and credits to residents 23,800, ,621, ,821, ,821, ,821, Repayment of securities and credits to non residents 62,700, ,404, ,704, ,704, ,704, Repayment of guarantees ,230, ,230, ,230, ,230, Repayment of guarantees in the country 0.0 4,453, ,453, ,453, ,453, Repayment of guarantees abroad ,777, ,777, ,777, ,777, Repayment of arrears from the past 32,709, ,543, ,833, ,833, ,427, ,405, Repayment of arrears from the past 32,709, ,543, ,833, ,833, ,427, ,405, Reserve 14,230, ,

28 Overrun derived from the summary table complied according to the economic classification that presents the aggregate data for all budget users, shows that the overrun amounts to 227,587, This was confirmed also by the individual expenditure lines and by spending units, which shows that the summary expenditure control, on the level of the budget, was not sufficient to stop certain overrun by spending units and expenditure lines. In 2013 the number of spending units that recorded the budget overrun was reduced, as well as the number of expenditure lines that recorded overrun. This shows that there are improvements in the fiscal discipline. The growth of payments based on court rulings are concerning since the payments on this basis increased in 2013 in comparison to It is recommended that the fiscal discipline is strengthened further and that Article 40 paragraph 1 of the Law on the Budget and Fiscal Responsibility (Official Gazette of Montenegro, no. 20/14) is complied with. This article stipulates that the spending units are obliged to use the funds within the boundaries defined in the Budget Law Scope of Public Spending Audit of the consolidated report established that a number of spending units ensures and uses their own funds according to Article 7 paragraph 1 of the Law on the Budget of Montenegro for 2013 (Official Gazette of Montenegro, no. 66/12), which reads: "The revenues generated by spending unit through its own activities on the basis of its legal authorities shall be used solely for financing expenditures of that particular spending unit up to the amount planned in the budget. Consolidated data of the spending units show that the revenues generated through their own activities, based on the law, were used for financing expenditures of the spending units that generated them. However, we are hereby indicating to the fact that such funds were used in the spending units up to their full amount and not in line with the budget constraints defined in the annual budget plan. If direct financing from the Central Account of the State Treasury is added to that, the system of public spending is by 41,051, higher. Spending units which generated their own revenues and received direct financing from the Central Account of the State Treasury are as follows: public institutions within the Ministry of Culture, public institutions within the Ministry of Education, public institutions within the Health Fund, Police Academy, Examination Centre, Montenegrin National Theatre, Royal Theatre "Zetski Dom", National Tourism Organisation, Montenegrin Academy of Arts and Sciences, veterinary clinics, Radio and Television of Montenegro, Public institution Coastal Management Zone, Union of Municipalities. Increase in the level of public spending by the expenditures financed from the revenues generated through the own activities of the spending units does not influence the level of the expressed deficit, but the expressed level of public spending is significantly adjusted. Therefore, the State Audit Institution consolidated the data with the adjustments on the side of receipts and on the expenditure side in order to ensure more accurate and more comprehensive picture of the level of public spending. That is presented in the table below: 28

29 Table 12 Consolidated Public Spending and Adjusted Deficit for 2013 Adjusted deficit for 2013 Description Final Statement of Accounts Adjustments of execution Plan Rebalance Executed Adjustment (+) Adjustment ( ) Balance Cash inflows ,01 0, , ,74 0, ,47 1,1 Taxes ,24 0, , ,77 0, ,28 1,2 Contributions for social care ,44 0, ,19 0,00 0, ,19 1,3 Grants 0,00 0, , ,70 0, ,41 1,4 Other revenues ,32 0, , ,27 0, ,38 1,5 Revenues from repayment of credits ,01 0, , ,00 0, ,21 2 Cash payments ,99 0, , ,99 0, ,34 2,1 Salaries ,75 0, , ,92 0, ,09 2,2 Other personal incomes ,41 0, , ,81 0, ,08 2,3 Use of goods and services ,51 0, , ,24 0, ,87 2,4 Current maintenance ,05 0, , ,77 0, ,94 2,5 Interests ,30 0, , ,90 0, ,44 2,6 Rent ,40 0, , ,48 0, ,29 2,7 Subsidies ,00 0, ,96 0,00 0, ,96 2,8 Transfers to individuals, non governmental and public sector ,23 0, , ,97 0, ,18 2,9 Transfers for social care ,10 0, , ,29 0, ,77 2,10 Other expenditures and reserves ,39 0, , ,42 0, ,67 2,11 Loans given ,00 0, , ,45 0, ,43 2,12 Capital expenditures, purchase of securities ,85 0, , ,74 0, ,02 2,13 Reduction in liabilities payments ,00 0, , ,00 0, ,10 2,14 Expenditures for the payment of guarantees 0,00 0, ,50 0,00 0, ,50 4 Cash deficit (1 2) ,98 0, , ,25 0, ,87 5 Sources of cash deficit financing ( ) ,98 0, , , ,87 6 Net borrowing ,99 0, , ,62 0, ,69 7 Sale of property ,00 0, , ,77 0, ,12 8 Grants 0,00 0,00 0,00 0,00 0,00 0,00 9 Net changes in cash 0,01 0, , ,86 0, ,06 10 Net increase/reduction of the arrears ( ) ,00 0, ,41 0,00 0, ,41 10,1 Balance of the liabilities on 31 December ,00 0, ,54 0,00 0, ,54 10,2 Balance of the liabilities on 31 December ,00 0, ,13 0,00 0, ,13 11 Adjusted expenditures ( ) ,99 0, , ,99 0, ,75 12 Cash inflows (1.) ,01 0, , ,74 0, ,47 13 Adjusted cash deficit (12 11) ,98 0, , ,25 0, ,28 14 Sources of financing deficit ( ) ,98 0, , ,25 0, ,28 15 Net borrowing ,99 0, , ,62 0, ,69 16 Sale of property ,00 0, , ,77 0, ,12 17 Grants 0,00 0,00 0,00 0,00 0,00 18 Liabilities to suppliers ,00 0, ,41 0,00 0, ,41 19 Net changes in cash 0,01 0, , ,86 0, ,06 Overall level of public spending was increased the amount of expressed adjustments 41,051,612.74, while on the side of expenditures the expressed level of adjustments amounts to 41,193, Minimum deficit adjustment on this basis is not substantially important when it comes to the expressed level of deficit. The level of public spending was thus increased from 1,444,789, to 1,485,883, In the spending units the increase in spending was made in the following amounts: Table 13 Increase in the Budget Spending Description Cash inflows Cash payments Public institutions within the Ministry of Culture 1,201, ,218, , , , , , , Public institutions within the Ministry of Culture 13,166, ,502, , , , Public institutions within the Health Fund 14,151, ,743, , , , , , , Police Academy 357, , , , , Examination Centre 77, , , , , Montenegrin National Theatre 349, , , , , Royal Theatre Zetski dom , , , , National Tourism Organisation 317, , , , , Montenegrin Academy of Arts and Sciences 62, , , , , Veterinary clinics 208, , Radio and Television of Montenegro 7,198, ,198, Public Institution "Coastal Management Zone" 3,655, ,655, Union of municipalities 304, , TOTAL 41,051, ,193, , , , , , , Cash deficit/surplus Sources of cash deficit financing Domestic financing sources without deposit Net credit borrowings Sale of property Net changes in cash 29

30 Article 42 of the Law on the Budget and Fiscal Responsibility (Official Gazette of Montenegro, no. 20/14) stipulates that all the public institutions that generate revenues by performing their own activities that are not included into the consolidated account of the treasury can use such revenues for financing current and capital expenditures, provided that they obtain the consent of the Ministry of Finance to their revenue and expenditure plan for the fiscal year and that they obtain in advance the notification of the state administration body in charge of supervision providing its consent. This Article stipulates the exemption from performing the financing transactions through the General Ledger of the State Treasury and including of these transactions into the annual budget law. The supervisory function that is to be implemented consistently in the next fiscal period is clearly and precisely defined. It is recommended that in the process of planning the budget through the annual budget laws the Government of Montenegro plans the amounts of the revenues generated through own activities of the spending units and that the revenues thus generated are used in compliance with the constraints defined in the annual budget law Statement on the manner of spending funds submitted after the expiry of a fiscal year Using the Statement on the manner of spending funds submitted upon the expiry of a fiscal year, on 31 December 2013, spending units reported the existence of funds in foreign currency accounts they had that were recorded in the General Ledger of the State Treasury as expenditure in The amount reported in this way was 1,102, On 31 January 2014 one spending unit reported the existence of funds in its accounts in the amount of 6, According to the submitted Statement on the manner of spending funds submitted upon the expiry of a fiscal year, the Ministry of Finance adopted the decision ordering the State Treasury to cancel the expenditures and to record the increase of the deposit of the Ministry of Finance Report on the manner of spending funds from the current budgetary reserve According to the Rulebook on the Manner of Drafting, Compiling and Filing Financial Statements of the Budget, State Funds and Local Self Government Units, spending units are obliged to enclose to the annual financial statements the Report on the manner of spending funds from the current budgetary reserve Form 9. The available documentation shows that 79 spending units submitted the Report on the manner of spending funds from the current budgetary reserve, 10 of which submitted the Form 9 after the deadline expired. The submitted reports show that the funds from the current budget reserve were used by ten spending units in the total amount of 9,352,520.96, which matches the amounts recorded as the current budgetary reserve in the General Ledger of the State Treasury. 3. STATE CASH DEPOSITS Bank account is the account for receiving, paying and transferring state money. State money is the money that is under control or at disposal of the state or municipalities. Consolidated treasury account comprises all the accounts where state money is recorded and that are in the function of the state or municipal budgets. Accounts in the Central Bank of Montenegro According to the Agreement on banking operations and services related to the implementation of the decisions on the state debt No /1 of 25 September 2001, the Central Bank of Montenegro undertook to perform banking operations with the state money and to act upon the order of the minister to open bank accounts for the purpose of banking operations. The table below gives an overview of the accounts opened with the Central Bank with the balance on 31 December 2012 and 31 December 2013: 30

31 Table 14 Accounts open with the Central Bank of Montenegro ACCOUNTS OPEN WITH THE CENTRAL BANK DESCRIPTION Account number Balance on 31 December 2012 Balance on 31 December 2013 Treasury General Account ,630, ,564, OTHER ACCOUNTS Central Account of the State Treasury Customs Administration of Montenegro Tax Administration of Montenegro , , Ministry of Interior Police Directorate Ministry of Finance account for liquidity Ministry of Finance Equalization Fund , ,434, Ministry of Finance Collection of due and uncollected taxes and contributions Ministry of Finance Account for temporarily seized money in criminal and misdemeanour procedures , , ,507, Treasury General Account According to the Directions on State Treasury Operations, item 45 the Ministry of Finance issues an order for opening of the main bank account of the state. Out of the funds planned in the annual budget money is paid to and withdrawn from this account. According to the data of the Central Bank on the public revenues collected and allocated through the Treasury General Account, No , for the period from 01 January 2013 to 31 December 2013, the total amount of the funds paid into the account amounted to 1,608,343,215.83, while the total amount of the funds paid from the account amounted to 1,618,409, On 31 December 2012 the funds in the account amounted to 11,630,188.03, while on 31 December 2013 they amounted to 1,564,187.32, as presented in the table above. Central Account of the State Treasury According to the Order on the Manner of Payment of Public Revenues, Section General Provisions (item 5 and item 7), the funds are collected through the Central Account of the State Treasury and they are distributed therefrom. The accounts used for collection of public revenues (416 accounts according to the Order) and the four clearing accounts, through which the funds are transferred to the Central Account of the State Treasury by the spending units that collect public revenues Customs Administration, Tax Administration, Ministry of Interior and Police Directorate. According to the Central Bank data, the public revenues collected to this account for the period from 1 January 2013 to 31 December 2013 amounted to 1,345,882, The same amount was allocated in the observed period. Liquidity account According to Article 7 of the Contract on performing banking operations and services related to the implementation of the decisions on the state debt No of 25 September 2001, it was established that the minister is obliged to open a special bank account in the Central Bank that will be used only for the payments of the funds from the sale of treasury bills issued by the Government with a view to improving budget liquidity. According to the data of the Central Bank for the period from 1 January 2013 to 31 December 2013, public revenues collected in this account amounted to 75,246,194.22, while the distributed public revenues amounted to 75,246, On 31 December 2012 the balance in this account was and on 31 December 2013 it was Account for collection of due and uncollected taxes and contributions According to Article 9 of the Order on the collection of due and uncollected taxes and contributions and other pubic revenues 11, the account was opened for the purpose of collecting the due and uncollected revenues from taxes, contributions for compulsory social insurance and other public revenues, except for the Value Added Tax, incurred before 31 December OG MNE No. 24/04 31

32 According to the data of the Central Bank for the period from 1 January 2013 to 31 December 2013, public revenues collected in this account amounted to and there were no allocated public revenues. Hence, the balance on 31 December 2012 amounted to 74, and it amounted to 74, on 31 December Account Equalization Fund The account Equalization Fund is managed by the Ministry of Finance. According to Article 29 of the Law on Financing Local Self Government, this account is used for financial equalization in the financing of municipalities. According to the Central Bank data, in the period from 1 January 2013 to 31 December 2013 the amount of 26,462, of public revenues were paid in the account Equalization Fund number In the same period the amount of allocated funds was 25,523, On 31 December 2012 the balance was 495,236.96, while it was 1,343, on 31 December Account for the funds seized in criminal and misdemeanour procedures Account No was opened upon the request of the Ministry of Finance with a view to maintaining the seized funds according to the Law on Managing Seized and Confiscated Assets. According to the analytical card of the Central Bank, the inflow of funds in this account amounted to 1,507, in There was no outflow of funds and no balance on 31 December Therefore, the balance of funds on 31 December 2013 is equal to the inflow of funds. The deposits expressed in the Proposed Law on the Final Statement of Accounts of the Budget for 2013 Deposit balance expressed in the Proposal Law on the Final Statement of Accounts of the Budget for 2012 and 2013 is shown in the table below: Table 15 Deposits expressed in the Proposal Law on the Final Statement of Accounts of the Budget for 2013 Name of the bank Proposal Law on the Final Statement of Accounts for 2012 Proposal Law on the Final Statement of Accounts for 2013 Central Bank of Montenegro 11,919, ,656, Crnogorska Komercijalna banka 1,060, , NLB Montenegrobanka 706, , Prva banka Crne Gore 3,570, , Erste banka Podgorica 2,000, ,084, Podgorička banka 69, , Unspent budget users' funds 1,557, ,297, Total 20,882, ,844, Total in mil On the basis of the documentation obtained from the banks (Excerpt of the open items, IOS form) and the documentation obtained from the Ministry of Finance, the audit checked the deposits in the accounts in the Central Bank of Montenegro (except for the Deposits from succession gold) and in the Erste Banka Podgorica. Deposits with the Central Bank of Montenegro The table below shows the overview of the balance of funds of the Ministry of Finance in the accounts with the Central Bank of Montenegro on 31 December 2012 and on 31 December 2013: 32

33 Table 16 Funds of the Ministry of Finance with the Central Bank of Montenegro Group Name Funds of the Ministry of Finance with the Central Bank of Montenegro GENERAL ACCOUNT Number of account/sub-account Balance on 31 December 2012 Balance on 31 December 2013 Central Bank data Expressed in the the Ministry of Finance deposits Central Bank data General Treasury Account , , , ,32 OTHER ACCOUNTS Central Account of the State Treasury Customs Administration of Montenegro Expressed in the the Ministry of Finance deposits Account Tax Administration of Montenegro , ,74 Ministry of Interior ,00 0,00 Police Directorate ,00 0,00 Ministry of Finance - account for liquidity ,35 0,34 Ministry of Finance - Equalization Fund , , ,00 Ministry of Finance - Collection of due and uncollected taxes and contributions , ,43 Ministry of Finance - Account for temporarily seized money in criminal and misdemeanor procedure ,86 Deposits from succession , , , ,21 Deposits Other Deposits for the implementation of the apartments project , ,97 Deposits from restitution , ,87 Deposit of the Ministry of Finance for land lease, ,81 Deposit of the Ministry of Finance from the issuance of EUROBOND ,47 928,47 bonds and Liabilities for the received advance payments , ,46 Liabilities for the surplus of revenues according to the 2006 report, ,45 Liabilities from business relations , , ,46 TOTAL (ACCOUNTS + DEPOSITS + OTHER) , , , ,46 Comparing the balance of deposits in the accounts with the Central Bank expressed in the Proposal Law on the Final Statement of Accounts of the Budget of Montenegro for 2012 with the data of the Central Bank (Statement of Outstanding Positions), the audit established the following: that the balance of deposits in the accounts with the Central Bank in the amount of 11,919, includes the following accounts: 1) Treasury General Account, 2) Deposits from succession 3) Deposits for the implementation of the apartments project 4) Deposits from restitution. that the balance of deposits in the Central Bank does not include the balance in the following accounts: 1) Liquidity account, 2) Account of due and uncollected taxes and contributions 3) Equalization Fund 4) Deposit of the Ministry of Finance for land lease, 5) Liabilities for the surplus of revenues according to the 2006 report, 6) Liabilities for the received advance payments, 7) Liabilities from business relations (old foreign currency savings) We would like to emphasise that the balance of funds in the clearance account of the Tax Administration in the amount of 898, is the amount of public revenues that were not allocated in the Central Account of the State Treasury according to the stipulated procedures (nonidentified public revenues) on 31 December Comparing the balance of deposits in the accounts with the Central Bank expressed in the Proposal Law on the Final Statement of Accounts of 33

34 the Budget of Montenegro for 2013 with the data of the Central Bank (Statement of Outstanding Positions), the audit established the following: that the balance of deposits in the accounts with the Central Bank in the amount of 1,656, includes the following accounts: 1) Treasury General Account, 2) Equalization Fund (claims based on loans given in the amount of 50, ), 3) Deposits from succession, 4) Deposit of the Ministry of Finance from the issuance of EUROBOND bonds and 5) Bonds from business relations (old foreign currency savings). that the balance of deposits in the Central Bank does not include the balance in the following accounts: 1) Liquidity account, 2) Account of due and uncollected taxes and contributions, 3) Account for temporarily seized money in criminal and misdemeanour procedures, 4) Equalization Fund (except for the funds on the basis of loans), 5) Liabilities for the received advance payments. We would like to emphasise that the balance of funds in the clearance account of the Tax Administration in the amount of 380, is the amount of public revenues that were not allocated in the Central Account of the State Treasury according to the stipulated procedures (nonidentified public revenues) on 31 December The audit included the control of deposits in the Erste bank by random sample check. There are 12 accounts/sub account under the registry number of the Ministry of Finance. Erste banka In the Proposal Law on the Final Statement of Accounts of the Budget for 2013 the expressed balance in the accounts with the Erste Bank on 31 December 2012 amounted to 2,000,000.00, while on 31 December 2013 it amounted to 3,084, The table below provides the data about the balance in the accounts with the Erste Bank on 31 December 2013: Table 17 Funds in the Accounts with the Erste Bank Accounts in the country Erste Bank Foreign Currency Accounts Description Balance on 31 December 2013 The amount was not included into the deposits according to the final statement of accounts The amount was included into the deposits according to the final statement of accounts Secretariat General of the Government Account for solidarity in case of floods Credit Account Account for the Ministry of Economy 119, , Account for solidarity in case of snowfall Labour Fund Account Secretariat General of the Government 1, , Flood prevention and Rehabilitation 3,700, ,700, Credit Account Project TYPSA water supply system Nikšić 52, , Montenegro Water project 110, , Deposit accounts term deposits 3,084, ,084, Total 7,068, ,984, ,084,

35 The audit included the control of the following accounts: Foreign currency account which was opened for the purposes of withdrawing the credit funds from the EIB (European Investment Bank) for financing the project Prevention of Flood Consequences. It is elaborated in details in the chapter Revenues. On 31 December 2013 the balance in this account was 3,700, Account no that, according to the Contract on opening and managing the account no. 753/12 of 7 March 2012, was opened for the purposes of payment operations in the country under the name "Ministry of Finance Account for solidarity aimed at mitigation of consequences of voluminous snowfall and storm winds." According to the Erste Bank data (the document 29/14 of 18 July 2014), on 31 December 2013 the balance in this account was and there were no transactions in the period from 1 January to 31 December Account no Deposit account In the Proposal Law on the Final Statement of Accounts of the Budget for 2013 the expressed deposit balance was 3,084, It is the amount of the term deposit based on the Contract no. Ld/ , for the period from 10 January 2013 to 10 January According to Article 4 of the Contract, the client cannot use these funds before the expiry of the term. The amount of 84, is the interest based on the term deposits according to the Contract no. Ld/ in the amount of 82, and the interest in the amount of 2, for the term deposits on the basis of the contracts from the past. Records of funds in the General Ledger of the State Treasury According to Article 4 of the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities, the balance of financial assets is expressed in class 1. Article 6 of this Regulation stipulated the accounts for recording the balance of financial assets by class, category, group, synthesis, analysis and sub analysis. Insight in the General Ledger of the State Treasury of the financial assets (class 1) shows that there are no recorded balances and transactions in the groups of accounts in line with the Regulation. The table below shows the overview of the records on the level of sub analysis: Table 18 Records of Funds in the General Ledger of the State Treasury Class Category Group Synthesis Analysis Sub analysis Account Name Opening Balance Debit turnover Credit turnover Closing balance 1 Financial assets 11 Financial assets 111 Consolidated account Accounts in the country Accounts in the Central Bank General Treasury Account Sub accounts with special purpose Podgorička banka Deposit , , , , Crnogorska Komercijalna banka Deposit , , , , Hipotekarna banka Deposit , ,37 3, Montenegro banka Deposit ,00 150, , , Central Bank of Montenegro other deposits 7.522, , , , Central Bank deposited funds succession , , , , Deposits of the Embassies of Montenegro , , , , Deposit of Prva Banka CG , , , , Opportunity banka Deposit , ,83 0, , Deposit Institutions of culture 1.890,89 0, ,89 0, Small and Medium size Enterprises Directorate Depo , , , , Deposits from restitution ,83 0, ,92 0, Deposit Centre for Archaeological Research of Mont , , Deposit Central Bank Erste credit , ,00 0, Deposit Hidro. offices 652,87 0,00 652,87 0, Pension and Disability Insurance Fund deposit 3.235,48 0, ,48 0, Ministry of Science deposit 2.238, ,64 0, Pension and Disability Insurance Fund deposit NLB 150,79 150,79 0, Accounts in commercial banks Accounts abroad Collaterals 112 Securities 113 Loans and credits 114 Issued guarantees TOTAL CLASS I , , , ,28 35

36 In the General Ledger of the State Treasury (class 1) there are no recorded balances and transactions in the groups of accounts 112 Securities, 113 Loans and Credits, 114 Issued guarantees. The recorded balances within the group of accounts 111 Consolidated Account of the State Treasury are not in line with the Regulation on Uniform Classification of Accounts for the Budget, Extrabudgetary Funds and Budgets of Municipalities. In the require sub analytical data within Treasury General Account and Sub accounts with special purpose, there are no recorded balances and transactions. The balances recorded within the sub analytical data (10 digits) present the opening balance in the amount of 9,252,600.61, debit turnover in the amount of 211,367,730.25, credit turnover amounted to 215,340,254.58, so that the closing balance amounts to 5,280, On the basis of the names of the accounts it was concluded that the expressed balances include the turnovers and balances of deposits with the Central Bank (excluding the Treasury General Account), with the commercial banks, as well as the deposits of the budget users. The Ministry of Finance did not ensure full records of the balances and turnover of financial assets through the system of the General Ledger of the State Treasury (class 1). Hereby we particularly emphasize that the Ministry has to ensure the records of the balances and turnover of money transactions that are done through the accounts that are in the system of the Consolidated Account of the State Treasury. It is in line with Article 6 of the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities. 4. BUDGET REVENUES Budget revenues expressed in the Proposal Law on the Final Statement of Accounts of the Budget for 2013 in accordance with Article 9 of the Law on Budget are presented in the following table: Table 19 Budget revenues Economic classificatio n Description Planned in 2013 Realized in 2013 Plan/realizatio n 71 Current revenues 1,156,991, ,228,279, Receipts from the sale of property 8,000, ,948, Receipts from the repayment of debts 4,809, ,633, Grants and transfers 6,614, Loans and credits 205,992, ,867, Total 1,375,793, ,589,342, In 2013 revenues were implemented in the amount that is by 15.52% higher than the revenues planned in the Budget Law for The table below shows the overview of the revenues recorded in the General Ledger of the Treasury allocated from the Central Account of the State Treasury ( ) through the revenue module: Table 20 Unpaid Revenues through the Revenue Module Economic classification Description Realized in 2013 Revenue module Difference 71 Current revenues 1,228,279, ,220,287, ,991, Receipts from the sale of property 11,948, ,907, ,041, Receipts from the repayment of debts 8,633, ,019, ,613, Grants and transfers 6,614, ,614, Loans and credits 333,867, ,866, Total 1,589,342, ,226,215, ,127, The difference in the amount of 363,127, is the amount of the inflow that was not recorded in the General Ledger of the State Treasury through the Revenue Module (software of the Ministry of Finance). 36

37 Collection of Revenues in the Central Account of the State Treasury According to the Order on the Manner of Payment of Public Revenues that stipulates the accounts where public revenues defined in the law and other legislation are collected, the manner of collection of the revenues and the manner of reporting by the users, collection of public revenues in Montenegro is ensured through the following accounts: for the payment of revenues collected by the Customs Administration no (identification number 805); by Tax Administration no (identification number 820); by Ministry of Interior no (identification number 840), and by Central Account of the State Treasury no (identification no. 832 accounts of the ministries, other administration bodies and judiciary). The table below shows the data related to collected and allocated revenues, according to the reports of the Central Bank and the Ministry of Finance, and revenues expressed in the State Treasury (report from the Revenue Module), by entities that collect the revenues: Table 21 Public Revenues Names of accounts used for collecting revenues inid number Number accounts used for collecting revenues According to the Central According to the State TrDifference Customs Administration of Montenegro Clearing , ,62 Tax Administration of Montenegro Clearing Acco , ,80 Ministry of Interior Clearing Account , ,13 (7,694,429.7) Police Directorate Clearing Account , ,30 Central Account of the State Treasury Accounts of the ministries, other bodies and judiciary , , ,35 Collected through clearing account , , ,65 Commercial Account of the Central Bank , ,62 Collected through other accounts , ,62 According to the data of the Central Bank, the public revenues collected and allocated in 2013 amounted to 1,345,882,236.74, while according to the data of the Ministry of Finance the collected and allocated revenues amounted to 1,342,140, According to the report of the Central Bank, the revenues collected through the clearance accounts for collection of public revenues amounted to 1,342,621,684.12, while the revenues collected through other accounts amounted to 3,260, Hence, the total collected revenues amounted to 1,345,882, The difference in the items related to the Ministry of Interior is of technical nature and it is related to the processing of orders for transfer of money after the "Recipient Statement". For the period from 1 January 2013 to 20 November 2013 processing of the orders for transfer of money from the clearance account of the Ministry of Interior to the Central Account of the State Treasury was done in the Ministry of Finance after the submission of the "Recipient Statement" by the Ministry of Interior. The transaction was not recorded as a payment from the clearance account but as a payment to the Central Account of the State Treasury According to the above, the amount of 7,694, is a part of the amount that is expressed as the payment to the account In the period from 21 November 2013 to 31 December 2013 the revenues collected in the amount of 904, were processed through the transfer orders in the communication system of the Ministry of Interior with the Central Bank, as the transfer from the clearance account of the Ministry of Interior The identified difference in the expressed data about the collected and allocated revenues amounts to 3,741, and it includes the following: The amount of ,62 paid to the Central Account of the State Treasury ( ) from the commercial account of the Central Bank ( ) on the basis of the document no /1 of 26 March 2013 by which the Ministry of Finance applied to the Central Bank with the request for transfer of the deposited funds of the Government the Ministry of Finance, from the account 37

38 "Deposits of the Ministry of Finance Based on the Leased Land". By the Decision no /2 of 26 March 2013 the funds were transferred from the Central Account of the State Treasury to the account of the Municipality of Herceg Novi no with the NLB Montenegro Bank. The transfer of funds was made on the basis of the Decision of the Government no /4 of 21 March By this decision, the Government adopted the Information on regulating mutual relations and financially supporting the Municipality of Herceg Novi according to the Agreement on financial support to the Municipality of Herceg Novi no /1 of 25 March 2013 concluded between the Government of Montenegro, the Ministry of Finance and Municipality of Herceg Novi. Overview of the Statement of Financial positions on 31 December 2012 established that there was a deposit on the account "Deposits of the Ministry of Finance on the Basis of Leased Land" in the amount of 3,260, According to the document no /1 of 31 December 2012 the deposit is 30% of the funds made by land lease transferred to the commercial account of the Central Bank of Montenegro. The funds in the amount of 117, are the funds collected in the period from 1 January to 31 December 2013 in the account no of the veterinary clinic "Veterinum" distributed to the Treasury General Account on 31 December The allocation of funds was not done through the Revenue Module (software of the Ministry of Finance State Treasury) and therefore the effect of this transaction is that the amount expressed in the data of the Ministry of Finance is lower. The funds in the amount of 14, are the funds that remained in the Central Account after the last allocation was done on 31 December The allocation of funds was not done through the Revenue Module (software of the Ministry of Finance State Treasury) and therefore the effect of this transaction is that the amount expressed in the data of the Ministry of Finance is lower. The funds in the amount of 312, are the funds for the refund and reallocation of the funds on the basis of the decisions of the Ministry of Finance regarding the wrong payments to the accounts of the ministries, other administration bodies and judiciary (identification number 832), including the refund of the funds paid by mistake. The allocation of funds was not done through the Revenue Module and therefore the amount expressed in the data of the Ministry of Finance is lower. The funds in the amount of 35, are the funds used for the refund on the basis of the "Recipient Statement" of the Ministry of Interior of 22 October 2013 that were submitted two times by mistake on 23 October 2013 which led to the increased transactions both on the side of the collected and on the side of allocated funds. Comparison of the data on the realized revenues recorded in the State Treasury with those obtained from the Central Bank of Montenegro led to the conclusion that the realized revenues of the entity that submitted the "Recipient Statement" recorded in the State Treasury (Statement from the Revenue Module before allocation) match the data on the revenues transferred from the clearing accounts of entity that submitted the "Recipient Statement" except for the amount of 35, identified with the Ministry of Interior that was mistakenly transferred two times on 23 October The total inflow of funds to the Central Account of the State Treasury in 2013 amounted to 1,345,882, as presented in the table below: Table 22 Inflow of Funds to the Central Account of the State Treasury CENTRAL ACCOUNT OF THE STATE TREASURY DESCRIPTION INFLOW Customs Administration of Montenegro Clearing Account 368,994, Tax Administration of Montenegro Clearing Account 919,005, Ministry of Interior Clearing Account 8,599, Police Directorate Clearing Account 4,157, Central Account of the State Treasury accounts of the ministries, other bodies and judiciary 41,865, Commercial Account of the Central Bank 3,260, TOTAL 1,345,882,

39 According to the Directions on State Treasury Operations, allocation of public revenues to users of funds is done by the State Treasury. Transfer of the funds from the Central Account of the State Treasury to the account of public revenue users is done through the Revenue Module (software of the Ministry of Finance State Treasury) on the basis of "keys" defined in the law and other regulations which define who the public revenues belong to and how they are allocated on the basis of decisions of the Ministry of Finance. Outflow of funds, i.e. allocation of funds from the Central Account of the State Treasury in 2013 amounted to 1,345,882, as presented in the table below: Table 23 Outflow of Funds from the Central Account of the State Treasury CENTRAL ACCOUNT OF THE STATE TREASURY DESCRIPTION OUTFLOW Treasury General Account 1,226,348, Local self government 40,562, Chamber of Veterinary Doctors and Veterinary Clinics 236, Allocation based on the decisions of the Ministry of Finance and other documents 49,432, ,432, Municipality of Herceg Novi 3,260, Radio and Television of Montenegro 7,198, Refund and reallocations of the funds paid from the account of the group 832 (including other refunds from the Central Account) 312, Refund of twice transferred funds 35, Reallocation of funds (VAT refund) 38,625, Equalization Fund 25,342, Public Institution "Coastal Management Zone" 3,655, Union of municipalities 304, TOTAL 1,345,882, Transfer of the funds from the Central Account of the State Treasury to the Treasury General Account in the amount of 1,226,348, included the funds allocated through the Revenue Module as well as the amount of the funds that were directly transferred from the Central Account of the State Treasury on 31 December The amount of 40,562, was allocated from the Central Account to the local selfgovernment, as presented in the table below: Table 24 Allocation of the Funds from the Central Account to the Local self government NAME OF THE MUNICIPALITY CODE OF THE MUNICIPALITY AMOUNT Podgorica ,303, Cetinje , Danilovgrad , Nikšić 400 2,095, Šavnik , Plužine , Žabljak , Pljevlja 507 5,028, Berane , Plav , Rožaje 620 1,015, Andrijevica , Bijelo Polje 701 1,168, Mojkovac , Kolašin , Bar 809 3,611, Budva 817 4,499, Ulcinj 825 1,393, Herceg Novi 906 3,281, Tivat 914 1,321, Kotor 922 2,257, TOTAL 40,562,

40 The amount of 236, was allocated from the Central Account of the State Treasury to the Chamber of Veterinary Doctors and Veterinary Clinics. These funds were transferred according to the Decision on the amount of fees for the provided veterinary sanitary checks in the internal trade. Out of the total amount of the collected funds 75% belongs to persons that performed the check, while 10% belongs to the Chamber of Veterinary Doctors. Through the analysis of the 2013 Report on the allocation of funds by users of public revenues for and the Reports on the collected funds before allocation (gross revenues) expressed by eco code), we established that the amount of 208, was transferred to the veterinary clinics. It was 75% of the fees for the performed veterinary sanitary checks. The Chamber of Veterinary Doctors was transferred the amount of 27, or 10% of the fees for the performed veterinary sanitary checks that in total amounted to 278, Allocation of funds from the Central Account of the State Treasury was done on the basis of the decisions of the Ministry of Finance in the amount of 49,432,455.00, as follows: By the Decision no /2 of 26 March 2013 the amount of 3,260, was transferred to the account of the Municipality of Herceg Novi no with the NLB Montenegro bank. The transfer of funds was made on the basis of the Decision of the Government no /4 of 21 March 2013 which adopted the Information on regulating mutual relations and financially supporting the Municipality of Herceg Novi according to the Agreement on financial support to the Municipality of Herceg Novi no /1 of 25 March 2013 concluded between the Government of Montenegro, the Ministry of Finance and Municipality of Herceg Novi. Decision of the Ministry of Finance was the basis for transferring the funds in the amount of 7,198, to the Public Service Radio and Television of Montenegro. According to paragraph 2 of Article 16 of the Law on Pubic Broadcasting Services of Montenegro 12, the Ministry of Finance adopted the Instruction on the manner of reallocation of funds from general revenues of the budget of Montenegro 13, which stipulated that, for the purpose of financing the basic activities of the Public Service Radio and Television of Montenegro, the funds were to be allocated from the general revenues of the budget of Montenegro excise. The amount was to be set on an annual level as 1.20% of the current budget of Montenegro defined in the law for each particular year. Article 3 of the Budget Law of Montenegro for 2013 defined that the funds in the total amount of 7,198, were to be allocated from the general revenues of the budget to the Public Service Radio and Television of Montenegro. Decisions of the Ministry of Finance were used to transfer funds in the amount of 312, for erroneous payments to the accounts of the ministries, other administration bodies and judiciary (identification no. 832), as well as for other refunds in cases of erroneous payments if refunds and reallocations were done from the Central Account of the State Treasury. Decisions of the Ministry of Finance were used to transfer the funds in the amount of 38,625, as the refund and reallocation of the VAT (Value Added Tax). The amount of 25,342, was allocated from the Central Account of the State Treasury to the Equalization Fund. The amount of 3,655, was allocated from the Central Account of the State Treasury to the Public Company "Coastal Management Zone". The amount of 304, was allocated from the Central Account of the State Treasury to the Union of Municipalities 12 OG MNE No. 79/08 13 OG MNE No. 3/09 40

41 Treasury General Account Inflow of funds to the Treasury General Account from the Central Account of the State Treasury amounted to 1,226,348, plus inflow from other sources in the amount of 362,994, as presented in the table below Table 25 Revenues Recorded in the General Ledger of the State Treasury GENERAL LEDGER OF THE STATE TREASURY CA DESCRIPTION INFLOW CENTRAL ACCOUNT OF THE STATE TREASURY (REVENUE MODULE AND DIRECT PAYMENTS) 1,226,348, INFLOW RECORDED IN THE GENERAL LEDGER OF THE STATE TREASURY 362,994, ,994, Current revenues 7,859, Receipts from the sale of property 8,041, Receipts from the repayment of credits 6,613, Grants 6,614, Loans and credits from foreign sources 188,516, Loans and credits from domestic sources 145,350, TOTAL 1,589,342, Current Revenues According to the data expressed in the Proposal Law on the Final Statement of Accounts of the Budget the current revenues realized in 2013 amounted to 1,228,279, Structure of the current revenues according to the principle of revenue collection: Current revenues in the amount of 1,220,287, are the revenues collected and allocated through the Revenue Module and in line with the Order on the Manner of Payment of Public Revenues. The funds in the amount of 132, transferred on 31 December 2013 by a direct payment from the Central Account of the State Treasury to the Treasury General Account and recorded in the General Ledger of the State Treasury within the group of accounts 715 Other Revenues. The funds in the amount of 7,859, recorded in the General Ledger of the State Treasury as revenues coming from other sources: Funds in the amount of 544, are the fees paid by the diplomatic consular representative offices and recorded in the General Ledger of the State Treasury on the basis of the decisions of the Ministry of Finance in the group of accounts 713 Administrative Fees Funds in the amount of 1,391, were paid as DOMEN D.O.O. fees and they were recorded in the General Ledger of the State Treasury in the group of accounts 714 Other Fees Funds in the amount of 2,782, are the funds for the direct payments on the basis of the land lease and interests into the Treasury General Account. They are recorded in the group of accounts 715 Revenues from Capital. This amount included the funds in the amount of 607,738.21, recorded on the basis of the decision of the Ministry of Finance inflows on the basis of interests on deposits. Funds in the amount of 3,140, are related to the direct payments of legal and physical entities to the Treasury General Account and they are recorded in the group of accounts 715 Other Revenues. 4.2 Receipts from the sale of property According to the records in the General Ledger of the State Treasury, in 2013 the total realized receipts from the sale of property amounted to 11,948, Structure of the inflow, according to the manner of revenue collection: 41

42 Funds in the amount of 3,907, are the receipts from the sale of property and the receipts from the sale of fixed assets collected and allocated according to the Order on the Manner of Payment of Public Revenues. The funds in the amount of 8,041, recorded in the General Ledger of the State Treasury as revenues coming from other sources in the following positions and amounts are: Funds in the amount of 50, that were directly paid to the Treasury General Account and recorded in the group of accounts 7212 Receipts from the Sale of Fixed Assets. They refer to the inflow of sale of arms and military equipment of the Ministry of Defence. Recording and identifying of revenues were done on the basis of excerpt from the Treasury General Account. The funds in the amount of 7,990, recorded in the group of accounts 7212 Receipts from the Sale of Fixed Assets refer to the inflow from the privatizations of AD "Kontejnerski terminal i generalni teret" AD Bar. According to the Contract on sale of shares of the company "Kontejnerski terminai i generalni tereti" AD Bar No /5 of 15 November 2013, the price paid by the purchaser for the shares is the cash amount of 8,071, Out of that amount 1% or 80, are allocated to be used by the Privatization Council, while the amount of 7,990, was paid to the foreign currency account of the Ministry of Finance with the Central Bank, of which for the bank commission. The above amount was allocated to the Treasury General Account based on the Instruction on the allocation of funds of the Ministry of Finance document no /1 of 30 December Receipts from the repayment of credits According to the records in the General Ledger of the State Treasury, in 2013 the total realized receipts from the repayment of credits amounted to 8,633, Structure of the inflow according to the manner of revenue collection: Funds in the amount of 2,019, are the receipts from the repayment of credit that are collected and allocated according to the Order on the Manner of Payment of Public Revenues. The funds in the amount of 6,613, recorded in the General Ledger of the State Treasury as revenues coming from other sources in the group of accounts 7311 Receipts from Repayment of Credits Granted to other Levels of Authorities: Funds in the amount of 5,544, paid to the Treasury General Account on the basis of repayment of granted credits. Recording and identifying of revenues were done on the basis of excerpt from the Treasury General Account. Funds in the amount of 1,068, are the funds of the repayment of the credits granted by the Directorate for Development of Small and Medium sized Enterprises. In the Decision no /1 of 1 April 2014 the funds were recorded as inflow according to the memorandum of the Directorate for Development of Small and Medium sized Enterprises 4.4 Receipts from Grants and Transfers Article 9 of the Budget Law for 2013 stipulates that the expenditures of the spending units that are financed from grants shall be executed in the amount in which they are realized. According to this, the receipts based on grants were not planned in the Budget Law for According to the records in the General Ledger of the State Treasury, the total realized receipts from grants amounted in 2013 to 6,614, Grant funds are paid to the state bank accounts opened by the Ministry of Finance upon request of the spending units. Withdrawal of funds to the Treasury General Account is done on the basis of the request for transfer and release of funds of the spending unit, user of the grant. 42

43 The table below shows the overview of the spending units that had the inflow of grant funds: Table 26 Inflow from Grants Expressed by Spending Units Number DESCRIPTION AMOUNT 1 Grants Refund 570, Ministry of Labour and Social Welfare 519, Ministry of Agriculture and Rural Development 682, Ministry of Culture 250, Hydro meteorological Office 87, Secretariat for European Integration 323, Protector of Human Rights and Freedoms 19, Secretariat General of the Government 4, Human Resources Management Authority 1, Ministry of Defence 2, Ministry of Finance 8, Customs Administration 44, Statistical Office 299, Ministry of Education 19, Education Office 154, Central National Library "Đurđe Crnojević" 6, Ministry of Economy 276, Ministry of Transport and Maritime Affairs 5, Maritime Safety Administration 6, Water Administration 93, Ministry of Health 18, Ministry of Human and Minority Rights 29, Ministry of Spatial Planning and Environmental Protection 2,924, Environment Protection Agency 42, Seismological Office 2, National Tourism Organisation 46, Ministry for Information Society 2, Ministry of Science 48, Employment Agency 11, TOTAL 6,614, Receipts from loans and credits According to the records in the General Ledger of the State Treasury the total realized receipts from loans and credits amounted in 2013 to 333,867, The amount of 145,350, is the amount of revenues from credits taken from domestic sources and the amount of 188,517, is the amount of credits taken from foreign sources. Loans and credits from domestic sources Funds in the amount of 145,350, recorded in the General Ledger of the State Treasury in the group of accounts 7511 Loans and Credits from Domestic Sources in the amount of 115,500, and issued securities in the amount of 29,850, from the sale of treasury bills. Inflow from the Credits of Commercial Banks Funds in the amount of 115,500, are the loans and credits taken from the commercial banks in the country, as presented in the table below: Table 27 Loans and Credits from Domestic Sources No. DESCRIPTION Number of contract 43 Date of contract Contracted amount The amount withdrawn in 2013 Recorded in the General Ledger in Erste banka Podgorica /09/ ,000, ,000, ,000, Erste banka Podgorica /12/ ,000, ,000, ,000, Erste banka Podgorica OD/11081/ /04/ ,000, ,000, ,000, I Total Erste banka Podgorica 38,000, ,000, Societe Generale Banka ,8/4 24/06/ ,000, ,000, ,000, Societe Generale Banka ,4 10/12/2013 5,000, ,000, ,000,000.00

44 II Total Societe Generale Banka 14,000, ,000, Crnogorska Komercijalna banka /08/ ,500, ,500, ,500, Crnogorska Komercijalna banka /05/ ,000, ,000, ,000, III Total Crnogorska Komercijalna banka AD 54,500, ,500, Hipotekarna banka /2 19/07/2013 3,000, ,000, ,000, IV Total Hipotekarna banka 3,000, ,000, Hypo Alpe Adria Banka AA131780DFXTC 27/06/2013 3,000, ,000, ,000, Hypo Alpe Adria Banka AA13211JD1XQ 30/07/2013 3,000, ,000, ,000, V Total Hypo Alpe Adria Banka 6,000, ,000, TOTAL 115,500, Erste banka In 2013 the funds withdrawn based on the agreements made with the Erste Bank, amounted to 38,000, Funds on the basis of the Contract no and Contract no in the total amount of 31,000, were withdrawn for the needs of the budget. On the basis of the Contract no. OD/ of 27 April 2011 and five annexes to this Contract (in the period from the signature to 11 December 2013) the funds in the amount of 7,000, were withdrawn with a view to improving daily liquidity of operations ("Overdraft Credit"). The withdrawn credit funds were paid through credit orders into the Treasury General Account. Societe Generale Montenegro In 2013 the credit funds in the amount of 14,000, were withdrawn from the Societe Generale bank: the amount of 9,000, on the basis of the concluded Contract on the short term revolving credit no of 20 April 2011 (including five annexes to this contract in the period from signature to 14 February 2014); and the amount of 5,000, on the basis of the Contract on long term credit no of 9 December Payments of the credit funds by foreign creditors were made into the Treasury General Account on the basis of the request of the credit users. Alongside the above contracts, in 2013 another contract was concluded: Contract on Financial Leasing no. UZZ 121/2013. On 17 January 2013 the Government of Montenegro adopted the Decision No /5 12 accepting the Contract on Financial Leasing for the purchase of property for the period of five years and the amount of 1,896, Crnogorska komercijalna banka In 2013 the credit funds withdrawn from Crnogorska komercijalna banka amounted to 54,500, : On the basis of the Contract no of 7 August 2014 in the amount of 42,500, the payment of the funds was made into the account of the OTP Bank Plc Hungary for the settlement of liability of guarantee issued on 20 November 2009 to the Aluminium Plant AD Podgorica for he credit with the OTP Bank Plc Hungary. Upon the Decision of the Ministry of Finance /3 of 16 August 2013, the inflow was recorded in the group of accounts 7512 Receipts from Loans and Credits. On the basis of the Contract on revolving credit no of 23 May 2013 the amount of 12,000, was withdrawn. Payments of the credit funds by foreign creditors were made into the Treasury General Account on the basis of the request of the credit users. Hipotekarna banka In 2013 the credit funds were withdrawn from Hipotekarna banka on the basis of the Contract no /2 of 19 July 2013 in the amount of 3,000, Payments of the credit funds by creditors were made into the Treasury General Account on the basis of the request of the credit users. Hypo Alpe Adria Bank AD Podgorica In 2013 the credit funds withdrawn from this bank amounted to 6,000, : 3,000, on the basis of the Contract no. AA13178DFXTC of 27 June 2013 and 3,000, on the basis of the contract no. AA13211JD1XQ of 30 July The purpose was maintenance of current liquidity. Payments of the credit funds by creditors were made into the Treasury General Account on the basis of the request of the credit users. 44

45 Inflow from the issuance of Treasury Bills Funds in the amount of 29,850, are the funds of the inflow from the issuance of the state Treasury Bills in Analysis of the information about the results of auctions in 2013 (published in the web site of the Central Bank of Montenegro) and the data of the Ministry of Finance (published in the web site of the Ministry of Finance) show that 18 auctions of Treasury Bills were conducted in According to the mentioned data, the amount of the sold Treasury Bills was 189,708, in The General Ledger of the State Treasury recorded the inflow of the funds on the basis of the loans and credits from national sources in the amount of 115,000,000.00, while the emissions of Treasury Bills amounted to 29,850, The funds in the amount of 159,858,658.00, that are related to the inflow from the sold Treasury Bills were recorded in the General Ledger of the State Treasury. Loans and credits from foreign sources Funds in the amount of 108,517, refer to the loans and credits taken from foreign financial institutions. Analysis of the presented documents for the period from 1 January 2013 to 31 December 2013 shows that the total withdrawal of the credit funds refer to the withdrawal on the basis of 16 credits taken with 7 financial institutions in the amount of 129,493, For 14 out of 16 credits the currency of employment of funds was Euro, while for two credits the currencies were as follows: for the Hot Spot credit (USD) and for the credit APL3 (SDR). The table below shows an overview of the withdrawal of credit funds in 2013 expressed in euro: Table 28 Loans and Credits from Foreign Sources Creditor Purpose Amount Deutsche Bank Budget needs 60,000, Total 60,000, Erste Bank Budget needs 30,000, Total 30,000, European Investment Bank Solid waste 2,000, Floods 17,000, Total 19,000, European Bank for Reconstruction and Development Kontejnerski terminali 148, Assembly Danilovgrad 70, Total 219, International Bank for Reconstruction and Development Energy efficiency 1,520, Hot spot 130, Lamp 3,382, Midas 1,913, Higher education 75, Health sector 1,187, Total 8,209, International Development Association APL3 835, Total 835, German Development Bank Energy efficiency 2,160, Stage III 5,914, Stage IV 3,153, Total 11,228, TOTAL 129,493, As the table shows, the funds withdrawn in 2013 amount to 129,493,271.94, while the funds recorded in the General Ledger of the State Treasury as the inflow from loans and credits from foreign sources amount to 108,517, The audit process included the control of inflow from loans and credits from foreign sources on the sample of 121,737, or 94.01% of the total funds, as presented in the table below: 45

46 Table 29 Funds Withdrawn from Foreign Sources Creditor Purpose Withdrawn amount Recorded in the General Ledger of the treasury Processed credits by sample Balance on 1 January 2013 Balance on 31 December 2013 Difference Deutsche bank Budget needs 60,000, ,356, , Erste Bank Budget needs 30,000, ,669, , European Investment Bank International Bank for Reconstruction and Development German Development Bank Floods 17,000, Energy 1,520, efficiency Midas 1,913, Higher 75, education Energy 2,160, efficiency Stage III 5,914, Stage IV 3,153, ,282, ,700, , ,585, , , , ,090, , ,366, , , ,924, ,748, Total by all creditors 121,737, ,235, ,890, ,168, ,160, ,914, ,153, ,224, Deutsche Bank AG London (purpose of the credit is to be used for budget needs). According to the available documentation, the contracted credit amount is 60,000, and the funds were withdrawn in full during Transfer of the credit funds by creditors was made into the account of the Central Bank of Montenegro. The General Ledger of the State Treasury records the inflow of the funds on the basis of the Decision no /2 of 29 July 2013 in the amount of 59,356,156.60, i.e. by 643, less than the withdrawn funds. Funds in the amount of 643, are the banking costs for the implementation of the credit. Erste Bank (purpose of the credit is to be used for budget needs). According to the available documentation, the contracted credit amount is 30,000, and the funds were withdrawn in full during The creditors transferred the credit funds to the foreign currency account of the Ministry of Finance no with the Erste Bank AD Podgorica in the amount of 29,700, , i.e. 300, less than the withdrawn funds. These 300, are the banking costs for the implementation of the credit. The funds were transferred to the Treasury General Account based on the instructions of the Ministry of Finance Document no /1 of 15 January The inflow on the basis of this credit in the amount of 29,699, was recorded in the General Ledger of the State Treasury. The amount was reduced by 100,00 of the amount transferred by the creditor for the costs of transfer to the Treasury General Account. Total costs of the credit amount to 300, European Investment Bank (EIB) (purpose of the credit is rehabilitation from the floods). According to the available documentation, the contracted credit amount is 20,000, and the funds withdrawn in 2013 amount to 17,000,000.00, while the amount of 3,000, has not yet been withdrawn. The creditors transferred the credit funds to the foreign currency account of the Ministry of Finance no with the Erste Bank AD Podgorica. According to the analytical cards of the bank, on 1 January 2013 the balance in this account was zero, while the inflow in the account in the period from 1 January 2013 to 31 December 2013 amounted to 17,000, The outflow in the same period was (successively transferred funds to the Treasury General Account including the transfer costs). Thus, the balance in the account on 31 December 2013 was 3,700, The inflow on the basis of this credit in the amount of 13,282, was recorded in the General Ledger of the State Treasury. The amount was by 16, lower than the total outflow from the account. 46

47 International Bank for Reconstruction and Development (IBRD) the funds were employed for the following: MIDAS Project According to the available documentation, the contracted amount of the credit was 11,000,000.00, while the funds withdrawn in 2013 amounted to 1,913, The creditors transferred the credit funds to the foreign currency account of the Ministry of Finance sub account no with Crnogorska Komercijalna Bank. According to the analytical cards for the period from 1 January 2013 to 31 December 2013, the balance on 1 January 2013 was ,85. The inflow of funds to this account amounted to 1,913,053.60, while the outflow amounted to 1,093, (successive transfer of funds including the transfer costs). The balance on 31 December 2013 amounted to 1,336, Inflow recorded in the General Ledger of the State Treasury amounted to 1,090, and it was by 2.101,78 lower than the outflow from the account the credit is being implemented through. Energy Efficiency Project Funds related to this contract amount to 6,500, The amount of 1,520, was withdrawn in 2013, while the funds that were not withdrawn amounted to ,00. The creditors transferred the credit funds to the foreign currency account of the Ministry of Finance, sub account no with Crnogorska Komercijalna Bank. According to the analytical cards for the period from 1 January 2013 to 31 December 2013, the balance on 1 January 2013 was ,. The inflow of funds to this account amounted to 1,520, (the withdrawn funds were recorded in the account in their entirety), while the outflow amounted to 1,588, (successive transfer of funds including the banking costs). The balance on 31 December 2013 amounted to ,08. The inflow in the amount of 1,585, was recorded in the General Ledger of the State Treasury. This is 3, less than the recorded outflow from the account through which the credit is being implemented (banking costs). At the same time, the recorded inflow is by 64, higher than the amount of the funds withdrawn in Project Higher Education and Research for Innovations and Competitiveness Contracted funds amount to 12,000, The amount of 75, was withdrawn in 2013, while the funds that were not withdrawn amounted to 9.894,308,00. The creditors transferred the credit funds to the foreign currency account of the Ministry of Finance, sub account no with Crnogorska Komercijalna Bank. According to the analytical cards for the period from 1 January 2013 to 31 December 2013, the balance on 1 January 2013 was 1,924, The inflow of funds to this account amounted to 75,692.48, while the outflow amounted to 251, (successive transfer of funds including the transfer costs). The balance on 31 December 2013 amounted to 1,748, According to the enclosed documentation, the inflow in the amount of 251, was recorded in the General Ledger of the State Treasury. This is less than the recorded outflow from the account through which the credit is being implemented (banking costs). The audit of the selected sample established that the funds in the amount of 996, the costs of banking services for the transactions of financing from the borrowings abroad have not been recorded in the General Ledger of the State Treasury. German Development Bank (KfW) Funds for project loans: Energy Efficiency Project Contracted amount: 11,500, The amount of 2,160, was withdrawn in 2013, while the funds that were not withdrawn amounted to 9,339, Water Supply Project Stage III Contracted funds amount to 28,000, The amount of 5,914, was withdrawn in 2013, while the funds that were not withdrawn amounted to 15,219, Through the overview of the Contract no /1 of 31 November 2007 it was established that Montenegro is the Borrower. Enclosed to this Contract also came the Contract on Forwarding the Credit Funds (for the municipalities of 47

48 Annual Report of the State Audit Institution for the Period October 2013 October 2014 Bar, Tivat and Herceg Novi), concluded between the Government of Montenegro, the Ministry of Finance and these municipalities. Water Supply Project Stage IV Contracted funds amount to 25,000, The amount of 3,153, was withdrawn in 2013, while the funds that were not withdrawn amounted to 17,993, Inflow of funds form the securities issued to the non residents Funds in the amount of 80,000, are the inflows from the securities issued to non residents, issuance of EUROBONDS in the international financial market with the mediation of Morgan Stanlez&Co. Internacional plc. The funds were withdrawn in 2013 through the transfer of funds to the account of the Central Bank (sub account 0044). Inflow of funds in this sub account was 79,523,199.00, i.e. reduced by the amount of 476, i.e. the costs incurred during the issuance of EUROBONDS. On the basis of the Decision no /1 of 21 January 2014, this amount was recorded in the General Ledger of the State Treasury as inflow and outflow of funds. 5. FINAL STATEMENT OF ACCOUNTS OF THE TAX AUTHORITY On the basis of Article 6 paragraph 2 of the Law on Tax Administration 14 the Ministry of Finance adopted the Rulebook on Tax Accounting 15. The Rulebook governs the manner of keeping accountancy records on taxes, contributions, fees and other public revenues, the manner of concluding accounting records, manner of composing the Final Statement of Accounts of the tax authority, deadlines for accounting for accountancy changes and the manner of keeping the accountancy records and documents. Tax Administration composed the Final Statement of Accounts for 2013 and submitted it to the Ministry of Finance document no. 03/1 6792/1 14 on 19 May 2014 which is not in line with Article 19 of the Rulebook on Tax Accountancy, according to which the tax authority is obliged to submit the Final Statement of Accounts to the Ministry of Finance before 31 March of the current year for the previous year. Analysis of the documentation submitted by the Central Bank of Montenegro established that in the account for the tax revenues collected by the Tax Administration, no there were 898, on 1 January 2013 and 380, on 31 December Analysis of the Final Statement of Accounts of the tax authority for 2013 established that in the class "1" on 31 December 2013 there were no funds recorded. That was not in line with the data obtained from the Central Bank, i.e. the records do not match the data related to the account for collection of public revenues that are within the competences of the Tax Administration (identification no. 820). Overview of the tax balance on 1 January 2013 shows that the amounts charged against the accounts of class "3" (tax debt) do not match the amounts approved in the accounts of the class "7", which is not in line with Article 10 of the Rulebook on Tax Accountancy. The amounts charged against accounts of the class "7" (advance payments) do not match the amounts that the accounts of the class "3" were approved of. That is not in line with Article 10 of the Rulebook on Tax Accountancy, as presented in the table below: Table 30 Overview of Class 3 and 7 in the Tax Balance on 1 January 2013 Class Debit Credit 3 506,371, ,145, ,401, ,627, Overview of the tax balance on 1 January 2013 shows that the amounts charged against accounts of class "3" (tax debt) do not match the amounts approved in the accounts of the class "7", which is not in line with Article 10 of the Rulebook on Tax Accountancy. The amounts charged against the accounts class "7" (advance payments) do not match the amounts that the accounts of the class "3" were approved of. That is not in line with Article 10 of the Rulebook on Tax Accountancy, as presented in the table below: 14 OG MNE No. 65/01 and 80/04 15 OG MNE No. 81/06 48

49 Table 31 Overview of class 3 and 7 in the tax balance on 31 December 2013 Class Debit Credit 3 631,778, ,144, ,734, ,029,368, The audit established that the manner of keeping accountancy records on public revenues, the manner of concluding accountancy records and records of opening balance do not provide data that can be matched with the balance of the money in the accounts for public revenues collected by the Tax Administration. There are no data on the basis of which it would be possible reliably to establish what the amount of the tax debt is, or the amount of the advance payment in the beginning and in the end of the year. These mismatches are present for a longer period of time and they do not come from the previous year. The mismatch has to be solved by adjustments to the opening balance for the amount of mismatch and records should be fully harmonized with the Rulebook on Tax Accountancy. Order on the Manner of Payment of Public Revenues section General Provisions, item 5 stipulates that Tax Administration, Customs Administration, Ministry of Interior and Police Directorate, after identification of revenues, transfer the funds from the clearing accounts to the Central Account of the State Treasury, submitting at the same time the ""Recipient Statement" about the structure of public revenues by eco codes and by municipalities. Transfer of funds is done at least once a day, with the obligation to have the balance in the clearing account zero in the end of the workday. Analysis of the collected documentation related to the balance in the accounts with the Central Bank established the following: Table 32 Balance in the Accounts with the Central Bank (Spending Units that Collect Public Revenues) Name Account 49 Balance on 31 December 2012 Balance on 31 December 2013 Customs Administration of Montenegro Tax Administration of Montenegro , , Ministry of Interior Police Directorate The balances from the beginning and from the end of 2013 were recorded in the clearing account of the Tax Administration. The presented amounts were not transferred to the Central Account of the State Treasury, i.e. all the activities that preceded the transfer of funds paid from the clearing account to the Central Account of the State Treasury were not timely and fully done and that is not in compliance with the Order on the Manner of Payment of Public Revenues. According to the provisions of the Order on the Manner of Payment of Public Revenues, the transfer of funds to the Central Account of the State Treasury should be done after the paid revenues are identified. Tax Administration has not ensured the implementation of the provisions of the Order on the Manner of Payment of Public Revenues chapter General Provisions, item 5 which defines the obligation that, after being identified, the payments have to be transferred from the clearing account to the Central Account of the State Treasury at least once a day, with the obligation to have the status zero on the clearance accounts at the end of the day. According to the documentation of the Central Bank (data on the public revenues collected and allocated to the accounts of the Tax Administration in the period from 1 January to 31 December 2013, the total amount of funds in the clearing account of the Tax Administration ( ), amounted to 940,117, According to the Report on Work of the Tax Administration for 2013, the public revenues collected through enforced collection, through the measures undertaken within the procedures to implement the provisions of the Law on Tax Administration, amount to 114,057, and they are presented in the table below by type of revenue, number of undertaken measures and the amount of collected funds:

50 Table 33 Public Revenues Collected Through Enforced Collection by Type of Revenue Number Other revenues Number of undertaken measures Amount 1 Personal income tax 5,582 7,813,365 2 Tax on self employment 3,983 1,039,550 3 Tax on income from property and property rights ,665 4 Tax on income from capital and capital gains 7 9,111 5 Profit tax 1,944 5,131,692 6 VAT 8,143 39,907,707 7 Turnover tax 2,496 1,068,570 8 Excise 31 15,851,322 9 Concessions 571 7,897, Tax on sale of property 2,739 5,026, Contributions 8,827 30,164,203 Total 35, ,057,219 Regulation on the conditions for deferring collection of tax and non tax claims 16 defines the conditions and deadlines for issuing permission to taxpayers to defer payments of tax and non tax debts. According to Article 3 of the Regulation, upon the request of the taxpayer the Ministry of Finance grants the deferral. According to the Report on the deferred payment (enactment of the Tax Administration no. 03/3 310/1 14 of 14 January 2014, with the cross section as of 27 December 2013), it was established that in 2013, on the basis of the decisions of the Ministry of Finance, taxpayers were allowed deferrals in payment of taxes in the amount of 84,976, Structure of the deferred tax liabilities in 2013 by type is presented in the table below: Table 34 Deferred Tax Liabilities Structure of the deferred tax liabilities Amount Personal income tax 12,004, Profit tax 695, Contributions 51,183, Turnover tax 328, Concessions 892, VAT 12,705, Interests 336, Excise 6,829, Total 84,976, Analysis of the decisions on the deferred payment of taxes composed by the Ministry of Finance (selected by the random sample method) established that the Ministry of Finance, upon the request of tax payers, used to approve deferred payment of the tax debt in twelve monthly instalments or six monthly instalments at most, which is in line with Article 4 and Article 5 of the Regulation. The Ministry of Finance used to approve the deferred payment of the tax debt to the taxpayer provided that the taxpayer ensured a bank guarantee or some other instrument of security (control showed that promissory notes or bank guarantees were approved) in the amount of the outstanding liabilities and provided that it is submitted to the Tax Administration, which is in line with item 8 of Article 2 of the Regulation. 6. BUDGET EXPENDITURES Budget expenditures expressed in the Proposal Law on the Final Statement of Accounts of the Budget for 2013 amount to 1,603,381, The following table shows the overview of the realized expenditures from 2013 by structure: 16 OG MNE No. 67/09, 23/10, 26/10 and 53/13 50

51 Table 35 Overview of Realized Expenditures in ) Current Expenditures 597,567, ) Transfers for social care 482,967, ) Transfers to institutions, individuals, non governmental and public sector 94,307, ) Capital expenditures 85,294, ) Loans and credits 2,752, ) Repayment of debt 326,365, ) Reserves 14,126, ) Current Expenditures The Budget Law for 2013 plans the current budget funds in the amount of 590,314,154.23, while through reallocation of funds this was increased by 35,121, and reduced by 42,425, Hence, the available funds planned in the current budget amounted to 583,010, According to the data expressed in the Proposal Law on the Final Statement of Accounts of the Budget, the current expenditures realized in 2013 amounted to 597,567, Table 36 Current Expenditures Expenditures Law on Budget Funds available in Proposal Law on the Final Reallocation + Reallocation for 2013 the current budget Statement of Accounts for 1) Gross salaries and contributions paid by the em , , , , ,17 2) Other personal incomes , , , , ,27 3) Expenditures for material , , , , ,95 4) Expenditures for services , , , , ,68 5) Expenditures for current maintenance , , , , ,17 6) Interests , , , ,54 7) Rent , , , , ,81 8) Subsidies , , , , ,96 9) Other expenditures , , , , ,46 Total , , , , ,01 Gross salaries and contributions paid by the employer Spending units, covered by the audit, calculated their gross salaries and paid salaries according to the Law on Salaries of Civil Servants and State Employees 17, Instruction on the manner of calculation and payment of taxes and contributions from personal incomes on the basis of employment 18 and Decision on increasing salaries of civil servants and state employees for the performance of certain tasks 19. Spending units are not submitting the IOPPD 1 form to the Tax Administration within the required deadlines. This form is used for the monthly reports on the paid personal incomes, calculated and withheld taxes and contributions from and to personal incomes. The audit also identified delays in submitting the IOPPD 3 form annual report on the calculated personal incomes, calculated and paid taxes and contributions from and to personal incomes. The audit established that the Ministry of Interior, according to Article 27 of the Decision on increasing salaries of civil servants and state employees for the performance of certain tasks, calculated the flight bonus to the employees, who are entitled to this bonus and paid it from the group of accounts 412 Other Fees in the amount of 272,817.94, and paid taxes and contributions calculated to this bonus from the appropriate accounts of the group 411 Gross Salaries and Contributions Paid by Employer. Flight bonus is a part of the salary of employees and therefore these expenditures should be planned and paid from the Gross Salaries and Contributions by Employer. It is also necessary that the Ministry of Interior stipulate the obligation of compiling and submitting the Report on the hours the employees worked (regular working hours, overtime, night work, work on state and religious holidays, duty hours etc.). This obligation should be provided for in the Book of Procedures, i.e. in the Instruction on the manner of preparing the data for calculation and payment of salaries. The Ministry of Interior should also stipulate the form "Data for calculation of salaries of employees" according to the Directions on State Treasury Operations. Other personal incomes The control of expenditures recorded in the group of accounts 412 Other Personal Incomes established that the Real Estate Administration paid fees to the members of 17 OG MNE No. 14/12 18 OG MNE No. 45/08, 04/10 and 08/ OG MNE No. 54/10 and 62/11 51

52 the Commission for Assessment of the Value of Property in the Territory of Montenegro without calculating taxes and contributions thereon. Public Property Administration made payments to the employees due to the increased workload according to the new Regulation on the type and procedure of granting rewards to civil servants and state employees and did not calculate nor pay the corresponding taxes and contributions. Expenditures for material, expenditures for services and expenditures for current maintenance Audit of these expenditures indicated to certain deficiencies in the system of internal controls regulating consumption of both goods and services. The spending units should make payments in line with item 43 of the Directions on State Treasury Operations, on the basis of the request for payment that has to be certified by certifying officer and after it is established that physical or legal entity provided the service or delivered the goods. Interest Budget Law for 2013 planned the funds for payment of interest at the level of 70,403,607.30, while the planned amount was reduced by reallocation of funds to the level of 23,221, Thus, the available funds expressed in the plan of the current budget amounted to 47,182, Expenditures for interest were realized in the amount of 67,922, which is by 43.96% more than the amount planned in the current budget. Interest includes expenditures for the payment of interests to residents and non residents. The table below shows the plan and execution of the expenditures for interests to residents and non residents: Table 37 Expenditures for Interests Description Expenditures for interests to residents 52 Expenditures for interests to nonresidents 1) Defined in the annual plan for ,982, ,403, ) Increased through reallocation 3) Reduced through reallocation 618, ,221, ) Current Budget 5,364, ,182, ) Executed 8,403, ,922, ) Executed/Planned Repayment of interests to residents Interests to residents were executed in the amount of 8,403,067.87, which is by 56,66% more than the funds available in the current budget. Audit of the expenditures for the interests to residents did not include the expenditures in the amount of 136, for: expenditures for interests of the Ministry of Defence in the amount of 703,43, Health Insurance Fund in the amount of 22, and Employment Agency in the amount of 113, Structure of expenditures on the basis of the interests to residents expressed with the Ministry of Finance is shown in the table below: Table 38 Structure of Expenditures for Interests Description Total Interests 1) Expenditures for interests within the credits with commercial banks 5,178, Expenditures for interests within the credits taken with commercial banks 1,730, Expenditures for interests within credits that were taken over 925, Expenditures for interests within the credits for completion of the construction of the Police Directorate building 209, Expenditures for interest within the credit for restitution of the monuments of culture in Cetinje 196, Expenditures for interest within the long term credit for financing the budget 865, Expenditures for interest within the long term credit 1,150, Expenditures for interest within the financial leasing 99, ) Expenditures for interest for Treasury bills 3,060, ) Expenditures for interests according to the Decision of the Ministry of Finance regarding the Pension and Disability Insurance Fund debt 22, ) Expenditures for the interest according to the Contract concluded between the Public Works Directorate and GP Cetinje 5, Total 8,266, Repayment of interests to non residents Expenditures for interests to non residents were executed in the amount of 59,519,707.67, which is by % more than the funds available in the current budget. The above amount of expenditures included the interest on the basis of the credits taken with financial institutions abroad in the amount of 58,207, and the other costs in the amount of 1,312, Structure of expenditures on the basis of the interests to nonresidents is shown in the Annex to this Report:

53 Subsidies Expenditures for subsidies were realized in the amount of 17,425, or 99.57% of the available funds. Expenditures for subsidies were executed in the spending units as follows: Ministry of Economy in the amount of 4,325, ; Ministry of Transport and Maritime Affairs in the amount of 2,400, ; Ministry of Sustainable Development and Tourism in the amount of 549, ; Ministry of Agriculture and Rural Development in the amount of 9,519, ; Pension and Disability Insurance Fund in the amount of 600, and State Audit Institution in the amount of 30, Ministry of Economy made expenditures for subsidies in the amount of 4,325, The amount of 2,484, is the amount for covering the costs of "Montenegro Bonus" DOO Cetinje, on the basis of the Contract on business technical cooperation with the Aluminium Plant Podgorica AD, based on the Government decision. According to the decision of the Government, the Ministry of Economy subsidized electricity bills for the most vulnerable categories of population. Ministry of Agriculture and Rural Development made expenditures for subsidies in the amount of 9,519, Pension and Disability Insurance Fund allocated the amount of 330, out of the earmarked funds to "Pension and Disability Insurance Fund" Ulcinj. It was done on the basis of the Steering Committee decision no. 20 of 25 March The Fund also allocated the amount of 270, for settling the arrears incurred for taxes and contributions. It was done on the basis of the Steering Committee decision no. 49 of 6 September Other expenditures Audit of these expenditures established that certain spending units hire persons on the basis of temporary service contract or on the basis of agreements on temporary and provisional work for certain tasks that are envisaged as regular and for which there are job positions envisaged. Spending units are recommended to hire persons on the basis of temporary service contract or agreements on temporary and provisional work only in justified cases and according to the Law on Obligations. 6.2 Transfers for social care pension and disability insurance rights Pension and Disability Insurance Fund recorded the earmarked revenues based on the data from the clearing accounts and the data from the "Recipient Statement". State Treasury and the Pension and Disability Insurance Fund should harmonise their data about the amount of the earmarked and general revenues expressed in the Proposal Law on the Final Statement of Accounts of the Budget for 2013, Pension and Disability Insurance Act and the Budget Law. 6.3 Repayment of debts Repayment of debts covers the expenditures for the repayment of securities and credits to residents and non residents, repayment of guarantees in the country and abroad and the repayment of liabilities from the past. In the Budget Law for 2013 the expenditures for repayment of debts were planned in the amount of 118,677,132.00, while through reallocation of funds the planned funds were increased by 532, Hence, the available funds expressed in the plan of the current budget amounted to 119,209, The expenditures for the repayment of debts expressed in the Proposal Law on the Final Statement of Accounts of the Budget for 2013 amounted to 326,365,509.78, while in the General Ledger of the Treasury the figure is 341,799, It is % more than the amount planned in the current budget, as presented in the table below: Table 39 Expenditures for Repayment of Debt 1) Law on the Budget for ,677, ) Increased through reallocation 532, ) Reduced through reallocation 4) Available funds 119,209, Executed on the basis of the data from the General Ledger of the Treasury 341,799, Funds transferred to capital expenditures 15,433, ) Executed according to the Proposal Law on the Final Statement of Accounts of the Budget for ,365, ) Executed/Planned

54 Audit of the Proposal Law on the Final Statement of Accounts of the Budget for 2013 established that the funds from the group of accounts 4611 Repayment of Securities and Credits to Residents were used to pay the expenditures on the basis of the Contract for works of the Transport Directorate in the amount of 14,757, and Telekom of Montenegro in the amount of 678, In the Proposal Law on the Final Statement of Accounts of the Budget for 2013 the Ministry of Finance reduced the expenditures in the group of accounts 4611 Repayment of Securities and Credits to Residents by the amount of 15,433, while increasing the Capital expenditures group of accounts 4411 Expenditures for Infrastructure of General Importance. However, the Ministry did not made the appropriate adjustment in the General Ledger of the Treasury. Repayment of Debt (461) Budget Law for 2013 planned the amount of 86,500, for the expenditures for repayment of debt. The realized expenditures amounted to 158,591, or 83.34% more than the funds provided for in the plan, as presented in the table below: Table 40 Expenditures for repayment of securities and credits Description Repayment of securities and credits to residents Repayment of securities and credits to nonresidents 1) Law on the Budget for ,800, ,700, ,500, ) Increased through reallocation 3) Reduced through reallocation 4) Available funds for spending 23,800, ,700, ,500, Executed on the basis of the data from the General Ledger of the treasury 107,621, Reduced Funds transferred to capital expenditures 15,433, ) Executed 92,187, ,404, ,591, ) Executed/Planned Repayment of securities and credits to residents (4611) Budget Law for 2013 planned the amount of 23,800, for the expenditures for repayment of securities and credits to residents. The realized expenditures amounted to 92,187, or % more than envisaged in the plan. Structure of expenditures for repayment of securities and credits to the residents is given in the table below: Table 41 Expenditures for Repayment of Securities and Credits to Residents No. Description Principal 1) Expenditures for repayment of credits to commercial banks 65,473, Expenditures for repayment of debts based on the credits taken with banks 52,775, Expenditures for repayment of debts based on the taken over credits 3,774, Expenditures for the completion of the construction of the Police Directorate building 1,531, Expenditures for restitution of the monuments of culture in Cetinje 1,255, Long term credit for financing the budget 2,000, Long term credit 3,863, Financial leasing 273, ) Expenditures for repayment of debt based on Treasury bills 24,480, ) Expenditures based on the Decision of the Ministry of Finance regarding the Pension and 187, Disability Insurance Fund debt 4) Expenditures based on the Contract concluded between the Public Works Directorate and GP 370, Cetinje 5) Expenditures for repayment of debt based on the bonds due 1,676, Total 92,187, Expenditures for repayment of credits to commercial banks in the amount of 65,473, were incurred for: Expenditures for repayment of debts based on credits taken by the Government Ministry of Finance with commercial banks in the amount of 52,775, for the budget needs. Expenditures in the amount of 3,774, for the repayment of the principal of debt, based on the Decision of the Government no of 09 June 2011 rendered according to the Budget Law of Montenegro for Repayment is based on taking over and Total 54

55 Annual Report of the State Audit Institution for the Period October 2013 October 2014 conversion of the debt into the share capital of the Montenegrin fund for solidary housing, Public Company Regional Water Supply Montenegrin coast and Railway Transport of Montenegro. Expenditures in the amount 1,531, for the repayment of debt based on the credit between the Erste bank AD Podgorica and the Government Ministry of Finance for the amount of 6,000, in the agreement no. LD/10050/00082 of 25 February 2010 for the completion of works on the building of the Police Directorate in Podgorica. Expenditures in the amount 1,255, for the repayment of debt based on the Credit Agreement no. LD/10103/00110 of 14 April 2010 between the Erste bank AD Podgorica and the Government Ministry of Finance for the amount of 5,000, for the restoration of the monuments of culture in Cetinje. The amount of the repayment of debt of 2,000, based on the Agreement on the long term credit no concluded between the Societe Generale Group and the Government the Ministry of Finance for the amount of 10,000, and the term of payment of 5 years for the needs of financing the budget. The amount for the repayment of debt of 3,863, based on the Long term Credit Agreement no of 7 August 2013 concluded between Crnogorska Komercijalna Banka OTP GROUP and the Ministry of Finance on the basis of the Decision of the Government of 2 August 2013 in the amount of 42,500, The funds of this credit were used to settle the liabilities arising from the activated OTP bank guarantee, given by the Government as the security for the credit arrangement of the Aluminium Plant A.D. Podgorica. The expenditure in the amount of 273, for the repayment of the principal of debt based on the Financial Leasing Agreement concluded between the Societe Generale Banka Montenegro A.D. Podgorica and the Government the Ministry of Finance no /5 12 of 19 February 2013 in the amount of 1,896, Expenditures for the repayment of debt arising from the Treasury bills in the amount of 24,480, incurred on the basis of the paid repayment of debt as follows: The amount of 4,000, for the repayment of debt according to the auction results, i.e. the emission of 91 day treasury bills according to the Central Bank Report. The amount of 20,480, for the repayment of debt according to the auction results, i.e. the emission of 182 day treasury bills according to the Central Bank Report. Expenditures based on the Decision of the Ministry of Finance on the debt of the Pension and Disability Insurance Fund The expenditure in the amount of 187, was recorded as expenditure in the General Ledger of the Treasury on the basis of the Decision of the Ministry of Finance no /1 of 10 January This expenditure is related to the payment of liabilities of the Pension and Disability Insurance Fund towards Crnogorska Komercijalna Bank, based on the Contract on the overdraft credit no of 16 April 2010, incurred before the Pension and Disability Insurance Fund was integrated into the State Treasury. Expenditures based on the agreement between Public Works Directorate and GP Cetinje Expenditure in the amount of 370, refers to the repayment of debt based on the Long term Credit Agreement no. KR2007/ of 16 May 2007 concluded between the NLB Montenegrobanka a.d. Podgorica and Municipality of Budva for the implementation of the programme of the Public Works Directorate development of the area with infrastructure connections and works on equipping the building of the Primary School in Budva according to the Construction Agreement no of 4 April 2007 concluded between the Public Works Directorate and GP Cetinje DOO. Expenditures for repayment of the principal of the debt based on the bonds in the amount of 1,676, are related to: 55

56 Obligation to settle the debt based on the OBFR bonds in the amount of 1,463,208.95, according to the Decision on the emission of bonds of Montenegro for the payment of unsettled liabilities to employees who became redundant 20, that were due on 27 July Obligation to settle the debt based on the DP13 bonds in the amount of 213,261.00, according to the Decision on the emission of Montenegrin bonds for the needs of investing into the rehabilitation of the road network 21, that were due on 15 April 2013 Repayment of securities and credits to non residents (4612) Budget Law for 2013 planned the amount of 62,700, for the expenditures for repayment of securities and credits to nonresidents. The realized expenditures amounted to 66,404, or 5.91% more than envisaged in the plan. Overview of the expenditures for the repayment of debt based on credits taken from the financial institutions abroad is attached to this Report. Repayment of guaranties The funds paid on the basis of the guarantees issued in the amount of 107,230, : for the repayment of guarantees in the country in the amount of 4,453, ; and for the payment of guarantees abroad in the amount of 102,777, In the group of accounts 462 Repayment of Guarantees there are payments recorded for all expenditures incurred on the basis of repayment of debt based on issued guarantees according to the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities. Repayment of guarantees in the country Funds in the amount of 4,453, paid on the basis of the guarantees issued in the country refer to: The amount of 449, for the issued Guarantee of the Government of Montenegro no /1 of 9 June 2009 on the basis of the Agreement on the Short Term Credit no. KR 2009/1600 of 11 May 2009 in the amount of 5,000, concluded between NLB Montenegrobanka a.d. Podgorica and Rudnik Boksita a.d.nikšić. The amount of 1,735, for the issued Guarantee of the Government of Montenegro no /1 of 27 July 2011 on the basis of the Credit Agreement no. LD/11206/00019 of 27 July 2011 in the amount of 1,500, concluded between Erste Banka a.d. Podgorica and A.D Fabrika elektroda Piva Plužine. The expenditures in the amount of 1,735, refer to the repayment of debt in the amount of 1,654,068.22, repayment of the regular interest in the amount of 78, and the default interest in the amount of 3, Amount of 1,692, for the issued guarantees of the Government of Montenegro: Guarantee no /1 of 27 July 2010 on the basis of the Credit Agreement no /2 of 26 July 2010 in the amount of 800, concluded between Hipotekarna Bank a.d. Podgorica and MI RAI Group d.o.o. Nikšić Guarantee no /1 of 13 October 2011 on the basis of the Credit Agreement no /2 of 13 September 2013 in the amount of 700, concluded between Hipotekarna Bank a.d. Podgorica and MI RAI Group d.o.o. Nikšić. Hipotekarna bank collected its claims from the earmarked funds of the deposits that were in the bank account. The amount of 575, for the issued Guarantee of the Government of Montenegro no /1 of 30 December 2011 on the basis of the Long term Credit Agreement no. KR1383/11 of 26 December 2011 in the amount of 565, concluded between the Hypo Alpe Adria bank a.d. Podgorica and Lenka a.d. Bijelo Polje. The expenditure in the amount of 575, refers to the repayment of the principal in the amount of 500, and the repayment of the interest in the amount of 75, Repayment of guarantees abroad Funds in the amount of 102,777, paid on the basis of the guarantees issued abroad refer to: 20 OG MNE No. 44/12 21 OG MNE No. 30/06 56

57 Annual Report of the State Audit Institution for the Period October 2013 October 2014 Expenditure in the amount of 42,720, for the guarantee issued by the Government of Montenegro on 20 November 2009 on the basis of the Credit Agreement made between the OTP Bank PLC Hungarij and Aluminium plant a.d. Podgorica. The amount of 42,500, is paid from the credit funds based on the Agreement no of 7 August 2013 concluded between the Crnogorska komercijalna banka AD Podgorica and the Government of Montenegro Ministry of Finance. The amount of 220, was paid from the budget funds and it refers to the difference between the overall amount of the activated guarantee (principal and interest) and the amount based on the concluded Agreement. Expenditure in the amount of 60,056, refers to the paid liability based on the issued guarantee according to the Agreement for 60,000, concluded between the VTP Bank AG Austria and the Government of Montenegro Ministry of Finance. The amount of 60,056, refers to the repayment of the debt in the amount of 60,000, and the repayment of interest in the amount of 56, This amount was paid from the credit funds based on the agreement no of 1 July 2013 concluded between the Government of Montenegro Ministry of Finance and Deutsh Bank Ag London Branch and Erste and Steiermarkische bank d.d. in the amount of 59,356, and the budget funds in the amount of 56, Payment of the guarantees was done according to Article 43 of the Budget Law 22 which stipulates that the Government has an unlimited power to pay the interests and principals of the state debt and the guarantees issued by the state from the funds that are accounted for in the Consolidated Treasury Account respecting the terms and conditions contracted by the Government. It is worthwhile noting that Item 134, in the Chapter X (ten) of the Directions on State Treasury Operations is not in compliance with Article 43 of the Budget Law (current Article 60 of the Law on the Budget and Fiscal Responsibility). It is necessary for the Ministry of Finance to harmonize its Directions on State Treasury Operations with the Law on the Budget and Fiscal Responsibility. Repayment of arrears from the past The Budget Law for 2013 planned the expenditures for the repayment of arrears from the past in the amount of 32,177,132.00, while through reallocation of the funds this plan was increased by 532, Hence, the available funds expressed in the plan of the current budget amounted to 32,709, Expenditures for repayment of arrears from the past were realized in the amount of 60,543, or 85.09% more than envisaged in the plan, as presented in the table below: Table 42 Expenditures for repayment of arrears from the past 1) Law on the Budget for ,177, ) Increased through reallocation 532, ) Reduced through reallocation 4) Available funds for spending 32,709, ) Executed 60,543, ) Executed/Planned The realized expenditures in the amount of 60,543, refer to the liabilities based on court decisions in the amount of 21,578, and other liabilities in the amount of 38,964, Execution of other liabilities refers to the Ministry of Finance in the amount of 37,531, The Law on Budget for 2013 did not plan any funds for expenditures on the basis of court decisions in the spending units within whose budgets the expenditures in the amount of 21,578, were realized. The Law on Budget for 2013 stipulated that the total payment on the basis of court decisions will be realized from the budget of the spending unit that caused the costs up to the level of available funds. Expenditures of the Ministry of Finance for the repayment of liabilities from the past in the amount of 37,531, refer to: 22 Ibid 4, p.8 57

58 Repayment of the debt on the basis of the old foreign currency savings in the amount of 12,286,786.69, according to the laws and Regulation on the conversion of the foreign currency savings of citizens into bonds 23. Funds in the amount of 6,729, were paid to the end users through the account no with the Central Bank of Montenegro. Repayment of debt based on the compensation to former owners deprived of property rights in the amount of 2,076, according to the memorandum of the Restitution Fund which established the amount of the annual instalment of the compensation and that was submitted to the Ministry of Finance. Repayment of the debt based on the compensation to persons retired from the army in the amount of 10,464.39, according to the Law on Pension and Disability Insurance 24 and the Decision of the Government of Montenegro no /3 of 3 July Repayment of debt based on the decisions of the Government of Montenegro in the amount of 7,769,814.40, as follows: Decision no of 28 June 2013 on regulating the mutual obligations between the Ministry of Finance (Ministry of Defence) and the Municipality of Herceg Novi, i.e. public communal housing company the amount of 4,117, Decision no. 3015/2 of 27 December 2013 on the settlement of debt to public health institutions the amount of 1,253, Decision no of 10 March 2011 and the Memorandum of the Ministry of Culture 05 60/2 of 17 January 2013 the amount of 257, paid to the Telecommunication Agency Podgorica and the amount of 529, to the Broadcasting Centre d.o.o. Podgorica. Decision no /3 of 4 July 2013 accepting the Proposal for settling the debt of the Pension and Disability Insurance Fund towards the Investment Development Fund in the amount of 532, Decision no of 5 December 2013 and the Agreement on regulating mutual relations no of 13 December 2013 between the company Mlin "Muharem Asović" AD Nikšić, the Ministry of Finance, Pension and Disability Insurance Fund and Employment Agency the funds in the amount of ,56 were transferred for the repayment of liabilities and the amount of 9, for the costs of the attorney to the company Cyprus Marketing Company Limited. Repayment of debts taken over according to Article 11. Law on Budget of Montenegro for 2013 and Decisions of the Government of Montenegro (no /2 of 1 August 2013, no /7 of 21 November 2013) adopting the Information on taking over of the debt in the amount of 9,600, The debt was taken over from: Montenegro Airlines de debt to BNDES u (Banco Nacional De Desenvolvimento Economico E Social Rio Se Janeiro Brazil in the amount of 3,693, for financing the airplane Embraer E 195, on the basis of the Agreement on taking over and converting the debt into share capital no of 28 November 2013 concluded between the Government of Montenegro Ministry of Finance and Montenegro Airlines a.d. Podgorica. Radio and Television of Montenegro in the amount of 2,396, on the basis of the Agreement on taking over the debt no of 2 August 2013 concluded between the Government of Montenegro Ministry of Finance, Ministry of Culture and Radio and Television of Montenegro, taking over the liabilities of the RTCG towards EUROPEN Broadcasting Union in the amount of 1,100,000.00, tax debt in the amount of 23 OG MNE No. 42/04 and 40/08 24 OG MNE No. 79/08, 14/10,78/10 and 34/11 58

59 Annual Report of the State Audit Institution for the Period October 2013 October , and the debt towards Electric Utility Plant of Montenegro a.d. Nikšić in the amount of 400, Repayment of claims on the basis of the fees for meal allowances and vacation allowances for 2010 in the amount of 9,188, on the basis of the Decision of the Government of Montenegro no /3 of 4 April Audit of expenditures recorded on the group of accounts 463 Repayment of Arrears from Previous Years established that the payment of expenditures is not in compliance with the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities and that the paid expenditures do not present arrears but extraordinary expenditures that were not planned in the annual budget law. It is recommended that the expenditures for payment of arrears that were not planned in the budget are also recorded in the group of accounts 463 Repayment of Arrears from Previous Years, because in that case there is no possibility to pay the arrears from the budget lines approved for the expenditures. 7. RESERVES Law on Budget and Rulebook on Detailed Criteria for the Use of Resources of the Current and Permanent Budget Reserve 25 stipulated the use of the funds from the reserve. The Law on Budget for 2013 did not plan the funds for the budget reserve in the total amount of 7,356, Through reallocation of the funds the reserve budget was increased by 6,874, and therefore the funds available for spending amount to 14,230,875.78, out of which 14,126, or 99.27% were realized, as presented in the table below: Table 43 Overview of the Expenditures of the Current and Permanent Budget Reserve Description Current budget reserve Permanent budget reserve 1) Law on the Budget for ,950, , ,356, ) Increased through reallocation 12,440, ,440, ) Reduced through reallocation 5,565, ,565, ) Available funds for spending 13,824, , ,230, ) Executed 13,720, , ,126, ) Executed/Planned Decisions of the Government and of the Ministry of Finance were used to reallocate funds in such a way that the planned funds were increased by 12,440, and reduced by 5,565, The reduction of the reserve funds led to the overrun of the allowed limit of up to 10% of the total planned expenditures the amount of which is on a decrease, which is not in lice with Article 35 of the Budget Law. Current budget reserve Spending of the funds of the current budget reserve was approved by the decisions of the Government, decisions of the Cabinet of the Government and decisions of the Commission for reallocation of funds of the current budget reserve. Decisions of the Government approved spending of the funds of the current budget reserve in the amount of 11,430, for the following needs: financing regular activities of the spending units in the amount of 9,352,521.16, support to legal entities for financing their activities in the amount of 1,141,585.57, support to physical persons for treatment in the amount of 310,907.50, support to physical persons for the improvement of their financial situation in the amount of 2,396,010.00, support to physical persons for education in the amount of 38,580.00, and for other purposes in the amount of 353, Total 25 OG MNE No. 23/09 59

60 Commission for spending the funds of the current budget reserve approved the spending in the amount of 2,290, for the following needs: support to legal entities for financing their activities in the amount of 79,381.76, support to physical persons for treatment in the amount of 46,650.00, support to physical persons for the improvement of their financial situation in the amount of 2,116,200.00, support to physical persons for education in the amount of 36,670.00, and for other purposes in the amount of 11, Spending units that used the funds from the budget reserve in the amount of 9,352, were: Ministry of economy the amount of 6,645, Ministry of Interior the amount of ,89. Ministry of Education the amount of 516, Ministry of Finance the amount of 261, Parliament of Montenegro the amount of 140, Government of Montenegro the amount of 87, Ministry of Human and Minority Rights the amount of 75, Ministry of Foreign Affairs the amount of 67, Prosecution Service of Montenegro the amount of 56, Ministry of Culture the amount of 123, According to the above data, the Ministry of Economy and the Ministry of Human and Minority Rights overrun the allowed spending of funds from the reserves, which was contrary to Article 3 of the Rulebook on Detailed Criteria for the Use of Resources of the Current and Permanent Budget Reserve. This Article stipulates that the funds from the current budget reserves can be used for covering the lacking funds for financing regular activities of the spending units up to the amount of 5% of the funds planned in the annual law on budget of that particular spending units. We note that the overrun by using funds used from the reserve initiated by the Ministry of Economy were not intended for the budget of the Ministry but for the payment of contributions for the reduced service years for retirement and implementation of the social programme. The funds paid to legal entities for financing their business operations in the amount of 1,220, refer to the following payments: to the local self government the amount of 881,490.00, to the non governmental, cultural and humanitarian organizations in the amount of 152,810.00, to the sports organizations in the amount of ,00, for the needs of promotional activities the amount of 76, Other expenditures the amount of 52, The funds in the amount of 2,782, were paid for the financial support to physical persons (support in treatment, education and improvement of financial situation), while the amount of 365, were paid for the financial support for other purposes. Out of this amount the amount of 182, were paid for the compensation for damage from weather disasters according to the Report of the Commission for assessing the damage from weather disasters. According to the Decision of the Government, the amount of 2,225, was paid from the reserves to the Pension and Disability Insurance Fund for settling the liabilities for contributions for pension and disability insurance for the reduced years of service for retirement for the employees of the Aluminium Plant which is in the process of bankruptcy. Thee funds were reported in the bankruptcy estate of the Aluminium Plant. The audit identified irregularities in the implementation of Article 3. 60

61 Permanent budget reserve paid according to the Rulebook on Detailed Criteria for the Use of Resources of the Current and Permanent Budget Reserve that stipulates that the funds of the permanent budget reserve can be used for presidential elections, parliamentary elections and other extraordinary circumstances. Allocation of funds from the permanent budget reserve in the amount of 406, was done according to the Law on Funding Election Campaigns for the President of Montenegro, Mayors and Presidents of municipalities 26, as follows: the amount of 40, or 10% of the total sum of allocated funds, was paid to the candidates whose candidacy for the election of the President of Montenegro was confirmed by the State Election Commission in the elections that took place on 7 April 2013 (in the amount of 20, each), the amount of ,00 or 40% of the total sum of allocated funds, was paid to the candidates who won more than 10% of votes after the voting results were established (in the amount of 81, each) and the amount of 203, or 50% of the overall allocated funds, was paid to the candidate who won the largest number of votes in the elections. 8. CAPITAL BUDGET According to the data from the General Ledger of the State Treasury the capital budget for 2013 was planned in the amount of 65,639,000.00, while reallocation of funds resulted in the increase of the budget in the amount of ,63. Hence, the available funds for spending amount to 72,253,815.63, out of which the amount of 61,785, or 85.51% of the available funds were realized. In the Proposal Law on the Final Statement of Accounts of the Budget for 2013, after the adjustment of the Ministry of Finance, the realized expenditures of the Capital budget amounted to 77,219, i.e. they were by 6.87% higher than planned, as shown in the table below: Table 44 Capital Budget Description Transport Public Works Directorate Directorate Total 1) Law on the Budget for ,000, ,639, ,639, ) Increased through reallocation 1,861, ,489, ,350, ) Reduced through reallocation 1,861, ,874, ,735, ) Available funds 30,000, ,253, ,253, Executed on the basis of the data from the General Ledger of the treasury 20,303, Funds transferred from the repayment of debts 15,433, ) Executed according to the Proposal Law on the Final Statement of Accounts of the Budget for ,736, ,482, ,219, ) Executed/Planned Capital budget is realized through the Ministry of Transport and Maritime Affairs Transport Directorate and Ministry of Sustainable Development and Tourism Public Works Directorate (authorities within these ministries). 8.1 Transport Directorate Capital Budget Audit of the Capital Budget and check of accuracy of data are based on the data given in the General Ledger of the state treasury, on the basis of which the Transport Directorate planned the funds for 2013 in the amount of 30,000, Decisions of the Ministry of Finance on reallocation of the funds (no /1 of 31 October 2013 and no /1 of 28 November 2013) were the basis for reallocation of funds by projects from the Capital Budget in the amount of 1,880, According to the data recorded in the General Ledger of the treasury, the reallocation of funds was 26 OG MNE No. 08/09 61

62 expressed in the amount of 1,861, which is not in line with the adopted decisions. According to the Proposal Law on the Final Statement of Accounts of the Budget for 2013, execution of the budget amounted to 20,303, or 67.68% of the available funds, which is 35,736, or 19.12% more than envisaged in the plan. In the Capital budget for 2013 the Transport Directorate planned funds for the implementation of the projects that started in the previous year or years. Thee funds were planned for the projects the tender procedure of which started in 2012, and the contracts were concluded in 2013 and for the projects that were implemented in 2013 or their implementation was to continued in the years after These were: 7 (seven) project finished in 2013, out of which 4 (four) projects were not planned in the Capital budget; 14 (fourteen) projects started in the previous years and their implementation continued in 2013; 4 (four) projects started being implemented in The reasons for the implementation of the capital budget on the level of 67.68% lies mostly in the non implementation of the tender procedures for the projects planned in 2013 since project documentation was not finished and the expropriation of land was difficult and led to delays. The funds in the amount of 20,303, were used to finance the following projects: the projects that started previous years in the amount of 6,856, or 33.77% of the realized funds and the projects started in 2013 (the tender procedure for which started in 2012) in the amount of 13,446, or 66.23%. Transport Directorate financed the Capital budget in 2013 from two sources: from the general revenues of the budget in the amount of 17,571, or 86.55% and from credit sources ensured by the European Investment Bank in the amount of 2,731, or 13.45%. Out of the total funds spend for the implementation of the Capital Budget in the amount of 20,303,018.39, Transport Directorate financed the expenditures for the implementation of the four projects that were not planned in the Capital Budget for 2013 in the amount of 1,055, : Cijevna Zatrijebač Albanian border, Gusinje Grnčar, final works on the bridge in Port Milena and the bridge on the Tara river near Kolašin. The table below gives the data of the planned and realized expenditures of the capital budget according to the economic classification: Table 45 Overview of the expenditures of the Capital budget by economic classification e.k. Name Law on Budget Reallocation Current Execution in for 2013 increase + reduction Budget Current Expenditures 3,160, , ,880, ,627, Other personal incomes 250, , , , Expenditures for services 1,620, , ,550, , Other expenditures 1,290, ,290, ,139, Capital expenditures 1,880, ,600, ,840, ,120, ,675, Expenditures for 1,880, ,600, infrastructure 26,840, ,120, ,675, Total Expenditures 30,000, ,880, ,880, ,000, ,303, The table below gives the overview of the planned and realized expenditures of the capital budget by projects and financing sources: 62

63 Table 46 Overview of the Capital Budget by Projects Code Name of the project Law on Budget for 2013 Reallocation Expenditures Financing sources Current Budget Execution in 2013 of executed expenditu increase + reduction Current ExpendCapital expendit Other revenues EIB credit Reconstruction of the regional and trunk roads In 761 Montenegro , , , ,99 68, , , ,99 the highway Bar Boljari, the section from 764 Smokovac to Veruša , , ,12 88, , ,12 Note 766 Reconstruction of crossroads , , , ,72 66, , , ,72 elimination of black spots on the trunk and 767 regional roads , , ,00 not realized Solution of bottlenecks in the transport network of 771 Montenegro , , , , ,57 46, , , ,57 roads, supervision, designing, expropriation and 773 revisions , , , ,46 95, , , , Construction of the tunnel Tifran , , , ,89 29, , , , Construction of third lanes , , , ,31 33, , , ,31 Elimination of the flood consequences in the trunk 776 and regional roads , , ,33 210, , , ,72 Total , , , , ,39 67, , , , ,72 The table below gives the overview of the planned and realized expenditures of the capital budget by projects and economic classification: Table 47 Overview of the Expenditures of the Capital Budget by Economic Classification and by projects Other personal incomes Expenditures for services Other expenditures Capital expenditures Code Name Total Current BudgetExecuted Current BudgetExecuted Current BudgetExecuted Current Budget Executed Current Budget Executed 761 Reconstruction of the regional and trunk roads In Montenegro , , , , , , , , Expropriation , , , , Reconstruction of crossroads 9.000, , ,00 180, , , , , Rehabilitation of land slides , , , Solution of bottlenecks in the transport network of Montenegro Most Port , , , , , , , , Investment resurfacing of the trunk and regional roads 773 Investment maintenance of regional and trunk roads , , , , , , , , , , Construction of the tunnel Tifran , , , , , , Elimination of the flood consequences in the trunk and regional roads , , , , Construction of third lanes , , , , , , , ,31 Total , , , , , , , , , ,39 Project 761: Reconstruction of the regional roads and trunk roads In Montenegro On the basis of the Decision of the Government of Montenegro no /2 of 14 August 2013 the funds of the Capital Budget of the Transport Directorate the programme: Reconstruction of the regional roads and trunk roads in Montenegro; the expenditures 441 Capital Expenditures the amount of ,00 were used to pay to the Municipality of Bijelo Polje for the purchase of land for the bypass around Bijelo Polje an the regional road Slijepač bridge Pavino polje Kovren. This expenditure was not planned in the Capital budget for The funds were transferred to the Municipality of Bijelo Polje to pay the arrears for solving the property issues, which is not in line with Article 11 of the Law on Budget that defined that none of the expenditures form the Consolidated account of the Treasury, may be paid if not approved in the Law on Budget. Budget Law. The funds from the Capital Budget were used to pay the expenditures for the services of supervision over the construction works within the Project: Gusinje Grnčar in the amount of 1, that were not planned in the Law on Budget for

64 Project 764: Expropriation of the land for the construction of the highway Bar Boljari, the section from Smokovac to Veruša The funds were transferred from the Programme 764 Expropriation of the land for the construction of the highway Bar Boljari, section from Smokovac to Veruša to the account of the Ministry of Finance Deposits for expropriation, for the compensation to the owners of the expropriated property in the section of the road Bar Boljare in the amount of 77, according to the Instruction on the manner and procedure for payment of funds from the account of the Deposit for expropriation 27. Project 771: Solution of bottlenecks in the transport network of Montenegro Financing final works on the Project: Construction of the bridge in Port Milena in the amount of 815, and on the Project: Construction of the bridge on Tara near Kolašin in the amount of 53, (finalized) was not envisaged in the Capital budget for Current expenditures for the services of supervision in the amount of 7, (by interim stages) and for services of the technical control of the works done in the amount of 20, for the construction works on the bridge in Port Milena, were not planned in the Capital Budget for Current expenditures for the services of supervision over the construction works on the road between the road M 9 Mateševo Kolašin and the road M " Podgorica Bijelo Polje (construction of the bridge on the river Tara near Kolašin) in the amount of 17, were not planned in the Capital budget for Project 773: Investment maintenance of regional and trunk road, supervision, designing, expropriation and revisions Contract on joining the funds concluded between the Municipality of Kotor (no of 10 April 2013), Directorate for development and construction of Kotor (no of 10 April 2013), Public company Coastal Management Zone of Montenegro Budva (no of 1 August 2013) and the Ministry of Transport and Maritime Affairs (no /5 of 5 August 2013) envisages that the parties shall secure the funds as follows: Municipality of Kotor and the Directorate for development and construction of Kotor the amount of 100,000.00, Public company Coastal Management Zone the amount of 125, and the Ministry of Transport and Maritime Affairs the amount of 125, for the rehabilitation of the roads in the regional route Kotor Prčanj Stoliv. The Contract envisages that the Directorate for development and construction of Kotor is the holder of the investment activities in the rehabilitation of these roads. According to Article 4 of the Contract, the Ministry of Transport and Maritime Affairs Transport Directorate paid the funds in the amount of 125, to the account of the Municipality of Kotor. Audit established that the funds in the amount of 125, were spent for the purposes that were not envisaged in the Capital budget and it was done without any verification of the contract by the Government of Montenegro. Ministry of Transport rendered the Decision no /1 of 26 December 2013 on awarding the civil servant and the Decision no /1 of 26 December 2013 on the payment of a bonus as a reward for work on drafting legislation on the basis of which the monetary consideration in the amount of three monthly salaries earned by that particular civil servant in the months preceding the decision was paid. The bonus was paid to the civil servant of the Ministry of Transport and Maritime Affairs in the net amount of 1, from the funds that were allocated in the Capital budget, i.e. from the Program 773, the position of expenditures 412 Other Fees, which is not in line with the purposes envisaged in the Capital Budget for OG MNE No. 78/06 64

65 Audit of the Capital Budget of the Transport Directorate done on the sample in the amount of 16,843, or 82.96% of the realized expenditures, established that the funds in the item 441 Capital Expenditures were used for paying the expenditures in the amount of 1,793,486.91, while the funds from the item of current expenditures were used to pay the expenditures in the amount of 48, This was not planned in the Budget Law for 2013 and is not in compliance with Article 11 paragraph 3 of the Law on Budget that stipulates that none of the expenditures can be paid from the Consolidated account of the Treasury if not approved in the Law on Budget. In its official letter no /1 of 6 March 2014, the audited entity provided explanation stating that the Capital Budget for 2013 planned the projects that started in the previous year (or years) and the projects that will be implemented during the budget year or the year that followed. Planning of the budget funds starts in April of the previous year for the current year and the final version has to be sent to the Ministry of Finance at latest in October of the previous year. At the time of applying certain projects, the planning and project documents are frequently not completed and that often leads to the situation that the planned project is not implemented. Therefore, the funds planned for certain projects do not cover the liabilities that are incurred for the works done within that particular project. The envisaged funds are usually exceeded because, due to the poor weather conditions, the planned works are not completed in one year, so they have to be taken over to the next. These funds are compensated for from the same programme that includes the plan for the project. This can be seen on the example of construction of the road Krute Vladimir where the funds were planned in the amount of 2.1 mil. and implemented in the amount of over 2.5 mil, but the contracted value of the works was not exceeded. 8.2 Public Works Directorate Capital Budget In 2013 the Public Works Directorate realized the funds in the amount of 41,482,484.47, i.e % of the budget established in the plan. Financing the planned projects was done from the general revenues of the Budget in the amount of 36,253, or 87.40%, from the grant of the Republic of Italy in the amount of 953, and from the credit funds secured from the European Investment Bank and the World Bank in the amount of 4,275, In 2013 the Public Works Directorate implemented the activities on 124 projects, as follows: 48 projects that were started and finished in 2013 in the amount of 14,145, or 34.10% of the realized funds; 19 projects that were started in previous years and finished in 2013 in the amount of 12,389, or 29.87% of the realized funds; 40 projects that were started in 2013 and will continue in the future period in the amount of 4,354, or 10.50% of the realized funds; 17 projects the implementation of which started in previous years, continued in 2013 and will continue in the period after 2013 in the amount of 10,592, or 25.54% of the realized funds. The table below gives the data of the planned and realized expenditures of the capital budget according to the economic classification: Table 48 Overview of the Expenditures of the Capital Budget by Economic Classification E, Law on Budget Reallocation Name Current Budget cl, for 2013 Execution in 2013 increase + reduction 41 Current Expenditures 3,826, , , ,933, ,509, Other personal incomes 92, , , , , Expenditures for 2,961, , , ,068, ,893, services 419 Other expenditures 772, , , Capital expenditures 31,812, ,357, ,850, ,320, ,972, Expenditures for infrastructure 31,812, ,357, ,850, ,320, ,972, Total Expenditures 35,639, ,489, ,874, ,253, ,482,

66 The table below gives the overview of the planned and realized expenditures of the capital budget by projects and financing sources: Table 49 Overview of the Capital Budget by Projects Code Name of the project Law on Budget for 2013 Reallocation Expenditures Financing sources Current Budget Execution in 2013 of executed expenditur increase + reduction Current ExpendCapital expenditubudget incomes Grants World Bank credit/lamp EIB credit Note 804 Construction and reconstruction of the administrative premises for the work of admin , , , , ,96 110, , , , , , Construction, reconstruction and adaptation of the buildings of culture , , , ,78 96, , , , Construction, reconstruction and adaptation of the sports buildings ,00 600, , , ,26 75, , , , Funds for solving housing needs of the Trade Union organizations , , ,00 100, , , Construction of local infrastructure , , , , ,03 93, , , , Projects of environment preservation , , , , ,42 88, , , , Construction and reconstruction of health care buildings , , , ,56 92, , , , Construction and reconstruction of social care buildings , , , , ,41 63, , , , Construction and reconstruction of education buildings ,00 900, , , ,64 61, , , , Construction and purchase of diplomatic representative offices abroad , ,00 not realized 824 Urgent disaster relief and flood prevention , , , , , , , Law on Petrovic Dynasty , , ,01 36, , , ,01 Total , , , , ,47 98, , , , , , ,40 The table below gives the overview of the planned and realized expenditures of the capital budget by projects and economic classification: Table 50 Overview of the Expenditures of the Capital Budget by Economic Classification and by Projects Other personal incomes Expenditures for services Other expenditures Capital expenditures Code Name Total Current BudgetExecuted Current BudgetExecuted Current BudgetExecuted Current BudgetExecuted Current BudgetExecuted 804 Construction and reconstruction of the administrative premises for the work o 33, , , , , , ,628, ,268, ,514, ,900, Construction, reconstruction and adaptation of the buildings of culture 6, , , , , ,185, ,157, ,656, ,472, Construction, reconstruction and adaptation of the sports buildings 7, , , , , , ,466, ,914, ,640, ,013, Construction of housing buildings 300, , , , Construction of local infrastructure 19, , , , , , ,312, ,912, ,850, ,380, Projects of environment preservation 1, , , , , ,860, , , , Construction and reconstruction of health care buildings 2, , , , , , ,239, ,092, ,411, ,219, Construction and reconstruction of social care buildings 3, , , , , , , ,119, , Construction and reconstruction of education buildings 10, , , , , , ,055, ,180, ,107, ,541, Construction and purchase of diplomatic representative offices abroad. 3, , , Urgent disaster relief and flood prevention 5, , , , , , ,924, , ,034, Law on Petrovic Dynasty 2, , , , , , , , , Total 92, , ,068, ,893, , , ,320, ,972, ,253, ,482, Program 804: Construction and reconstruction of the administrative premises for the work of administrative bodies Ministry of Justice Institution for enforcement of criminal sanctions and "Montenegro premier" d.o.o. concluded the Agreement on the Lease of Property Owned by the State on 3 January 2008 (hereinafter referred to as: Lease Agreement) for the period of 86 years. Scope of the Lease Agreement is the property registered in the Deed of Title LN 268 Cadastral Municipality Kotor II, cadastral lot 157, of the surface of 1,216m 2. On 23 January 2008 "Montenegro premijer" paid the entire amount of the lease of 1,507, to the account of the State Treasury. However, on 17 October 1985 the Decision 853/4 declared that the property is cultural good protected by law. On 21 February 2013 "Montenegro premijer" applied to the Ministry of Justice with the request no asking for termination of the Lease Agreement because it was impossible to use the property for the intended purpose. In its official letter no /2 of 27 February 2013, that the Ministry of Culture sent to the Ministry of Finance, it supported the initiative for termination of the Lease Agreement and at the same time proposed to give the property to be used by the Ministry of Culture. In its Decision no /3 of 10 October 2013 the Government accepted the Proposal of the Annex to the Agreement on termination of the Agreement on the Lease of Property owned by the state. Ministry of Finance agrees that the funds in the amount of 1,407, are paid to the account of 66

67 "Montenegro premijer" d.o.o. Podgorica. On the day of signing the Protocol "Montenegro premijer" is obliged to pay the funds in the amount of 1,407, to the account of the State Treasury of the Ministry of Finance for taxes and contributions. The audit established that the Ministry of Sustainable Development and Tourism Public Works Directorate transferred the funds in the amount of 1,407, from the Program 804 Construction and reconstruction of the administrative premises for the work of administrative bodies, from the item 441 Expenditures for construction buildings. It was done according to the Decision of the Government no /3 of 10 October 2013 and the signed Protocol and the money was used for the purposes that were not envisaged in the Capital Budget for 2013, which was not in compliance with Article 11 of the Budget Law. The audit established that the Ministry of Sustainable Development and Tourism Public Works Directorate transferred the funds in the amount of 4,387, from the Program 804 Construction and reconstruction of the administrative premises for the work of administrative bodies, from the item 4413 Expenditures for construction buildings for the purpose of settling the liabilities for the transfer of the building and land of AD "Pobjeda" Podgorica owned by the state of Montenegro. This was done based on the decisions of the Government and was not in compliance with Article 11 of the Budget Law. Decision of the Government no /3 of 28 March 2013 approved the reallocation of funds in the amount of 3,800, from the Pension and Disability Insurance Fund (organization code 60101) Expenditure for Old Age Pension to the Ministry of Sustainable Development and Tourism Public Works Directorate Project 804 Construction and reconstruction of administrative premises for the work of the state bodies expenditures 4413 Expenditures for construction buildings, for settling the liabilities incurred due to the transfer of property in form of commercial building and land of AD "Pobjeda" Podgorica, to the ownership of the state of Montenegro. This transfer was based on the Agreement on settling the liabilities towards the State of Montenegro concluded between the Government, represented by the Minister of Finance and AD "Pobjeda" no /1 of 19 March Decision of the Government no /3 of 27 May 2013 approved the additional reallocation of funds in the amount of 587, from the Reserves (organization code 40502) to the Ministry of Sustainable Development and Tourism Public Works Directorate (organization code 41501) Project 804 Construction and reconstruction of administrative premises for the work of the state bodies Expenditures 4413 Expenditures for construction buildings, for settling the liabilities incurred due to the transfer of property in the form of commercial building and land of AD "Pobjeda" Podgorica, to the ownership of the state of Montenegro. This transfer was based on the Agreement. Program 805: Construction, reconstruction and adaptation of the buildings of culture Funds in the amount of 117, realized according to the Decision of the Government No of 17 October 2013 and the Contract between the Public Works Directorate, Ministry of Culture, Ministry of Finance and Montenegrin National Theatre for the implementation of urgent rehabilitation works in the Montenegrin National Theatre, were not used for the purposes envisaged in the Capital Budget for 2013, which was not in compliance with Article 11 of the Budget Law. According to the Agreement on financing the activities of the Program "Cetinje the City of Culture " concluded between the Ministry of Culture (no of 20 January 2013) and the Public Works Directorate (no. 19/ of 31 January 2013) and the Annex II to the Agreement concluded on 22 November 2013 between the above parties, the Public Works Directorate made the payment on the basis of the invoice no. 20/12 of 20 December 2013 in the amount of 33, from the Program 805 Construction, reconstruction and adaptation of the buildings of culture, from the item 4413 Expenditures for construction 67

68 buildings, to the account of the bidder, in the open procedure of public procurement for the selection of the best bid for supply and instalment of the office furniture conducted by the Ministry of Culture for the purposes of equipping a part of the former administrative building of "Obod" in Cetinje. This expenditure should have been recorded according to the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities from the item 4415 Expenditures for Equipment. Audit of the Capital Budget of the Public Works Directorate done on the sample in the amount of 28,952, or 69.79% of the realized expenditures, established that the funds in the item 441 Capital Expenditures were used for paying the expenditures in the amount of ,63. This was not planned in the Budget Law for 2013 and is not in compliance with Article 11 paragraph 3 of the Law on Budget that stipulates that none of the expenditures can be paid from the Consolidated Account of the Treasury if not approved in the Law on Budget. The expenditure in the amount of 33, should have been paid from the item Expenditures for Equipment and not from the item Expenditures for construction buildings according to the Regulation on Uniform Classification of Accounts for the Budget, Extra budgetary Funds and Budgets of Municipalities. 9. PROPERTY Law on State Property governs the use, management and disposal of things and other goods that belong to Montenegro and local self government. Audit of the management of state property conducted in the budget spending units included in the audit scope established the following: Value of the recorded immovable things has not been assessed by the administration body in charge of the tasks of the cadastre or by any other body or authorized institution in the following spending units: Public Property Administration, Real Estate Administration, Public Institution National Museum and Tax Administration. According to Articles 43 and 66 of the Law on State Property, the value of immovable things should be assessed by the administration body in charge of the tasks of the cadastre and other authorized body or institution. Ministry of Science has not rendered the enactment regulating in more details the manner of use of vehicle, depending on the particular needs and specific features of the authority. According to Article 5 of the Decree on the terms and conditions of using vehicles owned by Montenegro 28, it is the heads of state authorities that are to render enactments establishing that vehicles will be used for the needs of the authority, as well as how the vehicle will be used, depending on the particular needs and specific features of that particular authority The audit of the management of the state property established deficiencies and flaws, some of which were included into the Report on the Audit of the Proposal Law on the Final Statement of Accounts of the Budget for All spending units are recommended to ensure records of the state property in line with the Law on Property and secondary legislation. 10. PUBLIC PROCURREMENT The aim of the audit of public procurement is the control of compliance with the Public Procurement Law. 29 Scope of audit of public procurement included the procedures of public procurements that were conducted, as well as the Public procurement plan for 2013 and Report on the public procurement contracts awarded in OG MNE No. 19/ OG MNE No. 42/11 68

69 Annual Report of the State Audit Institution for the Period October 2013 October 2014 In 2013 the Agency for Protection of Competition did not render its decision on appointing public procurement officer. According to Article 58 of the Public Procurement Law the ordering entity has the duty to adopt a decision appointing a person to the tasks of public procurement. The ordering entity is also obliged to deliver such a decision to the competent authority. In the spending unit Real Estate Administration, the Commission for opening and evaluation of the bids in the open public procurement procedure conducted upon the Call no. 06/13 was formed 25 days after the decision on initiating the open public procurement procedure was rendered. For the open procedure conducted on the basis of the Call no. 04/13, the Commission for opening and evaluation of the bids was established 17 days after the decision on initiating the procedure was rendered. In the spending unit Pension and Disability Insurance Fund the Commissions for opening and evaluating the bids in the open procedures no. 03/13, no 02/13, and 04/13 and for the negotiations procedure without publishing the call for public competition upon the Call no. 01/13, were established 18 days after the decision on initiating the procedure was rendered. Decision on establishing the commission for opening and evaluating the bids no /2 was rendered on 5 March 2013 and the Decision on initiating the procedure was rendered on 9 July The explanation of the Pension and Disability Insurance Fund states that the mismatch in the dates of rendering the decisions on initiating the procedures of public procurement and the decisions on establishing the commissions for opening and evaluation of bids comes from the fact that the Statute of the Pension and Disability Insurance Fund stipulates that the Management Board of the Fund is in charge of rendering the decisions on initiating the public procurement procedure. Statute of the Pension and Disability Insurance Fund was amended in this respect in Thus, in 2014 the decision on initiating the public procurement procedure and the decision on establishing the commission for opening and evaluation of the bids are rendered simultaneously. Commission for opening and evaluating the bids has to be established simultaneously with the adoption of the decision on initiating the procedure according to Article 59 paragraph 1 In the spending unit Real Estate Administration two procurements were done through the shopping method for one public procurement item, on the basis of the following requests: Request for bids for the shopping method procurement no /2 of 3 April The item to be procured was CPV services of accommodation in the territory of the Municipality of Rožaje. Request for bids for the shopping method procurement no /2 of 3 April The item to be procured was CPV services of accommodation in the territory of the Municipality of Berane. In the spending unit State Archives two procurements were done through the shopping method for one public procurement item, on the basis of the following requests: Request for bids for the shopping method procurement no /4 of 8 March The item to be procured was CPV services related to printing (printing of the collection of the document "First Psychiatric Hospital in the Principality of Montenegro " in 300 copies). Request for bids for the shopping method procurement no /2 of 17 October The item to be procured was CPV services related to printing (printing of the book "Protocol of issued passports " in 300 copies). Public procurement using the shopping method can be conducted at most once a year for one item to be procured. According to Article 29 of the Public Procurement Law, the item to be procured can be defined according to technology, quantity, type, place and time of delivery. Ministry of Finance, Tax Administration, Customs Administration, Statistical Office, Public Property Administration, Agency for Protection of Competition, Real Estate Administration, 69

70 Public institution National Museum, and State Archive violated the limit defined in the law for procurement of goods, services and works through direct agreements. Total annual value of public procurement that can be done through direct agreement according to Article 30 of the Public Procurement Law, cannot exceed the limit set in the law. In the Report filed on the Form C the Ministry for Information Society and Telecommunications presented the procurement done with direct agreements in the amount of 89, Direct agreements were used for the services of translation, subscription for journal, entertainment, postal services, registration fees, advertisements and other expenses. These procurements were not included in the Public Procurement Plan for 2013 and that particular plan did not envisage procurement through direct agreement. In the Report filed on the Form C, the Public Institution National Museum presented the procurement done with direct agreements in the amount of 184, Direct agreements were used for the services of translation, flight tickets, catering services, accommodation services, advertising, car washing, spare parts and other expenses. These procurements were not included in the Public Procurement Plan for 2013 and that particular plan did not envisage procurement through direct agreement. In the Report filed on the Form C, the Ministry of Finance presented the procurement done with direct agreements in the amount of 128, Direct agreements were used for flight tickets, vehicle servicing, press clipping, copying, translation and other expenses. These procurements were not included in the Public Procurement Plan for 2013 and that particular plan did not envisage procurement through direct agreement. In the Report filed on the Form C, State Archives presented the procurement done with direct agreements in the amount of 45, Direct agreement was used for the services of vehicle maintenance, entertainment, copying, forwarding, software maintenance etc. These procurements were not included in the Public Procurement Plan for 2013 and that particular plan did not envisage procurement through direct agreement. According to Article 37 of the Public Procurement Law, the ordering entity can initiate the public procurement procedure if the funds for such purposes are secured in the budget or in some other way and if such procurement is envisaged in the public procurement plan of the ordering entity. The Customs Administration split the item to be procured in the public procurement procedure into several parts and consequently did not conduct the required public procurement procedure. Public procurement plan of the Customs Administration for 2013 envisaged 4 procurements of hotel accommodation through direct agreement. The total amount was estimated at 18, In the Report filed on the Form C, the Customs Administration presented the procurement of hotel accommodation done with direct agreements in the amount of 14, The direct agreement was used instead of the shopping method that was required. According to Article 44 of the Public Procurement Law, during one fiscal or financial year, the ordering entity may not split the item to be procured in order to avoid compliance with the law and required public procurement procedure. Public Property Administration did not make minutes on the negotiations when using the procedure of negotiations without publishing the call for competition for the procurement of services of business premises lease based on the Call no. 12/ /630 of 4 April 2013 and for the procurement of the services of construction and installation works based on the Call no. 43/13 of 20 May According to Article 25 paragraph 3 of the Public Procurement Law, the ordering entity has the duty to make minutes on the negotiations when using the procedure of negotiations without publishing the call for competition. 70

71 Annual Report of the State Audit Institution for the Period October 2013 October 2014 Montenegrin Misdemeanour Panel effected their public procurements in 2013 through direct agreements, while it planned to conduct 2 (two) open procedures, 3 (three) procedures of negotiations without publishing the call for competition, 11 (eleven) shopping methods and direct agreement procedure for the services of entertainment. In the Form C they stated the execution of the plan in the amount of 110, Total annual value of public procurement that can be done through direct agreement has to be within the range of 7% to 10% of the budget executed for public procurement of the ordering entity. Ordering entity is obliged to conduct the appropriate procedure of public procurement according to the assessed value as defined in Article 30 and Article 21 of the Public Procurement Law. On behalf of the Public Works Directorate, the Public Institution National Museum of Montenegro conducted the following: 1. Open public procurement procedure for procurement of works upon the Call for open public procurement no of 8 October The authorization no. 19/ /1 of 20 September 2013 authorizing the PI National Museum to conduct the procedure of public procurement was adopted before the adoption of the Decision on initiating and implementing the procedure no 19/ /2 of 7 October Negotiation procedure without prior call for public procurement competition based on the Call for negotiation before prior call for public procurement competition no of 6 June The authorization no. 19/ /1 of 7 May 2013 authorizing the PI National Museum to conduct the procedure of public procurement was adopted before the adoption of the Decision on initiating and implementing the procedure no 19/ /1 of 6 June Authorization for conducting the procedure of open public procurement by other ordering entity and the decision on initiating and conducting the procedure of public procurement have to be adopted at the same time, as defined in Article 32 of the Public Procurement Law. Audit of the public procurement system identified recurring deficiencies. They are related to inadequate planning of procurement, failure to conduct the procedures in line with legislation and lack of precision in compiling tender documentation. 11. SYSTEM OF INTERNAL FINANCIAL CONTROLS System of internal financial controls consists of policies and procedures adopted by the management of the budget funds users with a view to achieving the set goals, ensuring efficiency and success in operations, as well as achieving reliability of financial reporting. Audit of the internal financial control systems within the spending units that were audited identified the following: the spending units adopted the written rules, i.e. adopted the Book of procedures according to Articles 13 and 14 of the Law on Public Internal Financial Control, according to Article 14 of the Law on Public Internal Financial Control 30, the spending units appointed the persons in charge of establishing, conducting and developing financial management and control, certain spending units (Misdemeanour bodies) did not establish the internal audit units as separate organizational units or they did not entrust any internal audit unit of any other budget user with the tasks of internal audit of their operations on the basis of an agreement according to Article 18 of the Law on Public Internal Financial Control, certain spending units adopted neither Plan for establishment of financial management and control in the public sector nor methodology for implementing such plans according to Article 14 of the Law on Public Internal Financial Control, 30 OG MNE No. 73/08, 20/11 and 30/12 71

72 Audit of the internal financial control systems of the spending units that were audited established that the systems of internal financial control were not established on the satisfactory level, while the internal audit units started audits of certain processes. The activities on the establishment of the function of financial control and internal audit in the spending units should be intensified in line with the Law on Public Internal Financial Control and internal audit standards. 72

73 TABLES: Table 1 Adjusted deficit for Table 2 Central Account of the State Treasury Table 3 General Ledger of the State Treasury Table 4 Structure of the unpaid revenues by revenue units Table 5 Deficit on the cash basis for Table 6 Net change in arrears Table 7 Records of arrears Table 8 Adjusted cash deficit Table 9 Balance sheet Table 10 Budgetary Overrun Table 11 Budget overrun according to economic classification Table 12 Consolidated Public Spending and Adjusted Deficit for Table 13 Increase in the Budget Spending Table 14 Accounts open with the Central Bank of Montenegro Table 15 Deposits expressed in the Proposal Law on the Final Statement of Accounts of the Budget for Table 16 Funds of the Ministry of Finance with the Central Bank of Montenegro Table 17 Funds in the Accounts with the Erste Bank Table 18 Records of Funds in the General Ledger of the State Treasury Table 19 Budget revenues Table 20 Unpaid Revenues through the Revenue module Table 21 Public Revenues Table 22 Inflow of Funds to the Central Account of the State Treasury Table 23 Outflow of Funds from the Central Account of the State Treasury Table 24 Allocation of the Funds from the Central Account to the Local self government Table 25 Revenues Recorded in the General Ledger of the State Treasury Table 26 Inflow from Grants Expressed by Spending Units Table 27 Loans and Credits from Domestic Sources Table 28 Loans and Credits from Foreign Sources Table 29 Funds Withdrawn from Foreign Sources Table 30 Overview of Class 3 and 7 in the Tax Balance on 1 January Table 31 Overview of class 3 and 7 in the tax balance on 31 December Table 32 Balance in the Accounts with the Central Bank (Spending Units that Collect Public Revenues) Table 33 Public Revenues Collected Through Compulsory Collection by Type of Revenue Table 34 Deferred Tax Liabilities Table 35 Overview of Realized Expenditures in Table 36 Current Expenditures Table 37 Expenditures for Interests Table 38 Structure of Expenditures for Interests Table 39 Expenditures for Repayment of Debt Table 40 Expenditures for repayment of securities and credits Table 41 Expenditures for Repayment of Securities and Credits to Residents Table 42 Expenditures for repayment of arrears from the past Table 43 Overview of the Expenditures of the Current and Permanent Budget Reserve Table 44 Capital Budget Table 45 Overview of the expenditures of the Capital budget by economic classification Table 46 Overview of the Capital Budget by Projects Table 47 Overview of the Expenditures of the Capital Budget by Economic Classification and by projects Table 48 Overview of the Expenditures of the Capital Budget by Economic Classification Table 49 Overview of the Capital Budget by Projects Table 50 Overview of the Expenditures of the Capital Budget by Economic Classification and by Projects

74 APPENDIX TABLES Table 1 Overview of arrears by spending units Table 2 Deficit on cash basis Table 3 Adjusted deficit on cash basis Table 4 Consolidated public spending Table 5 Consolidated public spending and adjusted deficit Table 6 Funds of public institutions and budget users that are not in the CTA system Table 7 Overview of expenditures for debt repayment, interest and other expenses under foreign loans Table 8 Overview of domestic debt balance, and expenditures for principal and interest repayment by individual banks Table 9 Overview of expenditures under commitments from the previous period by spending units

75 Table 1 Overview of arrears by spending units Arrears as of 31/12/2012 Arrears from 2012 and earlier, still outstanding on 31/12/2013 TOTAL Outstanding liabilities formed in 2013 and due until 31/12/2013 Outstanding liabilities formed in 2013 and due after 31/12/2013 Total outstanding liabilities Arrears from 2012 and earlier Name of spending unit paid in PRESIDENT OF MONTENEGRO 77, , , , , , PARLIAMENT OF MONTENEGRO 31, , , , , GOVERNMENT OF MONTENEGRO 212, , , , , CONSTITUTIONAL COURT 3, , , , STATE PROTOCOL 21, , , , MINISTRY OF FINANCE 1,827, , ,124, , ,605, ,823, PUBLIC PROCUREMENT AUTHORITY MINISTRY OF EDUCATION 6,558, , ,238, ,016, ,780, EXAMINATION CENTRE 1, , MINISTRY OF INTERIOR 1,232, , ,351, , ,889, ,076, MINISTRY OF TRANSPORT 61, , , , , MINISTRY OF AGRICULTURE 2,003, , , , , ,760, MINISTRY OF JUSTICE 170, , , , , , MISDEMEANOUR COUNCIL SUPREME STATE PROSECUTOR'S OFFICE 112, , , , , JUDICIARY 1,631, , ,022, , ,671, ,080, MINISTRY OF ECONOMY 402, , , , , BOARD FOR QUALITY ENERGY EFFICIENCY FUNDS MINISTRY OF SUSTAINABLE DEVELOPMENT AND TOURISM 143, , , , , MINISTRY OF CULTURE 421, , , , , , MONTENEGRIN NATIONAL THEATRE 144, , , , , , ROYAL THEATRE ZETSKI DOM 12, , , , , MINISTRY OF LABOUR AND SOCIAL WELFARE 6,637, , , ,459, ,087, ,325, MINISTRY OF FOREIGN AFFAIRS 11, , , , MINISTRY FOR HUMAN AND MINORITY RIGHTS SECRETARIAT FOR LEGISLATION MINISTRY FOR INFORMATION SOCIETY 42, , , , , AGENCY FOR PEACEFUL RESOLUTION OF LABOUR DISPUTES 58, , , , STATISTICS BUREAU 2, , , , , MONTENEGRIN ACADEMY OF SCIENCES AND ARTS 265, , , , ,141, , INSTITUTE OF HYDROMETEOROLOGY AND SEISMOLOGY 178, , , , , STATE ARCHIVE OF MONTENEGRO 17, , , , , BUREAU FOR EDUCATION SERVICES 3, , , , STATE AUDIT INSTITUTION 4, , , , PROTECTOR OF HUMAN RIGHTS , , ADMINISTRATION FOR PREVENTION OF MONEY LAUNDERING 18, , , , HUMAN RESOURCE MANAGEMENT AGENCY 100, , , , , MINISTRY OF DEFENCE 1,140, ,174, , , ,400, , NATIONAL SECURITY AGENCY 99, , , , , , BUREAU FOR METROLOGY 1, , INSTITUTIONS OF CULTURE 117, , , , , , POLICE ACADEMY 17, , , , COMMISSION FOR PREVENTION OF CONFLICT OF INTEREST , , INTELLECTUAL PROPERTY OFFICE 2, , AGENCY FOR PROTECTION OF COMPETITION NATIONAL TOURISM ORGANISATION 356, , , , , DIRECTORATE FOR CONFIDENTIAL DATA PROTECTION COMMISSION FOR CONTROL OF PUBLIC PROC. PROCEDURES EMPLOYMENT BUREAU 1,255, , , , , ,227, HEALTH INSURANCE FUND 10,098, , ,932, ,325, ,269, ,087, PENSION INSURANCE FUND 32,855, , , ,916, ,616, ,307, ENVIRONMENTAL PROTECTION AGENCY 129, , , , MINISTRY OF HEALTH , , , COMPENSATION FUND NATIONAL ELECTORAL COMMISSION MINORITY FUND 2, , , , AGENCY FOR PROTECTION OF PERSONAL DATA 10, , , , LABOUR FUND 4,967, ,699, ,019, , ,721, ,267, PROTECTOR OF PROPERTY AND LEGAL INTERESTS OF MNE 2, , , , MINISTRY OF SCIENCE 195, , , , , CENTRE FOR PRESERVATION OF CULTURAL MINORITIES PUBLIC HEALTH INSTITUTE , , OFFICE FOR FIGHT AGAINST TRAFFICKING IN HUMAN BEINGS , , , MNE AGENT BEFORE EUROPEAN COURT OF HUMAN RIGHTS MONTENEGRO INVESTMENT PROMOTION AGENCY MONTENEGRIN DIASPORA CENTRE INSPECTION AUTHORITY 59, , , , , SOCIAL COUNCIL SECRETARIAT FOR DEVELOPMENT PROJECTS 1, , CETINJE PARLIAMENTARY FORUM REGIONAL DIVING TRAINING CENTRE AUDIT AUTHORITY PRIVATISATION COUNCIL , , TOTAL 73,724, ,580, ,636, ,872, ,088, ,144,

76 Table 2 Deficit on cash basis Deficit on cash basis for 2013 Final Statement for 2013 DESCRIPTION Plan as Balance Plan Revision Per Final Difference Executed Adjustments (+) Adjustments ( ) as found by audit Budget overrun Statement = (4 2) = = Cash inflows 1,161,800, ,161,800, ,243,526, ,243,526, ,725, Taxes 700,430, ,430, ,696, ,696, ,265, Social insurance contributions 384,217, ,217, ,494, ,494, ,276, Donations ,614, ,614, ,614, Other inflows 72,343, ,343, ,088, ,088, ,745, Inflows from loan repayments 4,809, ,809, ,633, ,633, ,824, Cash payments 1,289,293, ,289,293, ,444,789, , ,445,786, ,492, Employee salaries and other personal income 372,128, ,750, ,621, ,004, ,004, ,745, Other personal income 10,819, ,822, ,003, ,119, ,119, ,703, Goods and services used 68,960, ,546, ,586, ,138, , ,134, ,588, Current repairs and maintenance 20,466, ,847, , ,415, ,415, , Interests 70,403, ,182, ,221, ,922, ,922, ,740, Rent 7,875, ,109, , ,928, ,928, , s Subsidies 14,230, ,501, ,271, ,425, ,425, , Transfers to individuals, NGO and public sector 91,880, ,618, ,738, ,307, ,307, , Transfers for social welfare 497,872, ,569, ,303, ,967, ,967, ,601, Other expenditures and reserves 32,785, ,481, ,695, ,740, ,740, ,741, Loans given 1,720, ,766, ,046, ,752, ,752, , Capital expenditure and securities purchased 67,972, ,387, ,414, ,294, ,294, ,906, Purchase of non financial assets 67,972, ,387, ,414, ,294, ,294, ,906, Purchase of financial assets Repayment of arrears from the previous period 32,177, ,709, , ,543, ,543, ,833, Repayment of guarantees ,230, ,230, ,230, Cash deficit/surplus 127,492, ,492, ,262, , ,259, ,766, Cash deficit financing sources 127,492, ,492, ,262, , ,259, ,766, , Domestic financing sources w/o deposits 15,800, ,800, ,111, ,111, ,911, Net credit facilities 23,800, ,800, ,792, ,792, ,592, Debt increase under credits ,500, ,500, ,500, Repayment of principal 23,800, ,800, ,707, ,707, ,907, Net borrowings under securities issue ,370, ,370, ,370, Securities issue ,850, ,850, ,850, Repayment of principal ,480, ,480, ,480, Sale of assets 8,000, ,000, ,948, ,948, ,948, Sale of non financial assets 8,000, ,000, ,657, ,657, ,342, Sale of financial assets ,291, ,291, ,291, Net cash changes ,038, ,038, ,038, Foreign financing 143,292, ,292, ,112, , ,109, ,183, Net credit facilities 143,292, ,292, ,112, , ,109, ,183, Debt increase under credits 205,992, ,992, ,517, , ,513, ,479, Repayment of principal 62,700, ,700, ,404, ,404, ,704, Net borrowings under securities issue ,000, ,000, ,000, Securities issue ,000, ,000, ,000, Repayment of principal Donations

77 Table 3 Adjusted deficit on cash basis Adjusted deficit on cash basis Deficit on cash basis for 2013 ADJUSTMENTS OF EXECUTION DESCRIPTION Plan Revision Executed Adjustments (+) Adjustments ( ) Balance Cash inflows 1,161,800, ,243,526, ,243,526, Taxes 700,430, ,696, ,696, Social insurance contributions 384,217, ,494, ,494, Donations ,614, ,614, Other inflows 72,343, ,088, ,088, Inflows from loan repayments 4,809, ,633, ,633, Cash payments 1,289,293, ,444,789, , ,445,786, Employee salaries 372,128, ,004, ,004, Other personal income 10,819, ,119, ,119, Goods and services used 68,960, ,138, , ,134, Current repairs and maintenance 20,466, ,415, ,415, Interests 70,403, ,922, ,922, Rents 7,875, ,928, ,928, Subsidies 14,230, ,425, ,425, Transfers to individuals, NGO and public sector 91,880, ,307, ,307, Transfers for social welfare 497,872, ,967, ,967, Other expenditures and reserves 32,785, ,740, ,740, Loans given 1,720, ,752, ,752, Capital expenditure and securities purchased 67,972, ,294, ,294, Reduction of arrears repayments 32,177, ,543, ,543, Repayment of guarantees ,230, ,230, Cash deficit (1 2) 127,492, ,262, , ,259, Cash deficit financing sources ( ) 127,492, ,262, , ,259, Net borrowings 119,492, ,275, , ,272, Sale of assets 8,000, ,948, ,948, Donations Net cash changes ,038, ,038, Net increase/decrease of liabilities (10,2 10,1) 32,177, ,363, ,363, Liabilities as of 31,12, ,088, ,088, Liabilities as of 31,12, ,177, ,724, ,724, Adjusted expenditures (2, + 10,) 1,257,116, ,459,153, , ,460,150, Cash inflows (1,) 1,161,800, ,243,526, ,243,526, Modified Cash deficit (12 11) 95,315, ,626, , ,623, Deficit financing sources(15,+16,+17,+18,+19,) 95,315, ,626, , ,623, Net borrowings 119,492, ,275, , ,272, Sale of assets 8,000, ,948, ,948, Donations Supplier payables 32,177, ,363, ,363, Net cash changes ,038, ,038,525.20

78 Table 4 Consolidated public spending Consolidated public spending Deficit on cash basis for 2013 DESCRIPTION Plan as Balance Plan Revision Per Final Difference Executed Adjustments (+) Adjustments ( ) as found by audit Budget overrun Statement = (4 2) = = Cash inflows 1,161,800, ,161,800, ,243,526, ,051, ,284,578, ,777, Taxes 700,430, ,430, ,696, ,503, ,199, ,768, Social insurance contributions 384,217, ,217, ,494, ,494, ,276, Donations ,614, ,326, ,940, ,940, Other inflows 72,343, ,343, ,088, ,144, ,233, ,889, Inflows from loan repayments 4,809, ,809, ,633, , ,711, ,902, Cash payments 1,289,293, ,289,293, ,444,789, ,189, ,486,979, ,685, Employee salaries and other personal income 372,128, ,750, ,621, ,004, ,890, ,894, , Other personal income 10,819, ,822, ,003, ,119, ,953, ,072, ,249, Goods and services used 68,960, ,546, ,586, ,138, ,273, ,411, ,864, Current repairs and maintenance 20,466, ,847, , ,415, ,535, ,951, ,104, Interests 70,403, ,182, ,221, ,922, , ,947, ,764, Rents 7,875, ,109, , ,928, , ,046, , Subsidies 14,230, ,501, ,271, ,425, ,425, , Transfers to individuals, NGO and public sector 91,880, ,618, ,738, ,307, ,418, ,725, ,106, Transfers for social welfare 497,872, ,569, ,303, ,967, , ,976, ,592, Other expenditures and reserves 32,785, ,481, ,695, ,740, ,511, ,252, , Loans given 1,720, ,766, ,046, ,752, , ,859, , Capital expenditure and securities purchased 67,972, ,387, ,414, ,294, ,302, ,596, ,209, Purchase of non financial assets 67,972, ,387, ,414, ,294, ,302, ,596, ,209, Purchase of financial assets Repayment of arrears from the previous period 32,177, ,709, , ,543, , ,588, ,878, Repayment of guarantees ,230, ,230, ,230, Cash deficit/surplus 127,492, ,492, ,262, ,138, ,401, ,908, Cash deficit financing sources 127,492, ,492, ,262, ,138, ,401, ,908, Domestic financing sources w/o deposits 15,800, ,800, ,111, , ,171, ,971, Net credit facilities 23,800, ,800, ,792, , ,841, ,641, Debt increase under credits ,500, , ,548, ,548, Repayment of principal 23,800, ,800, ,707, ,707, ,907, Net borrowings under securities issue ,370, ,370, ,370, Securities issue ,850, ,858, ,708, ,708, Repayment of principal ,480, ,858, ,338, ,338, Sale of assets 8,000, ,000, ,948, , ,960, ,960, Sale of non financial assets 8,000, ,000, ,657, , ,668, ,331, Sale of financial assets ,291, ,291, ,291, Net cash changes ,038, , ,120, ,120, Foreign financing 143,292, ,292, ,112, , ,109, ,183, Net credit facilities 143,292, ,292, ,112, , ,109, ,183, Debt increase under credits 205,992, ,992, ,517, , ,513, ,479, Repayment of principal 62,700, ,700, ,404, ,404, ,704, Net borrowings under securities issue ,000, ,000, ,000, Securities issue ,000, ,000, ,000, Repayment of principal Donations

79 Table 5 Consolidated public spending and adjusted deficit Consolidated public spending and adjusted deficit DESCRIPTION FINAL ADJUSTMENTS OF EXECUTION Plan Revision Executed Adjustments (+) Adjustments ( ) Balance Cash inflows 1,161,800, ,243,526, ,051, ,284,578, Taxes 700,430, ,696, ,503, ,199, Social insurance contributions 384,217, ,494, ,494, Donations ,614, ,326, ,940, Other inflows 72,343, ,088, ,144, ,233, Inflows from loan repayments 4,809, ,633, , ,711, Cash payments 1,289,293, ,444,789, ,189, ,486,979, Employee salaries 372,128, ,004, ,890, ,894, Other personal income 10,819, ,119, ,953, ,072, Goods and services used 68,960, ,138, ,273, ,411, Current repairs and maintenance 20,466, ,415, ,535, ,951, Interests 70,403, ,922, , ,947, Rents 7,875, ,928, , ,046, Subsidies 14,230, ,425, ,425, Transfers to individuals, NGO and public sector 91,880, ,307, ,418, ,725, Transfers for social welfare 497,872, ,967, , ,976, Other expenditures and reserves 32,785, ,740, ,511, ,252, Loans given 1,720, ,752, , ,859, Capital expenditure and securities purchased 67,972, ,294, ,302, ,596, Reduction of arrears repayments 32,177, ,543, , ,588, Repayment of guarantees ,230, ,230, Cash deficit (1 127,492, ,138, Cash deficit financing sources ( ) 127,492, ,262, ,138, ,401, Net borrowings 119,492, ,275, ,045, ,320, Sale of assets 8,000, ,948, , ,960, Donation Net cash ,038, , ,120, Net increase/decrease of liabilities (10,2 10,1) 32,177, ,363, Liabilities as of 31,12, ,088, ,088, Liabilities as of 31,12, ,177, ,724, ,724, Adjusted expenditures (2, + 10,) 1,257,116, ,459,153, ,189, ,501,343, Cash inflows 1,161,800, ,243,526, ,051, ,284,578, Modified Cash deficit (12 11) ,138, Deficit financing sources(15,+16,+17,+18,+19,) 95,315, ,626, ,138, ,765, Net borrowings 119,492, ,275, ,045, ,320, Sale of assets 8,000, ,948, , ,960, Donation Supplier ,363, ,363, Net cash ,038, , ,120,076.06

80 Table 6 Funds of public institutions and budget users that are not in the CTA system DESCRIPTION PU within Ministry of Culture PU within Ministry of Education PU within Health Fund Police Academy Examination Centre Montenegrin National Theatre Zetski dom Royal Theatre National Tourism Organisation Academy Of Science and Arts Veterinary clinics Radio and PU Morsko Television dobro Of Montenegro 1 Cash inflows 1,201, ,166, ,151, , , , , , , ,198, ,655, , ,051, Taxes 7,198, , ,503, Social insurance contributions Donations 94, ,364, , , , ,326, Other inflows 1,107, ,802, ,298, , , , , , , ,655, ,144, Inflows from loan repayments 77, , Cash payments 1,218, ,502, ,743, , , , , , , , ,198, ,655, , ,193, Employee salaries and other personal income 1,873, , , ,890, Other personal income 90, ,828, , , , , , , ,953, Goods and services used 639, ,231, ,566, , , , , , , ,276, Current repairs and maintenance 15, , , , , , ,535, Interests 1, , , Rents 5, , , Subsidies Transfers to individuals, NGO and public sector 48, , , ,198, ,655, , ,418, Transfers for social welfare 5, , , Other expenditures and reserves 178, , ,521, , , , , ,511, Loans given 33, , , Capital expenditure and securities purchased 198, ,098, , , ,302, Purchase of non financial assets 198, ,098, , , ,302, Purchase of financial assets Repayment of arrears from the previous period 45, , Repayment of guarantees Cash deficit/surplus 16, , , , , , , , , , Union of Municipalities Total 4 Cash deficit financing sources 16, , , , , , , , , , Domestic financing sources w/o deposits 13, , , Net credit facilities 4, , , Debt increase under credits 4, , , Repayment of principal Net borrowings under securities issue Securities issue Repayment of principal Sale of assets 8, , , Sale of non financial assets 8, , , Sale of financial assets Net cash changes 2, , , , , , , , , , Foreign financing Net credit facilities Debt increase under credits Repayment of principal Net borrowings under securities issue Securities issue Repayment of principal Donations

81 Table 7 Overview of expenditures for debt repayment, interest and other expenses under foreign loans Creditor Credit Principal Interest Other costs Total Steiermarkische Bank Sparkassen AG Purchase of special fire protection vehicles 2,200, , ,726, Instituto di credito oficial Spain Construction of regional recycling centre in Livade 50, , Societe Generale Paris Financing of Education Information System in Montenegro 5, , Exim Bank Hungary "Ante Djedovic" Primary School Project 1,399, , ,492, Improvement of school infrastructure in Montenegro ("LOT I","LOT II","LOT IV" and "PS in Podgorica") 1,262, , ,342, Natixis Bank France Project Rehabilitation and expansion of power distribution network in MNE 387, , , KfW German Development Bank Project Rehabilitation of hydropower plant Perucica 240, , , Project Energy efficiency in public institutions 27, , , Project Water supply and wastewater disposal in the coastal region (Phase II ) 833, , Project Water supply and wastewater disposal in the coastal region (Phase III and IV) 4,414, , , ,664, Credit Suisse International Loan for the budget 8,000, ,112, , ,232, Czech Export Bank Assumed debt of MNE Railway Infrastructure for the Czech credit agreement no ,521, , ,629, Assumed debt of MNE Railway Infrastructure for the Czech credit agreement no ,563, , ,692, Assumed debt of MNE Railway Infrastructure for the Czech credit agreement no ,037, , ,208, Polish Credity Facility Assumed debt of MNE Railways Company 347, , , Int. Bank for Reconstruction and Dev. (IBRD) IBRD ME Consolidation loan 740, , , IBRD ME Consolidation loan E 5,661, ,337, ,998, IBRD ME Consolidation loan F 1,770, , ,947, IBRD ME Energy efficiency loan 1,536, , ,552, IBRD ME Loan for LAMP Project under the Agreement signed on , , , IBRD ME Loan for MNE Institutional Development and Agriculture Strengthening Project (MIDAS) 19, , IBRD 7819 ME Loan for Health System Improvement Project under the Agreement signed on , , IBRD 8091 ME DPL 779, , IBRD ME Loan for Higher Education and Research for Innovation and Competitiveness Project (HERIC) 23, , IBRD ME Loan for Environmentally Sensitive Tourist Areas Project (MESTAP) , , EUROFIMA Assumed liabilities as per Government Conclusion of for Railway Transport Contract ,636, , , ,751, Assumed liabilities as per Government Conclusion od for Railway Transport Contract , , , Assumed liabilities as per Government Conclusion of for Railway Transport Contract , , , Assumed liabilities as per Government Conclusion of for Railway Transport Contract , , , Assumed liabilities as per Government Conclusion of for Railway Transport Contract , , , Assumed liabilities as per Government Conclusion of for Railway Transport Contract , , ERSTE BANKA Sperkassen AG As per Government Conclusion of , BG ( medical equipment) 361, , , As per Government Conclusion of , BG ( medical equipment) 186, , , As per Government Conclusion of , BG ( medical equipment) 666, , , ERSTE BANK AG Loan Agreement of and Loan Agreement of ,500, ,802, ,302, Paris Club the Netherlands Debt settlement agreement signed on , , , Paris Club Austria Agreement of between Government of MNE and Oesterreichische Kontrollbank AG Vienna , , Paris Creditors Club euro payments Law on ratification of agreed protocol on FRY debt consolidation (OG FRY International Treaties 2/2002) 3,091, ,147, ,238, Paris Creditors Club non euro zone USA Law on ratification of agreed protocol on FRY debt consolidation (OG FRY International Treaties 2/2002) 802, , ,554, Paris Club USA Debt rescheduling agreement of between FRY and USA for credit groups , , International Financial Corporation (IFC) Loan No and Consolidation debt / Igalo 1,514, , ,541, Loan No Consolidation debt and other IFC loans 297, , ,510.54

82 European Bank for Rec. and Dev. (EBRD) Agreement of between Republic of MNE and EBRD (11.5 mil) Rehabilitation of Regional Roads 926, , ,019, Agreement of between Government Ministry of Finance and EBRD Infrastructure project for Danilovgrad 2, , , Agreement of between Government Ministry of Finance and EBRD for AD "Kontejnerski terminal" 1,425, , , ,502, Agreement of between Montenegrin Railway Company and EBRD Rehabilitation of tracks infrastructure 785, , , European Community (EC) Loan of 225 mil Loan Agreement of between EC and FRY (Law on FRY Borrowing from EC, OG FRY 53/01) 240, , , Loan of 55 mil for support to balance of payments and strengthening national FX reserves (OG FRY Intern. Treaties 01/2003) 198, , Council of Europe Development Bank (CEB) Loan Agreement of between Council of Europe Development Bank (CEB) and MNE 120, , Government Conclusion of Contribution for acceding the Bank 3, , International Development Association (IDA) Debt repayment for 10 loans 1,549, , , ,008, European Investment Bank (EIB) Loan No Component B1 (Transport rehabilitation) of , , ,002, Loan No (Railway rehabilitation) of , , ,528, Loan No Component A1 (Rehabilitation of roads and bridges) of , , , Loan No (Water and sanitation B) of , , Loan No (Montenegrin Railways Company II A) 72, , Loan No (Rehabilitation of roads and bridges A3) of , , Loan No (Solid waste project) 10, , Loan No (Water and sanitation C) of , , Loan No (Urgent flood relief and prevention project) of , , Loan No Component B2 (Loan for reconstruction of main breakwater in Port of Bar) 400, , , Loan No (Rehabilitation of roads and bridges) of , , Issuance of bonds mil EUROBOND Fiscal Agency Agreement of ,050, ,050, Issuance of bonds mil EUROBOND Fiscal Agency Agreement of ,750, ,750, Issuance of bonds mil EUROBOND Mandate Letter /1 of , , Issauance of bonds mil CITIBANK Fiscal Agency Agreement of ,711, ,711, TOTAL 66,404, ,207, ,312, ,924,138.37

83 Table 8 Overview of domestic debt balance, and expenditures for principal and interest repayment by individual banks Creditor Bank Purpose Agreement no. Date of signing Contracted amount Terms Debt balance as of Debt balance as of ERSTE BANK PODGORICA Overdraft credit improving daily liquidity ,00 7.5% fixed ,00 2 ERSTE BANK PODGORICA Building of Poli ce Directorate in Podgori ca LD 10050/ ,00 6.5% + 6M , ,43 3 ERSTE BANK PODGORICA Restoration of monuments of culture in Ceti nje LD 10103/ ,00 6.5% + 6M , ,75 4 ERSTE BANK PODGORICA Assumed debt from Montenegrin Solidary Housing Fund (Agreement No /1) LD 10040/ ,00 6.5% + 6M , ,87 5 ERSTE BANK PODGORICA Assumed debt from Regional Water Supply System for the Coas t ( /1 of ) LD 10196/ ,00 6.5% + 6M , ,55 6 ERSTE BANK PODGORICA Assumed debt from Railway Transport Company (Agreement No /1 of for 8,500, ) LD 10117/ ,00 6.5% + 6M , ,15 7 ERSTE BANK PODGORICA Assumed debt from Railway Transport Company (Agreement No of ) LD 11286/ , % + 3M ,30 8 ERSTE BANK PODGORICA Long term loan agreement , % + 6M ,00 9 ERSTE BANK PODGORICA Long term loan agreement ,00 6M EURIBOR ,00 Outflows for principal in , , , , , , ,69 TOTAL ERSTE BANK , , , ,61 10 SOCIETE GENERALE BANK Revolving / ,00 7.5% fixed , ,00 11 SOCIETE GENERALE BANK Long term loan for budget financing ,00 3M EURIBOR , , ,00 12 SOCIETE GENERALE BANK Leasing agreement 121/ ,00 7% p.a , ,57 13 SOCIETE GENERALE BANK Long term loan agreement ,00 6M EURIBOR ,00 TOTAL SOCIETE GENERALE BANK , , , ,57 14 CRNOGORSKA KOMERCIJALNA BANK AD PODGORICA Long term loan agreement ,00 3M EURIBOR , ,00 15 CRNOGORSKA KOMERCIJALNA BANK AD PODGORICA Revolving loan ,00 nominal , ,47 TOTAL CKB , , , ,47 16 Hipotekarna Bank Short term loan/liquidity / ,00 5.5% p.a ,00 TOTAL Hipotekarna Bank , ,00 17 Hypo Alpe Adria Bank Short term loan/liquidity AA13178DFXTC , ,00 18 Hypo Alpe Adria Bank Short term loan/liquidity AA13211JD1XQ , ,00 TOTAL Hypo , ,00 I LOANS WITH COMMERCIAL BANKS , , , ,65

84 Table 9 Overview of expenditures under commitments from the previous period by spending units Eco code Audited entity Repayment of arrears from past period 2013 Executed in 2012 Current budget Executed Expenditure based on court decisions Other expenditure recorded as arreas from past period President of Montenegro Parliament of Montenegro National Electoral Commission Resources for work of parliamentary parties Council for civic control of work of police Cetinje Parliamentary Forum National Council for EU Integration Constitutional Court of Montenegro Judiciary 3,676, , ,170, ,170, Prosecutors Offices 54, , , General Secretariat of Government of MNE 6, , , Council for Privatization and Capital Projects 5, , Secretariat for Legislation MNE Investment Promotion Agency Resourcs for resolving housing needs Commission for control of Procurement Procedures 7, , , Concessions Committee Official Gazette of Montenegro Office of MNE Agent before European Court for HR Council for Regulatory Reform and improvement Commission for distribution of funds to NGOs Secretariat for Development Projects Ministry of Justice 2,871, ,801, ,801, Misdemeanour bodies 7, , , Centre for Mediation Ministry of Interior 3,433, ,324, ,324, Police Academy PE Regional Diving Training Centre Human Resource Management Authority Ministry of Defence 546, ,000, ,565, ,131, ,433, Directorate for protection of confidential data Ministry of Finance 24,066, ,632, ,346, ,814, ,531, Reserve Administration for Money Laundering Prevention Public Procurement Administration Statistics Bureau Commission for Distrib. of Proceeds from Games of Chance Commission for control of state aid and assistance Protector of property and legal interests of MNE Ministry of Foreign Affairs and EU Integration Montenegrin Diaspora Centre Ministry of Education and Sports 86, , , University of Montenegro Bureau for International Cooperation Bureau for Education Services Examination Centre Administration for the Youth and Sports Ministry of Culture 4, , , State Archives 6, , , Montenegrin National Theatre

85 Royal Theatre "Zetski Dom" National Library of Montenegro Natural History Museum Montenegrin Cinematheque Musical Centre of Montenegro Library for the Blind National Museum of MNE Nautical Museum of MNE Centre for Modern Arts Centre for Conservation and Archaeology Ministry of Economy 10, Bureau for Metrology Board for Quality Energy Efficiency Fund Intellectual Property Institute Agency for Protection of Competition Ministry of Transport and Maritime Affairs 130, , , Ministry of Agriculture and Rural Development 351, , , Ministry of Health 10, , , Health System Improvement Project Ministry for Human and Minority Rights Fund for Protection and Exercise of Minority Rights Centre for Development and Preservation of Minority Cultures Ministry of Sustainable Development and Tourism 143, , , Environmental Protection Agency National Tourism Organization Institute of Hydrometeorology and Seismology , , Ministry of Labour and Social Welfare 22, , , Social Council Ministry for Information Society 15, Ministry of Science Commission for prevention of conflict of interest Protector of human rights and freedom State Audit Institution Montenegrin Academy of Science and Arts Subsidies to municipalities Veterans' Association Matica Crnogorska National Security Agency Agency for Protection of Personal Data and Freedom Red Cross of Montenegro Montenegrin Olympic Committee Agency for Peaceful Resolution of Labour Disputes Senate of the Old Royal Capital Petrovic Njegos Foundation Audit Authority Inspection Authority pension and Disability Insurance Fund 41, , , Health Insurance Fund 1, , , Employment Bureau 240, , , Compensation Fund labour Fund Ministry of Transport and Maritime Affairs Ministry of Sustainable Development and Tourism Total 35,738, ,709, ,543, ,578, ,964,778.56

86

87 PART II IMPLEMENTATION OF RECOMMENDATIONS FROM THE AUDIT REPORT ON THE FINAL STATEMENT OF ACCOUNTS OF THE STATE BUDGET OF MONTENEGRO FOR

88 88

89 The recommendations, the implementation of which is the subject of this examination, were adopted by way of a Conclusion passed by the Parliament on 23 December 2013 with reference to the recommendations given in the Audit Report on the Final Statement of Accounts of the State Budget of Montenegro for In addition, for the reporting period October 2013 October 2014, the SAI has singled out most important recommendations from the previous years and disclosed their implementation based on the Audit Report on the Final Statement of Accounts of the State Budget of Montenegro for 2012, the Briefing on the implementation of the Action Plan for the implementation of recommendations of the SAI for Quarters 1 an 2 in 2014, submitted by the Ministry of Finance, and the findings of the audit of the Proposed Law on the Final Statement of Accounts of the State Budget of Montenegro for Variance analysis and mathematical accuracy a) In the coming period, the Government of Montenegro and the Ministry of Finance need to take account of the fiscal limitations established by the annual Budget Law. The audit has found that the limitations were respected when reallocating funds along the expenditure lines, while the observed irregularity in reallocation was recorded in organizational codes for the current budget reserve. During 2013, the number of spending units that exceeded the budget and expenditure lines that were observed for overruns was reduced, which is an indication of improving fiscal discipline. The recommendation has been partially implemented. b) The Ministry of Finance needs to adopt a Rulebook on the records and repayment of arrears and, in accordance with the Rulebook, to establish a centralized record of the occurrence and repayment of arrears. The Briefing on the implementation of the Action Plan for the implementation of the recommendations of the SAI for Q (hereinafter: the Briefing) states that the time frame for the implementation of the recommendation is Q4 of the current year. On 1 January 2014, as set out in the Briefing, the Ministry of Finance introduced new software using the SAP system, which will include the records of arrears and enable the Ministry of Finance to have information on arrears of all spending units. The recommendation is in the process of implementation. c) It is recommended that the compensation appropriations be planned within the authorized institution the Compensation Fund. The Compensation Fund is an institution that possesses relevant documentation and information that is essential for making expenditure projections in respect of compensations. Review of the Budget Law for 2014 shows that the Ministry of Finance planned funds to repay the debt in respect of compensation to former owners of the seized property rights within the authorized institution the Compensation Fund. The recommendation has been implemented. 2. Budget revenues a) It is recommended to the Ministry of Finance to ensure timely and complete record of public revenues in accordance with the Order on the method of collecting public revenues and the Directions on State Treasury Operations. The audit of the Proposed Law on Final Statement of Accounts of the State Budget for 2013 found that current revenues in the amount of 7,991, were recorded as revenues in the General Ledger on the basis of direct payments to the Treasury General Account, which is not in accordance with the Order on the method of collecting public revenues and the Directions on State Treasury operations. The recommendation has not been implemented. 89

90 b) It is recommended to the Ministry of Finance to examine the possibility of providing adequate supervision of the collection of revenues from fees for the use of the domain "ME", by way of transferring the account for the payment of this fee to the group of accounts for concessions and other fees, the collection of which is controlled by the Tax Administration. Fees for the use of the domain ME for 2013 were paid directly to the Treasury General Account. The Briefing indicated that the Ministry of Finance sent a letter ref of 4 November 2013 to the registration agent Domen DOO, instructing them that the revenues of the Budget of Montenegro from fees for the use of the domain ME should be paid to Account no Fees for the Use of the Domain ME. Domen DOO acted upon the instruction received and paid the fees for Q to the specified account in January The recommendation has been implemented. c) It is recommended to integrate revenue modules of the Ministry of Interior and the Police Administration, considering that the Police Administration has been included in the RTGS system, i.e. connected to the communication network of the Central Bank of Montenegro. It was found that activities were undertaken on integrating revenue modules of the Ministry of Interior and the Police Administration, which has established electronic communication link with the Central Bank of Montenegro, which is a prerequisite for the functioning of the RTGS (Real Time Gross Settlement) system. Takeover of data on transactions on payment accounts and processing of orders for the transfer of money to the Treasury General Account through the revenue modules has been performed starting from 21 November The recommendation has been implemented. d) It is recommended to the Ministry of Finance to keep all compensations recorded in the State Treasury General Ledger and to implement them in accordance with the spending restrictions defined by annual laws on budget. Based on Decision No /2 of 4 June 2013, the Ministry of Finance recorded inflows and outflows of funds in the amount of 485, The inflow of funds refers to the collection of the corresponding part of profit under the annual account of the Central Bank for 2012, pursuant to paragraph 4 of Article 69 of the Law on the Central Bank of Montenegro and the Decision on Profit Distribution of the Central Bank for The outflow of funds was made on the basis of commitments to the Central Bank in connection with the issuance of treasury bills during The audit found that other compensations were not registered in the Treasury's General Ledger. The Briefing stated that the Ministry of Finance, in cooperation with the Tax Administration, would work on recording any compensation in the Treasury's General Ledger The recommendation has been partially implemented. e) It is recommended to provide a consistent IT system for the Tax Administration and the Ministry of Finance, which would enable using overpayments made for a part of tax liabilities for settling other type of tax payables. The Briefing stated that the time frame for implementation of the above recommendation is Q4 2014, and the implementation of this recommendation is ongoing. The Ministry of Finance, in cooperation with the Tax Administration, prepared Instructions for reallocations between the Tax Administration and the Ministry of Finance Directorate of State Treasury (the document no. 01/5772/1 of 12/05/2014), which provide for automation of reallocation procedures. The recommendation is in the process of implementation. f) It is recommended to the Ministry of Finance to consider cancelling accrued interest on tax debt which has not been set off against overpaid taxes on the basis of taxpayers justified claims arising from Decisions issued by the Tax Administration. The Briefing stated that the time frame for implementation of the above recommendation is Q The recommendation is in the process of implementation. 90

91 3. Budget expenditures a) It is necessary to require all the users of public funds to duly submit the IOPPD 1 Form Monthly report on paid personal income, accrued and withheld personal income taxes and contributions on and from this income, and OPD 3 Form Annual report on paid personal income, accrued and withheld personal income taxes and contributions on and from this income for all employees. The audit of the Proposed Law on Final Statement of Accounts of the State Budget for 2013 in the audited spending units found that the mentioned irregularity repeated in 2013 and that the budget users did not submit the IOPPD 1 Form Monthly report on paid personal income, accrued and withheld personal income taxes and contributions on and from this income, and OPD 3 Form Annual report on paid personal income, accrued and withheld personal income taxes and contributions on and from this income for all employees within the specified time. The recommendation has not been implemented. b) It is recommended that reporting on the use of current budget reserve funds be performed in accordance with the Rulebook on drafting, composing and submitting financial reports on the budgets of the Republic, Extra Budgetary Funds and Local Government Units on Form 9 Report on using current budget reserve. The review of the available documentation showed that 79 (of 105) spending units submitted the Report on using current budget reserve, with 1 of them delivering Form 9 after the specified time limit, which is not in accordance with the Rulebook on drafting, composing and submitting financial reports on the budgets of the Republic, Extra Budgetary Funds and Local Government Units. It was also found that the budget users which used funds from the current budget reserve in 2013 submitted the Report on using current budget reserve. The recommendation has been implemented. 4. Capital budget a) It is recommended to ensure full implementation of the Budget Law in planning and executing the capital budget, and not to charge any payments belonging to the current budget against the capital budget account. The audit of the Proposed Law on Final Statement of Accounts of the State Budget for 2013 found that expenditures that had not been planned by the annual Budget Law were paid from the capital budget. The recommendation has been partially implemented. b) Before the adoption of the annual Budget Law, it is necessary to check whether the assumptions used in planning and proposing specific projects are realistic. Special attention should be paid to identified irregularities which have been repeating over a longer period, thus suggesting that a certain number of projects have not been implemented due to improperly examined assumptions related to urban development and technical requirements, planning documentation and reviewed project documents. The audit of the capital budget showed that relevant ministries or bodies within the ministries that are responsible for the execution of capital budget did not implement 4 (four) capital projects in 2013 because all the necessary conditions for the start of works on the planned projects were not provided. The recommendation has not been implemented. 91

92 5. State Property Annual Report of the State Audit Institution for the Period October 2013 October 2014 Implementation of the recommendations given in the Audit Report on the Final Statement of Accounts of the State Budget for 2012, with respect to state property, was examined on the basis of established facts in the audited entities that were subjected to the audit of the Proposed Law on Final Statement of Accounts of the State Budget for 2013 and it was found that there were irregularities in the implementation of the Law on State Property and relevant secondary legislation in 2013 as well. a) It is recommended to spending units to keep separate records of movable and immovable assets in their bookkeeping, based on valid documentation, in accordance with the Rulebook on Unified Classification of the Accounts of the State Budget and the Classification of Assets by Groups and Methods for Determining Depreciation. b) It is necessary to ensure consistent implementation of the Law on State Property and the Regulation on keeping records of movable and immovable assets and taking inventory of state owned property, so far as it relates to the obligation of entering data in the prescribed forms and their submission to the competent state authority the State Property Administration. In accordance with Art.11 of the Rulebook on the terms for and performance of inventory taking and harmonization of bookkeeping records with the actual situation (OGM 34/09 of 29 May 2009), it is necessary to draw up an inventory report. The Briefing noted that the spending units keep separate records of movable and immovable property in their accounts, but that there is a lack of promptness in some budget users in terms of the inventory report and the delivery of the required forms to the State Property Administration. The recommendations under a) and b) have been partially implemented. c) It is recommended to entrust capital and current repair and maintenance tasks to the State Property Administration since that is the mandate of this Administration defined by a regulation and it has the necessary organizational, technical and staffing capacity to do that. More expensive solutions are often applied in practice, such as entrusting these tasks to other legal entities or individuals. The Briefing by the Ministry of Finance states that the budget users engage, where possible, the State Property Administration for capital and current repairs and maintenance tasks. However, in some cases, and because of the urgency, they hire other legal entities. By the Regulation on conditions and manner of use of official buildings and business premises owned by Montenegro, the Government of Montenegro tasked the State Property Administration with providing the capital and current repair and maintenance of facilities. The recommendation has been implemented. 6. Public procurement Implementation of the recommendations given in the Audit Report on the Final Statement of Accounts of the State Budget for 2012, with respect to public procurement, was examined on the basis of established facts in the audited entities that were subjected to the audit of the Proposed Law on Final Statement of Accounts of the State Budget for 2013 and it was found that there were irregularities in the implementation of the Public Procurement Law in 2013 as well. 92

93 a) It is recommended to the spending units which have not done so yet, to appoint a person to act as a Procurement Officer in accordance with Article 58 of the Public Procurement Law, as well as to timely adopt a procurement plan in accordance with deadlines established by the law, with an obligation to deliver it to the Public Procurement Administration. The audit of sampled spending units showed that one spending unit had not issued a decision on the appointment of a person in charge of public procurement. The recommendation has not been implemented. b) It is recommended to spending units to conduct public procurement by using the procedure that is appropriate to the nature and estimated value of the subject matter of public contract, in accordance with Articles 20 and 21 of the Public Procurement Law (OGM 42/11). The audit of sampled spending units showed that public procurement was organized by using appropriate procurement procedures, in line with Articles 20 and 21 of the Public Procurement Law. Also, it was found that auditees split the public contracts representing a whole in order to avoid the application of the law and prescribed procedures, which is not in line with Article 44 of the Public Procurement Law. The recommendation has not been implemented. c) It is recommended to spending units to ensure that the annual volume of public contracts executed through direct agreement does not exceed the limit prescribed by Article 30 of the Public Procurement Law. According to the Briefing, not all the budget users complied with the above recommendation. In several spending units, the volume of public contracts implemented through direct agreement exceeded the prescribed limit. According to the data of the Public Procurement Administration, the share of direct agreement in all public contracts in 2013 amounted to 7.04% of the total of 277,001, of signed public contracts. The recommendation has not been implemented. d) It is recommended to all spending units to provide accurate recording of required data on awarded public contracts and thus enable the compiling of a complete and accurate report, in accordance with Articles 117 and 118 of the Public Procurement Law. In the process of audit of public procurement, in a sample of selected spending units, no violation of Article 118 of the Public Procurement Law was found. The recommendation has been implemented. 93

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95 PART III EXCERPTS FROM THE FINAL AUDIT REPORTS ON INDIVIDUAL AUDITS performed in the period October 2013 October

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97 EXCERPT FROM THE AUDIT REPORT ON REVENUES OF THE BUDGET OF MONTENEGRO FROM CONCLUDED CONCESSION CONTRACTS FOR THE USE OF NATURAL RESOURCES Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Regularity audit cross section audit Government of Montenegro Concessions Commission, Ministry of Economy, Ministry of Agriculture and Rural Development, Forest Administration, Water Administration, Ministry of Transport and Maritime Affairs, Port Administration, Tax Administration and Administration for Inspection Affairs Revenues of the Budget of Montenegro from concluded concessions contracts for the use of natural resources 60 auditing days Mr Branislav Radulović, PhD, Member of Senate Head of Auditing Board Mr Milan Dabović, PhD, President of Senate Member of Auditing Board 97

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99 I BASIC ELEMENTS OF AUDIT 1. Legal basis for performing audit The legal basis for conducting the audit of the revenues of the Budget of Montenegro from concluded concessions contracts for the use of natural resources is contained in the following documents: Law on State Audit Institution (OGM 28/04, 27/06, 78/06 and 17/07); The State Audit Institution Annual Audit Plan (no /12); Auditing Board Decision on Audit Conducting (no of 4 April 2013); Rules of Procedure of the State Audit Institution (OGM 50/07); International Auditing Standards for Public Sector (ISSAI). 2. Auditees: Government of Montenegro Concessions Commission, Ministry of Economy, Ministry of Agriculture and Rural Development, Forest Administration, Water Administration, Ministry of Transport and Maritime Affairs, Port Administration, Tax Administration and Administration for Inspection Affairs. 3. Audit subject, scope, type and objectives: The subject of audit is the revenues of the Budget of Montenegro from concluded concessions contracts for the use of natural resources. Given the direct impact on the collection by the mentioned revenues, the audit has also covered concession granting, concession calculating, concession collecting and supervising over the execution of concession contracts by auditees. The subject audit has the character of a cross section audit and regularity (legality) audit. The objectives of the audit of the revenues of the Budget of Montenegro from concluded concessions contracts for the use of natural resources are as follows: to express an opinion regarding regularity (legality) of concession granting, concession calculating, concession collecting and supervising of the execution of concession contracts by auditees and to verify compliance of the auditee s work with the applicable laws and enabling regulations relevant to this area. 4. Revenues of the Budget of Montenegro from the fees for exploitation of natural resources The following Table presents a review of collected revenues following the distribution of funds in the State Treasury for the period in respect of: fees for exploitation of resources of general interest and fees for exploitation of natural resources. 714 FEES Fees for use of resources of general interest ,73 2,020,524, , , , Fee for exploitation of waters , , , , , Fee for material excavated from watercourses , , , , , Fee for protection of waters against pollution , , , , , Fee for exploitation of results of geological exploration 7.956, , , ,04 0, Fee for use of natural resources , , , , , Fee for exploitation of forests , , , , , Fee for exploitation of mineral raw materials , , , , , Concession fee for marina construction and management , , , Concession fee payable by owners of private forests ,27 Total: , , , , ,49 99

100 The presented amount of budgetary revenues of the State Budget in this respect has been partially affected by the amendments to the legal framework. Namely, according to the Law Amending the Law on Local Self Government Financing of 1 January 2011, the share of municipalities in the revenues from concessions and other fees for exploitation of natural resources located in their territories amounts to 70% rather than the previous 30%. 31 The following Table presents the fall of revenues related to the budgetary item 7141 Fees for exploitation of resources of general interest and item 7142 Fees for exploitation of natural resources, from 6.92 mill. in 2009 to 1.96 mill. in 2012 with a slight recovery in 2013: The following Table represents the trend of revenues related to budgetary item 7141 Fees for exploitation of resources of general interest in the period : 3,500, Revenues ,000, ,500, ,000, ,500, ,000, , The following Table presents the trend of revenues related to budgetary item 7142 Fees for exploitation of natural resources for the period : 4,000, Revenues ,500, ,000, ,500, ,000, ,500, ,000, , Reasons for conducting audit In addition to the recorded decrease in the budgetary revenues in this respect, the reason for audit conducting is also contained in the fact that the audit of the Final Statement of Accounts of the Budget of Montenegro for 2010 also covered the budgetary revenues of Montenegro from concession fees (auditees: Ministry of Economy, Water Administration, Port Administration, Tax Administration and Concessions Commission). 31 The municipal share in the revenues from concession fees for exploitation of forests amounted to 50% for 2011, and 70% from 1 January The municipal share in the revenues from the concession fees for exploitation of ports amounted to 20% from 1 January 2012, and 50% from 1 January

101 Based on this conducted audit, the SAI has provided the following recommendations: more efficient cooperation and mutual coordination should be established between the competent administration authorities, whereas the concession fee calculation procedures should be carried out consistently, in order to enable the Tax Administration to carry out full and efficient audit and collection of tax revenues, in accordance with the regulations relevant to tax administration; consistent application of the Law on Concessions should be ensured, in order for all concessionaires to timely submit copies of each concluded concession contract to the Concessions Commission and other competent authorities. The mentioned audit has also established other recommendations and their implementation had to be verified by the subject audit, i.e. the following needed to be identified: if the concession contracts on extension of the exploitation rights concerning raw minerals for deposits Štojska Kneta and Čeoče have been extended and delivered to the Tax Administration; if the Tax Administration has collected the debts towards the state, and the status of tax debt in respect of concession fees; if the recommendation has been followed for the functions of tax debiting and collecting to be unified i.e. regional units to carry out debiting and collecting, and the Central Office to carry out supervising and coordinating activities for the purpose of better timeliness of the procedure. The SAI audit of the Final Statement of Accounts of the Budget 2010 has also identified the following as necessary: establish a better quality supervision over the execution of the concession contracts; examine all concession contracts, and the contracts under which the concessionaires have been failing to meet the obligations towards the state should be terminated. II CONCLUDING STATEMENTS AND RECOMMENDATIONS Based on conducted audit and established state of facts, as well as after deliberation of the auditees' Opinion regarding the Preliminary Report of the SAI on audit of the revenues of the Budget based on concluded concessions contracts (no /12) as of 27 March 2014, and pursuant to Art. 50 of the Rules of Procedure of the State Audit Institution, the Auditing Board, composing of Mr Branislav Radulović, PhD (member of Senate Head of Auditing Board) and Mr Milan Dabović, PhD (President of Senate member of Auditing Board), at its session held on 29 May 2014, adopted the following: Normative framework FINAL AUDIT REPORT on the revenues of the Budget from concluded concessions contracts The audit has found that the granting of concessions for natural resources is regulated by a large number of laws and enabling regulations, which in practice creates a problem with regard to establishing a uniform way of conduct in this area. On the other side, some segments in the area of concessions have not been regulated to a sufficient extent. Based on the conducted audit, the State Audit Institution: 1. Recommends that the Government should consider the possibility of identifying new organizational entities whose activities would be adjusted to the Law on Concessions and supporting legislation, in view of sustainable managing of the state natural resources. 101

102 It is recommended that the following should be additionally improved: 1.1. Procedures to be followed in the concession granting process: In the form of a secondary legislation act, the Government is to set criteria for establishing the guarantee amount (or other means of collateral), for the purpose of securing the concession contract execution, including but not limited to: - for obtained right to detailed explorations - for obtained right to exploitation Accurate time frames for which a guarantee or other collateral is issued should be specified Procedures to be followed in the process of concession contracts execution The Government Ministry of Finance is recommended to develop an Instruction on record keeping of concession receivables within spending units, concession grantors and establish centralised records regarding incurring and collecting of concession receivables Supervisory role after the concession granting Envisage time frames and mandatory reporting forms for Concessionaires to submit to the competent state authorities (concession grantors) for the purpose of overseeing the execution of the obligations under the concession contract. The Government is recommended to initiate proposing of laws and enabling regulations to discourage export of wood mass in the form of logs, cut timber and heating wood, as well as regulations to encourage revitalisation of wood industry including higher processing phases that result in better economic effects and guarantee moderate exploitation and protection of forests. Concession granting The audit has found that the procedures of granting concessions for forests, carried out by the Forest Administration as the competent authority, have not been carried out fully in accordance with the procedure envisaged by the law. - The competitions announced for granting forest exploitation included not all of the mandatory eligibility criteria envisaged by the law to be met by the participants in order to qualify for concession granting. - The Forest Administration has amended the Contract Amending the Annex to the Contract without following the procedures or clear reasoning. - In 2012 new concessions were granted to the companies that failed to fulfil the previous contracts and have accumulated losses and debts towards the state. The audit conducted with the Ministry of Economy has found that there are contracts with concessionaires which have not been extended and the concession fee has not been collected for a number of years. Based on the conducted audit, the SAI has acquired reasonable assurance that the concession granting has been carried out without strict application of laws and enabling regulations. 2. It is necessary to ensure application of laws and enabling regulations in all cases and conclude contracts only with the concessionaires who have credentials for performance of the subject concession activity and have no debt towards the state. Concession Contract Security The Law on Concessions (Art. 43 item 12) provides that a Concession Contract particularly is to include: the amount and method of securing a performance bond for the concession contract. 102

103 The subject audit and analysis of the concluded concession contracts have found the following with regard to the security: - Concession Contracts that the Forest Administration has entered into with the concessionaires, although including the provisions on performance bond for the concession contract were not secured by a guarantee. - During the audit procedure, the Ministry of Economy failed to present for information purposes the mortgage evidence for the following concessionaires: Coal Mine Pljevlja, JSC Saltworks Bajo Sekulić Ulcinj, JSC Boksiti Cetinje, Balkan Energy RU Rudnik Mrkog Uglja Berane Berane, LLC Breznik Pljevlja, JSC Željezara Nikšić, JSC Zavod za Izgradnju Bara, JSC Mermer Danilovgrad Deposit Maljat, JSC Gradir Montenegro Nikšić and JSC Primorje Ulcinj. - The state auditor was not presented commercial bank guarantees for the following concessionaires: Mermer Danilovgrad Deposit Klikovače, Božović Nikšić, Montenegroput Bijelo Polje, Aquarius Budva, Mal Maguar Aluminium Zrt, Budimpešta Mađarska GP Građevinar and JSC Pljevlja under bankruptcy Vektra Montenegro. - Security has not been envisaged by the contract for the following concessionaires: Rudnici Boksita Nikšić, Bjelasica Rada Bijelo Polje, Mermer Danilovgrad, Deposit Krute and Kriva Ploča. 3. It is necessary to insist on the application of the Concessions Law so that a concession contract may not be entered into if the concessionaire has not provided a bank guarantee or other required security. Also, the concessions contracts need to ensure that an independent audit will be carried out. Concession calculation Based on the conducted audit the SAI could not obtain assurance that the Ministry of Economy has carried out the oversight over the excavated quantities of the mineral resources for concessionaires that were subjected to audit. The audit has found that the Ministry of Economy has failed to keep records of receivables from concession fees in respect of concession contracts and decisions on the variable part of the concession fee. The Water Administration failed to act in accordance with the provisions of Art. 17 paragraph 1 of the Law on Water Management Financing and passed decisions on interim calculation of the concession fee, (no later than the 20 th in a month for the previous one) but passed a decision on the final end of year calculation. 4. According to the Law, the concession grantors need to regularly submit decisions on interim calculation of the concession fee both to the Concessionaire and the Tax Administration for collection purposes. On one side, the mentioned ensures continuity of paying and overseeing the execution of the contractual obligations, and on the other the timeliness of inflows to the Budget of the State. Collection of concession fees The audit has found that a large number of concessionaires under bankruptcy has no immovable property or fails to regularly meet tax and other liabilities towards the state, which affected the collection of the concession fees. At the time of entering into the concession contracts, the state authorities (concession grantors) mostly fail to use collateral instruments for collection of the concession fee which would make the debt collection simple, fast and efficient. Out of the legally envisaged collection instruments, the tax authority did not use all the collateral instruments available for securing and collecting tax debt in the collection procedure of the concession fee to a sufficient extent. 103

104 Also, it has been found that the Tax Administration fails to provide to concession grantors (the Ministry of Economy, Forest Administration and Water Administration) information on the status of outstanding liabilities in respect of concession fees. The Administration for Inspection Affairs fails to deliver reports on conducted inspection supervision to the concession grantors (the Ministry of Economy, Forest Administration and Water Administration). 5. The Government is recommended to envisage binding measures of inter reporting between the Tax Administration, Administration for Inspection Affairs and concession grantors (Ministry of Economy, Forest Administration, Water Administration, and other concession grantors) in order to facilitate the Tax Administration to timely use all available collateral instruments and instruments for collection of tax debt. 6. A written procedure is recommended to be adopted for mandatory monthly or quarterly settlement of the concession fees between the concession grantors and Tax Administration which would be evidenced by Minutes taken and delivered to the line ministry, as well as the Concessions Commission. In this way coordination would be achieved in the collection of revenues from the concession fees. Supervisory role As regards the concessionaires where the inspectors have found that no inspection supervision has been carried out because the concessionaires either have not commenced the execution of contractual obligations or have not met the envisaged obligations, the inspectors did not do the follow up so it may not be concluded if such concessionaires are carrying out the contracted activity in the exploration phase or in the phase of exploitation of raw minerals. 7. It is recommended that in case of concessionaries who have not commenced the execution of contractual obligations or have not met the envisaged obligations follow up inspections should be carried out in order to identify if such concessionaires perform the activity. The audit has found the following state of facts in the Administration for Inspection Affairs according to the current Rulebook on Internal Organisation and Job Systematisation: - as regards the Mining Inspection only one post is systematised chief mining inspector (graduated mining engineer) and one person is employed, who carries out the competent activities on the whole territory of Montenegro; - as regards the Geological Inspection only one post is systematised chief geological inspector (graduated geology engineer) and one person is employed, who carries out the competent activities on the whole territory of Montenegro; - as regards the Water Management Inspection 4 (four) posts for inspectors are systematized including the chief inspector for water management while inspection supervision has been carried out by 2 (two) inspectors graduated civil engineers on the whole territory of Montenegro. 8. It is recommended to amend the Rulebook on Internal Organisation and Job Systematisation of the Administration for Inspection Affairs and to increase the number of systematised posts of the Mining, Geological and Water Management Inspection, and employ relevant number of staff in accordance with the law. 9. Inspectors supervision should be developed as a continuous process of overseeing activities carried out under concession contracts, particularly at the most plentiful locations. Our opinion is that the mentioned would facilitate new recruitment for posts really needed, ensure better control and collection of budgetary revenues and contribute to preservation of natural resources against devastation, deterioration and uncontrolled exploitation. 104

105 Concession grantors failed to carry out regular and efficient supervision over the execution of the contractual obligations, and the cooperation between the competent state authorities failed to be on the required level in the performance of the supervisory function. 10. It is necessary to establish coordination between the Ministry of Agriculture Forest Administration, Administration for Inspection Affairs (inspectors for forestry), Tax Administration, Police Administration, Customs Administration and local government authorities, in order to achieve efficient supervision and verification of fulfilment of concessionaires obligations under concession contracts. 11. The Ministry of Agriculture as the line ministry is recommended to strengthen the oversight over the work of the Forest Administration and undertake measures for urgent examination of all concession contracts. In line with the obligations under the contracts, it is necessary that the Ministry of Agriculture Forest Administration immediately obtains valid guarantees from all concessionaires. 12. Procedures for indemnification and revocation of concessions should be initiated against the concessionaires who have failed to meet the contractual obligations. 13. Ministries and other state authorities within their powers should carry out regular and effective supervision in accordance with the laws and enabling regulations and conclusions of the Government, relating to the monitoring of the execution of obligations undertaken under the contracts. Records of concessions contracts The audit has found that the concession grantors (Ministry of Economy, Forest Administration and Water Administration) failed to provide some of the concession contracts to the administration authority responsible for property affairs, for the purpose of recording encumbrances in the real estate cadastre. The concession grantor is obliged, within 15 days following the day of concluding the contract, to submit a counterpart of the concluded concession contract to the Concession Commission, the administration authority responsible for collection of public revenues and the administration authority responsible for property affairs, for the purpose of recording encumbrance in the real estate cadastre, which in some cases did not happen. Concession Commission is obliged to enter in the Register of Concession Contracts all changes related to concluded concession contracts chronologically in accordance with the legislative framework. Based on the findings of the audit, the SAI recommendations are as follows: 14. The legislative framework in the area of concessions should be supplemented by stipulating a legal obligation for the data below to be also entered in the Register of Concession Contracts: contracted concession fees payments of concession fees made by concessionaires conducted inspection and other supervision bankruptcy procedure entry of data on enforced collection. Based on the analytical review of the revenues recorded in the Treasury General Ledger, item 7419, presented in the Concession Commission Performance Report for 2012, no of 28 March 2013, as concession revenue in respect of the fees in the total amount of 3,465,022.02, it can be identified that the revenues amounting to 508, have also been recorded under this item, which by their nature do not belong to concession revenues (revenues in respect of student loan 105

106 repayments, fees for provided veterinarian and sanitary services, revenues from fees for tender documents purchase, revenues from damage compensation, fees for performed examinations etc.). The same applies to the Concession Commission Performance Report for For the purpose of true presentation, the Ministry of Finance is recommended to keep the records of budgetary revenues in line with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Republic Funds and Municipal Budgets. The competent Auditing Board of the SAI has determined that the scope and nature of found irregularities and flaws with the auditee require the following: The contents of the Final Report on Audit The revenues of the Budget of Montenegro from concluded concessions contracts for the use of natural resources should be provided to the following for information purposes: the Government, the Parliament and ministries responsible for supervision over the auditees (Ministry of Agriculture and Rural Development and Ministry of Finance). The auditees are to inform the State Audit Institution on the measures undertaken for fulfilment of the recommendations from this Report within 6 (six) months. 106

107 EXCERPT FROM THE REPORT ON AUDIT OF NON GOVERNMENTAL ORGANISATIONS FINANCING Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Regularity audit Commission for distribution of a part of revenues from games of chance Non governmental organisations financing system 70 auditing days Mr. Branislav Radulović, PhD, member of the Senate Head of the Auditing Board Mr. Nikola Kovačević, member of the Senate member of the Auditing Board 107

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109 I BASIC ELEMENTS OF AUDIT 1. Legal basis for performing audit Legal basis for performing the audit of non governmental organisations financing is contained in the following documents: Constitution of Montenegro, Article 144 (OGM 01/07 and 38/13); Law on State Audit Institution (OGRM 28/04, 27/06, 78/06 and OGM 17/07, 73/10 and 40/11); The State Audit Institution Annual Audit Plan, passed by the Senate on 27 December 2013 (no ); Audit Conducting Decision passed by SAI Auditing Board composing of Mr. Branislav Radulović, PhD, (Head of the Auditing Board) and Mr. Nikola Kovačević (member of the Auditing Board) dated 17 January 2014 (no: ). The audit of the auditee has been conducted in accordance with: The Rules of Procedure of the State Audit Institution (OGRM 50/07) and the basic principles of the International Organization of Supreme Audit Institutions INTOSAI Auditees The auditees under the subject audit were as follows: Commission for distribution of a part of revenues from games of chance Other entities: - Commission for distribution of funds to non governmental organisations (Parliament) - Commission for distribution of funds to non governmental organisations (Government) - Administration for Games of Chance - Fund for protection and exercise of minority rights - Local self governments - Budgetary spending units Commission for distribution of a part of revenues from games of chance Commission for distribution of a part of revenues from games of chance (hereinafter Commission), has been established by the Decision on appointment of the Commission for distribution of a part of revenues from games of chance 33. The Commission has a chairperson and 14 members. The Commission is composed of the representatives of the: - state administration authority responsible for health affairs one member; - state administration authority responsible for human and minority rights one member; - state administration authority responsible for labour and social welfare affairs two members; - state administration authority responsible for culture affairs one member; - state administration authority responsible for education and sports affairs two members; - non governmental organisations seven members. The chairperson and members of the Commission are appointed by the Government, at proposal of the state administration authority responsible for finances (the Ministry). The representatives of non governmental organisations on the Commission, are appointed at the proposal of non governmental organisations performing activities in the areas pursuant to Article 3 32 The International Organization of Supreme Audit Institutions 33 OGM 12/

110 of the Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance 34 (Decree). The procedure of proposing the NGO representatives is carried out by the Office for Cooperation with Non governmental Organisations in the way set by the Decision on establishing the Council for cooperation between the Government of Montenegro and non governmental organisations 35. The chairperson and members of the Commission are appointed for the period of four years and can be re appointed for the period of another four years. The Commission has a secretary who carries out professional and administrative technical activities for the needs of the Commission, and is appointed by the chairperson of the Commission. The Commission has its sub committees for specific areas. The number of members of a subcommittee is odd, and each sub committee must have at least five members. Depending on the number of plans and programs that organisations submit for Competitions for distribution of a part of revenues from games of chance for a specific year by individual areas, the sub committees may have more members. The members of sub committees are appointed by the chairperson of the Commission. At proposal of the sub committees, the Commission passes decisions on co financing of plans and programs in line with the set criteria and evaluation of the plans and programs. The Commission also constitutes a sub committee for operational opening of received documents. The Commission passes the rules of procedure and other acts regulating the method of operating and deciding and other issues of relevance for the work of the Commission. The Commission submits the Annual Performance Report to the Government by the end of the first quarter of the current year for the previous one. Distribution of a part of revenues from games of chance is carried out once a year, based on public competition, which is announced by the end of the first quarter of the current year. The competition is announced by the Commission. The decision on the distribution of a part of the revenues from games of chance is passed by the Commission, after the previously obtained approval by the Government. The powers of the chairperson of the Commission include as follows: - convene the sessions of the Commission, preside the sessions and propose agenda; - ensure publication of the standpoints of the Commission; - ensure public nature of the work of the Commission; - ensure previous consultations with the participants in the work of the Commission; - monitor the timing of implementation of the passed decisions; - perform other activities and tasks entrusted by the Commission; - conclude and sign contracts with parties whose projects have been approved in accordance with the Decree; - appoint sub committees. The chairperson of the Commission elects the deputy chairperson, and in 2013 the deputy was not elected. The members of the Commission carry out their functions on part time basis and they are entitled to fees for such work. The fees for the work within the Commission are established by the decision passed by the Ministry of Finance. 34 OGM 42/11 35 OGM 28/10 110

111 The powers and composition of the Commission are envisaged by the Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance. The method of operating and decision making and other issues of significance for the work of the Commission are regulated by the Rules of Procedure and other acts adopted by the Commission. The Chairperson of the Commission is Dragan Đukanović, who was appointed by the Decision of the Government, number /4 dated 7 November In 2013, the function of the chairperson of the Commission was carried out by Boris Bušković (released from duty at personal request decision of the Government number /3 dated 25 July 2013) and Damir Rašketić (released from duty at personal request 36 decision of the Government number /3 dated 31 October 2013). In addition to the Rules of Procedure there are no other acts regulating the method of operating and decision making by the Commission. In 2013, the Commission amended the Rules on Procedure twice. The amendments to the Rules of Procedure concur with the change of persons performing the function of the Chairperson of the Commission. The Rules of Procedure that has been provided to the state auditor as the current one, is signed by the Chairperson of the Commission and certified by the seal of the Ministry of Finance, but it has not been recorded or classified in the registry office. The Commission for distribution of a part of revenues from games of chance has no business premises, a seal, or registry office, and it has not entered into an agreement on joint registry office with another authority (pursuant to Article 2 of the Decree on office operations of state administration authorities 37 ). The Commission does not have its website, but the competitions, decisions and notifications are posted on the website of the Ministry of Finance under the heading Games of Chance Competitions. Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance does not specify what authority is to carry out supervision over the work of the Commission. Given the facts that the chairperson and members of the Commission are proposed by the Ministry of Finance, that the Minister of Finance passes decisions on the fees for work within the Commission, that the Commission uses the seal and website of the Ministry of Finance at times, it should be regulated that the supervision over the work of the Commission is carried out by the ministry responsible for finances. 3. Audit type, subject and objective The State Audit Institution (SAI) has conducted the regularity audit of non governmental organisations financing, by applying the cross section audit. The subject of audit is the non governmental organisations financing system. The subject of audit implies examination of the regularity of work i.e. acting of the Commission in the course of implementing legally envisaged procedures at the occasion of distributing funds to nongovernmental organisations, as well as collecting and analysing of data with all entities authorised to distribute funds to non governmental organisations. 36 The Chairman of the Commission Mr Damir Rašketić resigned on 28 October 2013 (Decision of the Government no /3 dated 25 July 2013), specifying in the written reasoned statement to the resignation that it is due to the problems in the work of the Commission relating to non submission or non existence of scoring lists, minutes or reports on the work of sub committees, present conflicts of interest with a part of the members of the Committee, insufficient professional and administrative capacities of the Commission to perform the entrusted tasks in the proper way, etc. 37 OGM 51/11 111

112 Regularity audit includes the assessment if the activities and financial transactions undertaken in the process of distributing funds to non governmental organisations are in line with the authorisations, i.e. it implies the level up to which the auditees follow the rules, laws, regulations, policies, set codes or contractual conditions. Criteria for assessment of compliance were as follows: The Law on Games of Chance (OGM 40/11); The Law on Non Governmental Organisations (OGM 39/11); Budget Law 2013 (OGM 66/12); Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance (OGM 42/11); Decision on the criteria for establishing the amount of the fee for work of members of the working body or other form of work (OGM 27/13); Decree on office operations of state administration authorities (OGM 51/11); Conclusions of the Government number: , /3, /3, /3 and /3; Rules of Procedure of the Commission for distribution of a part of revenues from games of chance; Impartiality statements signed by the members of the Commission. Cross section audit of non governmental organisations financing examines the representative selection of appropriate auditees, with a view to obtaining specific audit findings in the area of non governmental organisations financing system. The objective of the audit is as follows: 1. assessment of the established institutional and legislative framework in the area of nongovernmental organisations financing; 2. pronunciation of an opinion on the regularity of work i.e. acting of the Commission in the course of implementing legally prescribed procedures in the distribution of funds to nongovernmental organisations and 3. obtaining information on the total amount of funds distributed to non governmental organisations at the annual level, from all sources. II CONCLUSIONS AND RECOMMENDATIONS Based on conducted audit and established facts, upon consideration of the auditees' Response to the SAI Preliminary Audit Report, and pursuant to Article 12 of the Law on SAI and Article 50 of the Rules of Procedure of the SAI, the competent Auditing Board of the SAI, consisting of Mr. Branislav Radulović, PhD (member of Senate Head of Auditing Board) and Mr. Nikola Kovačević (member of the Senate member of the Auditing Board), at its session held on 11 July 2014, adopted the following: FINAL AUDIT REPORT on The financing of non governmental organisations from the public funds of Montenegro Normative regulation of public policies in the area of non governmental sector financing in Montenegro, analysis of the documents and practical application, all point out to inadequate implementation of relevant regulations, primarily as regards the financing of NGO sector from public revenues. 112

113 Audit findings point out to inconsistency of acts regulating in detail the subject matter, which consequently leads to problems in application of the legally set centralised 38 financing model. Non application or partial application of the Law on NGOs with regard to financing, non executed conclusions of the Government related to creation of preconditions for implementation of laws, methodological and practical non disclosure or planning of funds required for the concept of centralised financing model, non adhering to the provisions of the Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance and Rules of Procedure of the Commission for distribution of a part of revenues from games of chance, with potential conflicts of interest of the members of the Commission (NGO representatives) and administrative ambiguity of criteria and evaluation of public funds spending, all together make the sustainability of the current solutions problematic, as well as the purposeful achievement of public interest of this area. For the purpose of achieving the public interest in the area of non governmental organising and financing, the competent SAI Auditing Board has adopted the following: RECOMMENDATIONS 1. The implementation of the Law on NGOs needs to be ensured primarily through the fulfilment of the required preconditions, in line with the conclusions of the Government, through: amendments to the Law on Games of Chance, the Law on Culture, the Law on Protection of Cultural Resources and the Law on Minority Rights and Freedoms, as well as secondary legislation acts (the Decree on establishing the composition of, the criteria for selection of and proposing procedure for the members of the Commission for distribution of funds to non governmental organisations, the Decree on detailed criteria for evaluation of projects and programs of NGO in the process of distributing budgetary funds for financing of such projects and programs, etc.) adopted based on these laws, with regard to financing of projects and programs of non governmental organisations. 2. Pursuant to Article 33 of the Law on Non governmental Organisations it should be ensured that the distribution of funds from the Budget of Montenegro provided for projects and programs in the areas of public interest to be implemented by non governmental organisations is decided upon by the Commission for distribution of funds to nongovernmental organisations, i.e. ensured should be the application of the centralised model of financial support to NGO funds from the budget, and until then solutions should be specified for individual NGO to be the beneficiaries of funds from different sources of public revenues. In this way the risk that an NGO could obtain funds from several budgetary spending units would be eliminated and the state would be in the position to have accurate data available on the amount of budgetary funds used for NGO 39 financing. 3. According to the Impartiality Statements signed by the members of the Commission, it is necessary to ensure that the members of the Commission designated by NGO representatives do not take part in evaluation and selection of plans and programs of organisations that proposed them to be the commission members. Establishing of a professional (independent) commission, appointment of a Supervisory Authority to monitor the work of the Commission and potentially take actions in respect of complaints are to contribute to reducing of the risk against the conflict of interest of the commission members. 38 Article 33 of the Law on Non governmental Organisations envisages that the distribution of funds from the budget of Montenegro for projects and programs in the areas of public interest to be implemented by non governmental organizations is subject to decision making by the Commission for distribution of funds to non governmental organisations. 39 The practice in 2013 shows that budgetary spending units finance non governmental organizations although they have no approved funds in the account 4314 transfers to non governmental organizations, and therefore such expenses cannot be recognized in the Final Account of the State as the funds used for NGO financing. 113

114 4. Projects and programs proposed by NGOs are evaluated (scored) by the Commission (subcommittees) and based on the scoring lists (number of points) projects and programs to be allocated funds are selected, therefore it is necessary to ensure that evaluation (scoring) in all cases is carried out in the way envisaged by the Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance. A procedure should be developed for evaluation and selection of projects and programs based on criteria, sub criteria and scoring list and ensure existence of documents related to the process of evaluation and selection of projects According to Article 36 of the Law on Non governmental Organisations and Article 27 of the Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance, it is necessary to ensure oversight over the earmarked use of funds allocated to non governmental organisations. It would be useful for the needs of the Commission to develop a methodology for monitoring of execution and audit of approved projects. 6. The Commission is obliged, according to Article 11 of the Decree on the criteria for establishing the beneficiaries and method of distribution of a part of revenues from games of chance, to produce Annual Performance Report and submit it to the Government of Montenegro within the envisaged time frame. 7. In view of transparency of the process of allocation, a system of continuous providing of information to the public by the Commission should be established. The Commission should continue using the website of the Ministry of Finance heading Games of Chance Competition until they have developed their own site. It would be useful to post the Annual Performance Report on the site, which pursuant to Article 27 of the Decree should include the report on monitoring of earmarked use of allocated funds. The Commission should post on the site the summary scoring lists (pursuant to Article 4 of the Rules of Procedure of the Commission) and consider possibility of posting on the site the programs and financial statements of organisations to which the funds have been allocated. 8. Normative acts regulating the process of allocating funds to non governmental organisations should ensure exercise of the right to remedy against the decision on someone s right or interest based on law, which is guaranteed by Article 20 of the Constitution of Montenegro. 9. The fees of the members of the Commission should be specified in accordance with the Decision on the criteria for establishing the amount of the fee for work of members of the working body or other form of work. The remaining funds envisaged for the work of the Commission should be directed to audit of approved plans and programs. The competent SAI Auditing Board has identified that the character of findings in the subject audit imposes that the content of the SAI Report should be provided to the following for information purposes: - Parliament of Montenegro; - Government of Montenegro: - Ministry of Finance; - Ministry of Internal Affairs; - Commission for distribution of a part of revenues from games of chance. 40 In 2013, except for scoring lists, there are no documents related to selection and evaluation of projects and programs. 114

115 EXCERPT FROM THE REPORT ON THE AUDIT OF THE DEVELOPMENT PROJECTS SECRETARIAT: MONITORING OF THE STATUS AND IMPLEMENTATION SCHEDULE OF INVESTMENT PROJECTS Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Performance audit Development Projects Secretariat Monitoring of the status and implementation schedule of investment projects 40 auditing days Mr. Branislav Radulović, PhD, member of the Senate Head of the Auditing Board Mr. Milan Dabović, PhD, President of the Senate member of the Auditing Board 115

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117 I BASIC ELEMENTS OF AUDIT 1. Reasons for conducting audit The Government of Montenegro has identified the policy of attracting foreign direct investments as the backbone of economic development, i.e. direct foreign investments as important drivers of growth and competition 41 increase. According to the analyses, Montenegro has no sufficient sources of own accumulation, therefore it is to a large extent oriented to inflow of foreign accumulation. 42 In the process of executing investments in Montenegro, risks have been identified for years which might jeopardise the execution of the current investments and affect the trend of further attracting. The identified risks are related to administrative barriers to investing on the level of local administration 43, delays in execution of large projects in the area of tourism and potential problems caused by insufficiently qualitative privatisations and standstills in implementation of contractually envisaged investments 44, unresolved ownership relations that slow down the execution of investments 45 etc. The research carried out by the Foreign Direct Investment Promotion Agency has shown that only in 2011 the inflow of foreign direct investments could have been higher by 195 million, if there had not been barriers that slowed down the execution of investment projects. In addition, excessive investing in specific coastal municipalities with no due attention paid to the protection of the natural environment, has degraded to a specific extent the natural environment which used to be a significant comparative advantage of Montenegro. 46 Pursuant to the Decree on Organisation and Manner of Work of the State Administration 47 adopted by the Government, in the second half of 2012 the Development Projects Secretariat was established and released into operation to, inter alia, carry out activities related to: monitoring of the status and schedule of development projects, execution of administrative activities directed on acceleration of procedures, implementation of contracted investment programs and monitoring and proposing measures for improvement of the investment environment. The Secretariat (as of 1 June 2014) has been monitoring 19 investment development projects from the area of tourism, which are under the process of execution. 2. Type of audit ISSAI 48 standards of auditing specify that the overall scope of state audit includes: audit of financial regularity and performance audit. Performance audit is related to audit of economy, efficiency and effectiveness. Performance audit is an independent and professional activity which establishes if the public sector institutions carry out right activities and if they carry out such activities in the right way at the lowest possible cost. In theory there are several names for performance audit: 3E (economy, efficiency and effectiveness) audit or value for money audit. 41 Strategy of Attracting Foreign Direct Investments ; Government of Montenegro Foreign Investment Promotion Agency. 42 Foreign direct investments as a driver of economic development of Montenegro Work study number 16, p. 19; Central Bank of Montenegro; Recommendations to the Government of Montenegro for economic policy in 2010, p. 70; Central Bank of Montenegro. 44 Recommendations to the Government of Montenegro for economic policy in 2011, p. 68; Central Bank of Montenegro. 45 Recommendations to the Government of Montenegro for economic policy in 2013, p. 80; CBCG. 46 Foreign direct investments as a driver of economic development of Montenegro Working study number 16, p. 21; Central Bank of Montenegro; 2008: 47 OGM 05/12, 25/12, 61/12, 20/13 and 17/ International Standards of Supreme Audit Institutions. 117

118 There are three key reasons for performance audit, and they are as follows: 1) Responsibility and democratic review bodies and persons designated to carry out government programs and manage budgetary units are responsible for efficient management of such programs or budgetary unit activities. The responsibility in this sense implies existence of review of the activities of programs and budgetary units by the public. 2) Substitute for market mechanism performance audit in public sector serves as a substitute for market mechanism in private sector. 3) Basis for decision making in the situation when resources are limited, performance audit may serve as a basis for decision making on future investments and priorities. In accordance with the mentioned standards and Article 5 of the Law on SAI, which specifies the tasks of the SAI, the performance audit of the Development Projects Secretariat has been conducted, with a special focus on the activities related to Monitoring of the status and implementation schedule of investment projects. The audit has been conducted in accordance with international standards for supreme audit institutions ISSAI 100 (Core principles of public sector audit) and ISSAI 300 (Core principles of performance audit). 3. Audit objective and audit tasks The objective of the audit was to examine if the Secretariat (hereinafter auditee): - undertakes, in line with its competencies, all the activities required for execution of capital projects for the purpose of their successful completion and - through its activities impacts the improvement of the business and investment environment. Therefore, the main audit task was to establish: Is the Development Projects Secretariat undertaking its activities in the right way and with the least costs possible in order for the execution of investment projects to be as successful as possible? To obtain the answer to the main audit question, the following secondary questions should be responded to: 1) Does the Secretariat use appropriate methodology for assessment of feasibility of an investment project? 2) Has the Secretariat developed appropriate mechanisms for monitoring of the status and speed of implementation of investment projects? 3) Has the Secretariat undertaken appropriate initiatives for removal of problems in the implementation of projects and improvement of the overall investment and business environment? 4) Has the Secretariat developed appropriate cooperation with other state authorities and interested parties? 5) Has the overall institutional framework been set in an optimum way? 4. Audit scope and limitations The audit has covered the operations of the Secretariat since the moment of its establishment to the moment of the subject audit. The documents from investment files have been reviewed, based on the sample of 10 investment projects, from the database held by the Secretariat. The criteria for selecting a project for the sample were as follows: value of contracted investment, time frame for execution of the contract and project type (long term lease, sales, construction, joint venture, etc). During the audit, the documents for all 19 investment projects have been reviewed. Annual and periodical reports submitted by the Secretariat to the Government and governmental bodies have 118

119 been analysed, in reference to the directions provided in the conclusions, as well as the documents related to activities undertaken with regard to assessments, proposal measures for improvement of investment environment and promotion operations. The structure of costs of the Secretariat has been reviewed in view of considering cost effectiveness in cost management, as well as the organisational structure and internal acts including programs and rulebooks. A special segment of the audit implied consideration of powers of the system institutions responsible for implementation of investment development projects, i.e. identification of powers of all budgetary units that take part in their implementation and are directly included in the process of monitoring of the execution of investment projects. 5. Assessment criteria, data sources and audit methods Based on collected and analysed documents the audit has assessed if the Development Projects Secretariat carries out activities under its competency, particularly with regard to monitoring of the status and schedule of investment projects, in an effective way. As the assessment criterion applied has been the international practice standards and procedures applied to assessment of feasibility of investment projects and risk analyses, in accordance with ISSAI standards. The assessment of the mechanism for monitoring of the status and schedule of investment projects developed by the Secretariat, was to include the review of the information system it has available, schedule of monitoring and reporting in comparison to relevant practice, obligations under the agreements with investors and investment programs, and in reference to the reports of the supervisory authority or independent auditor. Proposal measures for improvement of the investment environment have been assessed in reference to the phase of the execution cycle. The primary source of information is the documentation that the Secretariat has available. The secondary source of information is the documents of the Government, the Council for Privatisation and Capital Projects, the ministries of economy, sustainable development and tourism, and finance, the Directorate for Development of Small and Medium Sized Enterprises, the Investment Development Fund, the Central Bank, the Agency for Promotion of Foreign Direct Investments, the Statistical Office, scientific institutions and the national legal framework. The secondary source of information during the audit also included the European Commission publications and scientific works from the area of assessment of feasibility of investment projects, cost benefit analyses and tourism enhancement. In the course of audit, quantitative analyses of statistical data and qualitative analyses of documents, i.e. sample based assessment, documentation review, data comparison have been applied. II CONCLUSIONS AND RECOMMENDATIONS Based on the conducted audit and established facts, upon the consideration of the auditee s statements presented at the clarification meeting and included in the auditee s Response to the SAI Preliminary Audit Report, and pursuant to Article 12 of the Law on SAI and Article 50 of the Rules of Procedure of the SAI, the competent Auditing Board of the SAI, consisting of Mr. Branislav Radulović, PhD (member of Senate Head of Auditing Board) and Mr. Milan Dabović, PhD (President of the Senate member of the Auditing Board), at its session held on 25 July 2014, adopted the following: 119

120 FINAL AUDIT REPORT on the SECRETARIAT FOR DEVELOPMENT PROJECTS Monitoring of the status and implementation schedule of investment projects CONCLUSIONS 1. There is no clear delineation of powers of institutions responsible for execution of investment projects Since the abolishing of the Agency for Economy Restructuring and Foreign Investments in 2009 there has not been clear delineation of powers among the state authorities engaged in execution of investment development projects and other activities under the competence of the former Agency. Based on the current legal framework six budgetary units have been identified to be involved in the execution of investment development projects and improvement of the investment environment. The activities related to determination of the model for making the most of resources are carried out by three authorities, the preparation and assessment of investment development projects by two, monitoring of agreements for the needs of the Privatisation Council by three, contact with investors and assistance in implementation of projects by two, proposal measures for improvement of the regulatory administrative framework by four and promotion activities by four authorities as well. The activities of monitoring of investment projects within the system are carried out by the Development Projects Secretariat, Ministry of Economy and Ministry of Sustainable Development and Tourism. The audit could not identify what criterion was used for assigning the monitoring of the status and schedule of execution of a part of investment projects from the area of tourism to the Secretariat, while in case of fourteen investment projects it was not possible to identify when the Secretariat commenced activities on their implementation. The described situation is not a good base for establishment of an efficient system for implementation of investment development projects in Montenegro. Clearer delineation of powers within the system would ensure clearer responsibilities of institutions assigned to implement investment projects and more complete reporting to the Government of Montenegro and the Council for Privatisation and Capital Projects when specific activities related to execution of projects are in question. Clear delineation of powers within the system of implementation of investment projects would also have a positive effect on investors and schedule of execution of investment projects. 2. There is additional space for improvement of the protection of state interests in execution of investment projects The review of the database of the Development Projects Secretariat has found significant delays in execution of investment projects. The biggest delay in execution has been found in case of reconstruction of the existing and construction of new capacities of the hotel AS in Budva, amounting to 11 years. In case of the projects of long term lease, construction and reconstruction of tourist capacities Sveti Stefan Budva, Kraljičina Plaža Budva and Hotel Mediteran Ulcinj the delay is around 6 years. The drafting of annexes to the Agreements are in progress for each of the mentioned agreements. 120

121 Extract from the database of the Secretariat relating to time frames in execution of investment projects Project Agreement signing date Agreement completion Annex to the date Agreement 1 Sveti Stefan Budva January 2007 June 2008 Drafting in progress 2 Kraljičina Plaža Budva January 2007 December 2008 Drafting in progress 3 Hotel AS Budva May 2002 December 2003 Drafting in progress 4 Hotel Mediteran Ulcinj July 2005 July 2008 Drafting in progress The effects of investment projects may be analysed from the aspect of a company and from the aspect of the wider social community particularly in case of capital projects from the areas of tourism, transport and energy. Development of an indicative cost benefit analysis on the level of a specific number of future privatisations should represent a method for making investment decisions and provide a clear view of their feasibility and impact on the society as a whole. 3. Secretariat has no appropriate information system available Information system that the Secretariat has available is not an appropriate base for monitoring of the status and schedule of execution of investment development projects. Complete records related to implementation of investment projects and obligations under the agreements with investors would facilitate more efficient work of the Secretariat and more complete reporting system. The relevant practice of institutions engaged in implementation of investment projects implies regulation of information that must be contained in an investment project file, whereas each file has to be created in the same way. Some information that has to be contained in the file includes the following: investor name, contact data, first and last name of the officer monitoring the project, agreement, financial statements, investment project, documents submitted by the investor, collaterals, communications with the client, etc. The database of the Secretariat should provide information on the current status of the execution of investment projects. In that sense, it needs to be updated timely, in accordance with the changes made and on documented basis. Record keeping of the planned and executed investments and obligations under the project documents would contribute to efficient updating of the database and information system of the Secretariat. 4. Monitoring of projects by the Secretariat Activities of the Secretariat regarding the monitoring of the status and schedule of implementation of investment projects, from establishment to the time of auditing, have been related to resolution of investors problems in the course of implementing investment projects, fulfilment of preconditions for execution of agreements with investors and activities on execution of contractual obligations in line with the conclusions of the Government. In its database, the Secretariat has no agreements with investors or investment plans for the projects it monitors. The Secretariat has no reports by supervisory authority, independent controller or independent auditor on the phase and/or degree of completion of an investment available. 49 This kind of reports should provide more complete information to the Secretariat if the investmentdevelopment projects are implemented according to the agreed schedule so in case of a delay or deviation timely activities would be undertaken for implementation of the investment program. In 49 With the exception of the Report by the Commission for oversight, assessment and schedule of investments on the Agreement of the hotel tourism industry Hotel Crna Gora, Hotel Hilton Podgorica Montenegro and one report by an independent auditor on the factual state findings, related to fulfillment of investment obligations under the Agreement on the Sale and Investing in the Military Assets of the navy technical overhaul institute Sava Kovačević Tivat and Military Centre Tivat (project Porto Montenegro Tivat). 121

122 addition, in practice the investors are encountered with numerous problems that make the execution of contractual obligations difficult. Consequently, monitoring of the projects carried out by the Secretariat mostly do not result in activities that have effect on execution of contractual obligations of investors in line with the envisaged schedule. With the current personnel structure the Secretariat is in no position to carry out assessments or projections with regard to execution of investments, nor will it be even if fully staffed taking into account that the Rulebook on Internal Organisation of Jobs does not envisage posts from the area of technical technological sciences (architecture, civil engineering, geodetic engineering). 5. Lease cost management is not cost effective Real Estate Administration pays almost double lease price for the lease of business premises of the Secretariat in relation to the average price for business premises under the ownership of the Capital Podgorica as of November 2013 in city zone 2. Or, almost triple price in relation to the same average price in zone 3 which is in the immediate vicinity of the city centre. The request of the Secretariat for allocation of budgetary funds sent to the Ministry of Finance, as a part of the annual budget plan 2013 is three times higher in relation to the executed spending in the mentioned year. RECOMMENDATIONS Based on the conducted audit the SAI has found that the system of monitoring the status and schedule of execution of investment projects requires specific changes with regard to harmonisation with and application of good practice in implementation of investment development projects. The changes should facilitate more purposeful functioning of the system and institutions responsible for execution of investment projects and a favourable base for further implementation of the investment policy in Montenegro. Recommendations to the Government of Montenegro The Government of Montenegro is to clearly specify powers and activities of institutions that are actively involved in the process of monitoring and executing investment development projects. The approach of clear specification of powers would enable clearer responsibilities in the process of monitoring their schedule of implementation and qualitative reporting system. The Government should examine the current model of investment projects management, including all institutions with their powers, and undertake measures for their improvement based on previous experience, potentially through the following: - establishing of an Agency for investments which would as a centralised authority assume most powers from the current authorities or - strengthening of capacities of the current Development Projects Secretariat and conferring most powers particularly in the area of oversight and supervision to it. For a specific number of planned privatisations cost benefit analyses should be done, to view the impacts of investments on the sustainable development of economy, reduce risk against privatisation agreements with delays in execution and view their impact on the wider social community. 122

123 Recommendations to the Development Projects Secretariat The Development Projects Secretariat should improve the information system on execution of investment development projects as soon as possible, i.e.: - determine an appropriate program solution to facilitate keeping of an investment projects database on timely basis; - consolidate records required for accurate and timely monitoring of the status and schedule of execution of investment projects; - specify information to be included in the investment project file as well as the method of their keeping and safeguarding; - properly keep registers of executed obligations under investment agreements, which are specified by internal acts. The Development Projects Secretariat should, as soon as possible, undertake all activities it requires for performance all the activities on execution of investment projects specified by law, i.e.: - complete staffing requirements; - improve cooperation with the Council for Privatisation and Capital Projects in view of exchanging information and documents related to the reports by supervisory authorities, independent controllers and auditors, and assessments and projections related to execution of investment projects. - initiate cooperation with state authorities that carry out technical technological activities and undertake activities on development of different types of assessments that are performed in the execution of contractual obligations, i.e. take more active part in the process of monitoring of implementation of investment projects. The Real Estate Administration is recommended to re examine the lease costs for the needs of the Secretariat, after the expiry of the agreement on the lease of business premises, taking into account functional features of the premises and objective needs of the Secretariat. The competent SAI Auditing Board has found that the nature of findings in the subject audit imposes as follows: By 15 September 2014, the auditee is to submit to the State Audit Institution an action plan to be undertaken in view of implementing the given recommendations, as well as the time frames for their execution. Within 6 months, the auditee is to inform the State Audit Institution on the actions undertaken in respect of developed and submitted recommendations. The content of the SAI Report should be provided to the following entities for informative purposes: - Government of Montenegro; - General Secretariat of the Government; - Privatisation and Capital Projects Council; - Real Estate Administration. 123

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125 EXCERPT FROM THE AUDIT REPORT ON THE GENERAL SECRETARIAT OF THE GOVERNMENT Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit and regularity audit General Secretariat of the Government Annual financial statement of the Secretariat for 2013 and compliance of financial operations with current laws and other regulations 60 auditing days Mr Branislav Radulović, PhD, member of the Senate Head of the Auditing Board Mr Dragiša Pešić, member of the Senate member of the Auditing Board 125

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127 I BASIC ELEMENTS OF AUDIT 1. Legal basis for performing audit Legal basis for performing audit of the Annual Financial Statement of the General Secretariat of the Government for 2013 (hereinafter Auditee or Secretariat) is contained in the following documents: Constitution of Montenegro, Article 144 (OGM 01/07 and 38/13); Law on State Audit Institution, Article 4 (OGRM 28/04, 27/06, 78/06 and OGM 17/07, 73/10 and 40/11); The State Audit Institution Annual Audit Plan, passed by the Senate on 27 December 2013, number ; Audit Conducting Decision passed by SAI Auditing Board composing of Branislav Radulović, PhD, (Head of the Auditing Board) and Mr Dragiša Pešić (member of the Auditing Board) dated 16 January 2014, number The audit has been conducted in accordance with: The Rules of Procedure of the State Audit Institution (OGRM 50/07) and the basic principles of the International Organization of Supreme Audit Institutions INTOSAI Audit subject and scope The subject of the audit is the Annual Financial Statement of the General Secretariat of the Government 2013 and compliance of financial operations to the current legal and other regulations. According to the Rulebook on producing and submitting financial statements of the budget, state funds and local self government units 51, the Secretariat is obligated to submit to the Ministry of Finance annual financial statements on forms 3 and 5, as follows: Cash flow statement III Statement on outstanding liabilities. In addition to the Annual Financial Statements, for unspent funds in sub accounts or suspense accounts, which are recorded in the General Ledger as expenditure, the Secretariat is to submit the Statement on the manner of spending such funds after the expiry of the fiscal year, on Form 8. In addition to the Annual Financial Statements, spending units are to submit the Statement on the manner of spending funds from the current budgetary reserve on Form 9 for funds spent from the current budgetary reserves. The subject audit included the control of cash flows, legality of spending of funds, accuracy of presented data and degree of their disclosure, as well as functioning of the internal control system. The coverage, i.e. scope of verification, is determined depending on the identified level of materiality (significance) and identified audit risk. 3. Audit objective The objective of the audit of the Secretariat was to express an opinion on reliability and accuracy of the Annual Financial Statement of the General Secretariat of the Government 2013 and compliance of financial operations with the current legal and other regulations. In view of the audit objective, the following has been undertaken: - examination if financial statements are true and fair; 50 The International Organization of Supreme Audit Institutions 51 OGRM 32/10, 14/11 and 16/13 127

128 - examination of regularity of operations, i.e. financial transactions and decisions related to receipts and expenditures, for the purpose of identifying if the presented transactions have been made in accordance with the law, other regulations, delegated authorisations and for planned purposes. 4. Audit type The State Audit Institution has conducted financial audit and regularity audit, which implies a comprehensive review of financial operations of auditees as of 31 December Activity and organisation of the auditee 5.1. Activity of the General Secretariat of the Government of MNE - The auditee is a state authority Secretariat. - The head of the authority is the Secretary General of the Government, Mr Žarko Šturanović. - The seat of the General Secretariat of the Government is in Podgorica, addressed at Karađorđeva bb. The person responsible for keeping accounting and developing financial statements is Dragica Pavličić. The General Secretariat is a department of the Government of Montenegro that carries out professional, organisational, administrative and technical activities for the needs of the Government, the Prime Minister and Deputy Prime Ministers, the Minister without portfolio and working bodies of the Government. The General Secretariat of the Government carries out activities in line with the Decree on the Government of Montenegro, the Decree on the General Secretariat of the Government, the Rules of Procedure of the Government of Montenegro, the conclusions and other acts by the Government, as well as guidelines by the Prime Minister, Deputy Prime Ministers and the General Secretary of the Government. Based on the specimen signature card dated 6 July 2012, the funds approved by the Budget for the spending unit the General Secretariat of the Government MNE (account ) are disposed of by persons authorised with valid signatures if accompanied by use of a seal, and they are: Dragica Pavličić in the capacity of an approving officer and Milan Janinović in the capacity of an certifying officer. Art. 4 of the Decree on the General Secretariat of the Government specifies the scope of activities of the Secretariat related to: 1) preparation of expert bases for the decisions by the Prime Minister in managing and directing the work of the Government, as well as for directing the work of the ministries in ensuring integrated operations of the Government, 2) professional and organisational preparation for cooperation between the Prime Minister and the President of Montenegro, representatives of state authorities, representatives of other states, international organisations and other institutions, 3) professional and organisational support to the Deputy Ministers of the Government in performing activities related to execution of their functions, 4) participating of the Government, i.e. its representatives in the work of the Parliament of Montenegro and ensuring execution of obligations of the Government towards the Parliament of Montenegro, 5) professional and administrative preparation of materials for the sessions of the Government and working bodies, organisation and monitoring of the sessions of the Government and its working bodies and other sessions under the organisation of the Prime Minister and Deputy Prime Ministers, 128

129 6) development of minutes, conclusions and reports from the sessions of the Government and its working bodies, 7) monitoring of implementation of acts and conclusions by the Government and execution of obligations undertaken by the Government, 8) coordination of activities and participating in the preparation of the work program of the Government and monitoring its implementation, 8a) professional and administrative activities for the needs of representing Montenegro before the European Court for Human Rights, 9) protocol organisational activities for the needs of the President of Montenegro, the Speaker of the Parliament of Montenegro, the Prime Minister and other state authorities, in accordance with the act of the Government, 10) development of the cooperation between the Government and non governmental organisations, 10a) proposing, monitoring and applying mechanisms for efficient fight against human trafficking, 11) IT support to the Government and its working bodies, in cooperation with the authority of the state administration responsible for information society, 12) providing information to the public on the work of the Government, 13) carrying out other professional, administrative and technical activities for the needs of the Government, the Prime Minister and Deputy Prime Ministers, Minister without portfolio, working bodies and General Secretary of the Government. Other activities related to use and maintenance of aircrafts that the Government has at its disposal are also carried out within the General Secretariat Internal organisation The Rulebook on Internal Organisation and Systematisation of the General Secretariat of the Government establishes the internal organisation and job systematisation in the General Secretariat of the Government. The Rulebook was passed on 16 May 2013 and it systematised posts for two offices that used to be separate spending units or programs within other spending units: Office of Representatives of Montenegro before the European Court for Human Rights and Office for Fight against Human Trafficking. According to the Budget Law 2013, the Office of Representatives of MNE before the European Court for Human Rights was envisaged as a separate spending unit, while the Office for Fight against Human Trafficking was planned as a program within the Ministry of Internal Affairs. According to the Budget Law 2014 they were integrated as programs within the Secretariat. Amendments to the Decree on the General Secretariat 52 created preconditions for integrating these two offices in the Secretariat. Activities under the competence of the Secretariat are carried out within the internal organisational units, as follows: 1. Prime Minister s Office 1.1. Bureau for communication with citizens 2. Office of the Deputy Prime Minister for political system, internal and foreign policy 3. Office of the Deputy Prime Minister for economic policy and financial system 4. Office of the Deputy Prime Minister for European integration 5. Office of the Deputy Prime Minister for regional development 6. Office of the Minister without portfolio 7. Department for affairs of the Government 8. Department for planning, coordinating and monitoring of the policy of the Government 52 OGM 03/13 and 26/13 129

130 9. Department for protocol affairs 9.1. Division for protocol affairs 9.2. Division for translation/interpretation affairs 10. Unit Bureau for public relations 11. Unit for legal and general affairs and finances Registry office 12. IT support unit 13. Office for cooperation with non governmental organisations 14. Office of representatives of Montenegro before the European Court for Human Rights 15. Office for fight against human trafficking 16. Aviation service. For performance of activities under the competence of the Secretariat, the Rulebook envisages 130 posts with 182 staff. The number of employees as of 31 December 2013 amounted to 133. Out of this number 6 persons are officials (members of the Government), 30 persons are appointed by the Government, 92 are full time employees, 4 part time employees and 1 trainee. According to the Budget Law the Secretariat is envisaged as a separate spending unit and its activities were carried out within two programs: Providing professional and administrative support to exercise of constitutional powers of the Government and the State Protocol. 6. Audit methods The audit was planned and conducted in accordance with the basic principles of the International Organization of Supreme Audit Institutions (ISSAI), in the way that enables the SAI to obtain reasonable assurance if the financial statement of the auditee includes materially significant misstatements and if the operations of the auditee are compliant to the law and enabling acts and other regulations. The audit includes the application of audit methods and techniques for the purpose of obtaining audit evidence of amounts and information disclosed in financial statements. The selection of procedures is based on auditor s judgment, including risk assessment. According to the audit practice, the materiality at the level of 1% of the total auditee s expenditures or in the nominal amount of ,52 has been determined. Sampling for audit of expenditures has been carried out by the method of statistical and nonstatistical sampling, where the criteria for sampling of transactions are the value and materiality of transactions. It is a pragmatic approach where decisions are made based on clear audit criteria and implications on resources. Sampling has been carried out for each audit area individually. 7. Record keeping system The bookkeeping records of the Secretariat are maintained on modified basis, which envisages recording of assets and liabilities on accrual basis and recording of receipts and expenses at the moment of inflow or outflow of cash, i.e. on cash basis. The auditee records expenditures according to economic classification in line with the Rulebook on uniform classification of accounts for the state budget, the budgets of extra budgetary funds and municipal budgets. Cash transactions are carried out through the Consolidated Treasury Account. The auditee is connected with the information system SAP (software of the State Treasury where treasury operations are recorded) and makes payments in respect of expenditures through the payment request. 53 OGM 66/12 130

131 II OPINION, FOUND IRREGULARITIES AND RECOMMENDATIONS Based on the conducted audit and established facts, upon the consideration of the auditee s statements included in the auditee s Response to the Preliminary Audit Report of the SAI, and pursuant to Article 12 of the Law on SAI and Article 50 of the Rules of Procedure of the SAI, the competent Auditing Board of the SAI, consisting of Mr. Branislav Radulović, PhD (member of Senate Head of Auditing Board) and Mr. Dragiša Pešić (member of the Senate member of the Auditing Board), at its session held on 29 July 2014, adopted the following: FINAL AUDIT REPORT on the Annual Financial Statement of the General Secretariat of the Government of Montenegro 2013 Financial statements of the General Secretariat for 2013, according to all material aspects, fail to provide a fully true and fair view of expressed receipts and expenditures according to the accepted financial reporting framework. As for the second part of the financial reporting Report on outstanding liabilities there are relevant records based on which the state auditor might verify to what extent the liabilities presented in the Report match the actual liabilities of the auditee. The Secretariat does not keep records of liabilities on sub accounts of class 2, so it is not possible to form an opinion regarding the accuracy of the Report on outstanding liabilities. Activities, transactions and information presented in financial statements for 2013 in some material aspects were not compliant to the valid regulations. Material deviations and non compliance between the operations and regulations have been identified, and particularly with regard to the application of the Budget Law 2013, the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets, the Directions on State Treasury Operations, the Law on Compulsory Social Insurance Contributions, the Law on State Assets and the Law on Public Procurement. The competent auditing board is expressing qualified opinion regarding the financial statement and regularity of operations. RECOMMENDATIONS 1. Cash flow statement III produced by the auditee contains material misstatements. The misstatements are related to presentation of individual positions of expenditures in the statement, i.e. classification of expenditures on the level of the group of accounts which is not in line with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets. In the Cash flow statement III five positions are misstated (to material extent): Expenditures for material ( 67,906.00), Expenditures for services ( 60,173.73), Current repairs and maintenance ( 70,558.31), Other expenditures ( 782,899.46) and Capital expenditures ( 93,249.10). The Auditee is obliged to produce financial statements in accordance with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets and the Rulebook on the method of compiling and submitting financial statements of the Budget, state funds and local self government units. 131

132 2. The auditee does not keep records of liabilities in sub accounts of class 2 liabilities, so the state auditor could not verify the accuracy of the amount of outstanding liabilities presented in the Statement on outstanding liabilities produced by the General Secretariat of the Government. The Auditee is to record liabilities in sub accounts of class 2, given that the Instruction on filling out the Statements on Outstanding Liabilities that together with the Form 5 makes and integrated part of the Rulebook on the method of compiling and submitting financial statements of the Budget, state funds and local self government units, envisages that the Statement on Outstanding Liabilities should incorporate data recorded in sub accounts of class 2 liabilities. 3. Based on the review of the Requests for Payment in respect of which the spending of budgetary funds for the Program of providing professional and administrative support to exercise of constitutional powers of the Government has been executed, it has been found that the Requests for Payment were signed by certifying officers whose signature is not included in the specimen signature card of the General Secretariat of the Government (account ) but in the specimen signature card of the Office for fight against human trafficking (account ). The Ministry of Finance (Treasury) needs to ensure efficient application of the procedure carried out by the officer verifying requests for payment, who according to item 45 of the Directions on State Treasury Operations, prior to confirming the accuracy of the request for payment, should establish if the request for payment is filled out properly, i.e. if it is approved and certified by authorised finance officers of the spending unit. 4. The Auditee failed to pay out expenditures for contributions in the amounts and the structure as accrued. In calculating tax and contributions related to aviation allowance, the fees for membership in working bodies, commissions and teams of employees with the Secretariat, applied has been the method of calculation of tax and contributions for contracted fees (service contract), which resulted in the reduction of the taxation base by 30% which is not in accordance with the Law on Personal Income Tax and Article 3a of the Law on Contributions for Compulsory Social Insurance. The Auditee is to ensure, in the process of calculating and paying all personal income, consistent application of the Law on Personal Income Tax and the Law on Contributions for Compulsory Social Insurance. 5. Based on the verification of expenditures included in the sample, it has been found that the Auditee spent funds from the positions not envisaged for such type of expenditures and recorded expenditures in the account positions that are not in line with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets. The Auditee is to increase fiscal discipline in the coming period and make payments that correspond to the budget specified purposes. The Auditee is to dispose of the budgetary funds in accordance with the annual budget law and record the expenditures in accordance with the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets. 132

133 6. The Commission for Inventory of Assets of the General Secretariat failed to produce an Inventory Report. The Secretariat fails to ensure analytical records of assets as envisaged by the International Accounting Standards for Public Sector, the Law on State Assets, the Rulebook amending the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets, the Rulebook on classification of tangible and intangible assets by groups and methods for establishing depreciation of budgetary and extra budgetary beneficiaries and Directions on State Treasury Operations. According to the regulations related to use of state assets, the Auditee is to form an analytical book of fixed assets to record all fixed assets including required data (inventory number, name of the asset, quantity, type, purchase value, adjusted value and current value) and ensure recording of liabilities and receivables, and to reconcile all analytical records with the general ledger records. 7. The audit has found weaknesses in the functioning of the internal control system of the Secretariat which has resulted in non compliance of operations to the current regulations: the Budget Law 2013, the Directions on State Treasury Operations, the Decree on the General Secretariat of the Government, the Law on State Assets, the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra Budgetary Funds and Municipal Budgets, the Rulebook on the method of compiling and submitting financial statements of the Budget, state funds and local self government units, the Rulebook on classification of tangible and intangible assets by groups and methods for establishing depreciation of budgetary and extra budgetary beneficiaries, the Law on Personal Income Tax, the Law on Compulsory Contributions for Compulsory Social Insurance, the Law on Public Procurement. According to the Law on the Internal Financial Control System in Public Sector and the Directions on the State Treasury Operations, the Auditee is to undertake activities on establishing and developing internal controls and thus ensure compliance of financial operations to the regulations. In accordance with the concluded agreement, the Department for Internal Audit of the Ministry of Finance is to conduct internal audit of the General Secretariat and report on the audit results including findings and recommendations for improvement of operations, and prepare annual report on operations of internal audit and assessment of adequacy and effectiveness of the financial management and control system as to ensure full application of regulations relevant to the operations of budgetary beneficiaries. 8. The amount of executed public procurement of 1,827, which is by 41.64% higher in relation to the amount of 1,290, envisaged by the Public Procurement Plan for 2013 is not in accordance with Article 37 of the Public Procurement Law which stipulates that a contracting authority may initiate a public procurement procedure if such procurement is envisaged by the public procurement plan of the contracting authority. The budget for public procurement of the Secretariat, according to the Report on Awarded Public Contracts for 2012 amounted to 1,092,524.82, so in relation to this amount the percentage of public procurement executed through application of direct agreement ( 849,032.75) in 2013 amounted to 77.71%, which is not in accordance with Article 30 of the Public Procurement Law, which stipulates that annual value of public procurement executed through application of direct agreement may not exceed 7% of public procurement budget executed in the previous year, if the public procurement budget exceeds 800,

134 The report on completed public procurement procedures for 2013 produced by the Secretariat is not accurate, given that the part of the Report containing the data on public procurement executed through direct agreement (Form C) does not include all of the procurement procedures executed through this method (the Report indicates the amount of 201, while the amount executed by direct agreement is 849,032.75). The Auditee is to ensure full application of the Public Procurement Law which regulates the procedure of procuring goods, services and performance of works, in view of legal spending of budgetary funds so the procurement process would be transparent and costeffective. The Secretariat should undertake activities to improve its own public procurement system, which implies, inter alia, passing of written procedures and guidelines to additionally specify activities and tasks of the employees responsible for public procurement, in line with Art. 8, 9 and 10 of the Law on the Internal Financial Control System. The scope and nature of found irregularities and flaws with the auditee impose as follows: Within 6 months, the Auditee is to inform the State Audit Institution on the actions undertaken in respect of developed and delivered recommendations. The Ministry of Finance is to be presented the contents of the final SAI Report on conducted audit for informative purposes. 134

135 EXCERPT FROM THE AUDIT REPORT ON THE CENTRAL BANK OF MONTENEGRO Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit Central Bank of Montenegro 2013 Annual Financial Statement of the Central Bank of Montenegro 120 auditing days Mr. Branislav Radulović, PhD, member of the Senate Head of the Auditing Board Mr. Dragiša Pešić, member of the Senate member of the Auditing Board 135

136 136

137 I BASIC ELEMENTS OF AUDIT 1. Legal basis for performing audit Legal basis for performing audit of the Annual Financial Statement of the Central Bank of Montenegro (hereinafter Auditee or CBM) is contained in the following documents: Constitution of Montenegro, Article 144 (OGM 01/07 and 38/13); Law on State Audit Institution, Article 4 (OGRM 28/04, 27/06, 78/06 and OGM 17/07, 73/10, 40/11 and 31/14); The State Audit Institution Annual Audit Plan, passed by the Senate on 27 December 2013, (no ); Audit Conducting Decision passed by SAI Auditing Board composing of Branislav Radulović, PhD, (Head of the Auditing Board) and Mr Dragiša Pešić (member of the Auditing Board) dated 16 January 2014, number The audit of the auditee has been conducted in accordance with: The Rules of Procedure of the State Audit Institution (OGRM 50/07) and International Standards for Supreme Audit Institutions ISSAI 100 (Basic auditing principles of public sector). 2. Subject and scope of audit The State Audit Institution (SAI) has conducted financial audit of CBM operations. The subject of the audit is the Annual Financial Statement of the CBM for The CBM prepares financial statements in accordance with International Accounting Standards and International Financial Reporting Standards. The financial statements are produced according to the principle of historical cost in the form of: Statement on financial positions /balance sheet/; Statement on overall result /income statement/; Cash flow statement; Statement of changes in equity and Notes. 54 Financial audit implies expressing of an opinion if financial statements inform about the financial structure and financial position in a true and fair way. The criteria based on which it is assessed if the financial statements are true and fair are relevant accounting principles, international accounting standards, international financial reporting standards and adopted accounting policies of the CBM. The subject audit has included the control of cash flow, legality of spending of funds, accuracy of stated data and degree of their disclosure. The coverage, i.e. the scope of verification is determined depending on the found level of materiality (significance) and identified audit risk. The audit has assessed the established system of financial management and control. 54 Financial statements of the CBM 2013 are provided in the annex 137

138 3. Audit type and objective In line with the Annual Audit Plan 2014, the State Audit Institution conducted financial audit for the purpose of viewing the auditee s financial management. The objective of the audit of the CBM was to express an opinion regarding the reliability and accuracy of the Annual Financial Statement of CBM for In view of the objective of the audit the following has been undertaken: - examination if financial statements are true and fair; - examination of activities, information, transactions and decisions related to assets, receipts and expenditures, for the purpose of identifying if the presented transactions have been made in accordance with the delegated authorisations and the current regulatory framework. 4. Audit methods The audit was planned and conducted in accordance with the basic principles of the International Organization of Supreme Audit Institutions (ISSAI), in the way that enables the SAI to obtain reasonable assurance if the financial statement of the auditee includes materially significant misstatements. The audit includes the application of audit methods and techniques for the purpose of obtaining audit evidence of amounts and information disclosed in financial statements. The selection of procedures is based on auditor s judgment, including risk assessment. Sampling for audit has been carried out by the method of statistical and non statistical sampling, whereas the criteria for transaction sampling are the value and materiality of the transactions. It is a pragmatic approach where decisions are made based on clear audit criteria and implications on resources. Sampling has been carried out for each audit area individually. 5. Auditee data The Central Bank of Montenegro was established in 2000 according to the Law on Central Bank 55 adopted by the Parliament of Montenegro in November The new Law on CBM 56 was adopted by the Parliament of Montenegro in July The CBM is a legal entity with rights, obligations and responsibilities envisaged by the Law and the By Laws of the CBM. The seat of the CBM is in Podgorica, addressed at Bulevar Svetog Petra Cetinjskog broj 6. The Constitution of MNE (Article 143) specifies that the CBM is autonomous and it is responsible for monetary and financial stability and functioning of the banking system. The CBM operates as an independent legal entity with no obligation to be registered with the Central Register of Business Subjects, it independently acquires, manages, uses and disposes of the state assets aimed at performing of functions stipulated by the Law on the Central Bank. The assets of the value exceeding 150,000,000, are disposed of at proposal of the CBM but subject to the decision by the Parliament of Montenegro. The CBM is independent in achieving objectives and carrying out functions stipulated by the Law. The Governor of the CBM is Mr Milojica Dakić, MSc. The person responsible for keeping accounting and producing financial statements is Valentina Ivanović, PhD, Director of the Directorate for Finance, Accounting and Controlling. The persons authorised to withdraw cash from the CBM Vault for cash related needs in the Directorate for Finance, Accounting and Controlling are: Anđa 55 OGM 52/00, 53/00, 47/01 and 4/05 56 OGM 40/10 and 46/10 138

139 Vidaković, associate cashier and Svetlana Golubović, Head of the Section for Finance in the Directorate for Finance, Accounting and Controlling. Based on the specimen signature card, the funds on the account are disposed of by the persons authorised with valid signatures if accompanied by use of the seal: Milojica Dakić, Governor; Nikola Fabris, Vice governor for financial stability and payment operations; Velibor Milošević, Vice governor for bank supervision; Valentina Ivanović, Director of the Directorate for Finance and Controlling; Svetlana Golubović, Head of the Section for Finance in the Directorate for Finance and Andrija Jovović, Director of the Department for Domestic Payment Operations. The Decision 57 by the Governor of the CBM authorises the following persons to sign payment orders for disbursements from accounts held abroad and the settlement account: Idriz Ćetković, Director of the Department for Finance and Banking Operations; Valentina Ivanović, Director of the Directorate for Finance, Accounting and Controlling; Tatjana Radusinović, Director of the Directorate for International Reserve Management in the Department for Finance and Banking Operations and Igor Perišić, special advisor in the Department for Finance and Banking Operations. General act on internal organisation of operations of the CBM, passed by the Governor, in details regulates the organisational structure of the CBM, titles and scope of work of individual organisational units. The CBM activities are carried out in organisational units established as departments, directorates, sections, national centres and divisions. A Money Museum is organised in the Central Bank, as a museum within its structure. The CBM passed the Rulebook on Job Systematisation number /1 dated 14 January 2011, in accordance with the Law and By Laws of the CBM. The Systematisation Act has been subject to ten amendments since its adoption. In 2013 there were six amendments to the Rulebook. The latest amendments were on 31 December According to the Rulebook on Job Systematisation systematised are 388 (three hundred eighty eight) posts. As of 31 December 2013, the CBM had 334 employees. 6. Monetary policy The Law on CBM envisages the basic monetary policy instruments of the CBM: Open market operations; Lending operations; Last resort creditor and Mandatory reserve. In 2013 the first three instruments were not used. Mandatory reserve The basic monetary policy instrument of the CBM is the mandatory reserve. The Central Bank requires the banks to hold mandatory reserve in the account of the Central Bank (in the country and/or abroad) and/or in the form of Treasury bills issued by Montenegro. Due to the specifics of the Montenegrin economy, the CBM uses the mandatory reserve instrument primarily to affect the liquidity of the banking system, i.e. indirectly to affect the stability and credibility of the banking system. The CBM also uses this instrument to affect the level of lending activities of banks, indirectly to affect the further process of money multiplication (money supply) in economy. In addition, the changes in the mandatory reserve instrument can affect the term structure of deposits. 57 number /1 dated 1 February

140 The base for calculation of the mandatory reserve includes the demand deposits and term deposits. The rate for mandatory reserve calculation is 9.5% on the portion of the base consisting of demand deposits and deposits with the maturity up to one year, i.e. 365 days and 8.5% on the portion of the base consisting of deposits with maturity over one year. Banks may hold the mandatory reserve in the account of the mandatory reserve in Montenegro and/or in the accounts of the CBM held abroad. Banks are allowed to hold up to 30% of the mandatory reserve in the form of Treasury bills of Montenegro with maturity up to 182 days and up to 13% in the form of Treasury bills of Montenegro with maturity up to 91 days. A bank that fails to allocate mandatory reserve in the stipulated amount and timeframes, is to pay interest to the CBM at annual interest rate of 12%, on the amount of the difference between the prescribed and allocated mandatory reserve. A bank may use up to 50% of mandatory reserve for daily liquidity maintenance: if it pays back the funds on the same day, it does not pay interest, and if it does not pay back on the same day, it pays interest at annual interest rate of 12%. The mandatory reserve instrument has been changed several times since the establishment of the CBM. The amount of the mandatory reserve and conditions for use of mandatory reserve for liquidity purposes are specified in the Decision on Mandatory Reserve of Banks Held with the Central Bank of Montenegro 58. As of the end of 2013, allocated mandatory reserve amounted to mill. which is by 9.8 mill. or 5.2% higher in relation to the end of International reserve management The Central Bank holds and manages international reserves of Montenegro in the way that is consistent to the monetary policy and ensures smooth fulfilment of Montenegro s international obligations. The Central Bank manages international reserves in line with the Law and the Decision on International Reserve Management. International reserves include the following: 1) gold held by the Central Bank or a third party on behalf of the CBM, including credit balances in accounts for gold; 2) bank notes and coins in freely convertible foreign currencies held by the CBM or a third party on behalf of the CBM; 3) credit balances and international deposits payable in freely convertible foreign currency, at demand or within short term, in accounts of the CBM with foreign central banks, international financial institutions or foreign banks whose short term liabilities are rated by two internationally recognised credit rating agencies with one of the three highest ratings; 4) marketable debt securities expressed in freely convertible foreign currencies, issued by the Government, a foreign central bank or an international financial institution; 5) highly liquid and marketable debt securities expressed in convertible foreign currencies, in accordance with the decision by the Council of the Central Bank; 6) receivables in respect of purchase, sale or repo of securities; 7) special drawing rights and reserve position held in the accounts of the Central Bank with the International Monetary Fund. The Central Bank may: open accounts abroad with foreign central banks, international financial institutions and foreign banks whose short term liabilities are rated by two internationally recognised credit rating agencies with one of the three highest ratings; buy and sell foreign securities in the primary and secondary market in accordance with the law; 58 OGM 35/11, 22/12, 61/12 and 57/

141 enter into agreements on payments and settlements with foreign clearing institutions and enter into agreements in its own name and on its own behalf or on behalf of Montenegro. According to the Law on the CBM and in conjunction with Article 7 of the Decision on International Reserve Management, the CBM Council passed the Guidelines on International Reserve Management, which determine the investment strategy, specific forms of investments, parameters for international reserve management. The Governor established the Investment Committee, as an expert advisory body to develop investment strategy for international reserve management in line with the Guidelines. In 2013, the Guidelines were twice innovated (5 April 2013 and 9 December 2013), at proposal by the Council, due to the conditions in the market and drop of revenues. International reserves of Montenegro as of 31 December 2013 amounted to 393,343, Total( I+II ) ,39 Montenegro funds with IMF amount in SDR in EUR 1. Reserve position , ,00 2. General and special allocation funds , ,63 3. Accrued interest , ,79 Distribution of general reserves portion of extra profit from sale of gold , ,73 III Total Securities available for sale Securities held to maturity IV Total , , , ,98 Comparative review of the balance of international reserves of Montenegro as of 31 December 2011/2012/2013 Breakdown Balance Balance Balance Change 31.dec dec dec / / /2012 Regular accounts , , , % 32,17% 35,87% Deposits , , , % 91,35% 43,58% SDR , , , % 5,40% 3,85% Securities available for sale , , , % 32.31% 13.23% Securities held to maturity , , % Total , , ,52 In 2013 the mandatory reserve funds of banks held with the CBM were a stable source of international reserves. In the reporting period the banks allocated and maintained mandatory reserve in the stipulated amount and did not take the benefit of using 50% for maintenance of daily liquidity, and all the banks used the option to allocate up to 35% in the form of Treasury bills issued by Montenegro. At the end of the reporting period the total allocated reserve of banks held with the CBM amounted to: 196,898,000.00, of which 76.1% in the accounts with the CBM, and 23.9% in the form of Treasury bills. The commitment in reserve management is to have a portion of funds available for execution of the obligations of the Government of Montenegro at any time. Daily liquidity was maintained at the level of million euros. The balance of these funds at the end of the year amounted to 45.3 million euros, and they included demand deposits with central and foreign commercial banks (excluding demand deposits with central banks in foreign currency). According to the guidelines (from March 2012) for international reserve management, the liquid portfolio is divided into disponible and liquid portfolios. Disponible portfolio implies placing of funds with maturity up to 14 days, while liquid portfolio implies maturity from 14 days to one year. A significant portion of the disponible portfolio is placed with central banks from ECB Tier 1 investment placing in overnight 141

142 deposits. The rate in this respect was calculated according to EONIA 10bp, but not less than zero. In addition to overnight placements, a portion of liquid portfolio is placed in short term deposits with central and commercial banks with maturity of 14, 32 and 92 days. Dollar portfolio is placed with the Federal Bank of New York. At the end of the reporting period the total market value of the investment portfolio (securities) available for sale amounted to 101,768, (including accumulated interest). According to the valid Guidelines it was allowed to invest in securities of OECD/EMU countries with minimum rating of AA by S&P or Aa3 by Moody's. This portfolio includes German government securities whose nominal value is 27,900, or 28.47%, Dutch government securities amounting to 31,800, or 32.45%, Finnish government securities in the amount of 8,600, or 8.77%, French government securities amounting to 28,900, or 29.5% and Austrian government securities in the amount of 800, or %. An investment portfolio created in 2012 includes securities held to maturity. Issuers of securities in which investments were made are federal states of Germany: Berlin, Bayern, Baden Wurttemberg, Hessen, as well as German agency KfW and French agency CADES. Securities held to maturity have the value of 17,024, (purchase price with coupon rate). Montenegro became a member of the IMF in January 2007, and CBM is authorised to perform the role of a fiscal agent and depositary in IMF. Membership quote of Montenegro amounts to SDR 25.7 mill. The amount of international reserve funds in CBM accounts held abroad is determined by the balance of deposited funds of the Ministry of Finance, the Deposit Protection Fund, the amount of allocated mandatory reserve and capital of the CBM in financial form. The foreign exchange reserve structure does not include deposit funds in gold, because on 27 July 2009, at request 59 by the Ministry of Finance, the entire amount of gold (FOZ 38,477,690), placed in the CBM account with HSBC Bank USA, N.A. London Branch was ordered to be transferred in favour of the account of the Ministry of Finance held with Credit Suisse Bank, Zurich. Reporting on the balance and changes in international reserves is carried out daily in the form of a review by parameters. The Investment Committee monitors the implementation of strategic Guidelines for international reserve management based on the reports by: the Department for Financial and Banking Operations, the Section for Risk Management, the Directorate for International Reserve Management and such reports include the Report on Risk Exposure and Investment Portfolio Performance for Trade and Liquid Portfolio and Report on International Reserve Management. The benchmark for investment portfolio available for sale during the validity period of the Guidelines adopted in February 2012 was Merrill Lynch EMU securities, AAA rating, with maturity from one to three years. The benchmark during the validity period of the Guidelines adopted in April 2013 was Merrill Lynch Germany, France, the Netherlands, Austria, Luxembourg and Finnish government securities, with maturity from 0 to 3 years. The CBM is obliged, in accordance with the Law, to invest funds in marketable securities. According to the parameters from the Guidelines for international reserve management it is allowed to invest in the securities of the OECD/EMU countries with minimum rating AA according to S&P or Aa3 according to Moody' s with maturity from one to three and from zero to three years. 59 Request no /1 dated 27 July

143 In 2013, funds were placed in securities available for sale, in the amount of 45,500,000.00, and amount of 2,000, was placed in short term French bond, which matured on 19 December, so it is no longer included in the portfolio. Average period of maturity of securities is from one to three years and from zero to three years, which is in accordance with the Guidelines. The funds are placed in the securities of OECD/EMU countries, in the balance sheet currency, which is in accordance with the current Guidelines. Tabular presentation of bought securities available for sale in 2013 Status ISIN Maturity Purchase/sale Nominal value Bought securities rating date 1 S&P Moody's Buy NL Jul Feb ,00 NR Aaa Buy NL Apr Feb ,00 no rating Aaa Buy FR Sep Feb ,00 no rating Aa1 Buy FR Jul Feb ,00 no rating Aa1 Buy FR Oct Feb ,00 NR Aa1 Buy DE Oct Feb ,00 NR Aaa Buy FR Nov Apr ,00 no rating Aa1u Buy FR Feb Apr ,00 no rating Aa1u Buy FR Oct Jul ,00 NR Aa1u Buy FR Feb Jul ,00 no rating Aa1u Buy FI Apr Jul ,00 AAA Aaa Buy FR Apr Jul ,00 NR Aa1u Buy FR Jan 15 9 Oct ,00 NR Aa1u Buy NL Apr 15 9 Oct ,00 no rating Aaau Buy FI Apr 16 9 Oct ,00 AAA Aaa Buy FR Jul 16 9 Oct ,00 no rating Aa1u Buy AT0000A011T9 15 Sep 16 9 Oct ,00 AA+ Aaa Buy FR Dec 13 9 Nov ,00 The data in the Table related to the rating of bought securities are the data from the documents submitted at the time of purchase, which has been presented to the state auditor. Financial funds held to maturity with the balance of 16,589, as of 31 December 2013 are the debt securities issued by German federal districts and agency securities. The presented amount is amortised value in Investing in the portfolio held to maturity in the reporting period has been performed based on the List of approved issuers of securities for investing in the portfolio held to maturity 60 adopted by the Investment Committee and in accordance with the valid Guidelines. Tabular presentation of securities available for sale and securities held to maturity Status ISIN Maturity Purchase/sale date Nominal value Am value in 2013 Purchase price Coupon rate Buy DE Jul May 12 1,500, ,559, ,620, Buy DE000A0EY7Z3 14 Sep May 12 2,000, ,092, ,139, Buy DE Jan May 12 1,000, ,057, ,072, Buy DE Jan May 12 1,000, ,027, ,043, Buy DE000A0Z1Q56 30 May May 12 1,300, ,369, ,392, Buy DE000A1H3YR4 8 Sep May 12 2,000, ,115, ,149, Buy DE Apr May 12 1,000, ,034, ,064, Buy DE000AXYS72 13 Feb May , , , Buy DE000A1MATD5 18 Jan Jun 12 3,500, ,590, ,587, Buy XS Mar Jum 13 2,000, ,226, ,209, Total 15,000, ,589, ,804, IC no.12/3 dated 30 April

144 8. Bank supervision Pursuant to Article 14 of the Law on Central Bank of Montenegro, the Central Bank conducts supervision of banks and micro credit financial institutions. In 2013, as stated in the Annual Performance Report of the CBM, the CBM conducted 12 regular and two extraordinary examinations, the total of 10 banks in the system. The subject of the examination were the following banks: Atlas Banka JSC Podgorica; Crnogorska Komercijalna Banka JSC Podgorica, member of OTP group; Erste Banka JSC Podgorica; First Financial Bank JSC Podgorica; Hypo Alpe Adria JSC Podgorica; Invest Banka Montenegro JSC Podgorica; Komercijalna Banka JSC Budva; NLB Montenegrobanka JSC Podgorica; Prva Banka Crne Gore Osnovana Godine JSC Podgorica and Societe Generale Montenegro JSC Podgorica. 9. Operations for Montenegro The CBM submits the Performance Report to the Parliament of MNE for consideration minimum once a year by the 30 April of the current year for the previous one. The Central Bank also publishes reports on stability of financial system and issues of stability of prices and submits them to the Parliament and the Government for information purposes, by 30 June of the current year for the previous one. As deposits the CBM accepts monetary funds of state authorities and organisations, pays interest on deposited funds at the rates prevailing in the market in Montenegro, also opens accounts for such parties and performs payment operations in respect of such accounts and charges fees for performed operations. The CBM also performs operations related to securities issued by Montenegro, including operations of registration of such securities, pays out principal, interest and other costs related to such securities and performs other related operations, under the conditions contracted with the ministry responsible for finance affairs. Pursuant to the Law on the CBM, the CBM entered into an agreement 61 with the Ministry of Finance regarding performance of banking operations and services related to implementation of decisions on state debt. According to the Agreement, the CBM performs banking operations that imply the following activities: 1) open and maintain state and banking accounts; 2) perform fiscal agency operations; 3) provide reports, statements and notifications based on records kept on the operations it performs; 4) carry out all operational functions in respect of donations and loans that foreign governments and international institutions or organisations approve to the Government of Montenegro; 5) perform other banking services in accordance with the provisions of the Law on the CBM. The CBM is paid fees for banking operations and covering costs incurred by provision of services related to implementation of decisions on state debt. The CBM is to provide to the Minister of Finance notifications and statements on transactions made, every day no later than 2 p.m. for the previous day. The fee for coverage of costs incurred in respect of services for implementation of decisions on state debt is determined as a flat annual amount and may not be less than 0.33% of the nominal value of 61 Agreement: number 1593 dated 25 September

145 issued and registered securities. The Ministry of Finance pays to the CBM accrued fees for banking operations and coverage of costs incurred by provision of services related to implementation of state debt decisions. The CBM pays interest on deposits of state authorities and organisations and idle funds from the sale of Treasury bills. As deposits the CBM accepts monetary funds of state authorities and organisations and pays interest on deposited funds at the rates prevailing in the market in Montenegro. The CBM is to pay interest on idle funds from the sale of Treasury bills (a separate bank account is opened), interest is calculated daily, and paid monthly. The CBM must not, directly or indirectly, approve loans to the Government, other state authorities and organisations, local self government units, or parties whose founder or majority owner is the state or a local self government unit. The Central Bank may approve loans to banks whose founder or majority owner is the state, under the conditions envisaged by the law. The Central Bank must not buy securities issued by the Government in the primary market. 10. Accounting system The CBM keeps business books, on accrual basis, in accordance with the professional regulatory framework, Accounting policies 62 and Accounting Rulebook 63. Accounting operations of the Central Bank are carried out in the organisational unit Directorate for Finance, Accounting and Controlling as well as in other organisational units of the CBM which develop, accept and control accounting documents and submit them for recording (application software or in other way) or keep ancillary books. Records on the balance and changes of the assets, liabilities, capital, revenues, expenditures and offbalance positions are kept in business books (General ledger, journal and ancillary books) which are maintained in electronic form, and if required, they can be presented on the computer and printed. The business books are maintained through the Main Banking System (MBS) which is one of the three key application systems of the CBM, i.e. through its sub systems that are integrated, which implies connection and automated exchange of data. The General Ledger is uniform on the level of the Central Bank and makes the basis for producing financial statements. The Central Bank prepares financial statements in accordance with the International Accounting Standards and International Financial Reporting Standards. Annual Financial Statement, including the opinion by an independent external auditor, is adopted by the Central Bank by 30 April of the current for the previous year and submitted to the Parliament of Montenegro for information purposes. The system of internal accounting controls is established through the control of granting and updating authorisations for work in business books and control of entry of data in ancillary books which implies the control of regularity of entered data, review of chronology of entries and appropriate keeping and using of data. Application software controls (logical and computing) disable sending of data from ancillary books to the General Ledger prior to the completion of the controls, and there are also controls in the application software incorporated in generation of orders. 62 no /2 dated 16 May 2011 and no /1 dated 23 April no /1 dated 16 May

146 Testing of the recorded orders generated in 2013 allowed the state auditor to obtain assurance that the system of internal accounting controls, which is based on procedures and processes set by the CBM management, ensures orderly operations and timely compiling of reliable financial information. 11. Information system The information system of the Central Bank of Montenegro is of great importance for its operations. Business processes are supported by the application systems that are regularly upgraded. In the current information system architecture of the Central Bank of Montenegro there are three key application systems: the Main Banking System (MBS), Inter bank payment operations system (IBPOS) and Enforced collection system (ECS). The CBM develops the main banking system and enforced collection system on its own using its own resources, within the Directorate for development of application systems and quality assurance. Inter bank payment operations system is composed of the Payment operations system for interbank transfers at real time gross settlement basis (RTGS) and the Payment operations system for inter bank transfers at deferred net settlement basis (DNS). This is the key application system of the Central Bank through which 35.94% of the total annual income was generated in Although the Central Bank is not the owner of the source code, the guarantee for stable functioning of the system is the maintenance agreement. Multi year use of IBPOS application has demonstrated its reliability. The system of enforced collection is an automated way of exchanging electronic messages between the Section for Enforced Collection and banks, which blocks all the accounts of debtors and by operation of law makes payments of the liabilities specified as the base for enforced collection in favour of creditors. 3.88% of the total annual income of the Central Bank was generated through this application system in In 2012, the Central Bank took over the source application code from the deliverer, so the maintenance of application system is organised in the IT Department. The main banking system serving for support to a large number of business processes in the Central Bank consists of a range (33) of application sub systems. It is featured by functional integration which implies connection and automated exchange of data between sub systems. One of the key sub systems is the Credit Register register of credit debt of individual parties towards banks, financial institutions and Investment Development Fund maintained by the Central Bank of Montenegro. This sub system, with the client consent, allows the bank to verify its clients. This application system is developed by the Central Bank of Montenegro on its own, by its own resources, within the Directorate for Development of Application Systems and Quality Assurance, in the Information Technology Department. 3.61% of the total annual income of the Central Bank was generated through this system in Within the Directorate for IT infrastructure and operations and security carried out are operations related to systemic support to the information system of the Central Bank including development and maintenance of the overall IT infrastructure, as well as systemic support to users with regard to maintenance of personal computers and peripherals. Significant investments are made in the IT system, which results in a stable IT system and required activities are undertaken so the system would be protected and stable in functioning. IT infrastructure has been significantly improved by the project of Information System Consolidation which has ensured continuous and reliable operation of the entire information system and prevented any operation interruptions to the maximum extent possible. Introduction of optical connections between the central and reserve locations primarily improved the function of the back up location in ensuring continuity of operations. 146

147 Risks, contingent and emergency situations are prevented, and procedures set a course of actions which in case of interruption or cancellation of the information system would enable the work process to continue in the shortest period possible. Security of the information system of the Central Bank is on high level. The information security policy clearly envisages all the actions and situations related to security of information and information system of the Central Bank. Also, the system of digital certificates is significant from the aspect of secure logging in, crypting and digital signature. Internal audit of the information system includes the assessment of the internal control system established for the purpose of ensuring availability of information system, information confidentiality, data integrity, efficient and economic use of the information system. 12. Internal audit system Internal audit activities are carried out in the Internal Audit Department in accordance with the Rulebook on Internal Audit 64. Internal audit is carried out based on the annual plan adopted by the Council, at proposal by the chief internal auditor, and with prior opinion by the Governor and Audit Committee. The Chief Internal Auditor submits periodical (semi annual) and annual reports on internal audit performance to the Council of the Central Bank, the Governor and the Audit Committee. During the reporting period, the internal audit conducted the total of 12 audits. These audits included previously considered risk assessment related to a work process or an organisational part based on which the verification of adequacy and evaluation of the internal control system and assessment of compliance to and observance of laws and regulations in the work, disposing of resources and reporting were completed. 13. Capital The capital of the CBM consists of the core capital and reserves. The amount of the core capital in the amount of 50,000, is set by the Law on the CBM for the purpose of creating appropriate material assumptions for exercise of stipulated CBM functions. The core capital of the Central Bank is under state ownership. The core capital of the CBM cannot be transferred, pledged or encumbered in any way. The core capital of the CBM may increase by the amount set by the CBM Council. The core capital of the CBM is increased by the funds from general reserves. If the funds of general reserves are not sufficient to provide the set amount of the core capital increase, the shortage may be provided from the budget of Montenegro. The following table shows the trend of the core capital of the CBM for the period : Core capital in 000 Year Amount 33,842 35,003 39,648 40,000 In 2010, when the Law on the CBM was adopted, the capital of the CBM amounted to 33,842, The core capital of the CBM should have been increased by the funds from the general reserves. Given that the funds from the general reserves were not sufficient to provide the amount of core capital shortage, the funds should have been provided from the budget of 64 no /1 dated 20 June 2011 and /2 dated 29 January

148 Montenegro, which was not done. In April 2011, the Protocol 65 was entered into and signed with the Ministry of Finance, where it was agreed that a portion of the profit of the CBM which according to the provisions of Article 69 of the Law on CBM would have been the revenue of the Budget of Montenegro should be redirected to the core capital of the CBM, until the legally stipulated minimum has been reached. The annual performance report of the CBM for 2011 specifies that the core capital after the recording of the Decision on Profit Distribution for 2010 in the books of the CBM and application of the provisions of the Protocol on the method of providing the CBM core capital shortage, amounts to 35,003, The core capital shortage is 14,997, In 2012, the core capital is by 13.27% higher in relation to 2011 and amounts to 39,648, According to the Decision by the CBM Council on distribution of the CBM profit for 2011 and pursuant to the signed Protocol with the Ministry of Finance, a portion of the profit for distribution that made the revenue of the Budget of Montenegro ( 2.6 mill.) was redirected to the core capital. A portion of funds from general reserve ( 2.28 mill.) was also redirected to the capital. On 22 January 2013, the CBM signed with the Ministry of Finance a Protocol on temporary cancellation of the Protocol on the method of providing the CBM core capital shortage, so accordingly it was decided that relevant portion of the CBM profit for 2012 and 2013 should not be redirected to the core capital of the CBM, but to be paid into the budget of Montenegro, all for the purpose of public finance stabilisation, as was stated in the notes to the financial statements for The CBM Council passed the Decision 66 on distribution of CBM profit for 2012, according to which the net profit of the CBM for 2012 was established in the amount of 761,280.08, and profit for distribution for 2012 in the amount of 971, The Decision envisages that the profit for distribution in the amount of 485,750.24, or 50% of the profit, should be directed to the general reserves of the CBM, and the remaining 485, make the revenues of the budget of Montenegro. The decision of the CBM Council envisages the increase of core capital of the CBM from general reserves by 351, The core capital of the CMB as of 31 December 2013 amounted to 40,000,000.00, which is not in accordance with Article 12 of the Law on CBM, which envisages that the core capital of the CBM amounts to 50,000, The core capital shortage as of 31 December 2013 was 10,000, so, according to Article 12 and Article 90 paragraph 2 of the Law on the CBM it is necessary to provide the capital shortage from the Budget of Montenegro. General reserves as of 31 December 2013 amounted to 634, while the balance of special reserves was 263, Revaluation reserves for real estate, plants and equipment as of 31 December 2013 amounted to 19,481,821.63, revaluation reserves for securities had negative value in the amount of ( 2,263,426.50) so revaluation reserves presented as of 31 December 2013 amounted to 17,218, Revaluation reserve for used fixed assets amounted to 19,424, In 2013 revaluation reserves were abolished for fixed assets in the amount of 204, Non distributed gain from the current year amounts to 207, and makes realised revaluation reserves for real estate, plants, equipment and library fund. Net profit amounts to 484, and it is established as the difference between revenues and expenditures, in accordance with International Financial Reporting Standards. 65 Protocol on the method of providing the shortage core capital funds of the CBM, number /1 dated 8 April no / dated 5 April

149 The total capital of the CBM as of 31 December 2013 amounts to 58,808, which is by 1,322, less in relation to the balance of the total capital as of 31 December 2012 which amounted to 60,130, The reduction of the total capital was mostly caused by the application of fair value of securities available for sale in the amount of ( 1,320,905.00). Total capital in 000 Year Amount 47,230 60,683 60,130 58, Result of the period Net profit or loss of the CBM is established for each financial year in accordance with the International Financial Reporting Standards. The profit for distribution is determined in the following way: - by taking away the net profit from the total amount of unrealised revaluation gains and distribution of equivalent amount to accounts of unrealised revaluation reserves and - by taking away from the account of unrealised revaluation reserves and adding to the profit for distribution the amount of each unrealised gain that was taken away from the net profit from one or several previous years and which was realised during the current year. Unrealised revaluation losses will be transferred to the account of unrealised revaluation reserves until their balance has equalled zero, then such losses will be covered from the current year profit, and thereafter in the way specified in Article 70 of the Law. The profit established in accordance with Article 68 paragraph 2 of the Law is distributed to general reserves in the amount of 50% of generated profit, until the level of general reserves has reached 10% of the total financial liabilities of the Central Bank. A portion of the profit can be distributed to special reserves in the amount determined by the Council, in accordance with this Law, where the amount of the profit may be maximum 10% of the established profit (according to Article 68). The remaining amount of the profit makes the revenue of the Budget of Montenegro. The profit may not be distributed from non distributed or current profit, unless such distribution is carried out in accordance with Article 68 of the Law. The following table and graphic show the net gain trend for the period : Net gain in 000 Year Amount 540 1,036 4, Reduction of the profit is mostly the consequence of the loss in respect of financial funds available for sale that is in 2013 generated in the amount of 1,222, The Auditee specifies in its report that the loss in respect of financial funds available for sale i.e. reduction of the profit was caused by unfavourable trends in the international financial market in 2012 and 2013, and that in 2013 the revenue generated in respect of financial funds available for sale amounted to 1,413, (as the difference between revenues from coupons 2,635, and net loss in respect of sale of securities was 1,222,111.00). Net profit of the CBM for 2013 in the amount of 484, is established as the difference between revenues and expenditures, in accordance to the International Financial Reporting Standards. 149

150 Pursuant to Article 68 of the Law on the CBM, the profit for distribution is determined in the way that unrealised revaluation gains are taken away from net profit, and added are unrealised revaluation gains that were taken away from net profit in previous years, which have been realised in the current year. The profit for distribution in the amount of 688, is determined in the way that the presented profit ( 484,622.33) was reduced by the amount of exchange differences for IMF funds ( 3,325.83) and increased by non distributed profit that is increased by unrealised revaluation gains ( ,64) which were taken away from net profit in previous years and which have been realised in the current year as a result of transferred reserves as long as the funds are used. The amount of transferred reserve is the difference between the amortisation based on revaluation book keeping value of funds and amortisation based on purchase value of funds. Distribution of profit is carried out according to the Decision 67 on distribution of CBM profit for The profit is distributed: - to general reserves 50% in the amount of 344,371.07; - as the revenue of the Budget of Montenegro 50% in the amount of 344, The Protocol 68 on the Temporary Cancellation of Application on the Method of Providing the CBM Core Capital Shortage has been cancelled in terms of redirecting a portion of the CBM profit for 2012 and 2013 to the core capital but it is to be redirected to the Budget of Montenegro for the purpose of public finance stabilisation. This Protocol has rescinded the Protocol 69 on the Method of Providing the CBM Core Capital Shortage where the Ministry of Finance and the Governor of the CBM have agreed, due to the amount of the core capital shortage, which should have been provided from the Budget of Montenegro, that a portion of the CBM profit, which according to the provisions of Article 69 of the Law on the CBM would make the revenue of the Budget of Montenegro on annul basis, should be redirected to the core capital of the CBM. II OPINION AND RECOMMENDATIONS Based on conducted audit and established state of facts, as well as after deliberation of the auditee s statements included in the auditee s Opinion regarding the Preliminary Audit Report of the SAI, based on Article 12 of the Law on State Audit Institution and pursuant to Art. 50 of the Rules of Procedure of the State Audit Institution, the competent Auditing Board of the SAI, composing of Mr Branislav Radulović, PhD (member of Senate Head of Auditing Board) and Mr Dragiša Pešić (member of the Senate member of the Auditing Board), at its session held on 20 October 2014, adopted the following: FINAL AUDIT REPORT on the Annual Financial Statement 2013 of the Central Bank of Montenegro OPINION Financial statements of the Central Bank for 2013 provide, by all material aspects, a true and fair presentation of the financial position as of the day and the year ending on 31 December 2013 and operating results for the year ending on this day, in accordance with the accepted financial reporting framework, and therefore the competent SAI Auditing Board is expressing an unqualified opinion regarding the financial statement of the Central Bank of Montenegro for Decision, no /55 2 dated 27 March Protocol, no /2 dated 22 January Protocol, no /1 dated 8 April

151 RECOMMENDATIONS 1. The core capital of the CBM as of 31 December 2013 amounted to 40,000,000.00, which is not in compliance with Article 12 of the Law on CBM, which envisages that the core capital of the CBM should amount to 50,000, The core capital shortage as of 31 December 2013 is 10,000, and therefore it is necessary that the Government of Montenegro, pursuant to Article 12 and Article 90 paragraph 2 of the Law on CBM, provides the capital shortage from the Budget of Montenegro. 2. Inventory of securities has not been carried out fully in line with Article 16 of the Rulebook of CBM Inventory. The inventory list does not include all the required data: name of the issuer, issue date, fair value of the available for sale securities or securities held to maturity. The Auditee should ensure, when the inventory of securities is taken, the inventory lists to include all the data in accordance with Article 16 of the Rulebook on Inventory. 3. In the Balance Sheet, within the item Receivables, the Auditee has presented the amount of 123 thousand relating to receivables in respect of rights to non recorded flats. The Report on the Inventory of Receivables and Liabilities of the CBM with the balance as of 31 December 2013 that the Auditee submitted to the State Audit Institution does not include the inventory of receivables in respect of rights to non registered flats. As regards the receivables in respect of rights to non registered flats, the state auditors were presented the documents based on which they could not obtain assurance regarding the recorded amount of receivables. The Auditee is recommended to ensure that the receivables in respect of rights to non registered flats are included in the inventory, i.e. if they meet the criteria for recognition under IAS 16 Real estate, plants and equipment they should be presented within the relevant item, after they have been subject to valuation. 4. In the Report on inventory of receivables and liabilities of the CBM as of 31 December 2013 that the Auditee provided to the State Audit Institution, for receivables in respect of issue and execution of enforced collection orders (account ,945.79) and calculation of interest on enforcement orders (account ,610.58), the following information is not included: name and place of the debtor, amount of the receivables and due date, although it is envisaged in Article 19 of the Rulebook on Inventory of the CBM, so the state auditor could not identify if the published amount includes receivables not collected within 60 days from the maturity date and which should, according to the Accounting Policies of the CBM, be impaired against provisions for potential losses. The Auditee should ensure that during the inventory taking of receivables all the required data, envisaged in Article 19 of the Rulebook on Inventory of the CBM, are entered, and doubtful, disputable or past due receivables to be included in a special inventory list. 5. In the ancillary book of fixed assets that the Auditee provided to the State Audit Institution there are no data on the area of land and business buildings that the CBM has at disposal. 151

152 The Auditee is recommended to record data related to the area of land and business buildings in the ancillary book in order to enable reconciliation with actual state, i.e. Real Estate Administration data. 6. In reference to Article 22 of the Law on Professional Rehabilitation and Employment of Disabled Persons, the CBM failed to pay special contributions for professional rehabilitation and employment of disabled persons at the time of monthly payment of salaries and fees for the employed. The CBM should ensure the application of Article 22 of the Law on Professional Rehabilitation and Employment of Disabled Persons. 7. Expenditures, in the amount of 62,300.00, which on behalf of the financial assistance to the employees are paid in the account of trade union organisation, based on the request of the trade union stating the reasons and requested amounts for employees individually, are the income of employees. The Central Bank is recommended, when paying out other income (envisaged in Article 35 of the Collective Agreement of the CBM), to make payments to the accounts of employees rather than the account of the Trade Union Organisation. According to Article 15 of the Law on State Audit Institution the Central Bank of Montenegro is obligated within 6 (six) months to submit to the State Audit Institution a report on implementation of the recommendations under this Report. 152

153 EXCERPT FROM THE AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENT OF THE TOBACCO AGENCY Type of audit: Audited entity: Financial audit and regularity audit Tobacco Agency Subject of audit: Annual Financial Statement of the Tobacco Agency for 2013 Audit duration: Auditing Board members: 30 auditing days Milan Dabović, PhD, president of the Senate Head of the Auditing Board Branislav Radulović, PhD, member of the Senate member of the Auditing Board 153

154 154

155 I GENERAL INFORMATION 1. Legal grounds Legal basis for performing audit of the Annual Financial Statement of the Tobacco Agency for 2013 is contained in the following documents: the Law on State Audit Institution (OGM 28/04, 27/06, 78/06 and 17/07; 73/10, 40/11 and 31/14) and the Audit Conducting Decision passed by the competent Auditing Board, number , dated 28 March The audit of the Annual Financial Statement of the Tobacco Agency has been conducted in accordance with: the Rules of Procedure of the State Audit Institution (OGM 50/07) and International Auditing Standards of SAI (ISSAI). 2. Subject of audit The subject of the audit is the Annual Financial Statement of the Tobacco Agency for 2013 and compliance of operations and adherence to laws and other regulations. 3. Audit objective and type The State Audit Institution has conducted financial audit and regularity audit in the Tobacco Agency. The financial audit objective is to express an opinion whether financial statements, in all material aspects, are produced in accordance with the stipulated financial reporting framework. The regularity audit objective is to express an opinion on compliance of operations and acting in performance of powers in accordance with law and other regulations the Auditee is subject to. 4. General information on the auditee Pursuant to the Law on State Administration and the Decree on Organisation and Manner of Operations of State Administration, the Tobacco Agency is an administration authority within the Ministry of Agriculture and Rural Development. The Decree on Organisation and Manner of Operations of State Administration envisages that the Tobacco Agency is to carry out activities related to: organising and carrying out of tenders for business organisations and/or entrepreneurs, for the purpose of licensing the production of tobacco goods; establishing if conditions are met for taking part in the public tender and issue of licenses for production of tobacco goods to a business organisation or entrepreneur fulfilling the prescribed conditions; establishing if fulfilled are the conditions for performing wholesale trade in tobacco goods and licensing of business organisations and/or entrepreneurs and/or importers registered with the Register of Importers of Tobacco and Tobacco Goods fulfilling the required conditions to carry out wholesale in tobacco goods; establishing if fulfilled are the conditions for performing retail sale in tobacco goods and issue of approvals to business organisations, and/or entrepreneurs to carry out retail sale in tobacco goods; coordinating activities of authorities and organisations in the area of suppressing illegal sale of tobacco goods; monitoring of the situation in the market of tobacco goods; keeping the prescribed registers; other activities assigned to its competency. 5. Audit methods The audit was planned and conducted in accordance with the International Standards of Organization of Supreme Audit Institutions (ISSAI), in the way that enables the SAI to obtain reasonable assurance if the financial statement of the auditee includes materially significant misstatements and if the operations of the Auditee are compliant to the legal and enabling acts and regulations. 155

156 Financial audit has been conducted by examination of evidence, based on verification of samples and validation of amounts and information disclosed in financial statements. Given that it is a spending unit with a small amount of funds spent in 2013 ( 79,377.07) and a small number of employees (five), the assessment of materiality and size of the sample have been established based on application of professional judgment. Materiality is assessed at the level of 1%, while the sample covered 82.21% of the total expenditures. 6. Recording system Pursuant to the Law on State Administration and the Decree on Organisation and Manner of Operations of State Administration, the Tobacco Agency is within the Ministry of Agriculture and Rural Development. According to its new position in the state administration system, the budgetary operations have been transferred to the Ministry of Agriculture and Rural Development. In this sense, the minister is the chief finance officer who approves the use of budgetary funds. The Tobacco Agency is not included in the SAP system, but it is through the Ministry of Agriculture and Rural Development integrated in the State Treasury system, and it uses the user account of the mentioned ministry. All financial transactions are recorded on cash basis. Pursuant to Article 4 of the Law on State Audit Institution and the Decision by the Auditing Board on conducting audit no dated 28 March 2014, the State Audit Institution conducted financial audit and regularity audit of the Annual Financial Statement of the Tobacco Agency for The audit has been conducted in accordance with the Rules of Procedure of the State Audit Institution and International Standards of SAI (ISSAI). Based on the conducted audit and found state of facts, the Auditing Board composing of Milan Dabović, PhD, Head of the Auditing Board and Branislav Radulović, PhD, member of the Auditing Board, at its session held on 23 October 2014, adopted the FINAL REPORT ON AUDIT OF THE ANNUAL FINANCIAL STATEMENT OF THE TOBACCO AGENCY FOR 2013 and passed the following: OPINION AND RECOMMENDATIONS Financial audit of the Annual Financial Statement of the Tobacco Agency for 2013 has not found any materially significant misstatements or deviations from officially presented financial statements. Financing transactions are presented in accordance with the annual Budget Law, recorded in the General Ledger of the Treasury, and payments registered within the Consolidated Account of the State Treasury, and therefore the Auditing Board in charge of the subject audit is expressing an unqualified opinion. Pursuant to the findings of the audit, attention should be paid to the following: 1. Tobacco Agency, based on the decision no and 01 61/2 dated 4 June 2013, referring to Article 60 and Article 134 of the Law on Senior Grade and Lower Grade Civil Servants (OGM 39/11, 50/11 and 66/12), and at request of two civil servants, paid out funds in the amount of 2, from item 412 Fee for housing and life separated from family, in semi annual amounts of , or 1, The audit has found that the mentioned funds should have been planned and recorded under item 431 Other transfers to individuals. Expenditures should be recorded in accordance with Article 9 of the Rulebook on Uniform Classification of Accounts for the State Budget, Budgets of Extra budgetary Funds and Municipal Budgets. The expenditure calculated based on the Decree on compensation of costs to senior and lower grade civil servants should have been recorded within the item transfers to individuals. 156

157 Regularity audit has confirmed that the Tobacco Agency carries its activities in accordance with the law and enabling regulations, and therefore the competent Auditing Board is expressing an unqualified opinion. Pursuant to the findings of the audit, attention should be paid to the following: 1. The Law on Tobacco (OGM 48/08 and 40/11) envisages that business subjects should obtain approval to produce tobacco goods (cigarettes) for the period of 5 years, with payment of a fee in the amount of 300, At the same time, licenses or approvals issued according to the provisions of the Law on Tobacco (OGRM 80/04), which has been rescinded, will continue to be valid until the expiry of the period for which they are issued. The approvals issued according to the mentioned Law are of permanent character and thus have privileged position in relation to business subjects that are issued or will be issued such approvals according to the current Law on Tobacco. It is necessary to equalise the business conditions for all business subjects through regulation of the obligation for all business subjects to renew approvals upon the expiry of a five year period. 2. The audit has found that the Law on Tobacco does not envisage that the importers of tobacco, processed tobacco and tobacco goods are obliged to have an approval for performance of wholesale in tobacco goods. Based on this, it is necessary to prescribe a condition for business subjects not to be able to obtain approvals for performance of activities of import of tobacco, processed tobacco and tobacco goods, unless they have previously obtained approval for performance of wholesale activities. The State Audit Institution finds necessary that the Ministry of Agriculture and Rural Development considers the given proposals and initiates amendments to the Law on Tobacco as needed. 3. The Law does not envisage the purpose of use of funds generated from fees for issued approvals, which for the period 1 January December 2013 amounted to 1,776, It is recommended that a portion of revenues from the fees should be earmarked for treatment of the persons suffering from illnesses caused by tobacco smoking, and for prevention of smoking. 157

158 158

159 EXCERPTS FROM INDIVIDUAL AUDIT REPORTS OF ANNUAL FINANCIAL STATEMENTS OF POLITICAL PARTIES FOR 2012 not covered in the previous Annual Report of the State Audit Institution Type of audit: Audited entity: Subject matter of the audit: Audit duration: Auditing Board members: Financial audit Political parties: Liberal Party of Montenegro; Serbian Fatherland Party; Albanian Alternative; Democratic Party; Party for Gusinje; Yugoslav Communist Party of Montenegro; Party of Pensioners, Disabled Persons and Social Justice of Montenegro; People s Party; Democratic Party of Unity; Democratic Centre of Montenegro; and Democratic Serb Party Annual Financial Statements of political parties for auditing days Dragiša Pešić, member of the Senate head of the Auditing Board Branislav Radulović PhD, member of the Senate member of the Auditing Board 159

160 160

161 I GENERAL DATA 1. Legal basis Legal basis for auditing annual statements and operations of political parties are contained in the: Law on the State Audit Institution (OGRM 28/04, 27/06 and 78/06 and OGM 15/07, 73/10, 40/11); Law on Political Party Financing (OGM 49/08, 49/10, 40/11, 42/11, 60/11, 01/12); Annual Auditing Plan of the State Audit Institution for 2012 (No of 24 December 2012); Decision of the Auditing Board IV competent for carrying out this audit (No of 17 April 2013). Audit procedures were carried out in accordance with: International Accounting Standards and International Public Sector Auditing Standards (INTOSAI); Instruction on Work Methodology of the State Audit Institution; Rules of Procedures of the State Audit Institution (OGRM 50/07). 2. Subject of audit The subject of the audit is annual financial statements of political parties and compliance of their operations with legislation. 3. Objective of audit The objective of the audit is to check the following: Accuracy and trustworthiness of financial statements, Application of laws and other regulations related to organisational, financial and accounting matters, Compliance with fund raising regulations, Compliance with the regulations governing spending, i.e. verification whether the funds were used solely for pursuing the goals set forth in the political party manifesto and statute, Regularity in the execution of other transactions. 161

162 II BASIC DATA ON PARTIES 1. LIBERAL PARTY OF MONTENEGRO The Liberal Party of Montenegro (LPCG) is registered in the Register of Political Parties on the basis of the decision of the Ministry of Justice (No /04 of 2 November 2004 and the Decision No / /2 of 9 November 2012) in the Register of Political Parties held with the Ministry of Internal Affairs. The president, Andrija Popović, represents and acts for the Party. Objectives of the Party are aimed at creating and expressing political will, as well as political activism of citizens wishing for Montenegro to be constituted and developed as a civic, democratic, independent and internationally recognised country. The Party s objectives are to achieve ideals of a free individual, free people, liberal democracy, private property, free market and social justice through its action based on principles and traditions of the European liberal democracy. The party is promoting principles of democratic, free and organised society, civilisation achievements of the modern and advanced part of the humanity, freedom of critical thought and original values of tradition and democracy. Bodies of the LPCG set forth by the Statute are: LPCG Conference, LPCG President, LPCG Vicepresident, Central Board of the LPCG, LPCG Council, Parliamentary party group, Presidency collegial body, and Council of Honour of LPCG. The Liberal Party of Montenegro generates revenues from membership fees, voluntary contributions, publishing activity, sale of marketing material, organisation of the Party s events, the State Budget, municipal budgets, and other sources permitted by the law. The Central Board of LPCG determines the amount of membership fee for each current year. The amount of the membership fee may be classified by specific categories of the LPCG membership: members of the Parliament, members in the executive power, the Party s officials, students, pensioners, etc Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues from regular operations in the amount of 20, Generated revenues pertain to revenues from the Budget of Montenegro in the amount of 11,102.97, revenues from the budget of the Parliament of Montenegro in the amount of 3,285.07, revenues from municipal budgets in the amount of 6,393.00, and financial revenues in the amount of

163 The following table presents an overview of generated revenues in 2012 from regular operations of the Party: No Description Amount % share 1. Revenues from the Budget of Montenegro 11, % 2. Parliament of Montenegro 3, % 3. Revenues from local self government units 6, % 4. Financial revenues % TOTAL 20, % The following figure presents generated revenues from regular operations by structure and share in total revenues. 31% 0% 53% Revenues from the Budget of Montenegro Parliament of Montenegro 16% Revenues from local selfgovernment units Financial revenues 1.4. Expenditures In 2012, the Party incurred total expenditures in the amount of 7, and they were related to: expenditures for fuel in the amount of ; expenditures for post and telecommunication services in the amount of ; expenditures for advertising and marketing in the amount of 4,268.78; expenditures for depreciation of fixed assets in the amount of ; expenditures for insurance premium for fixed assets in the amount of ; expenditures for payment operations in the amount of 59.70; other non tangible expenditures in the amount of , and expenditures carried forward from the previous period in the amount of 1, The following table presents incurred expenditures in 2012: No Description Amount % 1. Expenditures for fuel % 2. Expenditures for post and telecommunication services % 3. Expenditures for advertising and marketing 4, % 4. Expenditures for depreciation of fixed assets % 5. Expenditures for insurance premium for fixed assets % 6. Expenditures for payment operations in country % 7. Other non tangible expenditures % 8. Expenditures carried forward from the previous period 1, % TOTAL 7, % The following figure presents incurred expenditures for regular operations by structure and share in total expenditures. 163

164 Expenditures for fuel 1.79% 0.78% 6.38% 9.23% 16.43% 3.28% 6.62% 55.50% Expenditures for post and telecommunication services Expenditures for advertising and marketing Expenditures for depreciation of fixed assets Expenditures for insurance premium for fixed assets Expenditures for payment operations in country Other non tangible expenditures Expenditures carried forward from the previous period 1.5. Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Liberal Party of Montenegro for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 6/11 of 6 November 2013) to the SAI s Preliminary Report No /96 of 25 October 2013, and pursuant to Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Mr. Dragiša Pešić, Head of the Auditing Board member of the Senate and Mr. Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL AUDIT REPORT on the Annual Financial Statement for 2012 of the Liberal Party of Montenegro OPINION The Annual Financial Statement of the Liberal Party of Montenegro for 2012 in all material aspects provides an objective presentation of stated revenues and expenditures, in accordance with the accepted financial reporting framework. The financial transactions are supported by relevant documentation used to compile the financial statement, and therefore the competent Auditing Board expresses the UNQUALIFIED OPINION on the Annual Financial Statement. 164

165 2. SERBIAN FATHERLAND PARTY The Serbian Fatherland Party is a political organisation of the Serbian people in Montenegro, which will use solely democratic means in pursuing its objectives, participation at various elections and referendums, independently or in coalition with other parties. Registered office of the Party is in Podgorica. The bodies of the Party are: General Assembly, Presidency, Central Board and municipal boards. The General Assembly of the Party consists of delegated representatives of the Party s municipal organisations. Authorisations of the General Assembly are: election of the Central Board, election of the Party s Presidency, election of a verification commission, adoption of General Assembly s declarations, change of the name of the Party, change of the Statute of the Party, change of the Party s program, and adoption of a decision on termination of operations of the Party. The General Assembly has term of four years. Authorisations of the Central Board are to: carry out the Party s politics along with the Presidency of the Party, make decision on coalitions together with the Presidency of the Party, rule on appeals and complaints of the Party s members, and deal with other matters. The Central Board is operational when a quorum of two thirds of its members if fulfilled and makes decision with a simple majority of votes. The Presidency of the Party consists of: the President, Deputy President and two Vice Presidents. Authorisations of the Presidency are to: manage the Party s politics, decide on coalitions, and chair meetings of the Central Board. It makes decision with unanimous vote, and only such decisions are valid. The President and Deputy President have a veto power to the decision of the Central Board. The President of the Party represents the Party, and may also authorise the Deputy President to do the same. The seal of the Party is kept with the President, and he may give it for handling to the Deputy, pursuant to an authorisation. Authorisations of municipal boards are to: carry out the Party s politics, with a consent of the Presidency and the Central Board, and give opinion about the coalition presentation of the Party on the territory of the relevant municipality, as well as to deal with other matters within the scope of the work of the Party on the territory of the relevant municipality. The term of municipal boards is four years, and each has its president and vicepresident of the Party. The president represents the Party in the relevant municipality. The Party has a legal person status. The registered office of the Party is in Podgorica, Vijenac Kosovskih Junaka No 3. The responsible person of the Party is Prof. Aleksandar Stamatović PhD, the President of the Party. Apart from the Statute, the Party has not adopted other general acts. The Party is financed from voluntary contributions from members and supporters and subsidies from the State it is entitled to in line with stipulated provisions of a law. The Party s financing is public and transparent via a giro account. The President of the Party withdraws monetary funds from the Party s account, who on as needed basis (with a signature and seal) may authorise one of the vice presidents to do the same. Municipal boards have right to have a giro account. President of the relevant municipal board withdraws funds from the account or authorises a vice president to do so Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. 165

166 The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues for regular operation in the amount of 1, Generated revenues pertain to the revenues from the local self government budget the City Municipality of Golubovci Expenditures In 2012, the Party stated total expenditures in the amount of 1, and they pertain to: expenditures for fuel in the amount of 1,352.06, expenditures for maintenance in the amount of , and expenditures for business entertainment in the amount of 45.84, and those were paid in cash from the petty cash Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Serbian Fatherland Party for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No /120 of 12 November 2013) to the SAI Preliminary Report (No /120 of 8 November 2013), and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL REPORT on audit of the Annual Financial Statement for 2012 of the Serbian Fatherland Party OPINION The Annual Financial Statement of the Serbian Fatherland Party for 2012 in all material aspects provides an objective presentation of stated revenues and expenditures, in accordance with the accepted financial reporting framework. The financial transactions are supported by relevant documentation used to compile the financial statement, and therefore the competent Auditing Board expresses the UNQUALIFIED OPINION on the Annual Financial Statement. 166

167 3. ALBANIAN ALTERNATIVE The political party Albanian Alternative (Alternativa shqiptare) (AA) is registered in the Register of the Ministry of Justice based on the Decision number 05/006/ of 19 June The registered office of the Party is in Tuzi. The Party was established at the founding general assembly by way of: adoption of the Decision on founding the Party, Statute, Program, and by election of an authorised person to represent the Party. The Party has a status of a legal person and has commenced with operation on the day of registration in the Register of Political Parties. The Albanian Alternative, pursuant to the Law on Political Parties, is organised as a free and voluntary association of citizens to achieve political objectives with democratic and peaceful means. The Law on Political Parties determines the conditions for and manner of: establishing, organising, registration, association and termination of work of political parties. The AA has become a parliamentary party as a collation partner of the Democratic Alliance in Montenegro, after the parliamentary elections held in March 2009 in Montenegro. A Pre election Agreement number 06 03/09 of 4 March 2009 was concluded between two parties governing their partnership. The Agreement (Article 5 of the Agreement) has agreed that funds allocated from the Budget of Montenegro for financing of political parties are to be allocated in proportion of 60:40 for the benefit of the Democratic Alliance in Montenegro. The Albanian Alternative has territorial organisation only where the Albanian population lives and operates with the intent to improve and protect their rights with democratic means. The Statute of the Party stipulates that the political activity of AA is aimed at realisation of an open society, where the core values are egalitarianism and equality of citizens, freedom, responsibility, professionalism, solidarity, social justice, freedom of citizens, private ownership, rule of law, and free market. The political activism of the AA at the national level is directed towards proportional inclusion of Albanians in Montenegro, decentralisation of power creating conditions for fully powered municipality of Malesija with the local centre Tuzi, ensuring certain number of seats in the Parliament of Montenegro, as well as in local units, where the Albanians do not have majority (Podgorica, Bar, Plav, Rožaje), by applying principle of direct representation, exercising rights guaranteed by the Constitution, improving relations with neighbouring countries, in particular with Albania, Kosovo and Macedonia, and establishment of close cooperation with compatriots. Bodies of the Albanian Alternative are: the General Assembly, Presidency, President, Vice Presidents, local boards (branches). The General Assembly is the highest statutory, program and electoral body of the Albanian Alternative. Pursuant to the Statute, the Albanian Alternative secures funds for operation from the following sources: The Budget of Montenegro and municipal budgets, pursuant to the Law on Political Party Financing; Contributions from members of the Parliament and municipal councillors appointed to management boards and other authorities and working bodies, who receive a remuneration for such membership; Contributions from members and supporters and from other sources permitted by law. Article 5 of the Law on Political Party Financing stipulates that a right to budgetary funds for financing of regular operation of political parties belongs to a political party, coalition or group of citizens participating at elections and which wins at least one seat in the Parliament or municipal assembly. The coalition Albanian List has become eligible for financing from budgetary funds upon completed election, by winning one seat in the Parliament and two seats in the municipal assembly of the Tuzi Municipality. The Presidency disposes with the funds of the Party, and the President signs financial documentation pursuant to Article 23 of the Party s Statute. 167

168 3.1. Audit Methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting Records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues in the amount of 36, Generated revenues pertain to: revenues under a coalition agreement in the amount of 30,200.00, revenues from municipal budgets in the amount of 6, and financial revenues resulting from interest in the amount of The following table presents a comparison of total revenues by type for 2011 and No Type of revenue Amount for 2011 Share in total revenues Amount for 2012 Share in total revenues 1. Revenues from the Budget of Montenegro 26, % 30, % 2. Revenues from local self governments budgets 6, % 6, % 3. Private sources membership fees % 0, % 4. Financial revenues % % TOTAL 33, % 35, % The following figure presents generated revenues from regular operations by their share in total revenues. 168

169 0.00% 0.08% 18.10% 81.82% Revenues from the Budget of Montenegro Revenues from local selfgovernments budgets Private sources membership fees Financial revenues 3.4. Expenditures In 2012, the Party incurred total expenditures in the amount of 44,534.70, and they pertain to: expenditures for office and other supplies in the amount of , expenditures for other services in the amount of 2,369.49, expenditures for fuel in the amount of 2,886.00, expenditures for remunerations in the amount of 11,730.00, expenditures for scholarships and donations in the amount of 4,020.00, expenditures for rent in the amount of 2,550.00, expenditures for advertising and marketing in country in the amount of 2,918.47, expenditures for business entertainment in the amount of 3,573.54, other non tangible expenditures in the amount of 12, and other expenditures in the amount of 1, The following table presents a comparison of incurred expenditures for 2011 and No Description Amount % share Amount % share for 2011 for Expenditures for office and other 2, % % supplies 2. Expenditures for other services 0.00% 2, % 3. Expenditures for fuel 0.00% 2, % 4. Expenditures for remunerations 21, % 11, % 5. Expenditures for scholarships and 0.00% 4, % donations 6. Expenditures for rent 2, % 2, % 7. Expenditures for advertising and marketing in country 0.00% 2, % 8. Expenditures for business 0.00% 3, % entertainment 9. Other non tangible expenditures 0.00% 12, % 10. Other expenditures 3, % 1, % TOTAL 29, % 44, % The following figure presents incurred expenditures from regular operations by their share in total expenditure. 169

170 3.5. Implementation of recommendations from the previous period In its Audit Report on the Annual Financial Statement for 2011 of the Albanian Alternative, the SAI noted a certain number of irregularities and issued recommendations for removing them, and those pertained to: the establishment of an efficient internal controls system so that the Party will undertake in its Statute the obligation to adopt a financial plan and the method of performing internal financial control, and adopt all general and special acts; recording of fixed assets and ensuring sub ledger account records of fixed assets and receivables from local self governments; evidencing expenditures with valid documentation. The audit of the Annual Financial Statement for 2012 has found that the Party has not implemented recommendations given in the Audit Report of the Annual Financial Statement of the Albanian Alternative for Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Albanian Alternative for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. 170

171 Based on the performed audit, established facts and consideration of the audited entity s Response (No /12 of 19 November 2013) to the SAI Preliminary Report (No /112 of 8 November 2013), and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the: FINAL REPORT on audit of the Annual Financial Statement for 2012 of the Albanian Alternative OPINION Based on the facts established by the audit, the competent Auditing Board of the SAI was assured to a reasonable degree that the financial statements of the Albanian Alternative for 2012 contain material errors in the segment concerning their documenting and that activities, transactions and information stated in financial statements of the Party are not in line with applicable legislation and IAS in all material aspects. Pursuant to the above, the Auditing Board issues the ADVERSE OPINION on the Annual Financial Statement and compliance of operations of the audited entity with applicable legislation. The audit has found the following irregularities and deficiencies that have led to the above opinion: 1. The Party has evidenced expenditures paid in cash for the Party activities and accounting services in the amount of 12, based on incomplete and inadequate documentation (evidencing was done using decision of the presidency, invoices, contracts and receipts on taking over cash are missing). 2. The Party has not documented recorded expenditures in the amount of 5, (which pertain to: expenditures for advertising and marketing in the amount of 2,024.00, expenditures for cultural events in the amount of 2, and expenditures for administrative and technical services in the amount of ). 3. The Party has paid out remunerations in the amount of 12, (to the Party s officials and activists in the amount of 9,250.00, rent for a natural person in the amount of 2,400.00, and fee for accounting services in the amount of ) without calculating and paying tax liabilities. 4. The Party has not established an efficient internal control system, nor the method for conducting internal audit and the obligation to adopt financial plan; it has not ensured keeping of all business books as mandated by the law, and has not taken inventory of assets and liabilities. 5. The Party has not implemented recommendations issued by the SAI in the Audit Report of the Annual Financial Statement for

172 4. DEMOCRATIC PARTY The Democratic Party (Partia Demokratike), abbreviated name DP PD (hereinafter: DP), was founded in December 2011 and was registered in the Register of Political Parties by way of the Decision of the Ministry of Internal Affairs, number /12 243/2 of 19 January The registered office of the Party is in Ulcinj, in Bulevar Đ. K. Skenderbega. The Democratic Party adopted the Statute in December The Statute establishes that the DP is national party of Albanians in Montenegro and as a political party its objectives and program position will be achieved in accordance with the Constitution of Montenegro, applicable legislation and its internal acts, and will also promote the preservation and achieving the rights of Albanians in Montenegro, as well as preservation of the territorial integrity and sovereignty of Montenegro, for use of democratic principles during political activism and like. The Party is organised on territorial principle into branches and sub branches. A subbranch if a basic form of political organisation and action at the level of a branch. Sub branches are established for each local community based on regional division of municipalities. A branch is established on the territory of Montenegro. Branches are established by way of a decision of the Central Board. A Coordination Body is to be established in a municipality with several branches. The Coordination Body consists of the President, Vice president, Secretary and presidents of Councillor s clubs. Each branch has a coordinator who is appointed by the branch s Presidency. The Assembly is the highest body of the branch and is held quadrennial. The Assembly appoints and dismisses the President, Vice president, Secretary, and members of the branch s Presidency. The branch s Presidency is the highest executive body of the branch and consists of the President, Vice president, Secretary, president of the subbranches, councillors from the branch and members elected by the Assembly. The branch s Presidency is responsible for its work to the Central Board and Assembly of the branch. Branch s President represents the branch, chairs the meeting of the branch s Presidency, implements decisions of the Presidency, and sings act adopted by the branch s Presidency. At the time of the audit, the President of the Party is Fatmir Đeka. The General Assembly of the Party is its highest body. The Central Board is the highest body of the Party between two General Assemblies. The Central Board elects the President and the Secretary of the Party and has 25 members elected by the General Assembly. The Central Board implements the Party s politics and is also responsible for calling the General Assembly s meetings, proposes the program and the Statute, adopts the budget of the Party and appoints various commissions. The Presidency of the Party consists of the President, Vice president and General Secretary of the Party, members of the Parliament, presidents of branches, president of the municipality, president of the women forum and president of the youth forum. The President of the Party represents the Party and implements decisions of the Party s bodies. The statutory commission of the Democratic Party is competent to interpret the Statute, decides upon appeals, proposes amendments and supplements to the Statute. Pursuant to Article 72 of the Statute, the Party generates revenues from voluntary contributions, membership fees, establishment and functioning of various economic activities, from municipal, republic and other sources Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. 172

173 The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues from regular operations in the amount of 3, Generated revenues pertain to the revenues from the Budget of Montenegro and financial revenues (interest rate gains) in the amount of The audit has established that funds from the Budget of Montenegro were paid to the giro account of the Party in the amount of 11,103.33, on the account of the seat won by a member of the Parliament, as well as funds from loan taken from the Hipotekarna banka AD Podgorica, in line with the concluded Loan Contract number /2 of 2 October 2012 in the amount of Based on the seat won by a member of the Parliament, the funds from the Budget of Montenegro for 2012 were divided in line with the coalition agreement so that: the Democratic Alliance in Montenegro is entitled to 40%, which amounts 4,441.33; the Democratic Party is entitled to 30% which amounts 3,331.00; and the Albanian Alternative is entitled to 30% which amounts 3, Pursuant to the Agreement, the Democratic Party transferred funds to the coalition member the Albanian Alternative in the amount of 1, and to the Democratic Alliance in Montenegro in the amount of 2, Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Democratic Party for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 45/13 of 2 December 2013) to the SAI Preliminary Report number /109 of 8 November 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL REPORT on audit of the Annual Financial Statement for 2012 of the Democratic Party OPINION The Annual Financial Statement of the Democratic Party for 2012 does not contain material errors and shows objective presentation of stated receipts and expenditures, in accordance with the accepted financial reporting framework and therefore the competent Auditing Board issues the UNQUALIFIED OPINION on the Annual Financial Statement. Due to shortcomings and irregularities found by the audit in terms of application of laws and enabling regulations, which pertain to keeping of business books, taking inventory of assets and liabilities, and establishing the internal controls system, the competent Auditing Board for the subject audit issues the QUALIFIED OPINION concerning the compliance of operations of the audited entity with laws and other regulations. 173

174 5. PARTY FOR GUSINJE The Party for Gusinje is registered in the Register of Political Parties with the Ministry of Justice on 25 August The Party has a legal person status and is organised on territorial principle. Pursuant to the Statute, the core program objectives of the Party are: advocating that a status of municipality is returned to Gusinje; initiatives to support comprehensive development of Gusinje; utilisation of natural resources and beauties of Gusinje, especially the area of Ali paša s springs as an exceptional tourist destitution; connecting with people originating from Gusinje and living abroad in order to promote higher and faster foreign capital investment in development of Gusinje; promoting the opening of the road from Gusinje to Podgorica via the part of the Albanian territory as exceptionally important factor for resurgence of the entire North of Montenegro; cooperation with all political entities and entities of the society in Plav, Gusinje and Montenegro on all matters important for improving the work; pre election and election activities to obtain seats in municipal assembly and the Parliament; striving for definitive solution of constitutional and legal position of the Bosniak nation in Montenegro; advocate for constitutional status of Bosniaks in Montenegro on the basis of acquired right; development of a multi cultural community of Bosniaks with other nations and minority communities in Montenegro; development of national institutions of Bosniaks (academy, university, institutes, libraries, theatres, museums, and other); and advocating for full equality of all citizens regardless of their ethnic, political, religious, property and other characteristics; etc. The Party has the following bodies: the General Assembly, Central Board, Presidency, President, Financial Board and Court of Honour. The General Assembly is the highest body of the Party. The General Assembly is constituted of at least ten representatives each from all local boards. The General Assembly adopts the Program and Statute, elects and dismisses: the Central Board, Presidency, President, Vicepresident, Financial board, and President and members of the Statutory Commission and assesses their work; and similar. The Central Board is the highest body of the Party between two General Assemblies. The Central Board implements decisions and conclusions of the General Assembly, adopts the budget and adopts report on the Party s budget, adopts a Decision on the amount of the Party s membership fee, adopts the Rule of Procedures on its work, and caries out other tasks in line with the Statute. The Presidency is a political and consultative body of the Party and its competence are to: deliberate drafts of all general acts of the Party and give its opinions; give opinion about human resources matters of the Party; and deal with other matters of importance for the work of the Party. The President represents and acts on behalf of the Party, ensures uniform and comprehensive functioning of the Party, gives orders for execution of the Party s budget, calls and chairs meetings of the Presidency, and performs other tasks pursuant to the Statute. In the period covered by the audit, dr Rusmin Laličić carried out tasks of the Party s President. The Financial board controls the financial operations of the Party and submits its reports to the General Assembly and the Central Board, at least once a year. Pursuant to the Statute, the Party is financed from membership fees, gifts and other sources in accordance with law. At the end of the calendar year, the Central Board adopts the Financial Plan of the Party for the next years. The Party s President issues orders for use of financial resources and execution of the Financial Plan. Local organisations keep records on their financial operations and submit data thereof to the Financial Boar of the Party. A president of the local board is responsible for legality of disposal of funds. The Financial Plan and Year end accounts are submitted to the General Assembly of the Party for adoption Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.). 174

175 5.2. Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues from regular operations in the amount of 2, Generated revenues pertain to the revenues from the budget of the Plav Municipality in the amount of 2, and financial revenues in the amount of Expenditures In 2012, the Party has stated total expenditures in the amount of 2,815.66, and they pertain to: expenditures for electricity in the amount of , expenditures for rent in the amount of 1,500.00, expenditures for post and telecommunication services in the amount of 1,200.00, and expenditures for payment operations in the amount of The audit has established that the Party did not make any payment of expenditures in 2012, expect for bank fees, but those were used to state liabilities as of 31 December The payment of stated liabilities was done in Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Party for Gusinje for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 24/13 of 2 December 2012) to the SAI Preliminary Report (No /126 of 26 November 2013), and in accordance with Article 50 of the SAI Rules of Procedures the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL REPORT on audit of the Annual Financial Statement for 2012 of the Party for Gusinje OPINION The Annual Financial Statement of the Party for Gusinje for 2012 in all material aspects provides an objective presentation of stated revenues and expenditures, in accordance with the accepted financial reporting framework. The financial transactions are supported by relevant documentation used to compile the financial statement, and therefore the competent Auditing Board expresses the UNQUALIFIED OPINION on the Annual Financial Statement. 175

176 6. YUGOSLAV COMMUNIST PARTY OF MONTENEGRO The Yugoslav Communist Party of Montenegro was established in Members of the League of Communists of Yugoslavia Communists of Montenegro and the Yugoslav Communists of Montenegro have adopted a Decision on merger into a single party on 25 September 2009, which was named: the Yugoslav Communist Party of Montenegro. The Party was established at the Unification Congress. The registered office of the Party is in Podgorica, at the address Đoka Miraševica 57. The Party has a status of a legal person. The Party is a political organisation of free persons having democratic, communist and Yugoslav orientation. The Party expresses and fights for direct and long term interests and objectives of the working class and all working people who live from their work, who in terms of ideology and politics advocate for socialism as a transitory social system from a class society to a classless society and for a common state as a federal community of its equal nations and nationalities, republics and citizens. The long term objective of the Party is reintegration of Yugoslavia on the same principle and within previous borders. Creating a classless communist society is a historic task and ultimate objective of the Party. The Party is basing its program on scientific socialism Marxism, confirmed by historic, humanistic and civilisation achievements of the humankind and continues a positive historic and socialist Yugoslav socialism. Theoretical basis of the Party s activism are also other progressive humanistic studies on the men and society, free from exploitation and spiritual poverty, humiliation and all forms of lack of freedom, able to build own future in the process of direct democratic decisionmaking, where his financial and social standing will depend on the result of his own work. The program and other documents of the Party set and develop in details direct and long term objectives, positions and forms of its political activism. The program objectives of the Party are achieved by political action with democratic means, in accordance with the Constitution and law, and especially: participation and influence in all forms of local self government, in representative bodies and authorities at the municipal, Republic and Federation level ; engagement in all segments of the society, in particular amongst the working class, youth, middle classes of the society, intelligence and all free thinking and progressing segments of the society familiar with the ideas of socialism in modern circumstances; by developing awareness of the essence of development of the class segment of the society and perspective of socialism as world process in terms of understanding capitalism as the last stage in human development and civilisation. The Party s forum in Montenegro is the Congress, and its bodies are: the Central Committee, the Commission for statutory matters and Supervisory Board. The Party s forum in a municipality is a Municipal Conference, and bodies are: Municipal Committee, Commission for statutory matters and Supervisory board. All bodies and the forums of the Party adopt rules of procedures on their work. The Congress is the highest forum of the Party which decisions are mandatory for all bodies and members of the Party; it is called upon on as needed basis, and at least once in four years. The Congress sets the Party politics and consolidates and directs overall political action and achievement of program objectives of the Party. The highest body of the Party between two Congresses is the Central Committee, who elects and dismisses from its ranks the President, Vice presidents and the Secretary; manages the Party; guides directions and forms of political action; and coordinates the work of other bodies and organisations of the Party, and is accountable to the Congress for its work. Pursuant to the Statute, the Party acquires monetary funds from membership fees, contributions, and other sources in accordance with law. The Party may acquire revenues by investing in companies and other activities of which the Central Committee or its Presidency decides. A decision of the Central Committee is used to plan revenues and expenditures and financing by intended uses, as well as allocation of funds obtained from the collection of membership fees. Articles 53 and 54 of the Statute defines that bodies of the Party may enter into business transactions within the limits of 176

177 funds they have at disposal, keep business books and compile accounting statements in accordance with regulations. The Central Committee has a business account, and bodies in municipalities have their own accounts to perform payment operations. The Secretary of the Central Committee, or of a municipal committee, is responsible for legality and regularity of occurrence of business changes, for monitoring and movement of bookkeeping documents, including also accounting Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues from regular operations in the amount of 3, Generated revenues pertain to the revenues from the budget of the Plužine Municipality in the amount of 1,273.25, revenues from private sources contributions from legal persons (SNP) in the amount of 1, and other revenues in the amount of The following table presents an overview of revenues in 2012 from regular operations of the Party: No Description Amount % share 1. Revenues from local self government units budgets 1, % 2. Revenues from contributions 1, % 3. Other revenues % TOTAL 3, % 6.4. Expenditures In 2012, the Party incurred total expenditures in the amount of 3, and they pertain to: expenditures for fuel and energy in the amount of , expenditures for rent in the amount of 1,500.00, expenditures for advertising in the amount of , expenditures for business entertainment in the amount of 83.38, expenditures for payment operations in the amount of 16.47, expenditures for membership fees in business associations in the amount of and court and other non tangible expenditures in the amount of Out of the total expenditures, the expenditures in the amount of 3, were paid in cash from the petty cash, and the amount of through the giro account. 177

178 The following table presents an overview of expenditures in No Description Amount % share 1. Expenditures for fuel and energy % 2. Expenditures for remunerations 1, % 3. Expenditures for advertising % 4. Expenditures for business entertainment % 5. Expenditures for payment operations % 6. Expenditures for conference room rental % 7. Court and other non tangible expenditures % TOTAL 3, % 6.5. Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Yugoslav Communist Party for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No /139 of 10 December 2013) to the SAI Preliminary Report number /127 of 26 November 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL REPORT on audit of the Annual Financial Statement for 2012 of the Yugoslav Communist Party of Montenegro OPINION The audit of the Annual Financial Statement of the Yugoslav Communist Party of Montenegro for 2012 established irregularities and shortcomings in the area of accounting records, documenting expenditures and revenues, calculation and payment of tax liabilities which drove the Auditing Board competent for the subject audit to express QUALIFIED OPINION on the Annual Financial Statement. The following irregularities and shortcomings, that have led to the said opinion, were found based on the established facts: 1. The Party paid in cash from the petty cash the expenditures in the amount of 3,006.78, which makes 98% of total expenditures. The expenditures paid in cash (procurement of advertising material and costs of conference room rental) in the amount of were supported by inadequate documentation. 2. The Party has not documented incoming cash payment in the amount of which is stated in business books as revenues from membership fees. 3. The Party has paid the amount of 1, for rental of business premises for which no tax liabilities were calculated and paid (tax liability amounts ). 178

179 7. PARTY OF PENSIONERS, DISABLED PERSONS AND SOCIAL JUSTICE OF MONTENEGRO The Party of Pensioners and Disabled Persons of Montenegro was registered based on the decision of the Ministry of Internal Affairs and Public Administration (No / of 17 November 2008) in the Register of Political Parties, with registered office in Podgorica, under registration number 38. The Party was renamed by Decision No / /1 into the Party of Pensioners, Disabled Persons and Social Justice of Montenegro. A new person to represent the Party is Blagota Mitrić from Podgorica. The Statute governs core objectives and tasks, organisational forms, symbols, registered office, procedure for becoming a member and membership termination procedure, rights, obligations and responsibilities of members, organisational structure and bodies, manner of decision making and adopting decisions, property rights, disposal with financial assets and property, cessation of the Party s operations, and other significant matters related to the organisation, functioning and actions of the Party. Bodies of the Party are: General Assembly, Central Board, President, Deputy President, Vicepresidents, Presidency, Statutory, Supervisory, Disciplinary and Human Resources commissions. The Statute envisages that the Supervisory Commission of the Party is tasked to control financial operations of the Party s bodies and tasked to regularly report thereof to the President, Presidency and the Central Board. The General Assembly is the highest body of the Party which adopts the Program and the Statute and sets general strategy of political action of the Party, decides on status changes in the Party, termination of operation of the Party and disposal with property, elects and dismisses the President, Deputy President, Vice presidents, members of the Central Board, Statutory and Supervisory commissions, adopts the Rules of Procedures on its work, adopts Reports of bodies between two General Assemblies, makes decisions, declarations, recommendations and similar. The President of the Party is by its position the president of the Central Board and of the Presidency, who takes care of implementation of program objectives and tasks of the Party, represents the Party in public in country and abroad, coordinates cooperation of the Central Board with bodies of the Party, with other political parties and coalitions, state bodies, associations, Federation of Associations of Pensioners of Montenegro and other entities, calls meetings of the Central Board and Presidency; executes decision of the Presidency, Central Board and General Assembly of the Party. He is the ordering party and confirms by his signatures all monetary documents of the Party, proposes the Central Board, election and dismissal of the Central Board Secretary, and performs other tasks. The Presidency participates in creation and delivery of the Party s politics and gives proposal to the Central Board of the Party concerning important matters. The Presidency consists of the President, Deputy President, Vice presidents, Secretary and one member elected by the Central Board. The Central Board is the highest body of the Party between two sessions of the General Assembly and is responsible for implementation of the Statute and Program and other acts adopted by the General Assembly. The Central Board consists of members elected by the General Assembly, presidents of municipal and town boards and members of the Party s Presidency. The Central Board sets proposal of the Program and Statute of the Party and amendments thereof, adopts amendments to the Program and Statute between two General Assemblies, adopts program of development of the Party s organisation, elects and dismisses the President, Deputy President and Vice presidents of the Party between two General Assemblies, if there is a need to do so, elects and dismisses members of the Supervisory and Statutory commissions, Disciplinary commission, Human Resources commission, and the Secretary upon proposal of the Party s President, establishes town and municipal boards and appoints their presidents until the election conference is to take place; prepares and sets the election program of the Party, defines the candidates for members of the Parliament and municipal councillors, decides on participation of the Party at elections for municipal councillors and members of the Parliament; decides upon appeals of members, on use and preparation of the stamp and seal; adopts the Rulebook on financial operations of the Party; and other. 179

180 7.1. Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party has stated in business records total revenues in the amount of 14, Revenues pertain to: revenues from local self governments in the amount of 14, and financial revenues resulting from interest in the amount of Expenditures In 2012, the Party has stated in business records total expenditures in the amount of 12,109.00, and they pertain to: expenditures for office supplies in the amount of , expenditures for fuel in the amount of , expenditures for tax on remunerations in the amount of 33.60, expenditures for remunerations under contracts and expenditures for business travel in the amount of 2,265.80, expenditures for transport services and telephone in the amount of 1,600.99, expenditures for rent of business premises in the amount of , expenditures for advertising and marketing in the amount of 3,756.37, expenditures for assistance in the amount of , expenditures for business entertainment in the amount of 1,860.07, and other non tangible expenditures in the amount of The following table presents an overview of recorded expenditures in No Type of expenditure Amount % 1. Expenditures for office supplies % 2. Expenditures for fuel % 3. Expenditures for tax on remunerations % 4. Expenditures for remunerations under contracts and expenditures 2, % for business travel 5. Expenditures for transport services and telephone 1, % 6. Expenditures for rent of business premises % 7. Expenditures for advertising and marketing 3, % 8. Expenditures for assistance % 9. Expenditures for business entertainment 1, % 10. Other non tangible expenditures % TOTAL 12, % 180

181 The audit established that out of total stated expenditures, the amount paid out in cash from the petty cash amounted 11, (94%), and through the giro account amounted In addition to costs paid out via the petty cash and the giro account, expenditures in the amount of were recorded in business books but were not documented. The expenditures paid out in cash were explained in details in the segment of the Report concerning the petty cash operations. Expenditures paid through the giro account pertain to expenditures of organising press conference in the amount of , expenditures for misdemeanour fines in the amount of 85.00, expenditure for commissions in the amount of 72.78, and expenditure for taxes and fees in the amount of The audit also established that proper classification of expenditures was not performed, pursuant to the Rulebook on the Chart of Accounts (Official Gazette of Montenegro, No 5/11) Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Party of Pensioners, Disabled Persons and Social Justice of Montenegro for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 114 of 3 December 2013) to the preliminary Report of the SAI number /129 of 26 November 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL REPORT on audit of the Annual Financial Statement for 2012 of the Party of Pensioners, Disabled Persons and Social Justice of Montenegro OPINION The audit of the Annual Financial Statement of the Party of Pensioners, Disabled Persons and Social Justice of Montenegro for 2012 established irregularities and shortcomings in the area of accounting records, documenting expenditures and revenues, and calculation and payment of tax liabilities which drove the Auditing Board competent for the subject audit to express QUALIFIED OPINION on the Annual Financial Statement. The following irregularities and shortcomings, which have led to the said opinion, were found based on the established facts: 1. The audit established irregularities and shortcomings in recording and presenting accounting data of the Party, which were mainly a consequence of absence of business books and bookkeeping documents from previous years (no handover of business books was performed from a person who carried out these activities in previous years). 2. The Party paid out in cash from the petty cash expenditures in the amount of 11, which makes 94% of total expenditures. Expenditures paid out in cash in the amount of 2, were evidenced with incomplete documentation. 3. The Party has paid out remuneration to activists in the amount of 2, for which no tax liabilities were calculated and paid (amount of ). 181

182 8. PEOPLE S PARTY The People s Party (NS) is a voluntary political organisation, organised for the purpose of achieving its program based political objectives: democratic state, rule of law, market economy, human and civil rights. The Party is organised on territorial principle, and the People s Party has a legal person status. Registered office of the Party is in Podgorica. Bodies of the Party are: the General Assembly, Central Board, President, Deputy President, Vicepresident, Presidency, Executive Board, Supervisory Board and Statutory Commission and are all elected to a four year term. The General Assembly is the highest body of the Party. The General Assembly adopts the Statute and the Program of the Party, elects and dismisses the Main Boar, Deputy President and President of the Party; considers report on operations; adopts financial statement, adopts also other decision of importance for the Party. The Central Board is the highest body of the Party between two General Assemblies. The Central Board executes decision of the General Assembly, elects and dismisses the Presidency of the Party, Vice president, Supervisory Board and Statutory Commission, elects the Executive Board, adopts a financial plan, adopts report of the Supervisory Board on control of financial operations, adopts rules of procedures and other acts and carries out other tasks in accordance with the Statute. The General Assembly elects the President of the Party. The President represents the Party, and carries out the Party s politics. The Presidency of the Party consists of the President of the Party, Vice president, president of the Executive Board, and head of the Party s members of the Parliament club in the Parliament of Montenegro. The Executive Board is the executive body of the Central Board and executes decisions of the Central Board, coordinates work of municipal boards and other. The Supervisory Board controls financial operations of the Party and its bodies. It is appointed by the Central Board of the Party and has a president and four members. The Statutory Commission is competent to interpret the Statute, decides upon appeals, proposes amendments and supplements to the Statute. The Statutory Commission has a president and four members. A member of the Statutory Commission cannot carry out other functions in a Party s body. Apart from the Central Board, the Party is organised also on a municipal level through municipal boards (hereinafter referred to as OO), whereby the municipal board Podgorica operates as the Central Board and makes a single board (precisely they make the Central Board). The Central Board carries out financial or petty cash operations for municipal boards of Pljevlja, Tivat, and Bar Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal. 182

183 8.3. Revenues Annual Report of the State Audit Institution for the Period October 2013 October 2014 In 2012, the Party has stated in business books revenues from regular operations in the amount of 40, and they pertain to revenues from budgets of local self governments in the amount of 37,743.77, revenues from contributions in the amount of 2, and financial revenues in the amount of The Table presenting stated revenues for 2012: No Type of Revenue Amount % share 1. Revenues from local self governments 37, % 2. Revenues from contributions 2, % 3. Financial revenues % TOTAL 40, % 8.4. Expenditures In 2012, the Party has stated in business book total expenditures in the amount of 40, and they pertain to expenditures for net wages in the amount of 4,893.03, expenditures for taxes and contributions in the amount of 3,140.74, expenditures for surtax in the amount of , expenditures for assistance in the amount of 4,864.00, expenditures for supplies and services in the amount of 6,554.82, expenditures for business travel in the amount of , expenditures for business entertainment in the amount of 4,093.03, expenditures for fuel and energy in the amount of 1,561.37, expenditures for telephone in the amount of 6,687.58, expenditures for payment operations in the amount of , expenditures for taxi services in the amount of , expenditures for services and sponsorship in the amount of 4,288.05, expenditures for municipal utility services in the amount of , and other expenditures in the amount of 2, The following table presents an overview of stated expenditures in Account Type of expenditure Amount % share 4111 Expenditures for net wages 4, % 4113 Expenditures for taxes and contributions 3, % 4115 Expenditures for surtax % 4128 Other personal earnings 4, % 4131 Expenditures for supplies and services 6, % 4132 Expenditures for business travel % 4133 Expenditures for business entertainment 4, % 4134 Expenditures for fuel and energy 1, % 4135 Expenditures for telephone 6, % 4137 Expenditures for payment operations % 4138 Expenditures for taxi services % 4139 Expenditures for services and sponsorship 4, % 4181 Expenditures for municipal utility services % 4800 Other expenditures 2, % TOTAL 40, % The following figure presents incurred expenditures for regular operations by structure and share in total revenues. 183

184 Expenditures for net wages Expenditures for taxes and contributions Expenditures for surtax 0.34% 0.49% 0.54% 10.70% 6.07% 12.22% 7.85% 0.25% Other personal earnings Expenditures for supplies and services Expenditures for business travel 16.69% 10.22% 16.36% 12.13% Expenditures for business entertainment Expenditures for fuel and energy Expenditures for telephone 3.90% 2.24% Expenditures for payment operations Expenditures for taxi services Expenditures for services and sponsorship Expenditures for municipal utility services Other expenditures Out of the stated expenditures, the Party has paid out in cash from the petty cash the amount of 23,474.79, which makes 58.60% of total expenditures Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the People s Party for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 52/13 of 26 December 2013) to the SAI Preliminary Report number /154 of 20 December 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL AUDIT REPORT on the Annual Financial Statement for 2012 of the People s Party OPINION The audit of the Annual Financial Statement of the People s Party for 2012 established irregularities and shortcomings in the area of recording, classifying and documenting part of expenditures, calculating and paying tax liabilities, which drove the Auditing Board competent for the subject audit to express QUALIFIED OPINION on the Annual Financial Statement and compliance of operations with applicable legislation. 184

185 The following irregularities and shortcomings, which have led to the said opinion to be issued, were found based on the established facts: 1. The audit has established that the Party recorded in business books expenditures of OO Bijelo Polje and OO Herceg Novi in the amount of 3, which were not documented. It was also established that part of recorded expenditures was not properly classified. 2. The Party has evidenced expenditures paid out in cash in the amount of 10, with incomplete documentation, and so as follows: expenditures for business entertainment in the amount of 1,993.90, expenditure for election campaign in the amount of , expenditures for assistance and sponsorship in the amount of 5,710.00, expenditures for marketing in the amount of 1,595.30, expenditures for maintenance in the amount of , expenditures for equipping business premises in the amount of , and other expenditures in the amount of The Party has paid to natural persons the rent in the amount of 3, for which the tax liability was not calculated and paid. 185

186 9. DEMOCRATIC PARTY OF UNITY The Democratic Party of Unity (DSJ) was established in July 2006 and was registered in the Register of Political Parties with the Ministry of Justice (No /06). The registered office of the Party is in Podgorica, at the address Ivana Vujoševića No 42. The Statute establishes objectives and principles the Party is advocating and trying to achieve, and they pertain to the rule of law, human and civil freedoms and rights; rights of citizens; equality of nations and special protection of national and ethnic communities in line with international standards; market economy and social justice; European integration; establishment of special connections of Montenegro with Serbia; protection of identity, language, alphabet and other rights of Serbs in Montenegro in accordance with international standards; right to education, information, association, symbols, contacts, dual citizenship and like in accordance with international standards; democracy, division of power, republic form of government and parliamentary system. An adult citizen who accepts program principles, objectives and the Statute of the Party and who is willing to work in order to achieve them can be a member of the Democratic Party of Unity. Member of the Democratic Party of Unity participates in activities of the Party and has right to vote and to be elected in the bodies of the Party. The Party is organised and acts through organisations on territorial principle. Members are connected to a relevant organisation according to the place of habitual residence. Bodies of the Party are: municipal and republic. The municipal bodies of the Party are: the Municipal electoral assembly and Municipal board. The Municipal electoral assembly is called on as needed basis, and at least once every four years, pursuant to a decision of the Municipal Board. It consists of elected representatives of organisations on the territory of a municipality. It deliberates and adopts a Report on operation of the Municipal Board, elects the Municipal Board, and settles other matters in accordance with the Rules of Procedures. The Municipal Board manages a political activity in the municipal organisation, elects the President and Presidency of the Municipal Board. The president calls meetings of the Municipal Board and manages their work. The Presidency takes care of the tasks of political management of municipal organisation. The republic level bodies are the General Assembly, the Central Board, the President, Vice presidents and Presidency. The General Assembly is the highest body of the Party. It is called upon on as needed basis and at least once every four years, by way of a decision of the Central Board. The General Assembly consists of representatives of municipal organisations elected in accordance with criteria set by the Central Board. Members of the Central Board are also representatives at the General Assembly. The General Assembly sets the Party s politics, elects and dismisses the Central Board and President of the Party, adopts the Statute and Program of the Party. It adopts the rules of procedures on its work that govern the procedural matters and procedures for decision making. The Central Board is a body of the Party that implements the Party s politics between two General Assemblies, and is accountable for its work to the General Assembly. It elects Vice presidents and the Presidency of the Party, brings initiative for amendments and supplements to the Statute and adopts the rules of procedures on its work that govern the procedural matters of calling and holding the meetings as well as procedures for decision making. The President of the Party or Vice president appointed by him chairs the meetings of the Central Board. The President of the Party represents and acts on behalf of the Party in country and abroad; manages the Party s organisation, aligns and supervises the functioning of the Party; ensures uniform and comprehensive functioning of the Party; accounts for implementation of decisions of the General Assembly and the Central Board, aligns the work of municipal councillors clubs and club of members of the Parliament of the Party, appoints advisors and a Spokesperson of the Party; gives powers of attorney for representation before courts and other bodies; and carries out other tasks. It is accountable to the General Assembly for its work. The Vice president of the Party replaces the President in tasks that he has authorised him for and is accountable for its work to the President and the Central Board. The Central Board decides on the number of vice presidents and elects them. The Presidency consists of the President, vice 186

187 presidents and two members of the Central Board, who will be elected by it upon a proposal of the President. It carries out the Party s politics in accordance with objectives set by the Central Board, and accounts for its work to it. The Presidency is responsible for financial operations of the Party. Pursuant to Article 27 of the Statute, the Party is financed from the budget, membership fees, voluntary contributions, revenues from own assets, and entrepreneurial activity, and from other sources in accordance with law Audit mthodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated revenues from the Budget of Montenegro on the account of seats for members of the Parliament in the amount of 11, The revenues were generated on the account of the coalition agreement. On the parliamentary elections held on 14 October 2012, the Party participated in the coalition with the New Serbian Democracy, the Movement for Changes, the Group of Voters Milan Knežević and the Bosniak Democratic Party under the joint election list Democratic Front Miodrag Lekić and pursuant to the concluded Agreement on joint list for election of members for the Parliament of Montenegro, No 7/12 and has generated the revenues on such account Expenditures In the Income Statement for 2012, the Party has stated total expenditures (other operating expenditures) in the amount of 5, Inspection of bank statements has established that cash in the amount of 5, was withdrawn from the giro account for the petty cash and that payment operations costs amounted Pursuant to the submitted Report on origin, amount and breakdown of collected and spent funds for election campaign, the withdrawn cash was spent for financing the election campaign (expenditure for transport, use of own vehicle for business purposes, and expenditures for remunerations to party activists). The State Auditor was not presented with documentation on the basis of which the payout of cash was made. 187

188 The Party should pay expenditures on all grounds based on valid financial documentation and should ensure recording of expenditures in business books Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Democratic Party of Unity for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 16/13 of 26 December 2013) to the SAI Preliminary Report number /150 of 20 December 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL AUDIT REPORT on the Annual Financial Statement for 2012 of the Democratic Party of Unity OPINION The audit of the Annual Financial Statement of the Democratic Party of Unity for 2012 established irregularities in keeping business books and documenting expenditures, which drove the Auditing Board competent for the subject audit to express QUALIFIED OPINION on the Annual Financial Statement and compliance of operations with applicable legislation. The following irregularities and shortcomings, which have led to the said opinion, were found based on the established facts: 1. The audit has established that in 2012 the Party did not provide keeping of business books as stipulated by the law (general ledger and ancillary records) and did not adopt the financial plan for the subject year. 2. Apart from the bank statements, the Party has not documented expenditures in the amount of 5, which was stated in the financial statement (Income Statement) for

189 10. DEMOCRATIC CENTRE OF MONTENEGRO The Democratic Centre of Montenegro (DC), with registered office in 91 Moskovska street, Podgorica, was established on 7 February 2009 and registered in the Register of Political Parties with the Ministry of Internal Affairs and Public Administration as a legal person based on the Decision No / /01 of 11 February The Statute of the Party sets the name, symbol, registered office, objectives, the manner of informing the public, principles of actions, rights and obligations of members, forms of organisation, managing bodies, manner of their election and dismissal, appointment and removal, duration of term, assets for work, termination of operation, and other matters of interest for members and operation of the Party. The President of the Democratic Centre represents and acts on behalf of the Party. The President may authorise other persons to represent and act on behalf of the Democratic Centre in accordance with this Statute. Bodies of the Party are: the General Assembly, Central Board, President, Inner Presidency, Presidency, Executive Board, Statutory Commission, Supervisory Board, Court of Honour, Political Council. In addition to the abovementioned bodies of the Democratic Centre, vice presidents, a Secretariat and business director are elected for the purpose of political activism. The Statute stipulates that the Supervisory Board of the Party supervises collection and distribution of financial assets. The Democratic Centre generates financial assets from membership fees, voluntary contributions, revenues from property, the budget, legacies, and other sources in accordance with law. The Party s Presidency sets the amount of the membership fee. Article 77 of the Statute of the Party stipulates that the Central Board is adopting a financial plan upon a proposal of the Party s Presidency. The Presidency decides on distribution of financial assets and allocation to organisational forms of the Party Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accountingrecords Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal Revenues In 2012, the Party generated total revenues from regular operations in the amount of 10, Generated revenues pertain to the revenues from budgets of local self governments in the amount of 10, (from the Capital 4,404.25, the Bar Municipality 3, and the Nikšić Municipality 2,383.98). 189

190 Apart from the stated revenues, the Party also generated financial revenues from interest rate gains for deposited funds with a commercial bank in the amount of Expenditures In 2012, the Party incurred total expenditures in the amount of 3, and they pertain to: expenditures for per diems in the amount of , expenditures for telephone in the amount of , expenditures for advertising and marketing in the amount of 1,236.08, expenditures for depreciation of fixed assets in the amount of , expenditures for non productive services in the amount of , expenditures for commissions in the amount of 48.54, and other nontangible expenditures in the amount of 1, Out of the total recorded expenditures, the expenditures in the amount of 1, were paid out in cash from the petty cash and the amount of 1, from the giro account. The following table presents an overview of expenditures in No Type of expenditure Amount 1. Expenditures for per diems Expenditures for telephone Expenditures for advertising and marketing 1, Expenditures for depreciation of fixed assets Expenditures for non productive services Expenditures for commissions Other non tangible expenditures 1, TOTAL 3, Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Democratic Centre of Montenegro for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No 25 12/2013 of 26 December 2013) to the SAI Preliminary Report number /142 of 20 December 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL AUDIT REPORT on the Annual Financial Statement for 2012 of the Democratic Centre of Montenegro OPINION The audit of the Annual Financial Statement of the Democratic Centre of Montenegro for 2012 established irregularities in the area of recording and documenting expenditures, taking inventory and functioning of the internal controls system, which drove the Auditing Board competent for the subject audit to express QUALIFIED OPINION on the Annual Financial Statement and compliance of operations with applicable legislation. 190

191 The following irregularities and shortcomings, which have led to the said opinion, were found based on the established facts: 1. The Party has not taken inventory of assets and liabilities as of 31 December 2012, has not adopted the financial plan for the subject year, and has not kept ancillary records of the petty cash operations and fixed assets. 2. The audit established that the Party has paid out expenditures in the total amount of 2,200.00, which were not documented. The payment of expenditures in the amount of 1, was made in cash from the petty cash and the amount of was paid from the giro account. 191

192 11. DEMOCRATIC SERB PARTY The Democratic Serb Party (DSS) is registered with the Ministry of Justice of the Republic of Montenegro under number 93 on 31 December The Democratic Serb Party advocates for the state union of Serbia and Montenegro, for improvement of democratic order, rule of law, and human rights and freedoms. Central bodies of the Party are the General Assembly, Central Board, President, Presidency, Executive Board, and Statutory Commission. The General Assembly is the highest decision making body of the Party. The General Assembly consists of the general assembly delegates elected by municipal boards in line with the criteria set by the Central Board. The Central Board is the highest body of decision making between sittings of the General Assembly, which sets the Party s politics in that period, in accordance with the Program and decisions of the General Assembly. The President is a political and executive body who represents and acts on behalf of the Party in country and abroad, manages the organisation, aligns and supervises its action and assigns tasks to vicepresidents. The Presidency sets and manages the politics of the Party between two meetings of the Central Board, discusses all important matters for its work and gives proposals to the Central Board and the President on matters from within its competence. The Executive Board is executive, political, and managing body that aligns and supervises the work of territorial bodies and organisations of the Party and implements decision of the Central Board and the Presidency. The Party has territorial organisation, and such territorial organisation of the Party consists of municipal organisations and they have local organisations. The bodies of a municipal organisation are the Municipal Assembly, Municipal Board, President of the Municipal Board, Executive Board, and Municipal Initiative Board. The Secretariat, managed by the Party s Secretary, carries out administrative tasks for all central bodies. Pursuant to Article 52 of the Statute of the Democratic Serb Party, the revenues of the Party are: revenues generated in accordance with regulations on Political Party Financing, revenues from supporters, gifts, legacies, and trusts, contributions from members of the Parliament and paid officials in executive bodies, and other revenues Audit methodology The audit was performed by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, and assessment and analysis of collected documentation, detailed audit techniques and methods were decided upon and applied (e.g. development of questionnaires, conduct of discussions and interviews, review of documents, verification of business books and bookkeeping records serving as evidence of business events, verification of computational accuracy of financial transactions pertaining to recorded revenues and expenditures, etc.) Accounting records Under Article 23 of the Law on Political Party Financing, the Party as a non for profit organisation in 2012 was obliged to keep accounting records of revenues and expenditures by their origin, amount and structure, as required by the regulations of the Ministry of Finance. The audit has established that in 2012 the Party maintained business books according to the provisions of the Law on Accounting and Auditing (OGRM 69/05 and OGM 32/11) and the Rulebook on the Chart of Accounts and Contents of Accounts in the Chart of Accounts for Business Organisations and other Legal Entities (OGM 5/11). The audit has established that in 2012 the Party kept the following business books: general ledger, ancillary records of commitments and cash journal. 192

193 11.3. Revenues Annual Report of the State Audit Institution for the Period October 2013 October 2014 In 2012, the Party generated total revenues for regular operation in the amount of 25, Generated revenues pertain to the revenues from budgets of local self governments in the amount of 18,446.74, revenues from write off liabilities from the lease of business premises in the amount of 6,650.00, and other revenues in the amount of The following table presents an overview of generated revenues in 2012 for regular operations of the Party: No Type of Revenue Execution for % share Revenues from budgets of local self government units 18, % 2. Revenues from written off liabilities 6, % 3. Other revenues % TOTAL 25, % Expenditures In 2012, the Party incurred total expenditures in the amount of 17, and they pertain to: expenditures for office supplies in the amount of , expenditures for fuel in the amount of 50.00, expenditures for transport during business travel in the amount of 2,230.00, expenditures for assistance in the amount of , expenditures for post and telecommunication services in the amount of , expenditure for transportation services in the amount of , expenditures for fixed assets maintenance services in the amount of , expenditures for advertising and marketing in the amount of 2,020.65, expenditures for depreciation of fixed assets in the amount of 24.92, expenditures for lawyer s services in the amount of 1,100.00, expenditures for maintenance of business premises in the amount of 1,100.00, expenditures for bookkeeping services in the amount of , expenditures for payment operations in the amount of , expenditures for business entertainment in the amount of , other non tangible expenditures in the amount of 3, and expenditures for financing of municipal boards in the amount of 5, The following figure presents incurred expenditures for regular operations by structure and share in total expenditures. 0.64% 0.29% 12.74% 1.43% 1.02% 30.67% 5.44% 0.62% 11.54% 6.28% 17.71% 6.28% 0.14% 0.68% 2.86% 1.65% Expenditures for office supplies Expenditures for fuel Expenditures for transport during business travel Expenditures for assistance Expenditures for post and telecommunication services Expenditure for transportation services Expenditures for fixed assets maintenance services Expenditures for advertising and marketing Expenditures for depreciation of fixed assets Expenditures for lawyer s services Expenditures for maintenance of business premises Expenditures for bookkeeping services Expenditures for business entertainment Expenditures for payment operations Other non tangible expenditures Expenditures for financing of municipal boards 193

194 11.5. Assessment of established facts Opinion Pursuant to Article 4 of the Law on the State Audit Institution and Article 23 of the Law on Political Party Financing, the State Audit Institution performed audit of the Annual Financial Statement of the Democratic Serb Party for The audit was planned and performed with the aim of providing reasonable assurance whether the financial statements were compiled in accordance with applicable legislation, and whether the operations are in compliance with the law and other regulations. Based on the performed audit, established facts and consideration of the audited entity s Response (No /157 of 23 December 2013) to the SAI Preliminary Report number /140 of 20 December 2013, and in accordance with Article 50 of the SAI Rules of Procedures, the Auditing Board, composed of Dragiša Pešić, Head of the Auditing Board member of the Senate and Branislav Radulović, PhD, member of the Auditing Board member of the Senate, adopted the FINAL AUDIT REPORT on the Annual Financial Statement for 2012 of the Democratic Serb Party OPINION The audit of the Annual Financial Statement of the Democratic Serb Party for 2012 established irregularities in recording, documenting part of expenditures, calculation and payment of tax liabilities and functioning of the internal controls system, which drove the Auditing Board competent for the subject audit to express QUALIFIED OPINION on the Annual Financial Statement and compliance of operations with applicable legislation. The following irregularities and shortcomings, which have led to the said opinion, were found based on the established facts: 1. The Audit established that Party registered in its business books expenditures in the amount of 6, which were not documented. Non documented expenditures pertain to expenditures of municipal boards in the amount of 5, and expenditures for advertising and marketing in the amount of 1, The Party has paid out remunerations to natural persons for bookkeeping services and maintenance services from the petty cash in the amount of 1, for which no calculation and payment of tax liabilities was done. 3. The Party has not established the control over financial operations of municipal boards, as the municipal boards have not submitted to the Central Board the documentation for evidencing spending of received funds. 194

195 EXCERPT FROM THE FINAL AUDIT REPORT FOR REPORTS ON THE SOURCE, AMOUNT AND BREAKDOWN OF FUNDS RAISED AND SPENT BY SUBMITTERS OF CANDIDATE LISTS FOR THE LOCAL ELECTIONS HELD ON 16 NOVEMBER 2013 Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit Submitters of candidate lists for the local elections held on 16 November 2013 (Mojkovac, Petnjica and Cetinje) Report on the Sources, Amounts and Breakdown of the Funds Raised and Spent by the Submitters of Candidate Lists 30 auditing days Nikola Kovačević, Senate Member, Audit Board Chair Dragiša Pešić, Senate Member, the Audit Board member 195

196 196

197 1. Information on auditees The auditees are submitters of approved and registered candidate lists who took part in the local elections for councillors to the Council of the Historic Capital Cetnje and the local councils of the municipalities of Mojkovac and Petnjica, held on 16 November The President of Montenegro (decisions ref.no , and dated 02 September 2013, OGM 26/13 and 28/13) called the elections for the local councillors in the municipalities of Mojkovac and Petnjica and the Historic Capital Cetinje, scheduled for 16 November The budget funding for the election campaign under Article 9 of the Law is provided in the year in which ordinary elections are held in the amount of 0.25% of the planned current budget for the given fiscal year. The 20% of such funds are proportionated in equal amounts to candidate list submitters within eight days from the candidate list being registered. The candidate lists submitters were appropriated on this ground the total of 3, The remaining 80% are allocated to the winning candidate lists, proportional to the number of seats won. On this ground, the candidate lists who won seats in the local councils of the Historic Capital Cetinje and the municipalities Mojkovac and Petnjica are entitled to the total amount of 16, The table below gives an overview of all approved and registered candidate lists, and the number of seats actually won in the local elections held in Cetinje, Mojkovac and Petnjica: An overview of candidate list submitters for the election of councillors in Cetinje No. Candidate list Seats won 1 DPS "For the Victory of Cetinje Milo Djukanovic", Aleksandar Bogdanović 19 2 SDP "We Can Do It Better", Ivan Kusovac 5 3 PCG "With Our Hearts for Cetinje", Dragan Ćiro Cvetković 5 4 "Civic Front Miodrag Lekić Your Choice", Božidar Ivanović 3 5 SNP "For Our Cetinje the true capital of Montenegro", Slobodan Čavor 1 6 "Equitable Montenegro Justice for the Capital", Čedomir Kapisoda 0 7 "Movement for Honourable Cetinje", Božidar Abramović 0 8 "For Cetinje For SUre LPCG", Milo Radonjić 0 An overview of candidate list submitters for the election of councillors in Mojkovac 1 DPS "For Our Mojkovac Milo Djukanovic", Dejan Medojević 17 2 Coalition DF, SNP, DSS "Victorious Mojkovac Miodrag Lekić", Veselin Jovaniović 11 3 Group of citizens "Independent List for Mojkovac Ivan Ašanin", Ivan Ašanin 2 4 SDP ""We Can Do It Better SDP", Angela Ćorić 1 5 PCG "With Our Hearts for Mojkovac", Veljko Dedejić 0 6 Serbian Homeland Party Prof. dr Aleksandar Stamatović "For the Serbs in Mojkovac" 0 7 People's Party "We Shall Not Stop Marina Popović", Petar Radović 0 An overview of candidate list submitters for the election of councillors in Petnjica 1 DPS "For Our Petnjica Milo Djukanović", Samir Agović 15 2 SDP "For Petnjica", Almir Rebronja 11 3 Bosniac PArty "Let's Move Petnjica", Adnan Muhović 4 4 SNP "For the Propserity of Petnjica", Zaim Ličina 1 5 Positive Montenegro, Nihad Kršić 0 6 Party fo pensioners, People with Disabilities and Social Justice, Rasmin Šabotić 0 7 For Us the Pople of Petnjica For Sure LPCG 0 197

198 2. Audit methodology The given audit had the character of a review of documents (desk audit). The audit work focused on examining the reports on the source, amount and breakdown of the funds raised and spent on election campaign and other ancillary documents of candidate list submitters for the local elections held on 16 November The amounts raised By examining the statements provided, it has been established that the submitters of candidate lists for councillors in the Historic Capital Cetinje and in the municipalities of Mojkovac and Petnjica for the elections held on 16 November 2013 raised the total of 72,005.48, broken down as follows: budget appropriations 3, or 5.30% of the total; donations 23, or 32.36% of the total; and own funds 44, or 62.34% of the total. The candidate list submitters received in total 3, from the budget (20% of the total appropriation), which accounts for 5.30% of the total funds raised for the campaign. The donations from individuals amounted to 23,300.00, or 32.36% of the total funds raised for the election campaign. Candidate list submitters used also own funding for the campaign in the amount of 44,887.12, or 62.34% of the total campaign funding. Below is an overview of funds raised by the submitters of registered candidate lists: No Candidate list Budget appropriation Donations from individuals Own funding Total Share Total by submitter DPS "For the Victory of Cetinje Milo 1 Djukanovic" , , , % 2 DPS "For Mojkovac Milo Djukanovic" , , , % 19, % 3 DPS "For Our Petnjica Milo Djukanović" , , % 4 "PCG With Our Hearts for Cetinje" , , % 5 "PCG With Our Hearts for Mojkovac" , , % 12, % 6 "PCG With Our Hearts for Petnjica" , , % 7 SDP "We Can Do It Better" Cetinje , , , % 8 SDP "We Can Do It Better SDP" Mojkovac , , % 13, % 9 SDP "For Petnjica" Petnjica , , % 10 "SNP For Our Cetinje the true capital of Montenegro" , , % 5, % 11 "SNP For the Prosperity of Petnjica" , , % 12 "The Civic Front Miodrag Lekić" , , % 3, % Coalition DF, SNP, DSS "Victorious Mojkovac 13 Miodrag Lekić" , , % 9, % People's Party "We Shall Not Stop Marina 14 Popović" Mojkovac % % 15 "For Cetinje For Sure LPCG" , , % LPCG "For Us the People of Petnjica For 2, % 16 Sure" % Independent List "For Mojkovac Ivan 17 Ašanin" , , % 1, % 18 "Bosniac Party Let's Move Petnjica" % % Homeland Party Prof. dr Aleksandar 19 Stamatović % % Party of Pensioners, People with Disabilities 20 and Social Justice % % "Equitable Montenegro Justice for the 21 Capital" , , % 1, % Total 3, , , , % 72, % Share 198

199 Below is the breakdown of shares of funds by candidate lists submitters: The total funds raised for the election campaign amounting to 72,005.48, as shown in the table and the chart above, are broken down by candidate lists as follows: the Democratic Party of Socialists (DPS) 19, (or 26.41% of the total), Positive Montenegro (PCG) 12, (17.70%), the Social Democratic Party (SDP) 13, (18.70%), the Socialist People s Party (SNP) (8.30%), the Civic Front Miodrag Lekić 3, (5.03%), the Coalition SNP DF DSS Victorious Mojkovac Miodrag Lekić 9, (13.83%), the People party We Shall Not Stop Marina Popović (1.31%), the Liberal Party 2, (4.16%), the Independent List For Mojkovac Ivan Ašanin 1, (1.62%), the Bosniac Party (0.10%), the Homeland Serbian Party Prof Dr Aleksandar Stamatović (0.21%), the Party of Pensioners, Disabled People and Social Justice (0.66%) and the Equitable Montenegro Justice for the Capital 1, (1.98%). The audit has established that the Independent List For Mojkovac stated the funds raised in the amount , which have not been substantiated by documentation. In the statements provided, the candidate list submitters did not state the funds raised on the account of the seats won, in the total amount of 16,582.94, given that these were not disbursed at the time of reporting to the SAI. In accordance with the official election outcome, the breakdown of funds based on the number of seats won is as follows: the DPS 9,247.92, the PCG 1,569.95, the SDP 2,417.90, the SNP , the Civic Front Miodrag Lekić , the coalition SNP DF DSS Victorious Mojkovac Miodrag Lekić 1,496.00, the Independent List For Mojkovac Ivan Ašanin and the Bosniac Party

200 The table below gives an overview of the funds the candidate list submitters were allowed to raise for the election campaign in line with the Political Party Financing Law alongside the actual funds as stated in the reports provided. No Candidate list submitter Budgetary appropriation (20%) Allowable election campaign funding Funding by Private sources the number (limit Art 13 of seats won of the Law) Total Funds raised as reported Difference / (3+4+5) 6 7(6 5) 1 DPS , , , , , Coalition SNP, DF and DSS , , , , , PCG , , , , SDP , , , , SNP , , , , Civic Front , , , , Party of Pensioners, People with Disabilities and Social Justice , , , Homeland Serbian Party , , , People's Party , , , LPCG , , , , Equitable Montenegro , , , , Bosniac Party , , , Independent List for Mojkovac Ivan Ašanin , , , TOTAL 3, , , , , , Based on the data presented, it is noted that the submitter of the candidate list Coalition SNP, DF and DSS "Victorious Mojkovac Miodrag Lekić", using own funding for the campaign, increased the allowable limit set in the Law (Art 10 (2) & (3) and Art 13 (1)) by 5, Actual spending The audit has established that all candidate list submitters stated the total amount of 95, spent on funding the election campaign, broken down as follows: election rallies 13,944/95 (14.65%), TV spots and printed materials 27, (28.59%), advertising 12, (13.43%), publications 3, (3.92%), media appearances 1, (1.77%), public opinion polls (0.11%), costs for authorized representatives 7, (8.31%), overheads and administration 4, (4.50%), transportation 12, (13,15%) and other costs 11, (11.57%). Below is an overview of total campaign spending by the submitters of registered candidate lists: No Candidate list Election ralies TV spots and materials Advertising Publication Media appearances opinion pols Authorised representati ves Overheads and administration Transportation Other campaign costs Total Share (%) 1.1 DPS "For the Victory of Cetinje Milo Djukanovic" 2, , , % 1.2 DPS "For Mojkovac Milo Djukanovic" 2, , , % 20, % 1.3 DPS "For Our Petnjica Milo Djukanović" 1, , % 2.1 "PCG With Our Hearts for Cetinje" 3, , , , , , , % 2.2 "PCG With Our Hearts for Mojkovac" , , % 27, % 2.3 "PCG With Our Hearts for Petnjica" , , % 3.1 SDP "We Can Do It Better" Cetinje , , , % 3.2 SDP "We Can Do It Better SDP" Mojkovac , , , % 13, % 3.3 SDP "For Petnjica" Petnjica , , % 4.1 "SNP For Our Cetinje the true capital of Montenegro" , , , % 7, % 4.2 "SNP For the Propserity of Petnjica" , , , % 5 "The Civic Front Miodrag Lekić" 2, , , , % 9, % 6 Coalition DF, SNP, DSS "Victorious Mojkovac Miodrag Lekić" , , % 9, % 7 People's Party "We Shal Not Stop Marina Popović" Mojkovac % % 8.1 "For Cetinje For Sure LPCG" , % 8.2 LPCG "For Us the People of Petnjica For Sure" % 2, % 9 Independent List "For Mojkovac Ivan Ašanin" , , % 2, % 10 "Bosniac Party Let's Move Petnjica" % % 11 Homeland Party Prof. dr Aleksandar Stamatović % % 12 Party of Pensioenrs, People withdisabilities and Social Justice % % 13 "Equitable Montenegro Justice for the Capital" , % 1, % Total 13, , , , , , , , , , % 95, % Total by submitter Share (%) 200

201 Below is the chart showing the shares of spending by candidate list submitters: The total election campaign spending of 95,180.84, as shown in the table and the chart above, include the following candidate list submitters: the DPS 20, (21.84% of the total), the PCG 27, (28.50%), the SDP 13, (14.14%), the SNP 7, (7.41%), the Civic Front Miodrag Lekić 9, (9.52%), the coalition SNP DF DSS Victorious Mojkovac Miodrag Lekić 9, (10.00%), the People Party We Shall Not Stop Marina Popović (0.99%), the LPCG 2, (3.14%), the Independent List For Mojkovac Ivan Ašanin 2, (2.66%), the Bosniac Party 1.95 (0.002%), the Homeland Serbian Party Prof Dr Aleksandar Stamatović (0.16%), the Party of Pensioners, Disabled People and Social Justice (0.18%) and the Equitable Montenegro Justice for the Historic Capital 1, (1.48%). Out of the total, the candidate list submitters made cash payments in the amount of 21,044.00, as follows: the coalition SNP DF DSS Victorious Mojkovac Miodrag Lekić 7, (79.92% of the submitter s total), the SNP 5, (92.00%), the DPS 1, (10.38%), the LPCG 1, (49.26%), the Civic Front Miodrag Lekić 1, (37.34%), the SDP 1, (8.77%), the Independent List For Mojkovac Ivan Ašanin 1, (86.96%), the People Party We Shall Not Stop Marina Popović (68.00%), the Party of Pensioners, Disabled People and Social Justice (100%), the Homeland Serbian Party Prof Dr Aleksandar Stamatović (93.34%) and the PCG (0.56%). The audit has found that the candidate list submitters stated in their financial statements submitted for audit the unsubstantiated costs in the aggregate amount of 1, (the Civic Front Miodrag Lekić ) or substantiated with improper documentation (the LPCG 840,00 and the Equitable Montenegro Justice for the Historic Capital ). 201

202 5. Lacking funds The audit has established that the candidate list submitters stated the lacking funds for settling the costs incurred during the election campaign in the total amount of 24,020.72, broken down as follows: the DPS 1,773.00, the PCG 14,377.08, the SNP 1,074.45, the Civic Front Miodrag Lekić 5, and the Independent List For Mojkovac Ivan Ašanin 1, It has furthermore been established that the following candidate list submitters remain with outstanding liabilities in the following amounts even after receiving the funds based on the number of seats won: PCG ( 12,806.73), the Civic Front Miodrag Lekić ( 4,494.40), the Independent List For Mojkovac Ivan Ašanin ( 1,360.00), the SNP ( ) and the DPS ( ). 6. Final evaluations and findings Pursuant to Article 25 of the Political Party Financing Law, the SAI carried out the audit of the source, amount and breakdown of the funds raised and spent for the election campaign for councillors to the Council of the Historic Capital Cetinje and the local councils of the municipalities of Mojkovac and Petnjica, held on 16 November Based on the established facts and the auditees responses to the SAI Draft Audit Reports, pursuant to Article 50 of the SAI Rules of Procedure, the responsible Auditing Board, composed of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Dragiša Pešić, member of the Auditing Board, Senate member, adopted the following: CONSOLIDATED FINAL REPORT with recommendations Based on the established facts at the audited entities, the relevant SAI Auditing Board comes up with the following recommendations for enhancing the legal framework governing election campaign funding and improving the quality of reporting of candidate list submitters: 1. The audit has established that the submitters of candidate lists for the local elections held on 16 November 2013 in the Historic Capital Cetinje and the Municipalities of Mojkovac and Petnjica raised 72, for the election campaign, broken down as follows: the Democratic Party of Socialists (DPS) 19,017.48, Positive Montenegro (PCG) 12,746.14, the Social Democratic Party (SDP) 13,463.77, the Socialist People s Party (SNP) , the Civic Front Miodrag Lekić 3, (5.03%), the coalition SNP DF DSS Victorious Mojkovac Miodrag Lekić 9,956.13, the People party We Shall Not Stop Marina Popović , the Liberal Party 2,995.48, the independent list For Mojkovac Ivan Ašanin 1,170.00, the Bosniac Party 71.73, the Homeland Serbian Party Prof Dr Aleksandar Stamatović , the Party of Pensioners, Disabled People and Social Justice , and the Equitable Montenegro Justice for the Historic Capital 1, The funding came from the following sources: budget appropriations 3, (20% of the total appropriation for political parties); donations 23,300.00; and own funds 44, Comparing the statutory limits for campaign funding and the amounts stated in the reports provided to the SAI, it is noted that the submitter of the candidate list Coalition SNP, DF and DSS "Victorious Mojkovac Miodrag Lekić", raised the funds above the allowable limit set in the Law (Art 10 (2) & (3) and Art 13 (1)) by 5,

203 The submitters of candidate lists are obliged to raise funds for election campaigns in the manner and in the amount envisaged by the Law. 2. The form for reporting on the source, amount and breakdown of funds raised and spent on election campaign, set forth by the Instruction of the relevant Ministry, envisages a column for own funding categorized as private sources, whereas the Law on Political Party Financing does not envisage own sources as the source of funding. The Instruction on the Template for the Report on the Source, Amount and Breakdown of Funds Raised and Spent on Election Campaigns (OGM 17/12) needs to be aligned with the Law on Political Party Financing in the section that sees own funding as the source of funds for election campaigns. 3. The audit has established that funding for the seats won in the elections have not been paid to the candidate lists submitters, as envisaged by Art 10 (4) and Art 11 (1) of the Law on Political Party Financing. Local self governments are obliged, under the Law on Political Party Financing, to observe the set deadline for disbursement of funds to candidate list submitters, or else they would be subject to punitive provisions (administrative infringement) under Art 37(6) of the Law. 4. The audit has established that the candidate list submitters stated the lacking funds for settling the costs incurred during the election campaign in the total amount of 24,020.72, broken down as follows: the PCG 14,377.08, the Civic Front Miodrag Lekić 5,436.19, the DPS 1,773.00, the SNP 1,074.45, and the Independent List For Mojkovac Ivan Ašanin 1, It has furthermore been established that the following candidate list submitters remain with outstanding liabilities in the following amounts even after receiving the funds based on the number of seats won: the PCG 12,806.73, the Civic Front Miodrag Lekić 4,494.40, the Independent List For Mojkovac Ivan Ašanin 1,360.00, the SNP and the DPS The candidate list submitters may not spend more funds on the election campaigns than the limit set in the Law, including the funding they are entitled to based on the number of seats won. 5. The audit has established that the reports provided by the submitters of candidate lists do not include the budget appropriations based on the election outcome, i.e. the number of seats won. The SAI recommends for candidate lists submitters to state in the reports on the source, amount and breakdown of funds raised and spent on election campaigns the total amount of funds raised and spent, regardless whether the submitters of candidate lists received the budget funds they are entitled to based on the number of seats won and whether all campaign costs have actually been paid. 6. The audit has established that candidate list submitters performed cash payments in the amount of 21,044.00, or 29.73% of the total. Some candidate lists submitters used cash payments for the bulk of their campaign costs, as follows: the coalition SNP DF DSS Victorious Mojkovac Miodrag Lekić (79.92%), the SNP (92.00%), the LPCG (49.26%), the Civic Front Miodrag Lekić (37.34%), the Independent List For Mojkovac Ivan Ašanin (86.96%), the People party We Shall Not Stop Marina Popović (68.00%), the Party of 203

204 Pensioners, Disabled People and Social Justice (100%), the Homeland Serbian Party Prof Dr Aleksandar Stamatović (93.34%). The SAI recommends to candidate list submitters to reduce the cash payments for the campaign costs and to use payments via transfer accounts. 7. The audit has found that the candidate list submitters in their reports on the source, amount and breakdown of funds raised and spent on election campaign (for the local elections held on 16 November 2013) stated the total costs of media presence in the amount of 1,688.00, or 1.77% of the total campaign costs. With a view of setting in place a control tool for the total costs of media presence, the SAI recommends to the State Election Commission to devise, in collaboration with the media outlets in Montenegro, a method of monitoring and of transparent reporting on the media services provided to political entities during the election campaign. 204

205 EXCERPT FROM THE FINAL AUDIT REPORT OF THE 2013 ANNUAL FINANCIAL STATEMENTS OF THE STATE COMMISSION FOR CONTROLLING PUBLIC PROCUREMENT PROCEDURES Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit State Commission for Controlling Public Procurement Procedures 2013 Annual Financial Statements of the State Commission for Controlling Public Procurement Procedures 30 auditing days Nikola Kovačević, Senate member, Head of the Auditing Board Milan Dabović, PhD, Senate President, member of the Auditing Board 205

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207 1. Legal basis for auditing The legal basis for conducting the audit of the Annual Financial Statements of the State Commission for Controlling Public Procurement Procedures is contained in: the Constitution of Montenegro (OGM 01/07); the Law on State Audit Institution (the SAI Law) (OGRM 28/04, 27/06 and 78/06 and the OGM 15/07, 73/10, 40/11); the 2014 Annual Audit Plan of the State Audit Institution (no dated 27 December 2013); Decision passed by the Auditing Board of the Sector 4 responsible for carrying out this audit (no dated 28 February 2014). The financial audit will be carried out in accordance with the following: the international accounting standards and the international government audit standards (INTOSAI standards); the SAI Rules of Procedure (OGM 50/07) the SAI Manual for Planning and Conducting Financial and Regularity Audits 2. Basic information on the auditee The State Commission for Controlling Public Procurement Procedures (the State Commission) was set up under the Public Procurement Law (OGM 42/11) and appointed by the decision of the Government of Montenegro ref. no /3 on 23 February The State Commission is an autonomous and independent entity with its remit and powers specifically stated in the Public Procurement Law (PPL). The State Commission is responsible for the following: to deliberate and decide upon appeals lodged in the public procurement procedures; in the appellate procedure, to examine the compliance with the PPL and propose and take measures to rectify irregularities in the public procurement procedures; to decide upon the requests of contracting authorities to proceed with the public procurement procedure when an appeal has been lodged in line with the PPL; to decide upon the applications regarding the costs of the proceedings; to monitor the implementation of the decisions in accordance with Article 132(5) of the PPL and take actions in accordance with the law; monitor the public procurement procedures whose value exceeds 500,000.00; to cooperate and share information regarding public procurement with the competent authorities of other countries; to adopt its Rules of Procedure; to perform other tasks under the PPL. The State Commission has a Chair and four members performing their duties on professional basis. The State Commission Chair and members are appointed by the Government based on an open competition for the term of five years with the possibility of reappointment. The Chair leads the work of the State Commission, represents and acts on behalf of the State Commission. The State Commission decides upon appeals and other matters from within its remit by the majority vote of its members. The State Commission sessions are not open for the public. The Rules of Procedure govern the State Commission s work in more details. The State Commission has its Staff Service performing the professional, administrative and technical tasks needed for the work of the State Commission. The Staff Service is headed by the State Commission Secretary. 207

208 The SC Secretary is answerable to the State Commission s Chair and members. The SC Secretary is appointed by the State Commission, upon the nomination by the Chair. To be eligible for the post of the Secretary, a person needs to be a graduate lawyer who has passed the State Exam for work in the state administration, and with no fewer than five years of experience in the area of public procurement. The organisational setup and the job systematisation of the Staff Service is governed by the document on internal organisation and job systematisation adopted by the State Commission, and approved by the Government. The legislation governing the status of civil servants and state employees is applicable to the members of the Staff Service. The State Commission submits the Annual Report to the Parliament for adoption not later than by 30 June for the previous year. The State Commission is funded from the Budget of Montenegro. The 2013 Budget Law appropriated the total of 179, for the work of the State Commission. 3. Audit methodology The audit was carried out by the combined methods of analysis of documents and audit fieldwork. The audit was planned and carried out in line with the INTOSAI and EUROSAI standards in such a manner to allow reasonable assurances whether the financial statements of the State Commission contain any material misstatements and whether its operation is compliant with relevant primary and secondary legislation and other regulations. During the audit, evidence was collected and examined, based on sample testing, establishing the validity of the information and data disclosed in the financial statements. Risk assessment was done according to the SAI s Methodological Guide, and sampling was done by applying the IDEA auditing software. At the audit planning stage, the inherent risk (Ri) was set at the level of 34.00%, the control risk (Rk) as 36.75%, the detection risk (Ro), according to the Sector Head assessments, at 6%, while the overall audit risk (Rr) was 0.75%, and the expenditures were tested at the level of 88.74%, which ensures the audit will detect 94% of misstatements and irregularities. The materiality, i.e. the assessment to what extent misstatements in financial statements may be tolerated without having a material effect on their veracity and objectivity is estimated at the level of 0.88% or 1, Accounting records The State Commission s financial records are cash based, in line with the regulations governing accounting matters within budget users. The State Commission uses the SAP system (the State Treasury s software for recording treasury operations). The audit has established that the State Commission records the expenditures through the State Treasury s SAP system, while it has not provided accounting records of assets and liabilities (Class 2). The auditee should provide for records of assets under the State Assets Law, and the records of liabilities on the class 2 accounts in line with the Rulebook on Uniform Classification of the Accounts for the Central Budget, Extra budgetary Funds and Municipal Budgets. 5. Planned and executed expenditures The 2013 Budget Law (OGM 66/12) appropriated to the State Commission the total of 179,215.45, and after reallocation, the auditee s budget was 186,215.45, and the actual execution 171,

209 Below is the overview of planned and executed expenditures together with reallocations: Economic classification Description 2013 Plan Reallocation 2013 Operating Budget 2012 Execution 2013 Execution Execution/ Operational (%) 4 Expenditures 179, , , , , % 41 Current expenditures 179, , , , , % Gross salaries and contributions 411 borne by the employer 147, , , , , % 4111 Net salaries 88, , , , , % 4112 Payroll taxes 11, , , , , % 4113 Contributions borne by the employee 31, , , , , % 4114 Contributions borne by the employer 13, , , , , % 4115 Municipal surtax 1, , , , % 413 Expenditures for supplies 10, , , , % 4131 Office supplies 6, , , , % 4133 Special purpose supplies 1, , , % 4134 Energy 2, , , , % 414 Expenditures for services 17, , , , % 4141 Business travel 8, , , % 4142 Entertainment 1, , % 4143 Communication services 3, , , , , % 4147 Consultancy, projects and studies 2, , , % 4148 Professional development services % 4149 Other services 1, , , , % 419 Other expenditures 4, , , , , % 4191 Payments per service agreements , , , , % 4192 Costs of court proceedings 1, % 4193 Software design and maintenance 2, , % 4194 Insurance 1, % 4196 Utilities % 463 Repayment of liabilities from previous years , , Repayment of liabilities from previous years , , , , , , , % The audit has established that the 2013 Budget Law failed to properly appropriate funding for some positions (4112, 4115, 4143, 4147 and 4191). This is particularly evident in the case of service agreements (planned in the amount of , and the actual execution 21,694.28) and the expenditures for communication services (planned at 3,901.30, and actually executed at 7,228.86). Due to unrealistic planning, based on the auditee request, the Ministry of Finance reallocated certain items to make up for the lacking funds in the amount envisaged by Article 35 of the Budget Law. Even after the reallocation, the State Commission still lacked funds to make up for the costs incurred on the above positions, and approached the Ministry of Finance anew, following which the Ministry of Finance reallocated own funds from the Budget Management line (position 4162 interests to non residents) in the amount of 7, It has also been established that under the Government conclusion ref. no of 19 December 2013, the Ministry of Finance approved to the State Commission to reallocate the funds in the total amount of 8, (the amount of 7, from the position 4141, and the amount of 1, from position 4193) to the Current Budget reserve, and then reallocated by a Decision to the State Commission. 209

210 The reallocation from the current budget reserve was done in the amount set by Article 3 of the Rulebook on More Detailed Criteria for the Use of Current and Standing Budget Reserve. The audit has established that the auditee s budget planning was not fully based on real needs analysis by the type and purpose of expenditures. 6. Expenditures In 2013 the total expenditures of the State Commission were 171, These include operating costs (gross salaries and contributions borne by the employer, other personal income, supplies and services, and other expenditures) in the amount of 167, and debt repayment in the amount of 3, Based on the above, it is noted that the gross salaries and payroll taxes account for the largest share of expenditures with 74%, followed by other expenditures with 13%, then services with 7%, supplies with 4% etc. 7. Public procurement Under Article 38 of the Law, the auditee submitted the 2013 Procurement Plan (ref. no / of 31 January 2013). In accordance with the Procurement Plan, the total planned purchase in 2013 amounted to 16,200.00, as follows: supplies 8, and services 8,200.00, while these were actually executed in the amount of 4,388.72, or 27% of the planned purchase value. By examining the Public procurement report, it has been established that in 2013 the State Commission procured supplies and services of the total value of 4,388.72, using the shopping method for the amount of 3,474.53, and direct negotiations for the amount of Based on the documents presented, the audit, has established that the auditee used the shopping method for purchasing plane tickets and package tours, and entered into an agreement with the supplier worth 6,000.00, but the contract was never enforced, thus leading to the substantial difference between the contracted value and the value of actually executed procurement. The audit has established that in 2013 the auditee purchased land and mobile lines in the amount of 4,195.61, based on an Agreement concluded with the Crnogorski telekom AD Podgorica (ref. no / 2012 of 08 October 2012). The agreement was concluded at the amount of 24, for a four year period. The above purchase was done from the budget position 4143 Communication services which, under the 2013 Budget Law, was not properly planned but required reallocations from other positions of the auditee. 8. Activities of the State Commission The PPL (Article 137) sets forth the State Commission s remit and powers. In line with its remit and powers, the State Commission is the key player in the institutional protection of the rights and interests of the parties to public procurement procedures and of public interest. The State Commission s primary function refers to the control of procurement processes as per appeals of interested persons or tenderers, and when deciding on the allegations it also decides on any essential violations of the law in the public procurement processes and through mandatory control of purchases exceeding 500,000 euros in value. In 2012, the State Commission had 682 cases in total, and handled 647 cases in 2012, with 35 cases pending at the time and carried over to The total number of appeals in 2012 was 619, and 49 cases of mandatory control for purchases above 500,

211 In 2013 the State Commission had the total of some 900 cases, 856 were closed, as follows: 775 cases upon appeals, 69 cases of mandatory control for purchases above 500,000.00, and 12 other cases. In 2013, the total of 67 complaints were lodged with the Administrative Court against the State Commission s decisions passed in 2013, and 9 complaints against the State Commission s decisions from In 2013 the State Commission received 81 judgments/rulings of the Administrative Court, 23 of which referred to the State Commission s decisions passed in 2013, and 60 for the decisions made in 2012 and before. The judgments which refer to the State Commission s decisions from 2013 quashed 10 such decision, and the rest were rejected as unfounded or the proceeding was stayed. The data on the State Commission s activities in 2013 were presented based on the available documentation and the statement by the responsible person ref.no / and are given in general terms due to the auditee s limited human capacities and the absence of any data processing software. 9. Assessment of established facts Opinion Pursuant to Article 4 of the SAI Law and the Decision of the responsible Auditing Board, ref. no dated 28 February 2014, the SAI carried out the audit of the 2013 budget appropriations for the State Commission for the Control of Public Procurement Procedures. The audit was carried out in accordance with the SAI Law, the SAI Rules of Procedure, and the international government audit standards (INTOSAI). Based on the determined facts and the auditee s response (ref. no / dated 09 June 2014) to the Draft SAI Report (ref. no dated 27 May 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the responsible Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Milan Dabović, PhD, member of the Auditing Board, Senate President, at its session held on 12 June 2014 adopted the FINAL AUDIT REPORT for the Annual Financial Statements of the State Commission for Controlling Public Procurement Procedures, and expressed its UNQUALIFIED OPINION. The audit found no material misstatements or any significant deviations in financial statements of the State Commission, or any significant violations to any of the legislation governing the State Commission s organizational setup and scope of work. Financial transactions are properly substantiated with the documentation based on which the financial statements were made. Notwithstanding our unqualified opinion, the Auditing Board nevertheless proposes some measures and recommendations aimed at improving the auditee s operation. Proposed measures and recommendations given for improving the auditee s operation 1. The auditee failed to properly put in place the internal control regarding accounting records, since it does not keep in its books the records of assets and liabilities, and did not separate the duties of accounting and financial tasks since one member of staff, a state employee IV, performs several tasks (certifies payment requests, creates and records financial documents, and performs cash operations), due to a limited number of staff. The auditee failed to provide electronic records (software) to enable better monitoring and much faster and more efficient retrieval of information on the activities undertaken within its remit (number of pending cases, number of closed cases, type of proceedings, stage of the proceedings, subject matter of procurement, etc.). 211

212 With a view of putting in place a more efficient internal control system, the auditee should ensure keeping records of assets, under Article 48 of the State Assets Law, and records of liabilities on Class 2 accounts, under the Rulebook on Uniform Classification of Accounts for the Budget of Montenegro, Budgets of Extra Budgetary Funds and Municipal Budgets, and, under Article 9 of the PIFC Law, separate the duties within accounting and financial tasks. The auditee is also recommended to provide electronic records (software) for better monitoring and much faster and more efficient retrieval of information on the activities undertaken within its remit. 2. Under the Agreement on Secondment of Staff ref. no. 09 1/1 2013, in 2013 the auditee hired three members of staff for performing the tasks from within the State Commission s remit, for the posts envisaged by the Rulebook on Job Systematisation to be occupied by an independent adviser III and a state employee VI. The Law on Civil Servants and State Employees envisages recruitment by public competition, with the posts of civil servants and state employees available under the same terms to all candidates, and that a civil servant or a state employee performs the tasks under a certain title acquired by entering into employment, or by appointment or reassignment. Recruiting staff under Secondment Agreements for performing the tasks within the ordinary scope of activities of the State Commissions to the jobs and posts envisaged by the Rulebook on Internal Organisation and Job Systematisation is in contravention to the provisions of the Law on Civil Servants and State Employees. 212

213 EXCERPT FROM THE FINAL AUDIT REPORT FOR 2013 BUDGET APPROPRIATIONS FOR FUNDING THE WORK OF MINORITY COUNCILS, DISBURSED THROUGH THE MINISTRY FOR HUMAN AND MINORITY RIGHTS AND PROJECT FINANCING VIA THE FUND FOR PROTECTION AND EXERCISE OF MINORITY RIGHTS Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit and cross section audit The Ministry for Human and Minority Rights and the Fund for Protection and Exercise of Minority Rights The 2013 budget appropriations for National Councils, disbursed through the Ministry of Human and Minority Rights and the project funding by the Fund for Minority Rights Protection and Exercise 30 auditing days Nikola Kovačević, Senate Member, Auditing Board Chair Branislav Radulović, PhD, Senate Member, Auditing Board member 213

214 214

215 1. Legal basis Annual Report of the State Audit Institution for the Period October 2013 October 2014 The given audit was conducted in accordance with: the Law on State Audit Institution (the SAI Law) (OGRM 28/04, 27/06 and 78/06 and the OGM 15/07, 73/10, 40/11 and 31/14); the SAI Rules of Procedure (OGM 50/07); the 2014 Annual Audit Plan of the State Audit Institution (no dated 27 December 2013); Decision passed by the Auditing Board of the Sector 4 responsible for carrying out this audit (no dated 27 February 2014). the International Standards of Supreme Audit Institution (ISSAI). 2. Information on the auditees The audit includes the following audited entities: the Ministry for Human and Minority Rights and the Fund for the Protection and Exercise of Minority Rights The Ministry for Human and Minority Rights Under the Decree on State Administration Organisation and Operation (OGM 05/12 of 23 January 2012 and 25/12 of 11 May 2012) the Ministry of Human and Minority Rights (hereinafter: the Ministry) is in charge of the following: to monitor the exercise and protection of rights of all minority nations and other minority communities as regards their national, ethnic, cultural, linguistic and religious identity; fostering mutual relations among the members of minority nations and other minority communities; advancing multi ethnic tolerance in Montenegro, and establishing and maintaining free contacts between members of minority nations and other minority communities with the civil society organisations and associations abroad sharing the same national and ethnic origin, cultural and historic legacy, and religious beliefs, and advancing the status of the Roma and Egyptians and their full integration, as well as other tasks within its remit. The Ministry s internal organisational units are as follows: the Directorate for Improvement and Protection of Human Rights and Freedoms; the Directorate for Improvement and Protection of the Rights of Minority Nations and Other Minority Communities; the Directorate for Relations with Religious Communities; the Gender Equality Division; the Division for Improvement and Protection of the Rights of the Roma and Egyptians; the minister s Office, and the Service for General Affairs and Finance. The Ministry is headed by the Minister, and the Secretary organises, coordinates and controls the work of internal organisational units. The Secretary to the Ministry takes care of establishing cooperation with other authorities, and performs other tasks as ordered by the Minister The Fund for the Protection and Exercise of Minority Rights Under Article 36 of the Law on Minority Rights and Freedoms, the Fund for the Protection and Exercise of Minority Rights was set up to support the activities to preserve and develop ethnic features of minority nations and other minority communities (hereinafter: the minorities) and their members in the area of national, ethnic, cultural, linguistic and religious identity. 215

216 The Fund for the Protection and Exercise of Minority Rights and Freedoms (hereinafter: the Fund) holds legal personality. Its seat is in Podgorica. The Fund bodies are the Managing Board and the Director. The Fund is funded from the central Budget and other sources in accordance with the law. The decision on the use of the Fund s money is made by the Managing Board, and the decision on the distribution of funds is taken together with the representatives of minorities, in line with the decision of the Minority Councils. The Fund uses the funds for own needs and for project funding. The project funding is apportioned based on public competition and following set criteria: the project s contribution to the preservation and development of national, cultural, religious, linguistic and ethnic identity; project compatibility with the Government policies; transparency and the possibility to monitor the project implementation, and the applicant s credibility. Nongovernmental organisations and other entities and individuals whose operation or activities are aimed at preserving and developing ethnic features of minority nations and other minority communities and their members in the area of national, ethnic, cultural, linguistic and religious identity are eligible to take part in the competition for funding. Given that the audit focuses on the budget funding for supporting projects through the Fund, below are listed the data on the projects supported through budget funding. 3. Audit methodology The audit was carried out by the combined methods of analysis of documents and audit fieldwork. Following the analytical procedures, the detailed audit techniques and methods were decided upon and applied (for instance: development of questionnaires, interviews, documentary review). The documents used as evidence for business events were also verified, as well as the calculation accuracy of financial transactions referring to the audited funds. The funds appropriated by the Ministry for the work of Minority Councils were fully audited, as well as the Fund s funding for the projects implemented in 2013 whose value exceeds 5,000.00, while the method of random sampling was used for auditing the projects under 5, When setting materiality by value, we used the materiality rate of 2%, in line with the set SAI methodology. The materiality was defined by applying the above rate to the amount of appropriations for funding the work of Minority Councils and for project funding. The materiality was defined separately for each Council and for each project subject to audit. 4. Minority Councils and projects The given audit included the budget funding appropriated through the Ministry of Human and Minority Rights for the work of National Councils and the project funding disbursed through the Fund for the Protection and Exercise of Minority Rights; hence, below is the information on the operation of Minority Councils and the projects supported through the Fund subject to this audit. 216

217 5. Minority Councils Article 33 of the Law on Minority Rights and Freedoms stipulates that minority nations and other minority communities and their members may, with a view of preserving their national identity and fostering their rights and freedoms, set up the Council for that given minority. One such minority may set up only one such Council. Minority Councils are elected for the term of four years. Minority Councils have no fewer than 17 members. The total of six Councils exist: Albanian, Bosniac, Croatian, Muslim, Romani and Serbian. Minority councils have a set of ex officio members: members of the Parliament and of the Government belonging to a given minority, mayors, speakers of local parliaments, presidents of the parties represented in the Parliament and in local councils who belong to the given minority. Other Minority Council members are elected by secret ballot on the electoral assembly. The state administration authority responsible for minority rights (hereinafter: the Ministry) adopts rules and guidance for the election of members of Minority Councils. The members of Minority Councils elect, by secret ballot, the President and the Secretary from among themselves. Minority Councils approve their budgets, the Articles of Association and the Rules of Procedure, governing the matters relevant for the work of the given Council. The funding for Minority Councils is provided from the central Budget. The supervision over the work of the Minority Councils is exercised by the Ministry and the relevant parliamentary committee. Minority Councils are obliged to report annually, by 31 March of the current year for the previous year, to the Ministry and the relevant parliamentary body on their activities and financial operations. 6. Funding of Minority Councils By the 2013 Budget, the Ministry appropriated 300, for funding the work of Minority Councils. The total planned annual funding per one Council is 50,000.00, or 4, a month. By examining the budget outturn data in 2013, it was established that the Ministry transferred in total 289, to Minority Councils, from the following programmes: 3621 Minority Councils 279, and 3751 EU Integration and the exercise of minority rights 10, Below is the overview of the appropriations for Minority Councils: No Name Amount % 1 Albanian Council 51, % 2 Bosniac Council 51, % 3 Croatian Council 51, % 4 Muslim Council 51, % 5 Romani Council 51, % 6 Serbian Council 29, % Total 289, % Based on the data presented, the Ministry disbursed to the Serbian Council the total of 29,166.00, and to other councils 51, each. 217

218 Given that the present audit focuses on the funding for the operation of Minority Councils disbursed through the Ministry, and the project funding disbursed through the Fund, it covered the 2013 financial statements of the six Minority Councils (Serbian, Croatian, Albanian, Muslim, Romani and Bosniac) and forty (40) projects funded by the Fund under the Decision ref.no. 567/13 for the contracted value of 353, The audit of financial statements of Minority Councils established the revenues and expenditures presented below. Aggregate overview of Minority Councils revenues in 2013: No Description Serbian Croatian Albanian Bosniac Muslim Romani Total % 1 Income from the Ministry 29, , , , , , , % 2 Income from the Fund 53, , , , , , % 3 Donations 1, , % Separated revenues from 4 previous periods 9, , % 5 Income on interests % TOTAL 93, , , , , , , % Based on the above, it is noted that in 2013 Minority Councils received the total funding from the Budget in the amount of 399, (97%), as follows: operational costs 309, (75%) and project funding 89, (21.84%). The revenues broken down by different Councils: Serbian 93,386.09, Romani 77,313.11, Albanian 67,214.41, Bosniac 65,199.20, Croatian 55, and Muslim 52, Aggregate overview of Minority Councils expenditures in 2013: No Description Serbian Croatian Albanian Bosniac Muslim Romani Total % 1 Supplies, fuel and energy 2, , , , , , % 2 Salaries and remuneration 71, , , , , , , % 3 Daily allowances, accommodation and transportation 6, , , , , % 4 Aid and advertising 1, , , , % 5 Lease, postal services and maintenance 9, , , , , , % 6 Other services 11, , % 7 Depreciation 1, , % 8 Non production services 3, , , , % 9 Entertainment 4, , , , % 10 Other costs 6, , , , , , % 11 Project costs 21, , , % TOTAL 110, , , , , , , % Based on the information presented above, in 2013 the Minority Councils had the total expenditures of 440, as follows: Serbian 110,828.23, Romani 77,313.11, Albanian 73,727.29, Bosniac 63,496.77, Muslim 58, and Croatian 56, Given that Minority Councils provide in their books the records of aggregate expenditures, it was not possible to discern the operational from project costs. At the auditors request to make such separation of costs, the Albanian and the Romani Councils provided provisional division in the sheet with Council s aggregate costs, while the costs of other councils were stated in the total amount as recorded in the business books. 218

219 Based on the data presented, it is noted that the bulk of the costs of Minority Councils refers to salaries and remuneration, with the share of 46.73%, project implementation costs 10.54%, other expenditures 7.82%, travel costs 8.56%, other services 2.57%, lease and postal services 7.82%, entertainment 4.26% etc. Gross salaries and contributions borne by the employer amount to 205, The remuneration is paid to managers and collaborators of the Council and as per various service agreements (accounting, website maintenance, etc.). Out of the total costs of salaries and remunerations ( 205,654.50) the amount of 71, is accounted for by the Serbian Council, followed by the Romani with 41,185.97, then the Muslim 29,591.40, the Albanian 27,115.93, the Croatian 21,183.50, and the Bosniac 17, Project funding In 2013, by the decisions of its Managing board ref. no. 576/13 of 17 July 2013 and 1349/13 of 23 December 2013, the Fund for the Protection and Exercise of minority Rights approved project funding in the amount of 727, Based on the above decisions, the Fund supported the total of 141 projects whose implementation was envisaged in 2013 and 2014, concluded agreements with end beneficiaries, and disbursed the total amount of 717, as project funding. The present audit includes the projects due to be implemented by 31 March 2014, where the contracted project value exceeds 5,000.00, and some randomly sampled projects under 5, Following the criteria thus set, the audit covered in total 40 projects of the aggregate value of 353, Below is the table with an overview of funds approved for the implementation of projects covered by the audit, and an overview of irregularities noted regarding substantiating of costs and spending. No Project implementing organisation Project name Approved funding Ineligible costs Nonsubstantia ted costs Incomplet e document ation Amount of irregulariti es Irregulariti es as a share of project budget (%) 1 2 NGO Society for Equality and Tolerance NGO Society for Equality and Tolerance Serbian newspaper 29, , , , , % Current affairs on Serbian TV 29, , , , , % 3 Serbian National Council Orthodox religion and Serbian legacy in Montenegro 29, , , , % 4 Serbian National Board Publishing 29, , , , % 5 Serbian National Council Days of Serbian Culture in Montenegro 24, , , , , % 6 Serbian National Board Presence of Serbian Language and Literature and Primary and 23, , , , % Secondary curricula 7 "Bincent" Bosniac Newspapers 20, , , % 8 Croatian Civic Society Croatian Herald 9, , , , % 9 NGO Centre for Culture Festival "Homeland Paths of Bihor Bihor" 8, , , % 10 Centre for Regional Cooperation "Sejdefa" 8, % 11 Bosniac Council Towards Bosniac Emigrants from Montenegro 8, , , % 12 Bosniac Forum Forum , , , % 13 NGO Albanian Theatre A Scream of a Woman 7, , , , % 14 Isamic Community of Berane Allotment and pathing of the New Islamic Graveyard 7, , , % NGO Association of the Roma Umbrella Croatian Organisation Dux Croatorum NGO Bay of Croatian Saints Jošica Herceg Novi Radio Rom 7, , , % Completion of the works on the Croatian Home in Donja Lastva Photo monograph "Croatian Sacral Buildings in Boka Kotorska" 7, % 6, , , % 18 Madrassa Mehmet Fatih Ilahijom i kasidom po Crnoj Gori 6, , , , % 219

220 19 NVO Medijator Rožaje Reprint Husaein Pashe Boljanić's Kuraan 6, , , % 20 Nedžmedin Avdiu Wedding ceremony of Anamalji 6, , , % 21 Parish Home Sv. Antun Tuzi Magayine "St Antun's Herald" 5, , , % 22 "Avlija" Magazine and portal for culture, literature and social issues "Avlija" 5, , , % 23 NVO Romani Cultural Centre Meet Romani Cultural Heritage 5, % 24 NVO Islamic Educational Cnetre Islamic informational and educational service 5, % 25 Safet Sijarić Novel "Na kraj svijeta" 2, , , % 26 Dr. Gani Karamanaga Sun, Sea, Health 1, , , % 27 Skender Osmani Wake Up My Souk 2, , , % 28 Dževdet Luboder 29 NVO Romani Association Budo Tomović Nikšić Through small towns and mountains of Sandzak 2, , , % The Beauty of Romani Folklore 3, , , % 30 SPKD Prosvjeta Nowhere Land 4, , , % 31 NVA Vakat zuluma Research and a Scientific Event on crimes against Bosniacs in Plav and Gusinje , , , % 32 Ali Daci Mountain Fairy Rožaje 4, % 33 Croatian Civic Society Building Bridges of Cooperation between Montenegro and Croatia 4, % 34 NVO Harmonija Ulcinj Days of Albanian Poetry at Sas 3, % 35 Eldar Lakota 36 NVO Association for Roma Affirmation 37 SPD Svetosavnik 38 Islamic Community Plav 39 NVO Svijesnost Ulcinj 40 NVO the Beauty of the Roma Documentary feature film "Rožaje That I Love" Standardisation of the Romani Language Preservation of religious identity through cherishing amateur choir singing Refurbishing of the library Zejnel Beg Dizdar Research and study of mosque archives within the area of Ana e Maljit Education through music, games and communication TOTAL 4, , , % 4, , , % 3, , , % 4, , , , % 4, , , % 5, , , % 353, , , , , % The Fund approved the total of 353, to end beneficiaries for the implementation of projects included in this audit. The audit has established that out of the total ( 353,000.00) the amount of 25, (7% of the total) was not spent for the intended purposes, the total of 38, (11%) were not substantiated, and the total of 163, (46%) were substantiated with incomplete sets of documents. 8. Final observations and recommendations Pursuant to Articles 4 and 13 of the SAI Law and the Decision of the responsible Auditing Board (ref. no ) and the 2014 Annual Audit Plan, the SAI carried out the audit of the 2013 budget appropriations for the Minority Councils, disbursed through the Ministry for Human and Minority Rights and the Fund for the Protection and Exercise of Minority Rights. 220

221 Based on the determined facts and the auditee s response to the Draft SAI Report, and pursuant to Article 50 of the SAI Rules of Procedure, the responsible Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, at its session held on 30 July 2014 adopted the following FINAL AUDIT REPORT of the 2013 budget appropriations for funding the work of Minority Councils, disbursed through the Ministry for Human and Minority Rights and project financing through the Fund for the Protection and Exercise of Minority Rights with an overview of noted irregularities and recommendations given: The audit of the budget appropriations for funding the work of Minority Councils through the Ministry for Human and Minority Rights and project funding through the Fund for the Protection and Exercise of Minority Rights has established the following: 1. During the auditing procedure, the Ministry failed to make available to the SAI the evidence based one which it may be concluded it supervised the compliance of the work of the Minority Councils, as set forth by Article 33 of the Law on Minority Rights and Freedoms (records of reports provided by Minority Councils, letters to prove advice given regarding possible deficiencies in reporting, proof of controls over spending of appropriated funds being done or control over actual implementation of the activities envisaged, etc.). 2. By implementing some of the recommendations given in the SAI Audit Report involving the 2010 financial statements and the Follow up Audit Report, the Fund has improved its operation by adopting the Rulebook on Criteria for Evaluation and Distribution of Funds for Funding and Co funding Projects, including as an integral part also the application form and project evaluation sheets, and by improving the quality of project funding and co funding agreements by establishing own responsibilities, and the responsibilities of beneficiaries. However, the Fund failed to provide any monitoring of the activities to implement the projects that received support, performance appraisal or proper control over spending of appropriated funds. 3. A large number of Minority Councils (Serbian, Croatian, Bosniac and Albanian) failed, under their Articles of Association, to adopt the 2013 Work Programme or the Financial Plan, as the basis for the control over their financial operations or the implementation of the planned activities. In addition, they failed to accompany the reports provided to the Ministry with any documents to substantiate costs. The of Minority Councils (Serbian, Croatian, Bosniac and Romani) paid remuneration in the amount of 85, without calculating or paying tax liabilities, which is in contravention to the Personal Income Tax Law. 4. A larger number of beneficiaries failed, under Article 7 of the Agreement, to submit the Final Project Reports including project spending, or failed to observe the deadlines for such reporting. Out of the totally disbursed amount of 353, for the implementation of 40 audited projects, the beneficiaries spent in total 25, for the purposes other than intended, failed to substantiate 42, worth of costs, and used incomplete sets of documentation to substantiate the spending in the amount of 160, Moreover, the beneficiaries paid in total 102, to individuals hired under eight projects and failed to calculate or pay tax liabilities under the Personal Income Tax Law. An overview of the irregularities noted and recommendations given 221

222 8.1. The Ministry for Human and Minority Rights 1. Article 33 of the Law on Minority Rights and Freedoms stipulates the supervision over the activities of Minority Councils is to be carried out by the Ministry and the relevant parliamentary committee. The same article established the obligation on the part of Minority Councils to provide activity and financial reports to the Ministry and the relevant parliamentary committee at least annually, by 31 March of the current year for the previous year. During the audit, the Ministry did not present any such evidence (any records of the reports provided by Minority Councils, any letters with advice indicative of any possible shortcomings in reporting, evidence of control over spending or control over the activities undertaken, etc.) based on which one might conclude it supervised the compliance of the Minority Council operation. Under Article 33 of the Law, the Ministry is obliged to supervise the compliant operation of the Minority Councils Minority Councils 1. Minority Councils submitted to the Ministry their Activity and Financial Operations Reports, with the exception of the Romani Council, which sent it to the SAI during the audit process. Together with the reports provided to the Ministry, the Minority Councils failed to provide documents to substantiate spending of the money disbursed by the Ministry, with the exception of the Serbian Council. Under Article 33 of the Law on Minority Rights and Freedoms, the Minority Councils are obliged to submit to the Ministry their Activity and Financial Operations Reports within the stipulated timeframe. With a view of more effective control over financial operations, the reports to the Ministry should be accompanied by the documentation to substantiate the spending of the appropriated funds. 2. Minority Councils (Serbian, Croatian, Bosniac and Albanian) failed, under their Articles of Association, to adopt the 2013 Work Programme or the Financial Plan, as the basis for the control over their financial operations or the implementation of the planned activities. With a view of control over the implementation of planned activities and financial operations, the Minority Councils are obliged, under their Articles of Association, to adopt the Work Programme and the Financial Plan by the end of the current year for the following year. 3. The Minority Councils provided in their books the records of all expenditures, but it was impossible to discern from these records which part of it pertained to operational costs, and which to project costs. Minority Councils should keep in their books the records of overall expenditures, operational expenditures and the project implementation costs. 4. Minority Councils performed cash payments in the amount of 126,677.50, or 29.00% of the total (Bosniac 44,385.00, Romani 35,585.50, Serbian 19,817.00, Croatian 12,203.00, Muslim 12, and Albanian 2,224.00). The SAI recommends to Minority Councils to reduce cash payments and perform payments via transfer accounts. 222

223 5. The Bosniac Council failed to substantiate costs in the amount of 8,568.41, and provided only partial documentation for substantiating the expenditures in the amount of 22, Minority Councils are obliged to substantiate costs using a full set of valid documentation. 6. Minority Councils failed to calculate and pay tax liabilities on remuneration paid in the amount of 85, (Serbian 50,389.00, Croatian 3,503.50, Bosniac 4, and Romani 27, taxes calculated, but not paid). When paying remuneration, Minority Councils are obliged to calculate and pay tax liabilities under the Personal Income Tax Law. In addition, the necessary data should be provided for proper tax calculation The Fund for the Protection and Exercise of Minority Rights 1. The Fund concluded contracts using templates without detailing the responsibilities of beneficiaries, but the beneficiary is directed to implement the contractual obligation in the scope, of the quality and with the elements defined in the project proposal. The Fund should stipulate in the agreements the detailed responsibilities of beneficiaries defining the activities, the schedule of disbursement and the project completion dates. 2. The Fond concluded two project funding agreements (ref. no. 1260/13 of 04 December 2013 and ref. no. 1290/13 of 11 December 2013), contrary to the provisions of Articles 41 and 42 of the Law on Contracts and Obligations (agreements concluded after the expiry of the project implementation term). Agreements need to be in line with the Law on Contracts and obligations. 3. During the audit process, the Fund did not present evidence that in 2013 it carried out any supervision over staged implementation of projects or over spending of the disbursed funds, but in early 2014 it has undertaken certain activities including warning beneficiaries to submit Progress Reports and Final Reports, and notified the SAI thereof by a letter (ref.no. 403/14 of 14 April 2014). Under Article 8 of the Agreement, and Article 30 of its Rules of Procedures, the Fund is obliged to supervise staged implementation of projects and spending of the funds disbursed. 4. The Fund did not warn a certain number of beneficiaries to meet their contractual obligation of providing progress reports or reimburse the funds disbursed, as envisaged by Article 9 of the Agreement, and Article 30 of the Rules of Procedure. The Fund is obliged to undertake the actions set forth in Article 9 of the Agreement and in Article 30 of the Rules of Procedure in case the beneficiary fails to meet the contractual obligations. 5. Under the decision ref.no. 1349/13 of 23 December 2013 and the Agreements concluded, the Fund disbursed full project amounts, in contravention to Article 3 of the Agreement. 223

224 The Fund is obliged to disburse the funds allocated in line with the project implementation schedule, or according to the schedule of payments (Article 3 of the Agreement). 6. In case of a number of beneficiaries, the Fund did not approve the funding in the requested amounts, and thus they were unable to implement all the activities presented in the project application due to reduced funding; hence, the beneficiaries needed to align the activities with the approved funding to ensure observance of contractual obligations. Before concluding the Agreement, the Fund should request from all beneficiaries where there are significant differences between the requested and the approved project budget to submit amended applications with planned activities and costing. 7. The audit has established that the Fund fails to provide electronic records of project reports, accompanying documents used to substantiate costs or project implementation evidence. It has also been established that beneficiaries submitted unsystematised documentation and improperly reported on project implementation and spending (without stipulation of the activities to which the costs refer), which only further made any control difficult, both by the Fund or other responsible entities. With a view of better and more efficient control, the Fund should ensure electronic records of the documents provided by beneficiaries (reports, substantiating costs, project completion evidence). By changing the project application form, the Fund should ensure that applicants provide detailed specifications of activities and costs, and request more precise reporting on project progress and spending. 8. The audit has established that in 2013 the Fund provided funding for the work of Minority Councils (with the exception of the Muslim Council) whose representatives were at the same time members of the Fund s Managing Board. It has also been found that the Fund provided funding for a certain number of projects implemented by nongovernmental organisations whose founders or responsible persons were members of the Fund s Managing Board. In order to avoid conflict of interest situations and possible misuse, the right of the members to the Fund s Managing Board to apply for funding should be limited, since, under the Memorandum and the Articles of Association, they decide on the funding Project beneficiaries 1. A large number of project beneficiaries (twenty seven) failed to provide to the Fund the Final Report on project completion and spending with the detailed description of the programme and financial implementation of the project or failed to provide them within the set deadline of 30 days after the project completion. Under Article 7 of the Agreement, beneficiaries are obliged to submit to the Fund project completion report and the financial statements on the spending of the allocated money. 2. Out of the total of 353, (for 40 projects), the beneficiaries did not spend 25, (7% of the total) for the intended purposes, failed to substantiate spending in the amount of 42, (12%), and provided only incomplete accompanying documentation for the spending of 160, (45%). 224

225 Under Article 4 of the Agreement, the beneficiaries are obliged to spend the money solely for the project purposes, and under Article 7 of the Agreement, the spending is to be substantiated with a full set of valid documents. 3. Beneficiaries paid remuneration to the individuals hired for the project implementation (eight projects) in the amount of 102,035.00, failing to calculate and pay tax liabilities under the Personal Income Tax Law. When paying remuneration, beneficiaries are obliged to calculate and pay taxes under the Personal Income Tax Law. 4. A large number of beneficiaries failed to observe the project implementation deadlines as set forth in the project application, thirteen beneficiaries failed to provide to the Fund proper evidence of project implementation, and four beneficiaries failed to implement the projects. Beneficiaries are obliged to observe the set project completion dates and to submit to the Fund proper evidence of project implementation (Article 7 of the Agreement). 225

226 226

227 EXCERPTS FROM INDIVIDUAL AUDIT REPORTS OF 2013 ANNUAL FINANCIAL STATEMENTS OF POLITICAL PARTIES Type of audit: Audited entity: Subject of audit: Audit duration: Auditing Board members: Financial audit Political parties: the Socialist People s Party (SNP), the Democratic Party of Socialists (DPS), the Croatian Civic Initiative (HGI), the Positive Montenegro, the Social Democratic Party (SDP), the Bosniac Party (BS), the Movement for Changes (PzP), the New Serbian Democracy (NOVA), the Democratic Parry of Unity, the Liberal Party (LPCG), and the People s Party (NS) 2013 Annual Financial Statements 120 audit days Nikola Kovačević, Senate Member, Head of Auditing Board Branislav Radulović, PhD, Senate Member, member of Auditing Board 227

228 228

229 I BACKGROUND INFORMATION 1. Legal basis The legal basis for conducting the audits is contained in: the Law on State Audit Institution (the SAI Law) (OGRM 28/04, 27/06 and 78/06 and the OGM 15/07, 73/10, 40/11 and 31/14); the Law on Political Parties Funding (OGM 49/08, 49/10, 40/11, 42/11, 60/11, 01/12 and 10/14); the 2014 Annual Audit Plan of the State Audit Institution (no dated 27 December 2013); Decision passed by the Auditing Board of the Sector 4 responsible for carrying out this audit (no dated 17 April 2014). The audit procedures were carried out in accordance with the following: The international accounting standards and the international government audit standards (INTOSAI standards); The SAI Rules of Procedure (OGM 50/07). 2. Audit subject matter The audit will focus on annual financial statements of political parties. 3. Audit objective The audit objective is as follows: accuracy and trustworthiness of financial statements, compliance with laws and other regulations related to organisational, financial and accounting matters, compliance with fund raising regulations, compliance with the regulations governing spending, i.e. verification whether the funds were used solely for pursuing the goals set in the political party manifesto and articles of association, and compliance of transactions. 229

230 II BASIC INFORMATION ON POLITICAL PARTIES 1. THE SOCIALIST PEOPLE S PARTY OF MONTENEGRO The Socialist People s Party (hereinafter: the SNP) was entered in the political party register by the Decision of the Ministry of justice (ref. no dated 18 February 1998), under the Law on Civic Associations (OGRM 23/90, 13/91 and 30/92). The party bodies at the state level are: the Congress, the President, the Main Board, the Executive Board to the Main Board, the Statutory Commission and the Supervisory Board. The Congress is the highest party body. It consists of the elected representatives of municipal organisations, the organisation within the Capital City, and the Main Board members. The Congress adopts the Manifesto and the Articles of Association, and adopts the Activity Reports covering the period between any two Congress sessions. The President represents the party and its interests in the country and abroad. The Vice Presidents are elected by the Main Board, upon the nomination by the President. The Main Board is the body that sets the main political directions, manages the party and provides for the exercise of its policies. The Executive Board to the Main Board takes care of the political management of the Party for the sake of its organisation and continuous activity. The Statutory Commission is an independent body within the Party. It has a Chair and 6 members, elected by the Congress. The Supervisory Board is a control and supervision body of the Party. It has a Chair and 4 members, elected by the Congress. The Supervisory Board controls financial operations and manages the Party assets. Within the timeframe envisaged by the Articles of Association, the Main Board is in charge of considering and adopting the Financial Plan and the Final Accounts. The Main Board appoints the Party Director, nominated by the Party President. The Party Director manages the Party assets, sees to their proper use, the material and financial operations of the Party, drafts the Annual Financial Plan and the Party s Financial Report, engages in fund raising for the Party activities, and lads the Expert Services of the Party, being directly accountable for his work to the Main Board and the President. The Party has adopted the following internal documents: the Articles of Association, the Manifesto, the Rulebook on Internal Organisation and Job Systematisation, the Rules of Procedure for its MP Club, the Rules of Procedure for the Main Board, and the Rules of Procedure for the Executive Board. In addition, the Party also adopted the Decision on Membership Fee for 2012, and the Decision on Mandatory Payment of the Budget Appropriation to the Party s Main Account, and the 2013 Financial Plan. The SNP is funded from the Budget of Montenegro, the budgets of local selfgovernments, from voluntary contributions, gifts and other sources under the Law Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Given that the Party holds legal personality, it is required to have double entry bookkeeping and keep the following: the transaction journal, the general ledger and ancillary records. The accounting records are to be based on valid accounting documents. The audit has established that the SNP keeps the following books: the logbook, the main ledger and the ancillary records (the cash holdings ledger, assets register, records of payables and receivables). The accounting records are accrual based, with revenues being recorded at the time of payment Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. 230

231 The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues In line with the Profit and Loss Account and the business books, the SNP reported the total revenues to amount to 640,065.03, with the breakdown as follows: the central Budget 354,253.00, the local budgets 233,673.00, contributions at 42,610.00, other business revenues 9,441.00, and financial revenues mounting to The table below shows the overview of the revenues realised in 2012 and 2013: No Type of revenue 2012; share (%) 2013 share (%) 1 Central Budget 544, % 354, % 2 Local budgets 298, % 233, % 3 Other revenues , % 520, % 4 Financial income % % TOTAL 833, % 640, % The chart showing the realized revenues in Expenditures The business books show the total expenditures to be 676,774.00, with the breakdown as follows: expenditures for supplies 74,015.00, salaries, remunerations and other personal income 392,942.00, depreciation and provisioning 24,280.00, and other business expenditures 143,914.00, financial expenditures 9, and other expenditures 32, The audit has established the actual total expenditures to be 662, The difference in the amount of 14, is accounted for by the mistaken recording of salaries (the above amount was recorded as salaries cost instead of reducing the liabilities on this ground). 231

232 The table below shows the overview of the expenditures realised in 2012 and 2013: No Description 2012 % 2013 % 1 Office and other supplies ,10 2,44% 8, ,22% 2 Fuel and energy ,13 10,59% 50, ,63% 3 Maintenance of fixed assets 3.351,51 0,35% 15, ,32% 4 Gross salaries and contributions ,33 33,04% 298, ,00% 5 Remuneration and personal income tax ,70 22,98% 88, ,28% 6 Postal services ,20 3,76% 25, ,91% 7 Utilities ,44 3,37% 2, ,42% 8 Lease ,93 4,45% 20, ,16% 9 Advertising and marketing ,20 1,62% 31, ,73% 10 Intellectual services & professional publications 0,00 0,00% 3, ,55% 11 Other services 0,00 0,00% 1, ,16% 12 Depreciation 0,00 0,00% 24, ,66% 13 Non production services ,34 2,20% 0 0,00% 14 Entertainment ,14 2,51% 19, ,92% 15 Insurance and vehicle registration 0,00 0,00% 5, ,83% 16 Payment operations 2.766,30 0,29% 2, ,38% 17 Sponsorship and aid 0,00 0,00% 19, ,93% 18 Intangible services 7.501,47 0,79% 4, ,61% 19 Interests and other costs 4.340,51 0,46% 8, ,36% 20 Costs from the previous period 1.979,94 0,21% 32, ,92% 21 Costs of municipal boards ,51 10,94% 0 0,00% TOTAL ,51 100,00% ,86 100,00% The chart below shows the realized expenditures in 2013 (by General Ledger): As shown in the table, the costs breakdown is as follows: office and other supplies 8,076.40, fuel and energy 50,566.12, maintenance costs for fixed assets 15,372.76, gross salaries and contributions borne by the employer 298,178.99, remunerations and taxes on remunerations 88,029.61,postal services 25,888.27, utilities 2,763.62, renting premises 20,963.69, advertisements and propaganda 31,359.60, intellectual services and professional publications,3,613.12, other services 1,040.31, depreciation 24,279.84, entertainment costs 19,381.15, vehicle insurance and registration 5,513.64, payment operations costs 2,526.88, sponsorship and aid 19,439.95, intangible services 4,015.43, interests and other costs 8,999.80, and costs from arrears 32,

233 Given the cost breakdown, it is noted that the greatest share is accounted for by gross salaries, payroll taxes and contributions borne by the employer, remuneration payable per contracts and other remunerations, or 58% of the total costs, followed by fuel and energy costs with 7.63%, then the arrears 5%, and advertising and marketing costs with 4.73% etc. Within the total costs, the amount of 132, refers to the costs incurred by municipal boards. The audit showed that all costs of municipal boards are recorded properly in business books of the SNP by type of cost, and are covered by the overall costs, while 2012 these costs were recorded in the overall amount, but not broken down by the type of cost Implementation of recommendations from the previous SAI report The SAI Report (ref. no /57 dated 11 September 2013) on the audit of the 2012 Annual Financial Statements of the SNP established a number of irregularities, followed by the recommendations to rectify such irregularities, which refer to the following: - Improve the internal control system regarding setting of deadlines for the adoption of the Financial Plan and the submission of the Report on Material and Financial Operation, - Ensure proper classification of costs and their recording in the required accounts, in line with the Rulebook on the Chart of Accounts, and provide for chronological recording of all business changes, - Consistent application of the Labour Law and the General Collective Agreement in the section referring to setting the quotients for salary calculation for the staff, - Provide analytical records of assets and liabilities, and keep inventories in line with the Rulebook on the Method and Deadlines for Inventories and Alignment of the Bookkeeping with the Actual Status, - Reduce cash payments and keep cash transactions journal. The audit of the 2013 Financial Statements showed that the SNP implemented most of the recommendations given. The recommendation referring to setting the deadline for the adoption of the Financial Plan has partly been implemented since the SNP adopted the 2013 Annual Financial Plan in late 2012, but given there have been no changes to the Articles of Association, the strict deadline has not been set yet. The recommendation referring to proper classification of expenditures recording them in the stipulated accounts has been partly implemented; thus, the audit revealed that some financial transactions are still not being properly classified to appropriate accounts. The recommendation referring to the consistent application of the Labour Law and the General Collective Agreement provisions regarding the quotients used in calculating salaries for the staff has been implemented by setting such quotients by an internal document (as an Annex to the Employment Contract). The recommendation referring to the provisions of analytical records of assets and liabilities and inventories has not been followed through. The SNP failed to provide the analytical records of fixed assets in its business books and failed to make inventories in the manner and within the timeframes envisaged for keeping inventories to adjust the book records with the actual status. The recommendation referring to the reduction of cash payments and registering such costs was followed through given that the SNP in 2013 substantially decreased the cash payment (by 50%) compared to 2012, and registered such transactions. 233

234 1.6. Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the SNP. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the auditee s response (ref. no as of 12 August 2014) to the Draft SAI Report (ref. no /35 of 04 August 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the responsible Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, adopted the following Final Audit Report for the 2013 Financial Statements of the Socialist People s Party of Montenegro OPINION The relevant Auditing Board has expressed a QUALIFIED OPINION on the 2013 SNP Financial Statements, due to the irregularities determined through audit and the omissions presented above in the Report, largely caused by misrepresentation of some financial transactions and the inconsistency in implementing the legislation governing bookkeeping and accounting records. The following irregularities and omissions caused the opinion to be qualified: 1. The audit has established that the auditee failed to register in its books the revenues and expenditures from the election campaign, or register them in the 2013 Financial Statements. The auditee should record in its business books all financial transactions, regardless whether from regular operation or the election campaign, and submit the consolidated Annual Financial Statements to relevant authorities (Art 23 of the Law) 2. The audit has established that the SNP failed to provide the analytical records of fixed assets or to inventories the assets in line with the Rulebook on the Method and the Deadlines for Keeping Inventories and Alignment of the Bookkeeping with the Actual Status. In addition, it has been established that the SNP misrepresented the fixed assets in its books in the amount higher by 27,500.00, the revenues by 6,990.00, and the expenditures by 14, The auditee should correct the misstated fixed assets, and adjust the actual and the book status, ensure keeping of analytical records of fixed assets (by inventory number, name, quantity, the purchase, writ off and present value) and keep annual inventories and obligations in line with the Rulebook on the Method and the Deadlines for Keeping Inventories and Alignment of the Bookkeeping Status with the Actual Status. In addition, all financial transaction should be properly stated in the books. 3. The audit has also established that the auditee failed to balance the state of deposits stated in the business books with the balance stated in the bank statements on 31 December The SNP needs to balance the deposits stated in its books with the actual state of deposits stated in bank statements on 31 December 2013, and make corrections to the books accordingly. 234

235 2. THE DEMOCRATIC PARTY OF SOCIALISTS The Democratic Party of Socialists of Montenegro (hereinafter: the DPS) was founded at the 11 th Congress of the League of Communists of Montenegro, held on 22 June 1991, by the Decision ref. no on changing the name of the League of Communists. Under the name of "the Democratic Party of Socialists of Montenegro" it entered the register of political organizations held with the Ministry of Justice of the Republic of Montenegro on 01 July The seat of the DPS is in Podgorica, Ul. Jovana Tomasevica bb. The Party has its bodies at the municipal, city and national levels. The bodies of the Party at the national level are: the Congress, the Main Board, the President of the Party, the Presidency, the Executive Board, the Statutory Commission, and the Supervisory Board. The Congress is the highest organ of the Party and its decisions are mandatory for the party members and organs. The Congress establishes the policy of the Party, assesses the work of the elected bodies, passes the party Manifesto and the Articles of Association, and resolves other issues in accordance with the Rules of Procedure. The Congress elects: the Main Board, the party President, the Vice President, the Statutory Commission, and the Supervisory Board. The Main Board is the highest body for political management and pursuing party politics between the Congress sessions. The Main Board establishes the draft Manifesto and the Articles of Association and other documents discussed by the Congress. The Party President ensures a unified and integrated functioning of the Party and represents its interests in its relations with the government authorities and other parties. The Vice President acts on behalf of the President in matters within his authority. The Party Presidency conducts political management of the Party for its organized and continuous participation in public life. The Statutory Commission has five members appointed and dismissed by the Congress. The Statutory Commission interprets the Articles of Association and other internal documents, decides on the compliance of such documents and authorities of different Party bodies, and submits to the Main Board a proposal for taking the decision on an appeal against a decision on dismissal. The Supervisory Board is a controlling and supervisory body of the Party. The Supervisory Board consists of three members elected by the Congress. The Supervisory Board controls the revenues and expenditures of the Party, and manages the assets owned or disposed of by the Party. The Supervisory Board submits an annual report on internal control of financial operations to the Presidency. The Supervisory Board adopts the Rules of Procedure. The Executive Board pursues the Party policy in practical terms. A Party member is obligated to pay the membership fee, and the decision on its amount or the amount of the part of the benefits exercised on the basis of the seats held by the Party, is passed by the Main Board, upon the proposal of the Presidency. The party is funded in terms with the Political Party Financing Law. The Presidency adopts the Financial Plan not later than by 31 December of the current year for the coming year, at the proposal of the party Director. The DPS has a Directorate for carrying out expert and administrative tasks Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Given that the Party holds legal personality, it is required to maintain the double entry bookkeeping system and keep the following: the transaction journal, the general ledger and the ancillary records. The accounting records are to be based on valid accounting documents. Under Article 23 of the Political Party Financing Law, the DPS provided accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations 235

236 of the Ministry of Finance. The audit has established that the DPS keeps the following books: the transaction journal, the general ledger and the ancillary records (the cash holdings ledger, the assets register, the records of payables and receivables) and that the accounting records are accrual based, taking note that the revenues from the central Budget, from membership fees and from donations are recorded at the time of payment Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues In its books, the DPS stated the total revenues in 2013 to amount to 2,607,632.27, broken down as follows: revenues for regular activity 1,848, and funds for election campaigns 759, (presidential elections 707,548.35, local elections 51,468.55). The table below shows a comparative overview of revenues stated in 2012 and No Type of revenue 2012 % share 2013 % share 1 Central Budget ,00 51,55% 935, ,60% 2 Reimbursement for the work of MP Club ,00 4,19% 125, ,80% 3 Local budgets ,00 33,10% 609, ,98% 4 Membership fee ,00 9,83% 162, ,78% 5 Other revenues ,00 1,16% 13, ,74% 6 Financial income 3.351,00 0,16% 1, ,10% TOTAL ,00 100,00% ,67 100,00% The chart below shows the breakdown of the 2013 revenues as stated in the books. 236

237 No Annual Report of the State Audit Institution for the Period October 2013 October Expenditures In its books, in 2013 the DPS state total expenditures in the amount of 2,606,002.13, broken down as follows: regular operation 1,796, and election spending 807, (presidential elections 755,483.45, local elections 51,896.21) Regular operation expenditures The expenditure for regular operation were realised at the amount of 1,796,662.45, as follows: fixed assets ,18, overheads and office supplies ,97, fuel and energy ,74, water utilities 1.154,68, other supplies 3.350,97, salaries and remunerations ,56, payroll taxes and contributions borne by the employer ,59, contract fees for occasional and fixedterm tasks ,73, other personal expenditures and remunerations ,47, transport services ,64, maintenance ,94, rent ,59, advertising ,09, research ,00, other services ,38, non production services 9.256,94, entertainment ,50, payment operations costs 3.564,82, membership fees ,29, tax 700,00, professional literature and publications ,25, other non tangible costs 1.718,38, interest payments 2.371,58, financial costs ,00 and arrears ,12. The table below shows a comparative overview of expenditures stated in 2012 and Econom ic class. Description 2012 expenditures for regular operation Share of total 2012 exp. % 2013 expenditures for regular operation Share of total 2013 exp. % Total local elections Total 2013 expenditures (regular and elections) Share in total 2013 exp. % Campaign costs Niksic and Andrijevica Campaign costs Pet. Cet. Mojk Supplies ,84 8,07% ,18 0,00 0,00 131, ,05% 0,00 0, Overheads and office supplies ,24 2,14% ,97 0,00 0,00 57, ,20% 0,00 0, Fuel and energy ,20 6,78% ,74 0,00 0,00 102, ,95% 0,00 0, Water utilities 1.560,92 0,08% 1.154,68 0,00 0,00 1, ,04% 0,00 0, Other supplies 5.580,65 0,27% 3.358, ,16 35,00 8, ,32% 26,00 9, Salaries and remunerations ,73 41,06% ,56 0,00 0,00 883, ,90% 0,00 0, Payroll taxes, contributions borne by the employer ,70 5,05% ,59 0,00 0,00 108, ,16% 0,00 0, Remuneration per part-time employment contracts ,49 4,39% ,73 0,00 0,00 41, % 0,00 0, Other personal remuneration ,86 8,81% , , ,00 65, ,50% 7800, , Transport services ,12 8,92% , ,00 0,00 189, ,29% 0,00 0, Maintenance ,73 2,87% ,94 0,00 0,00 39, ,51% 0,00 0, Lease ,16 1,41% , , ,00 152, ,84% 4.373, , Advertising 4.606,78 0,22% , , ,00 330, ,69% , , Surveys ,79 1,95% ,00 0,00 0,00 23, ,88% 0,00 0,00 I Other services ,97 1,51% 9.232, ,5 6 0,00 75, ,88% 0,00 0, Costs of other services 6.771,72 0,33% 6.352,52 0,00 0,00 6, ,24% 0,00 0, Depreciation 0,00 0,00% 0,00 0,00 0,00 0 0,00% 0,00 0, Non-production services ,70 1,22% 9.256,94 585,00 0,00 9, ,38% 0,00 0, Entertainment ,64 1,54% ,50 504,56 0,00 20, ,81% 0,00 0, Domestic and foreign payment operations 7.653,00 0,37% 3.564, ,59 29,35 4, ,18% 14,98 15, Membership fees ,61 0,53% ,29 0,00 0,00 90, ,42% 0,00 0, Taxes 0,00 0,00% 700,00 0,00 0, ,03% 0,00 0, Subscription to publications and journals ,03 1,57% ,25 0,00 0,00 98, ,71% 0,00 0, Other intangible expenditures 602,88 0,03% 1.718,38 0,00 0,00 1, ,07% 0,00 0, Financial expenditures from relations with , 0,00 0,00% 0,00 other legal entities 00 0,00 303, ,63% 0,00 0, Interest 0,00 0,00% 2.371, ,10 0,00 4, ,16% 0,00 0, Costs from previous periods ,24 0,88% ,92 0,00 0,00 15, ,59% 0,00 0,00 TOTAL ,00 100,00% , , , ,13 100,00% , ,17 237

238 The chart below shows the breakdown of the 2013 expenditures as stated in the books. The bulk of the regular operation expenditures is accounted for by salaries, remunerations and other personal expenditures with 60%, followed by postal services with 10%, then supplies with 7% etc Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the DPS. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no of 20 August 2014) to the Draft SAI Report (ref. no /33 of 04 August 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board member of the Senate, and Mr Branislav Radulovic, PhD, member of the Auditing Board member of the Senate, adopted the following Final Audit Report for the 2013 Financial Statements of the Democratic Party of Socialists of Montenegro OPINION The audit established no material misstatements or significant deviations in officially presented 2013 Financial Statements of the Democratic Party of Socialists. The financial transactions are supported by appropriate documentation, based on which financial statements have been prepared, and the auditee s business operations are compliant with the legal regulations, and therefore the competent Auditing Board expresses an UNQUALIFIED OPINION on the 2013 Annual Financial Statements. The competent Auditing Board, nevertheless, draws the auditee s attention to the statements referring to the recording of the loan used for funding the presidential election. 238

239 3. CROATIAN CIVIC INITIATIVE The political party Croatian Civic Initiative (HGI) Tivat was established at the Founding Assembly held on 24 th May The party was registered on April 7 th, 2004 in the Register of Political Parties by the Decision of the Ministry of Justice of the Republic of Montenegro. The main HGI program objective is the pursuit of common interests of free and voluntarily associated citizens through political and other activities, with the aim of exercising and representing collective and individual rights of Croats and other nations in Montenegro. ithe Party us organized at the municipal and national level, the highest body of the party is the Assembly, which consists of all the Party candidates from the last municipal election, the overall composition of the current Central Board, as well as the newly elected representatives of all municipal organizations. The Central Board is the highest policy and program body between the two Assembly sessions, and the members of the Central Board are the President of the Party, the Chairman of the Central Board, the Vice President and 17 members nominated by the President. HGI is represented by its President. The Presidency is composed of the President, the Vice Presidents and 6 8 members from the Central Board, elected at the proposal of the President. The scope of the Presidency activities includes, among other things, the control over the compliance of financial operations of the Party. The Party holds legal personality and is seated in Tivat, at Luke Tomanovica bb. The responsible person of the HGI is Marija Vucinovic, the President of the Party. Apart from the Articles of Association, the HGI passed the Regulations on the Work of the HGI Presidency, the Rules of Procedure for the Assembly, and the Rules of Procedure for the Central Board. The HGI adopted a Decision on the use of personal cars for business purposes, as well as on the amount of financial aid, sponsorships, scholarships and similar, which may be approved by the President of the Party. The HGI is financed from: membership fees and other donations of the members, contributions, gifts, legacies and other voluntary donations, through own activities, from the budget, and by the income generated from own assets, managed by the Central Board. The Articles of Association provide that the Party s funds are to be used for financing the Party activities only, and be disposed of the Party. The orders for the disposition of funds are signed by the President of the Party or a person authorized by the President Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Given that the Party holds legal personality, it is required to maintain the double entry bookkeeping system and keep the following: the transaction journal, the general ledger and the ancillary records. The accounting records are to be based on valid accounting documents. In 2013, the HGI kept its business books in accordance with the provisions of the Accounting and Auditing Law and the Rulebook on the Chart of Accounts and the contents of the Chart of Accounts for business organisations and other legal entities. The audit has established that in 2013 the HGI kept the following books: the general ledger and the ancillary records for cash holdings, liabilities, the analytical register of fixed assets (as an Excel sheet), but failed to make records of receivables from local self governments. 239

240 3.2. Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues In 2013, the HGI had the total revenues of 109, The breakdown of the revenues is as follows: from the Central Budget 93,510.67, from the local budgets 14,144.68, membership fees 40.00, other revenues 1,701.25, and financial income The table below shows a comparative overview of the revenues generated in 2012 and No Type of revenue 2012 % share 2013 % share 1 Central budget ,00 85,22% 93, ,42% 2 Local budgets ,00 14,62% 14, ,92% 4 Membership fees 40 0,04% 40 0,04% 6 Other business revenues 0 0,00% 1, ,55% 7 Financial income 118 0,12% ,07% Total ,00 100,00% ,92 100,00% Below is the chart representing the shares of revenues for regular operation by type Expenditures In its business books for 2013, the HGI stated the total expenditures at 122,572.52, broken down as follows: office and other supplies 4.758,65, gross salaries and contributions borne by the employer at 12,865.70, commission fees and service agreements 31,827.00, business travel 24,311.39, postal services 4,319.03, maintenance 1,712.28, advertising 1,177.25, depreciation 2,458.07, other services 1,792.95, aid and sponsorships 16,935.68, entertainment 9,188.76, costs as per the Agreement 8,756.47, and other costs 2,

241 The table below shows a comparative overview of expenditures stated in 2012 and No Type of expenditure amount % share amount % share 1 Office and other supplies 1.258,60 1,39% 4, ,88% 2 Gross salaries 6.905,34 7,63% 12, ,50% 3 Fees and service agreements ,33 25,00% 31, ,97% 4 Business travel ,00 16,80% 24, ,83% 5 Postal services 3.091,48 3,42% 4, ,52% 6 Equipment maintenance 2.600,00 2,87% 1, ,40% 7 Advertising ,60 16,03% 1, ,96% 8 Depreciation 566,25 0,63% 2, Z01% 9 Other services 5.136,61 5,68% 1, ,46% 10 Aid and sponsorship ,00 17,33% 16, ,82% 11 Entertainment 1.641,49 1,81% 9, ,50% 12 Costs per agreements concluded 0,00% 8, ,14% 13 Other expenditures 1.261,05 1,39% 2, ,01% Total ,75 100,00% ,52 100,00% Below is the chart representing the shares of expenditures for regular operation by type. Based on the table and the charts above, the highest share of expenditures is accounted for by commissioning fees and service agreements with 25.97%, followed by business travel with 19.83%, then aid and sponsorship with 13.82%, gross salaries with 10.50%, entertainment with 7.50% etc Implementation of the recommendations from previous years The SAI established a certain number of irregularities in the 2012 Financial Statements of the HGI, resulting in a number of recommendations to rectify such irregularities, as follows: adopt the Financial Plan by the end of the current for the coming year, ensure keeping of analytical records of fixed assets and receivables from local budgets, reduce cash payments, support costs with relevant documents, and calculation and payment of payroll taxes under the Personal Income Tax Law. The audit of the 2013 Financial Statements established that the HGI implemented the recommendation regarding the Financial Plan, that it reduced the cash payments in 2013 by 25% compared to the previous year. Moreover, the HGI followed through the recommendation referring to payroll taxes calculation and payment, while the recommendation referring to supporting documentation for all costs was not fully implemented, given that some costs were not substantiated or only partly substantiated costs. The HGI failed to follow through the 2012 recommendation regarding the receivables from the local budgets. 241

242 3.6. Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the HGI. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. 117 dated 23 September 2014) to the Draft SAI Report (ref. no /53 of 15 September 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board member of the Senate, and Mr Branislav Radulovic, PhD, member of the Auditing Board member of the Senate, adopted the following. Final Audit Report for the 2013 Financial Statements of the Croatian Civic Initiative OPINION The audit established that the 2013 Annual Financial Statements of the Croatian Civic Initiative gives an objective overview of revenues and expenditures in line with the approved financial reporting framework, and that there are no material misstatements or significant deviations in officially presented financial statements; hence, the competent Auditing Board expresses an UNQUALIFIED OPINION on the 2013 Annual Financial Statements. Notwithstanding the above, the competent Auditing Board takes note of the irregularities established in auditing regarding documentation and justification of some of the cash payments. The shortcomings identified include: 1. The audit has established lack of supporting documents for cash payments in the amount of 5, on the count of aid and sponsorship (some receipts or payment orders signed by the person receiving the funds are missing). In addition, it has been established that 2, have been remitted to a natural person (a Party activist) for the Bar office costs, but the spending has not been documented by the person who received the funds. The auditee should execute all payments only based on full and valid supporting documentation. 2. In a large number of cases business travel reports have not been provided, the travel orders have not been substantiated within the stipulated timeframe, and in some cases full amounts of foreign per diems have been paid although food and accommodation costs have already been provided, which is in contravention to the Decree on Remuneration of Costs for Civil Servants and State Employees. The auditee needs to execute calculation and payment of travel costs in accordance with the Decree on Remuneration of Costs for Civil Servants and State Employees, given that it is the only valid regulation governing this field. 242

243 4. POSITIVE MONTENEGRO The political party Positive Montenegro (hereinafter: PCG) is an independent democratic party of free and responsible members who pursue the objectives and principles of the Party. The Party was entered into the Register of Political Parties by the Decision of the Ministry of the Interior (ref.no / /1 on 14 June 2012). The President, Darko Pajovic, represents the Party and acts on its behalf. The Party is seated in Podgorica. The bodies of the Party are the following: the Congress, the Main Board, the President, the Presidency, the General Secretariat, the Statutory Commission, the Supervisory Board, the Court of Honour and the Political Council. In addition to these bodies, and for the purpose of political activity, the Party elects Vice Presidents, a Political Director and a Manager of the Party. The Congress is the highest programme, statutory and electoral authority of the Party. The Main Board adopts the Financial Plan, at the proposal of the Presidency. The Presidency decides on the allocation of funds and its remittance to the organizational party units. The Supervisory Board supervises funds raising and allocation. Each PCG member may request from the Supervisory Board to examine annual financial statements. For its operation and activities, the Party is funded through: membership fees, donations, property income, from the budget, legacies and other sources in accordance with the Law. The amount of the membership fee is set by the Presidency. The Main Board adopts the Financial Plan, at the proposal of the Presidency. The Presidency decides on the allocation of funds. The Supervisory Board supervises funds raising and allocation Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. The audit has established that in 2013 the Party maintained business books according to the provisions of the Accounting and Auditing Law and the Rulebook on the Chart of Accounts and the contents of the accounts in the Chart of Accounts for business organisations and other legal entities and the IAS. The audit has established that in 2013 the PCG kept the following books: the transaction journal, the general ledger and the ancillary records of the cash holdings, while the records of fixed assets was provided as off balance sheet records in Excel sheets. The PCG provides records and receivables and payables in its books. The PCG has its accounting records on a modified cash basis which implies keeping records of assets and liabilities on the accrual basis, and registering revenues and expenditures on the cash basis Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures. 243

244 4.3. Revenues Annual Report of the State Audit Institution for the Period October 2013 October 2014 In 2013, the PCG realised the revenues in the total amount of 328,730.01, as follows: the central Budget 285,245.51, the local budgets 22,834.09, contributions 6,279.00, membership fees 10,549.65, other revenues 3,738.67, and financial income Out of the total, 325, were the revenues for regular party activities, while 3, were the funds raised for the election campaign (the local elections held on 16 November 2013 in Cetinje, Mojkovac and Petnjica). The table below features the overview of all the revenues generated in 2013: No Type of revenue Revenues for Campaign regular funding operation Total % 1 Central budget ,51 285, % 2 Local budgets ,20 957,89 22, % 3 Campaign revenues 0 0% 4 Donations 4.179, ,00 6, % 5 Membership fees ,65 10, % 6 Financial income 83, % 7 Extraordinary revenues 3.738,67 3, % TOTAL , , ,01 100% The table above does not provide comparative data for 2012 given that the PCG was only incorporated in mid 2012, and the comparative table would be of no relevance. The chart below gives the shares of revenues by type: 4.4. Expenditures In 2013, the PCG generated the total of 262, in revenues, broken down as follows: supplies 7,762.50, fuel and energy 14,130.07, salaries, remunerations and other personal income 102,214.01, transportation 1,306.45, telephone 13,220.94, rent 31,039.73, advertising and propaganda 24,886.68, other services 2,427.36, depreciation and provisioning 4,292.40, nonproduction services 28,640.03, entertainment 14,854.56, payment operations costs 1,300.42, other intangible costs 9,415.00, interest payment 6.230,17, and equipment writing off Out of the total, the 223, were accrued in regular party operation, while 38, was spent on the election campaigns. 244

245 Below is the overview of all expenditures in No Description Regular Election Share of the Total operation campaigns total % 1 Supplies 7.607,30 155,20 7, % 2 Fuel and energy , ,00 r ,07 5% 3 Salaries and contract fees , ,00 102, % 4 Transportation 1.306,45 1, % 5 Telephone , ,00 13, % 6 Lease , ,00 31, % 7 Advertising and marketing , ,97 24, % 8 Other services 2.427,36 2, % 9 Depreciation 4.292,40 4, % 10 Non production services , ,78 28, % 11 Entertainment ,16 732,40 14, % 12 Payment operations 1.300,42 1, % 13 Other intangible costs 9.415,00 9, % 14 Interests 6.230,17 6, % 15 Writing off equipment 961, % TOTAL , , ,50 100% Based on the information presented above, it is noted that the bulk of expenses are accounted for by the salaries and payments per service agreements (39%), followed by rent (12%), then the costs for non production services (11%), advertising (9%) etc. Below is the graph depicting shares of expenditures by type: 245

246 4.5. Status of recommendations given during the previous years In the Audit report for the 2012 PCG Financial Statements, the SAI established a number of deficiencies and gave a set of recommendations to rectify the deficiencies, and these include: the adoption of internal documents with a view of setting up a more effective internal control system, better recording and inventorying of assets and liabilities. By auditing the 2013 Annual Financial Statements, it has been established that the auditee carried out the recommendation regarding internal documents by adopting, in addition to the Articles of Association and the 2013 Work Plan, also the Rulebook on Internal Organisational and Job Systematisation, the 2013 Financial Plan, the Decision to Restrict Telephone Bills and Fuel Costs, as well as the recommendation regarding the regular annual inventorying exercise. Hence, the auditee has followed through all the recommendations given in the previous SAI Report Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the PCG. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. XI dated 29 September 2014) to the Draft SAI Report (ref. no /61 of 22 September 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board member of the Senate, and Mr Branislav Radulovic, PhD, member of the Auditing Board member of the Senate, adopted the following Final Audit Report for the 2013 Financial Statements of the Positive Montenegro OPINION The audit established that the 2013 Annual Financial Statements of the Positive Montenegro gives an objective overview of revenues and expenditures in line with the approved financial reporting framework, and that there are no material misstatements or significant deviations in officially presented financial statements; hence, the competent Auditing Board expresses an UNQUALIFIED OPINION on the 2013 Annual Financial Statements. 246

247 5. THE SOCIAL DEMOCRATIC PARTY OF MONTENEGRO The Social Democratic Party of Montenegro (hereinafter: the SDP) is an independent democratic political organization of free and equal members, acting in accordance with the Articles of Association and the programmatic principles of the SDP, as well as the principles of organization and operation of the Party of European Socialists and the Socialist International, whose member the SDP is. The SDP has legal personality and it operates as a single entity within the territory of Montenegro. Its seat is in Podgorica. The formal legal establishment of the SDP begun in 1990 with the foundation of the parties that later united into the SDP. During the first multiparty elections in the SFRY and the Republic of Montenegro in December 1990, the SDP constituent parties were the mainstay of the anti war and reformation movement under the name of the Yugoslav Reformation Union for Montenegro, as the only organized attempt of democratic transition of the SFRY into a modern European and democratic state of all its constituent nations and republics. The SDP governing bodies are: the Congress, the Main Board, the President, the Presidency, the Vice President, the Secretary, the Statutory Commission, and the Supervisory Board. The Congress is the highest body of the Party. The Congress is held at least once every four years. The responsibilities of the Congress are the following: adopt the Manifesto and the Articles of Association, appoint the members of the Main Board, elect the President of the Party, and the President and members of the Statutory Commission and the Supervisory Board, consider and adopt activity reports between the two Congress sessions, set the strategic orientations of the party politics and decide on other matters defined by the Articles of Association. The Main Board is the highest decision making body in between the Congress sessions. The Main Board consists of the members elected by the Congress (45 members) and the ex officio members: the President, the Vice President, the Secretary General, the MPs, the Government members, heads of organizational units at the national level, the presidents of the Capital City, municipal and regional boards. The Party President represents and acts on behalf of the Party, provides for unified and integral functioning of the SDP, is responsible for the implementation of the established party politics, convenes and, as a rule, chairs the Main Board and the Presidency sessions, proposes a list of candidates for Members of the Parliament and of the Government. The President is answerable to the Congress, or to the Main Board in between the Congress sessions. The Presidency is the executive and political body of the Party. The Presidency is composed of the ex officio and elected members. The ex officio members are: the President of Party, the Vice President and the Secretary General. Upon the proposal of the President of the Party, the Main Board makes the decision on the number of the Presidency members, elects and appoints them. The Secretariat is the expert, operational and executive body, responsible for the implementation of the positions and politics of the SDP bodies, and comprises of the secretaries in charge of certain fields, employed with the Administrative Service and the MP Club. The Statutory Commission interprets the Articles of Association and assesses the compliance of the decisions and other documents of different party bodies with the Articles of Association. The Commission has a chair and four members. The Supervisory Board controls the financial operation of the Party, informing the Congress of its orders, and once a year, in between the congresses, the Main Board. The Supervisory Board has a chair and two members. The Party Director is responsible for Party s material and financial operations. The Party Director reports directly to the Secretary General, the Presidency and the President of the Party. In cooperation with the Secretary General, the Party Director prepares the Annual Financial Plan and submits it to the Presidency, while the reports on financial operations are submitted to the Supervisory Board and the Presidency of the Party. The Party is funded from the central Budget of Montenegro, the budget of the Capital City, municipal budgets, membership fees and other sources in accordance with the Law and the Articles of Association. Following the Proposal of the Presidency, the Main Board passes the budget of the Party. Upon the proposal of their respective presidents, the Board of the Capital City, the Municipal Boards and the Regional Boards adopt Revenue and Expenditure Plans. 247

248 5.1. Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Under the Accounting and Auditing Law, the party holds legal personality is obliged to maintain double entry bookkeeping system. The business books include: the transaction journal, the general ledger, and the ancillary records. The audit has established that in 2013 the SDP kept the book in accordance with the provisions of the Accounting and Auditing Law, the Rulebook on the Chart of Accounts and the contents of the accounts in the Chart of Accounts for business organisations and other legal entities and the IAS. The SDP keeps its records of assets, liabilities and expenses on the accrual basis, while the recording of revenues from the central and local budgets, the revenues from contributions and membership fees is done on the cash basis Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues The audit has established that the SDP in its general ledger showed the revenues in the amount of 552, broken down as follows: the central Budget 320,592.71, local budgets 169,116.83, membership fees 27,572.73, other revenues 24,821.45, and financial income Out of the total revenues, 541, were used for regular operation, and 11,045.00for funding the election campaign (held on 16 November 2013) in Cetinje, Mojkovac and Petnjica. The funding for the election campaign came from donations 10, and the local budgets The table below gives a comparative overview of revenues from the general ledger in 2012 and 2013 No Type of revenue Amount 2012 Share (%) Amount Share (%) 1 Central budget ,00 62,17% 320, ,99% 2. Local budget ,00 26,61% 169, ,59% 3. Membership fees ,00 5,37% 27, ,99% 4. Donations ,00 3,76% 10, ,90% 5. Interest on a vista deposits 190,00 0,03% ,04% 6. Reimbursement for interns ,00 2,05% 0 0,00% 7. Revenues from previous years 0,00 0,00% 24, ,49% TOTAL ,00 100,00% ,58 100,00% 248

249 Below is the chart showing the shares of revenues by type Expenditures In 2013, the SDP had the total expenditures of 525,003.89, broken down as follows: office and other supplies 38,016.09, fuel and energy , salaries and contributions 158,525.38, service agreements , postal services 62,973.29, non production services 11,118.79, rent 45,662.81, business travel 54,415.30, advertising 11,691.71, utilities and other business expenses 12,202.63, depreciation 14,600.00, other services 16,014.55, entertainment 35,812.62, payment operations costs 1,518.11, membership fees 11,700.00, and other intangible costs The salaries and remunerations account for the largest share of costs with 31%, followed by the postal services with 12%, then fuel and energy 10%, business travel 10%, rent 9% etc. Out of the total expenditures, the total 511, went on regular party operation, 13, were spent on the local elections held on 16 November 2013 in Mojkovac ( 3,282.19), Cetinje ( 7,990.50) and Petnjica ( 2,181.75). Below is the overview of expenditures accrued in 2012 and 2013 for regular operation and the overview of spending for election campaigns in

250 No Description Regular operation in 2012 Share of the regular operation costs % Regular operation in 2013 Share of the regular operation costs % 2013 election campaigns Total 2013 expenditures Share of the total % 1 Office and other supplies ,46 7% ,84 7% 3.168, , % 2 Fuel and energy ,45 8% ,70 10% , % 3 Salaries and remunerations ,11 31% ,38 r 31% , % 4 Service agreements 484,00 0% 688,42 0% 688, % 5 Business travel ,00 8% ,30 10% 1.180, , % 6 Postal services ,68 13% ,29 12% 100, , % 7 Non production services ,45 2% ,79 2% , % 8 Lease ,00 9% ,63 9% 300, , % 9 Advertising 1.287,40 0% 3.009,21 1% 8.682, , % 10 Utilities and other business expenditures 2.571,57 0% ,63 2% , % 11 Depreciation ,01 3% ,53 3% , % 12 Other services ,35 9% ,55 3% , % 13 Entertainment ,37 6% ,62 7% , % 14 Domestic and foreign payment operations 1.469,15 0% 1.494,37 0% 23, , % 15 Membership fees ,32 2% ,00 2% , % 16 Surtaxes 5.956,58 1% 0% 0.00% 17 Other intangible costs 0% 899,14 0% 899, % TOTAL ,90 100% ,40 100% , ,89 100,00% Below is the chart showing the expenditures in Implementation of recommendations from previous years In the Audit Report for the 2102 Financial Statements of the SDP, the SAI established a number of shortcomings and gave recommendations for their removal, as follows: record payables by local budgets, state all revenues realised within the reporting period in the balance sheet, and reduce cash payments. 250

251 The audit of the 2013 Financial Statements revealed that the recommendation to record payables from local self governments was partly implemented, with off balance sheet records in the form of a table made on the basis of reconciled claims with municipalities, but without their recording in business books. In 2013, the auditee recorded revenues to the amount of the expenditures executed, and the surplus was transferred to the Income Statement, as other capital, which in contravention to the SAI recommendation given in the 2012 Report. Given that in 2013 the auditee increased cash payments by 29% compared to 2012, it is noted that the pertinent SAI recommendation has not been followed through Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the SDP. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. XI 588 dated 24 September 2014) to the Draft SAI Report (ref. no /51 of 15 September 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board. Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board. Senate member, adopted the following Final Audit Report for the 2013 Financial Statements of the Social Democratic Party of Montenegro OPINION The audit established that the 2013 Annual Financial Statements of the SDP Montenegro give an objective overview of revenues and expenditures in line with the approved financial reporting framework, and that there are no material misstatements or significant deviations in officially presented financial statements; hence, the competent Auditing Board expresses an UNQUALIFIED OPINION on the 2013 Annual Financial Statements. Notwithstanding its unqualified opinion, the Auditing Board draws attention of the auditee to the deficiencies established which refer to the failure to present the revenues in the forms proscribed by the Ministry of Finance and the substantiating of a share of cash payments. 251

252 6. THE BOSNIAC PARTY The Bosniac Party (hereafter: the BS) was established and registered on March 24 th, 2006, and entered into the Register of Political Parties held by the Ministry of Justice of the Republic of Montenegro (Decision No /06). The Bosniac Party is a democratic political organization, whose principles, objectives and organization are set in its Manifesto and the Articles of Association. The BS is seated in Rozaje. It is organized on the territorial principle and operates within Montenegrin territory, and in accordance with the relevant regulations also abroad. The Party holds legal personality. The objectives of the Party are set in its Manifesto, and they include pursuing equality of all citizens and nations, and other minority and ethnic groups in Montenegro; the advancement of democracy in the social and political life and the functioning of the rule of law; promotion and protection of human rights and freedoms and consistent application of special minority rights and freedoms and direct application of international rights in this area, when otherwise regulated by domestic legislation; the new administrative and territorial organization of the State, regionalization, the establishment of new municipalities, particularly the establishment of municipalities Petnjica and Gusinje; decentralization of authority in accordance with the European Charter of Local Government. The BS bodies are: the Congress, the Main Board, the President, the Presidency, the Supervisory Board and the Statutory Commission. The highest party organ is the Congress, and its decisions are binding for all the BS members and bodies. The competences of the Congress include: adoption of the Manifesto and other political acts, adoption of the Articles of Association, examination and evaluation of Party s activities between the two Congress sessions, election of the Main Board, the Supervisory Board, the President and the Statutory Commission. The Main Board is the highest political body in charge of the implementation of the party politics between the two Congress sessions. The competences of the Main Board include, among others: approve the budget and adopt the party Budget Execution Report, approve the draft Manifesto and the Articles of Association, approve the draft Activity Report, decides on the amount of the membership fee and to perform other tasks. The President manages and represents the Party. The Presidency is the executive political body. The Presidency, upon a proposal made by the Secretary General, determines the systematization of jobs in the Party Staff Service, manages and disposes of assets in accordance with the Articles of Association and other acts, monitors the implementation of the Financial Plan, and adopts the Rulebook regarding Material and Financial Operations and other general acts of the Party within its remit. The Supervisory Board supervises the Party s financial operations as a whole and of all its organizations and branches. The Supervisory Board may appoint expert teams for different areas of its work. The Supervisory Board submits a Report regarding the financial operations to the Main Board once a year. The administrative, legal, material, technical and financial affairs, as well as other expert tasks, are conducted by the Party Staff Service. The work of the Staff Service is managed by the Secretary General, who performs his tasks in the Party on a professional basis. The Party generated revenues from membership fees, on the basis of economic activity, organizing various events, donations and by other lawful means. Article 93 of the Articles of Association envisages the BS financial operation to be conducted through the cash holdings and bank accounts. The receipt and disbursement of funds may be made only against appropriate documentation Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Given that the auditee holds legal personality, it is obliged to maintain double entry bookkeeping system. The business books include: the transaction journal, the 252

253 general ledger, and the ancillary records. The accounting records must be based on valid accounting documents. The auditee provided records of revenues, expenditures and the cash holdings, but failed to provide the analytical records of fixed assets or the records of receivables from local budgets. In line with the statement (ref. no 06/14 of 25 March 2014) given by the person responsible for accounting, the auditee s accounting records are done on the modified basis Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues In 2013 the auditee had the total revenues of 192,360.63, as follows: the central Budget 152,293.34, the local budgets 38,262.14, membership fees 1,791.50, and financial income All of the above concern the regular operation of the party. The table below gives an overview of the revenues in 2012 and No Type of revenue Amount in 2012 % of share Amount in 2013 % of share 1 Central Budget ,04 82,48% 152, ,17% 2 Local budgets ,53 14,27% 38, ,89% 3 Donations 2.817,41 1,39% 0,00% 4 Membership fees 2.150,00 1,06% 1, ,93% 5 Other revenues 1.594,52 0,79% 0,00% 6 Financial income 0,00 0,00% ,01% Total ,50 r 100,00% ,63 100,00% Below is the chart with shares of revenues for regular operation. 253

254 6.4. Expenditures In 2013 the auditee stated the expenditures in the total amount of 214, broken down as follows: fuel and energy 4,318.98, gross salaries and remunerations 86,652.63, business travel 2,834.76, equipment maintenance 2,074.60, rent 15,293.00, office supplies and printing 2,586.96, entertainment 7,619.71, insurance and payment operations , the costs of municipal boards 46,358.00, other intangible costs 1,831.51, interests 8,258.43, and overhead and other costs 36, The table below gives a comparative overview of expenditures in 2012 and No Type of expenditure Amount % share Amount % share 1 Fuel and energy 5.682,48 2,72% 4, ,01% 2 Gross salaries and remuneration ,06 25,05% 86, ,37% 3 Business travel ,83 7,50% 2, ,32% 4 Equipment maintenance 3.654,15 1,75% 2, ,97% 5 Lease 1651,00 1,75% 15, ,13% 6 Advertising 2.252,55 1,08% 0 0,00% 7 Office supplies and newspapers 4.363,65 2,09% 2, ,21% 8 Entertainment 9.455,43 4,53% 7, ,55% 9 Insurance and payment operations 435,49 0,21% ,17% 10 Costs of municipal boards ,00 28,39% 46, ,60% 11 Other intangible costs ,63 13,54% 1, ,85% 12 Interests 7.308,99 3,50% 8, ,86% 13 Overheads and other costs ,53 7,90% 36, ,96% Total ,79 100,00% ,75 100,00% The graph below shows breakdown of revenues by share of the total running costs. Based on the tables and charts above, it is noted that the gross salaries and contributions account for the highest share of the total expenditures with 40.37%, followed by the costs of municipal boards with 21.60%, overheads and other costs 16.96%, interests 3.86%, entertainment 3.55% etc Implementation of recommendations from previous years In the 2011 and 2012 Audit Reports for the financial statements of the BS, the SAI established a number of irregularities and gave recommendations how to rectify them as follows: - put in place an effective internal control system regarding financial operations of municipal boards; 254

255 - ensure keeping of analytical records for fixed assets and the records of receivables from the local budgets; - reduce the amount of cash payments and substantiate costs with appropriate documents; - calculation and payment of taxes on all remunerations paid out; - payments of contractual fees with legal entities via bank transfer accounts; - record the costs of municipal boards in the general ledger by the type of expense. The audit of the 2013 financial statements has established that the auditee followed through the recommendation concerning the reduction of cash payments (down by 27% compared to the previous year) and payment of contractual commitments with legal entities via transfer accounts, and only partly implemented the recommendations that refer to putting in place the control over material and financial operations of municipal boards, documenting cash payments, the calculation and payment of taxes, and failed completely to implement the recommendation that concerns analytical records of fixed assets and receivables from the local budgets, nor the one regarding records of costs of municipal boards in the General Ledger by the type of cost. The audit has also established the improvements in the operations of the party headquarters regarding the following: documenting costs, calculation of payroll taxes, reduced cash payments, and restrictions on spending. However, it has also been found that the party has not properly established control over financial operations of municipal boards, given that some among them still failed to submit to the headquarters any supporting documents to substantiate costs or else provided incomplete and delayed supporting documents (the municipal boards in Bijelo Polje, Berane and Plav), accounting for most of the irregularities noted. The audit has established that the auditee followed through only two recommendations given by the SAI in the previous Audit Reports, implemented partly three of the recommendations, with two still remaining fully unaddressed Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the BS. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. 129/14 dated 03 October 2014) to the Draft SAI Report (ref. no /59 of 22 September 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, adopted the following Final Audit Report for the 2013 Financial Statements of the Bosniac Party OPINION Based on the facts established through auditing, the relevant SAI Auditing Board has reasonable assurance to believe that the 2013 Financial Statements of the BS do contain material misstatements regarding the recording of some transactions and substantiating costs, but these are not of fundamental importance for understanding the financial statements presented. 255

256 The irregularities established are for the most part a result of improper internal control system over financial operations of municipal boards, resulting in the inconsistent application of the regulations governing accounting records and bookkeeping. Hence, the responsible Auditing Board expresses its QUALIFIED OPINION on the 2013 Financial Statements and the ADVERSE OPINION on the auditee s compliance with the valid legislation. The following irregularities resulted in coming up with the above opinions: 1. The irregularities regarding supporting documents for cash payments. The audit has established a share of the cash payments made by municipal boards in the total amount of 6, was not substantiated with the full sets of documents, the amount of 4, was supported by inadequate documents, and the spending of the amount of 5, was not supported by any documents. The auditee should substantiate payments by the full set of valid documents. 2. Deficiencies in material and financial operation of municipal boards and in recording the costs incurred by municipal boards. The audit has established that municipal boards provide to the headquarters the supporting documents for payments with a delay or incomplete, which in turn, led to the failure to state in the auditee s general ledger a share of revenues from local self governments amounting to 10,645.50, the expenditures amounting to 15, and the deposits on the accounts amounting to 3, It has also been established that the auditee failed to provide in the General Ledger the records of costs of municipal boards by the type of expense. The auditee should ensure the General Ledger to record all financial transactions regarding the operations of the headquarters and the municipal boards. The auditee should establish control over financial operations of municipal boards by setting the deadline by which the municipal boards will be obliged to submit full sets of valid documents to substantiate costs. 3. The deficiencies regarding the records of assets (fixed assets) and liabilities. The audit has established that the auditee fails to provide in the books any analytical records of fixed assets by type, quantity, the purchase, write off and present value; rather, the data on assets are presented based on Inventorying Reports; there are no records of receivables from local budgets either. The auditee should ensure analytical records of fixed assets and records of receivables from the local budgets on its books. 256

257 7. THE MOVEMENT FOR CHANGES The Movement for Changes (hereinafter: the PZP) was established as a political party (organization) on June 13 th, The Party entered the Register of Political Parties on August 8 th, 2006 by the Decision ref.no /06. The abbreviated name of the political party (organization) is PzP. The Movement for Change is seated in Podgorica. The Movement for Changes is an independent political party (organization) of free and responsible members, which stands for: an affluent and fair State of Montenegro, based on moral and spiritual values, for Montenegro as an ecological oasis of Europe, for putting a stop to the sale of state assets, the new politicians with new ideas and a clear vision, enhancing competitiveness, the introduction of new technologies, the accession to the European Union, better status of all societal groups, particularly the pensioners and people with disabilities, as the most vulnerable groups in need of general help and support. The bodies of the Movement for Changes are: the Assembly, the Main Board, the Presidency, the President, Vice Presidents, the Supervisory Board, the Court of Honour, and the Director. Members of all bodies are elected for a four year term. The Assembly is the highest programmatic, statutory and electoral body of the PzP. The President represents the Party. The Main Board is the highest management body in between the Assembly sessions, and the Presidency is the political and executive body. The President is the political executive organ of the party, it leads the Presidency and takes care of the observance and pursuit of the party s strategic interests. The Supervisory Board supervises the collection and disposition of funds; supervises the management of assets owned by the party or disposed of by the party on some other grounds; reports to the Main Board on financial operations; reports to the Assembly; adopts its Rules of Procedure. The Director heads the Secretariat, oversees its work and performs the financial tasks as authorised by the party President. The Director is responsible for party s financial operations. The PzP is funded through membership fees, donations, income from assets, from the budget, legacies and other sources in accordance with the Law. The amount of the membership fee is set by the Presidency. The Supervisory Board supervises the collection and distribution of funds Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. The audit has established that in 2013 the PzP kept its books in line with the provisions of the Accounting and Auditing Law, the Rulebook on the Chart of Accounts and the contents of the accounts in the Chart of Accounts for business organisations and other legal entities and the IAS. The audit has established that in 2013 the PzP kept the following books: the transaction journal, the general ledger, and the ancillary records of cash holdings. The auditee kept its books under the Chart of Accounts for business organisations, and the accounting records were accrual based. The general ledger provides records of assets (fixed and operating), the capital, liabilities, revenues and expenditures. The cash operations are recorded in the cash holdings ledger. The Inventory keeps records of fixed assets by number and type, but without purchase, write off and present value Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. 257

258 For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues In 2013, the PzP stated the revenues for regular operation in the amount of 308, These include: the central budget 199,360.37, funding for the MP Club 24,644.70, the revenues from the local budgets 83,195.00, donations 1, and other revenues The table below gives an overview of the revenues planned and realized in 2012 and No Type of revenue Amount in Amount in Share (%) Share (%) 1 Central budget ,39 65,86% 199, ,63% 2 Revenues for the operation of MP clubs ,07 8,63% 24, ,99% 3 Local budgets ,31 24,97% 83, ,97% 4 Donations 800,00 0,26% 1, ,39% 5 Other revenues 879,47 0,28% ,01% 6 Financial revenues 21,21 0,01% 20 0,01% TOTAL ,45 100,00% ,39 100,00% Based on the above, it is noted that the greatest share of revenues is accounted for by the central budget appropriation with 64.63%, followed by the local budgets appropriations 26.97%, and the funds for the operation of the MP Club 7.99% etc. Below is the chart showing the shares of revenues realized in 2013 by type Expenditures In 2013, the PzP reported the expenditures in the amount of 220,995.00, while the total amount realized in 2012 was 318,

259 The table below features a comparative overview of expenditures in 2012 and No TYPE OF EXPENDITURES TOTAL EXPENDITURES TOTAL EXPENDITURES AMOUNT % share AMOUNT % share 1 Presidential election campaign 0,00 0,00% 7, ,30% 2 Gross salaries and contributions borne by the employer ,96 4,19% 19, ,79% 3 Service agreement fees and other remuneration ,06 63,80% 92, ,98% 4 Daily allowances for business travel 0,00 0,00% 12, ,47% 5 Supplies 2.487,02 0,78% 1, ,76% 6 Fuel and electricity 4.966,41 1,56% 8, ,78% 7 Entertainment in the country ,06 3,24% 4, ,10% 8 Transportation costs 779,24 0,24% 7, ,22% 9 Assets depreciation ,77 9,34% 24, ,09% 10 Vehicle insurance 826,66 0,26% ,36% 11 Postal services ,70 3,67% 13, ,04% 12 Current maintenance of fixed assets computers 960,89 0,30% ,37% 13 Lease 3.001,37 0,94% 7, ,46% 14 Advertising and marketing in the country ,57 3,45% 6, ,07% 15 Website design and development 0,00 0,00% 3, ,55% 16 Intellectual services 4.487,50 1,41% 4, ,15% 17 Other intangible costs 5.004,08 1,57% 3, ,74% 18 Sponsorship 1.652,50 0,52% 1, ,77% 19 Road charges 211,50 0,07% 0,00 0,00% 20 Expenditures from previous years ,12 4,65% 0,00 0,00% TOTAL ,41 100,00% ,82 100,00% Based on the above, the breakdown of revenues is as follows: presidential election campaign 7,286.80, gross salaries and contributions borne by the employer 19,431.19, remuneration per service agreements and other remuneration 92,771.25, per diems for business travel 12,087.38, supplies 1,676.66, fuel and energy 8,351.60, entertainment 4,636.56, transportation 7,122.27, depreciation 24,503.43, car insurance , postal services 13,349.11, routine maintenance of fixed assets , rent of business premises 7,648.92, advertising and propaganda 6,792.28, website design 3,429.70, intellectual services 4,746.25, other intangible costs 3, and sponsorship costs 1, Below is the chart showing the shares of expenditures by type in The fees for service agreements account for the largest share of expenditures with 42%, followed by the assets depreciation with 11%, then gross salaries and contributions borne by the employer 9%, postal services 6% etc. 259

260 7.5. The implementation of recommendations from the previous years The audit of the 2013 annual financial statement of the PzP established that the auditee undertook certain activities to follow through the SAI recommendations regarding the calculation and payment of tax liabilities. The arrears on this ground were reduced compared to the year before, and on 31 December 2013 amounted to 10, The auditee implemented the recommendation regarding regular annual inventorying exercise and the provision of records of fixed assets by inventorying the assets and liabilities on 31 December 2013, and provided records of assets in Excel sheets by type, quantity, location, the purchase, write off and present value, as well as the recommendation referring to the reduction of cash payments since in 2013 such payments went down by 43%. In 2013 the auditee failed to follow through on the recommendation regarding the adoption of the Financial Plan, the general and specific acts, but as stated by the responsible person, in 2014 the activities have been undertaken towards meeting this recommendation explaining that the above deficiencies were caused by the termination of the term in office of some members of the Supervisory Board, which blocked its work, the adoption of the said acts included Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the PzP. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. 49/14 dated 14 October 2014) to the Draft SAI Report (ref. no /72 of 02 October 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, adopted the following. Final Audit Report for the 2013 Financial Statements of the Movement for Changes OPINION The SAI Auditing Board responsible for the given audit expresses its QUALIFIED OPINION to the 2013 Financial Statements of the PzP due to the irregularities and misstatements detected during the audit regarding the supporting documents for some cash payments, the establishment of the internal control system and the conclusion of service agreements. The following irregularities and deficiencies led to giving the qualified opinion: 1. The audit has established that the auditee did not adopt the 2013 Financial Plan although bound by Article 31 of the Articles of Association to do so by the end of It has also been established that the Supervisory Board did not submit a report on internal control of the financial operations to the Main Board. The audit has established that the auditee did not adopt other general and specific acts, apart from the Articles of Association and the Manifesto (the Rulebook on Internal Organisation and Job Systematisation, the Rulebook on Financial Operation etc.). As stated by the responsible persons, these deficiencies are to be accounted to the fact that the term in office expired for some members of the Supervisory Board which blocked its work, and prevented the adoption of the above documents. 260

261 Annual Report of the State Audit Institution for the Period October 2013 October 2014 In order to put in place a satisfactory internal control system, the auditee needs to pass all internal documents, and to adopt the Financial Plan for the coming year by the end of the current year, pursuant to Article 31 of its Articles of Association. 2. The audit has established that a share of cash payments in the amount of 6, (lease 6, and other costs ) was substantiate by incomplete documentation (the cash receipts for lease and receipts for other costs are missing), while the entertainment costs in the amount of 2, were substantiated by improper documents (non VAT receipts). The auditee should record and execute payments based on a full set of valid documents. 3. The audit has established that on the grounds of restructuring and visits to local and municipal boards their members were paid per diems for domestic business travel in the amount of 6, which is in contravention to the Decree on the Remuneration of Costs for Civil Servants and State Employees as the only valid regulation governing this field. The above Decree defines the domestic business travel as the travel of a person sent to perform a task in a place more than 30 km away from its place of work. The transportation costs for the business travel were paid for the use of own cars to business purposes in the amount of 6, The disbursements were done as per travel orders for members of municipal board, members of the party bodies and party activists. The audit has established that the above costs were not properly substantiated (by petrol receipts etc.) except for a share of costs amounting to 1, Given that the auditee did not establish the amount of costs remunerated for business travel (transportation, daily allowances, etc.) by its own regulations, in the opinion of the SAI the reimbursement of such costs is to be done in accordance with the Decree on the Remuneration of Costs for Civil Servants and State Employees as the only valid regulation governing this field. The auditee should substantiate the costs for the use of personal cars to business purposes by petrol receipts. 4. The audit has established that the auditee has paid 83, as net remuneration per service agreements. The above remuneration was paid for the following tasks: secretaries to municipal boards, organising the Youth Network of the PzP, website maintenance, preparation of advertising materials, minute keeping, visits to local boards, organisation of municipal boards, the task of acting as a chauffeur to the President, administrative and technical support, work at the call centre on communicating with citizens and doing polls, etc. The amounts ranged between and 9, Out of the total of net remunerations per service agreements, the amount of 56, was paid in cash, and 26, via transfer accounts. Certain persons engaged through service agreements received remuneration on several grounds over the same period. Such remunerations amounted to 36, in total, ranging from 6, to 9, per one person. It has also been noted that three persons hired on employment contracts were also engaged on service agreements and received the total remuneration on this count of 11,980.00, ranging between 1, and 6, per one person. The audit has established that in individual cases service agreements were signed with the persons holding employment contracts for the same tasks at the same time. It was also established that some service agreements were concluded with persons who are public officials. The auditee may not conclude service agreements with the persons who are at the same time hired as per employment contracts for doing the same tasks. In case the party officials are at the same time public officials and receive remuneration per service agreements concluded with the party, they are obliged to report this to the Conflict of Interests Commission. 261

262 8. THE NEW SERB DEMOCRACY The New Serb Democracy (hereinafter: the NOVA) is a political party in Montenegro, which brings together members of the Serbian people. The Party was established in 1998 as a Serb People's Party, and later by transforming former Serb list, the New Serbian Democracy was established. In accordance with the Law on Political Parties (OGM 021/04 16), the bodies of the Serb People s Party and People s Socialist Party decided to unite into the New Serb Democracy, a party with the new legal entity, which takes over all rights and obligations of the parties that united. The NOVA is seated in Podgorica. The New Serb Democracy passed the Articles of Association which set the objectives, the symbols and the headquarters, the rights and obligations of members, the organizational structure, the acquisition and disposal of assets, passes party s acts and decide on its termination of work. The managing and working bodies of the NOVA are: Assembly, the Main Board, the President, the Presidency, the Executive Board, the MP Club, the Political Council, and six Boards. The Assembly is the highest body in the NOVA. Its authorities include, inter alia: to adopt its Rules of Procedure; to adopt the Manifesto and the Articles of Association; to adopt the report by the Min Board; to verify the terms in office for the elected Main Board members; to appoint and dismiss the President, the Deputy President and the Vice Presidents; to decide on the party s termination of work or merging with other parties; to decide on the change of party s name. The Main Board is the body which, inbetween two Assembly sessions, sets the party policy in line with the Assembly s decision, the party s objectives and the Manifesto. The Main Board is authorised to: convene the Assembly, decide on the time and place for holding the Assembly, propose the agenda and the Rules of Procedure for the Assembly, submit to the Assembly the party Activity Report between the two sessions; draft amendments to the Articles of Association; adopt the Executive Board s Report on election outcomes; decide on assets in case of merging with another party; decide on being in power at the central level; adopt party s election programme; adopt the financial report by the Executive Board; adopt the Rules of Procedure and other tasks. The President represents the party and acts on its behalf in the country and abroad, leads the party, aligns and oversees its operation, convenes and chairs the Main Board sessions, convenes the Assembly, is responsible for implementing the decisions of the Assembly, the Main Board and the Presidency, etc. The Executive Board is the executive political body which takes part in policy making and execution and executes the decisions of the Presidency and the Main Board. The New Serb Democracy is financed from the budget of Montenegro, the budgets of local governments, donations, sponsorships and grants and other sources, in accordance with the Law. The Executive Board of the Party disposes of and decides on the use of financial resources with the consent of the President of the Party Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Under the Accounting and Auditing Law, the party holds legal personality and is obliged to maintain the double entry bookkeeping system. The business books are: the transaction journal, the general ledger, and the ancillary records. A legal entity is obliged to register all business transactions and keep records thereof in business books. The accounting records must be based on valid documents. The audit has established that in 2013 the auditee kept the following books: the transaction journal, the general ledger and the cash holdings ledger, but failed to provide the analytical records of fixed assets. The accounting records of revenues and expenditures in 2013 were cash based. 262

263 8.2. Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues The auditee stated the total revenues in 2013 in the amount of 736, The audit has established the following breakdown of revenues: central budget appropriations 546,569.00, local budget appropriations 186, and other revenues 3, Below is the comparative overview of the revenues realised in 2012 and No TYPE OF REVENUE AMOUNT AMOUNT % % 1 Central Budget ,00 84,68% 546, ,24% 2 Local budgets ,00 15,22% 186, ,28% 3 Other revenues 805,00 0,10% 3 555,00 0,48% TOTAL ,00 100,00% ,00 100,00% Below is the chart with shares of revenues by type: 8.4. Expenditures In its books, NOVA stated the expenditures in the total amount of 973, The audit has established that the above expenditures include the expenditures of NOVA, of the GG Milan Knežević and the campaign costs of the members to the DF Miodrag Lekić coalition. In late 2013 NOVA reduced the amount of costs by 158, and stated the expenditures in the balance sheet in the thus reduced amount. The reduction was done in accordance with the Agreement and the Assignation Agreements concluded with the members of the DF coalition by which the coalition members assumed a share of liabilities on the count of a credit taken to fund the campaign. Under such agreements, NOVA reduced the credit liabilities, and by extension the costs on this line. Given 263

264 that NOVA, as one constituent member of the DF coalition, under the agreement, provided the record keeping of all transactions referring to the campaign, it was obliged to state the revenues and the expenditures in the financial statements in the total amount. In addition, it was obliged to separate in its books the financial transactions (revenues, expenditures, liabilities, etc.) referring to the operation of NOVA and the ones for the coalition election campaign. In case of election coalitions, the SAI recommends that one coalition member should provide records of all financial transactions referring to the election campaign and state them in the financial statements or else each coalition member to record the proportionate amounts of revenues, costs and liabilities in their books, and present the same in their financial statements. The table featuring the expenditures as stated in the general ledger kept by NOVA no Type of expenditure Total % share 1 Salaries and remuneration 73, % 2 Work of volunteers 12, % 3 Business travel 819 0, Transportation and telephone costs 15, ,196 5 Equipment and vehicle maintenance 16, ,71% 6 Overheads ,24% 7 Marketing ,21% 8 Lease and maintenance 5, , Utilities 2, ,25% 10 Depreciation % 11 Commissioning fee, insurance and enforcement ,53% 12 Services 180, , Aid and grants 15, , Entertainment and other costs ,22% 15 Donations 10, ,11% 16 Loan repayment 20, , Cost of municipal boards 124, , Costs for the DF 6, ,65% 19 Costs for the GG MK 202, ,81% 20 Costs for the DF repeated elections in Niksic 14, % 21 Cash holdings at the headquarters 175, ,05% Total ,11 100,00% According to the above sheet, the breakdown of expenditures is as follows: the salaries and other remuneration 73,590.01, engagement of volunteers 12,722.50, business travel , transportation and telephone 15,726.90, equipment and vehicle maintenance 16,632.89, water and electricity bills od 2,315.38, marketing 50,776.98, lease and maintenance 5,880.00, utilities 2,462.21, depreciation 6,212.35, commissions, insurance and enforcement 5,165.39, services 180,463.74, assistance 15,068.00, hospitality services costs 31,391.90, sponsorships, campaigns and renting cars 10,778.86, loan repayment 20,186.94, operational costs for municipal boards 124,230.51, the GG MK costs 202,673.85, costs of the DF in Nikšić 14, and cash payments 175, Below is the graph with shares of expenditures by type in

265 According to the stated expenditures, the greatest share is accounted for by the costs for the GG Milan Knežević with 21%, followed by the costs for services 19%, then cash payments by the party headquarters 18%, operational costs of municipal boards 13%, salaries and remuneration 8%, marketing 5% etc Implementation of recomme3ndaitons from the previous years While auditing the 2012 Financial Statements of NOVA, the SAI established a number of irregularities and gave recommendations how to address them. The recommendations included the following: - provide analytical records of fixed assets in the business books, - keep registers of assets and liabilities in line with the Rulebook on the Method and Deadlines for Making Inventories and Aligning Book Status with the Actual Status (OGM 34/09), - organise the work of volunteers in line with the Law on Voluntary Work, - payments for the costs sustained by volunteers to be paid against valid documents, - reduce direct cash payments, and - calculate and pay taxes on the remunerations paid. The audit of the 2013 Financial Statements has established that the PzP carried out a number of activities to follow through the recommendations regarding the calculation and payment of taxes, organising the work of volunteers, documenting costs, annual inventorying of fixed assets, provision of analytical records of fixed assets, but failed to implement these fully for the following reasons: - The auditee calculated the tax liabilities as per the remunerations paid, but failed to settle these dues; in tis response to the Draft Audit Report provided by the SAI, the auditee provided evidence of having paid a share of tax liabilities in 2014 in the amount of 10, The auditee reduced the amount of remunerations for voluntary work and paid a share of these via transfer accounts, but failed to establish in the voluntary work agreements the method for remuneration of costs (their amounts and how to substantiate them), - The auditee provided the annual inventory of fixed assets, but failed to compile a report in line with the current Rulebook on Inventories. It also provided off balance sheet records of fixed assets, but failed to provide the analytical records in the business books. - The recommendation referring to reducing the cash payments was not followed through since in 2013 the total amount of such payments was 310,579.00, as follows: from the cash holdings in the headquarters 185, and from cash holdings of municipal boards 124,

266 8.6. Assessment of facts the Opinion Pursuant to Article 4 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the NOVA. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. 244/14 dated 09 October 2014) to the Draft SAI Report (ref. no /68 of 30 September 2014), and pursuant to Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, adopted the following Final Audit Report for the 2013 Financial Statements of the New Serb Democracy OPINION The SAI Auditing Board responsible for the given audit expresses its QUALIFIED OPINION to the annual 2013 Financial Statements of the New Serb Democracy NOVA and compliance with legislation, due to misstatements of material importance established during the audit, which are, nevertheless, of fundamental relevance for understanding the statements presented, and the inconsistent application of some legislation (the Labour Law, the Law on Voluntary Work, the Accounting and Auditing Law, etc.). The following irregularities and deficiencies led to giving the qualified opinion: 1. In its books, NOVA stated the costs in the amount of 973, The audit has established the above to include the costs incurred by NOVA, by the GG Milan Knežević, and the costs of election campaigns of the members of the DF Miodrag Lekić coalition. In late 2013 NOVA reduced the amount of costs by 158, and stated the expenditures in the balance sheet in the thus reduced amount. The reduction was done in accordance with the Agreement and the Assignation Agreements concluded with the members of the DF coalition by which the coalition members assumed a share of liabilities on the count of a credit taken to fund the campaign. Under such agreements, NOVA reduced the credit liabilities, and by extension the costs on this line. Given that NOVA, as one constituent member of the DF coalition, under the agreement, provided the record keeping of all transactions referring to the campaign, it was obliged to state the revenues and the expenditures in the financial statements in the total amount. In addition, it was obliged to separate in its books the financial transactions (revenues, expenditures, liabilities, etc.) referring to the operation of NOVA and the ones for the coalition election campaign. In case of election coalitions, the SAI recommends that one coalition member should provide records of all financial transactions referring to the election campaign and state them in the financial statements or else each coalition member to record the proportionate amounts of revenues, costs and liabilities in their books, and present the same in their financial statements. 2. The audit has established that out of the total cash payments executed by municipal boards the amount of 3, was substantiated based on incomplete set of documents, the amount of 2, was substantiated by improper documentation, i.e. the non VAT 266

267 receipts, and the amount was not documented. The cash payments from the holdings of the headquarters in the amount of 4, were substantiated by non VAT receipts, the costs in the amount of were not documented, and the costs paid out from the cash holdings of GG Milan Knežević in the amount of 3, were substantiated by non VAT receipts. The auditee should substantiate the costs by a full set of valid documents. 3. The audit has established that on the count of volunteer work the auditee disbursed for the costs incurred by volunteers an amount of 32,428.50, as follows: cash payments in the amount of 19,85600 and via a transfer account 12, The audit has established that the disbursements were substantiated by travel orders (daily allowances and the use of own cars for business purposes). By examining the contracts presented it was established that it stipulated mandatory insurance of volunteers and the payment of material costs incurred while volunteering (transportation, telephone, etc.), but failed to set the amount and the method of substantiating the costs incurred. The audit has established the amount of payments on this account ranged between and 4, In their response when provided with the Draft Audit Report, the auditee explained the disbursements per contracts on volunteer work: Perhaps volunteer is not a well chosen word. Basically, these are our activists and we are unable to specify in the contracts the amount of costs, since we pay only the costs actually incurred as defined in the contracts (transportation, telephone, etc.). The payments are also done via transfer accounts and from the cash holdings depending whether the activists, notwithstanding our insistence, would provide us with their transfer account numbers. The auditee should conclude contracts of voluntary work and the reimbursement for costs based on such contracts in accordance with Article 13 of the Law on Voluntary Work, particularly so given that the auditee s response shows these involve party activists. 4. The audit has established that based on contracts entered into with natural persons, NOVA paid remuneration in the amount of 174,638.70, with the individual payments ranging between and 12, By examining the contracts signed with individuals, it has been established that they all use the same template and do not contain the clearly defined obligation of the person hired, or the period for their commissioning. As stipulated in the contracts, the persons are hired to do the following: provide administrative and technical support, update the website, enter and process data for public opinion polls, act as spokespersons, perform administrative, technical and secretarial tasks, costs of visits to municipal board and training provided for polling boards, organising cocktail parties, organising meetings, media appearances, press conferences, organising the DF Civic Club etc. Some of the contracts were signed with high ranking party officials (members of the Main Board and municipal boards) who are at the same time public officials (local councillors and MPs). The audit has also established that four individuals received remunerations both based on parttime and occasional work contracts, and for volunteer work. The amounts paid ranged between 5, and 8, The audit has established that the GG Milan Knežević paid remuneration based on contracts in the amount of 99, The individual remunerations ranged between and 12, By examining the contracts signed with individuals, it has been established that they all use the same template and do not contain the clearly defined obligation of the person hired, 267

268 or the period for their commissioning, the method of payment or whether the person hired is already employed or a registered unemployed person. The auditee should contract persons for performing part time and occasional jobs in accordance with Articles 163 and 166 of the Labour Law. In case the party officials are at the same time public officials and received remuneration based on the contracts of part time and occasional work done for the party, they are obliged to report this to the Conflict of Interests Commission. 5. In its business books, the auditee expressed the costs paid in cash by municipal boards in the amount of 122,550.51, whereas the audit has established that the actual costs amounted to 124,848.64, or 2, more than stated. Moreover, the cash holdings of municipal boards were reported in the general ledger to amount to 5, on 31 December 2013, whereas based on the transaction journals it was established that it amounted to 3,800.26, or 2, less than stated in the General Ledger. The auditee needs to reconcile the data stated in the ancillary records with the ones stated in the General Ledger. 6. The audit has shown that the auditee fails to provide the records of fixed assets in its business books, but in the off balance sheet excel sheets. The auditee is to provide for annual inventorying of assets (fixed and operating) and liabilities, to align the bookkeeping value with the actual status, and to make Inventory Reports. In addition, it should provide analytical records of fixed assets which are to include: the inventory number, quantity, name, purchase, write off and present value of fixed assets 7. The audit has established deficiencies in recording liabilities to suppliers since the auditee failed to keep the chronological records, at the time of occurrence, of liabilities in the General Ledger, but rather recorded just the arrears from the previous year and their settlement, and the payment of liabilities to suppliers incurred in the current year are recorded directly as costs. The auditee should provide the records of liabilities to suppliers in such a manner to carry over the arrears from the previous year and record all liabilities incurred in the current year and close them as these are settled. 8. The audit has established that the auditee stated in its books the receivables from municipalities for funding its regular work in the amount of 46,714.79, the same referring to the receivables from the previous years in the amount of 5, and the total amount of 41, in 2013 (the municipalities of Kolašin 13,853.97, Budva 12, and Nikšić 15,000.00). The receivables from the municipalities of Kolašin and Budva have been recorded based on the certified letters by the respective Secretariats, while the receivables from the Municipality of Nikšić were recorded based on the party officers calculations. The audit has established that the auditee stated in its books also the receivables based on loans from individuals in the amount of 30, These receivables referred to the loans to natural persons in 2011 and before. In 2013 the auditee failed to undertake any activities to collect these claims although the natural persons failed to repay the loans. 268

269 The auditee should provide records on its business books, based on certified and reconciled documents, of all receivables from local self governments. Given that in 2013 the auditee failed to undertake any activities to collect the claims from previous years based on the loans extended to individuals, it is recommended to undertake the activities to collect the claims, instigate enforcement proceedings or write off the claims. 9. The audit has established that the costs related to the GG Milan Knežević are stated in the NOVA books in the amount of 202,673.85, whereas the examination of the books and financial statements of the GG Milan Knežević established the amount to be 175, The noted difference in the amount of 27, refers to the misstatement in the General Ledger of NOVA. Given that NOVA states in its financial statements also the revenues and expenditures of the GG Milan Knežević, such data need to be reconciled. 10. By examining the subsequently provided documents (together with the response to the Draft Audit Report), it has been established that cash paid from the cash holdings of the municipal board in Herceg Novi in the amount of 1, was documented with travel orders. In accordance with the provided travel orders, it has been established that the above costs refer to the daily allowances and the costs for the use of own cars for business purposes of the board secretary incurred while visiting and reorganising the municipal boards, which is not in line with the Decree on Reimbursement of Costs for Civil Servants and State Employees as the only valid regulation in this field. The above Decree envisages that the domestic business travel implies a travel of a person sent to perform a task in a place more than 30 km away from his place of work. Given that the auditee did not set the amount of remuneration for the costs for business travel (transportation, daily allowances, etc.) in own internal documents, in the SAI opinion the payment of such costs is to be done in accordance with the Decree on the Reimbursement for the Costs of Civil Servants and State Employees as the only valid regulation governing this field. 269

270 9. THE DEMOCRATIC PARTY OF UNITY The Democratic Party of Unity, or DSJ, was established in July 2006 and was entered into the Register of Political Parties held with the Ministry of Justice (ref. no /06). It seat is in Podgorica, at Ivana Vujoševića 42. The Articles of Association set the objectives and the principles the DSJ pursues and which include: the rule of law; human and civil rights and freedoms; the rights of nationals; the equality of nations and the special focus on the protection of national and ethnic communities according to the international standards; the market economy and social justice; the EU integration; cherishing special linkages between Montenegro and Serbia; the protection of identity, language, script, and other rights of Serbs in Montenegro in accordance with the international standards; the right to education, information, association, symbols, contacts, dual nationality etc. in accordance with the international standards; democracy, the division of power, the republic as a form of government and the parliamentary system. Any citizen of age who embraces the programmatic principles, objectives and the Articles of Association and is ready to pursue them may be a member of the DSJ. A DSJ member takes part in the party activities and has the right to vote and stand for vote for the party bodies. The party is organised and operates through its territorially based organisations. Members belong to the corresponding organisation by their place of residence. The party bodies are either municipal or central. The municipal bodies include: Municipal Election Commission and Municipal Board, central level party bodies include: the Assembly, the Main Board, the President and Vice Presidents, and the Presidency. The Assembly is the highest party body. It is convened as needed, and not fewer than once every four years, by the Main Board decision. The Assembly sets the party politics, appoints and dismisses the Main Board and the party President, adopts the Articles of Association and the Manifesto. It also adopts own Rules of Procedure governing procedural matters and the decision making. The Main Board is the party body which between the two Assembly sessions exercises the party politics and is answerable to the Assembly. It appoints the party Vice Presidents and the Presidency, initiates the amendments to the Articles of Association, adopts own Rules of Procedure governing all procedural matters for convening and holding sessions, and the decision making. The President represents the party and acts on its behalf in the country and abroad; he leads the party organisation, aligns and oversees the operation of the party; he ensures uniform and integral operation of the party; convenes and chairs the Main Board sessions, convenes and chairs the sessions of the Assembly, is responsible for executing the Assembly and the Main Board decisions, proposes the election manifesto, aligns the work of local council and MP clubs, appoints the advisers and the party spokesperson, authorises for legal representation in the proceedings before the court or other bodies, and performs other tasks as need be. He is answerable to the Assembly. The party Vice President acts instead of the party President in the matters for which he is authorised by the President and is answerable to the President and the Main Board. The Main Board decides on the number of Vice Presidents and appoints them. The Presidency is composed of: the President, the Vice Presidents and two Main Board members, chosen by the Main Board at the President s proposal. The Presidency exercises the party politics in line with the objectives set by the Main Board and is answerable to the Main Board. The Presidency is responsible for financial operations of the party. Under Article 27 of its Articles of Association, the party is funded from the central Budget, from membership fees, donations, revenues from assets and own activity and form other lawful sources Accounting records Under Article 23 of the Political Party Financing Law, the Party, as a non for profit organisation, was obliged in 2013 to keep the accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. 270

271 Under the Accounting and Auditing Law, the party which holds legal personality is obliged to maintain the double entry bookkeeping system. The business books are: the transaction journal, the general ledger, and the ancillary records. The accounting records must be based on valid documents. The audit has established that in 2013 the auditee kept the books envisaged in the law: the general ledger and the ancillary records (the cash holdings ledger, the analytical records of suppliers, the analytical records of fixed assets). In 2013, the auditee outsourced bookkeeping to an accounting firm Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures Revenues In 2013 the auditee stated the revenues for the regular operation in the amount of 73,857.65, broken down as follows: the central budget appropriation 67, and the revenues from the previous year 6, The audit has established that the DSJ, as a member of the coalition Democratic Front Miodrag Lekić got one MP seat based on the election outcome and the monthly appropriations from the central Budget on this count amount to 6, The audit has established that the auditee failed to record in the General Ledger the budget appropriation in the amount of 8, transferred, by the Assignment Agreement with a commercial bank and the Ministry of Finance for the payment of the corresponding share of the loan taken by the NOVA to settle the campaign costs of the Democratic Front, with the DSJ being one member thereof. The auditee should record all revenues regardless of the fact that a share thereof has been transferred for settling the liabilities under the Assignment Agreement and has not been directly paid to the auditee s account Expenditures In 2013 the DSJ stated the total expenditures in the amount of 48, The audit has established the following break down of expenditures: purchase of fixed assets 1,434.43, office and other supplies , fuel 2,045.70, business travel 4,298.00, postal services , equipment maintenance 1,294.47, rent 12,530.00, campaign costs 13,595.01, entertainment , sponsorship and aid 10,608.74, and costs Out of the total amount of expenditures, 35, refer to regular operation, and 13, for campaign costs. 271

272 9.5. Implementation of the recommendations from the previous years In the Audit Report for the 2012 Financial Statements of the DSJ, the SAI established a number of irregularities and gave recommendations to rectify the deficiencies, as follows: ensure keeping of the business books stipulated in law (the General Ledger and the ancillary document), adopt the Financial Plan and substantiate costs. The audit of the 2013 Financial Statement established that the auditee followed through on the recommendation to ensure the maintenance of the books envisaged in law, partly implemented the recommendation regarding substantiating costs, and failed to follow through on the recommendation to adopt the Financial Plan for the current year Assessment of facts the Opinion Pursuant to Articles 4 and 12 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the DSJ. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. 27/14 dated 22 October 2014) to the Draft SAI Report (ref. no /94 of 17 October 2014), and pursuant to Article 44 of the SAI Law and Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, adopted the following Final Audit Report for the 2013 Financial Statements of the Democratic Party of Unity OPINION The SAI Auditing Board responsible for this audit expressed its QUALIFIED OPINION to the 2013 Annual Financial Statements of the DSJ due to the irregularities and deficiencies established during the audit which refer to: putting in place the internal control system, providing substantiating evidence for some cash payments, misstatement of revenues, and operation of municipal boards. The following irregularities and deficiencies led to giving the qualified opinion: 1. The audit has established that the auditee failed to adopt the 2013 Financial Plan and the Work Programme. With a view of establishing a more effective internal control system, the auditee should envisage in its Articles of Association the obligation to adopt the annual Financial Plan and the annual Work Programme to be adopted within the set timeframe. 2. The audit has established that the auditee paid on the grounds of the campaign costs the amount of 1, to natural persons which are not substantiated (the decision, agreement or travel order is missing, etc.). The auditee should perform payments against a full set of valid documents. 272

273 3. The audit has established that the auditee failed to record in the General Ledger the revenues from the central Budget in the amount of 8, which have been transferred, by the assignment agreement signed with a commercial bank and the Ministry of Finance, for the payment of the corresponding share of the loan taken by the NOVA to settle the campaign costs of the Democratic Front, with the DSJ being one member thereof. The auditee should record all revenues regardless that a share thereof has been transferred for settling the liabilities under the Assignment Agreement and has not been directly paid to the auditee s account. 4. The audit has established that in 2013 the auditee paid the remunerations to natural persons on the grounds of rent and service agreements in the amount of 11,550.00, without calculating or paying taxes on these. When performing payments to natural persons, the auditee is to calculate and settle tax liabilities under the Personal Income Tax Law. 5. The audit has established that the auditee stated in its books the receivables based on a loan given to a natural person under the decision of the Presidency ref. no. 07/13 dated 30 January 2013 in the amount of 24, The loan has been paid via a transfer account of the person in the state of a pressing social need. It has also been found there was no repayment of the loan in 2013 by the said natural person, and the above Decision stipulated the loan was to be repaid by the expiry of the party s term in parliament. The SAI recommends the auditee not to finance natural persons by loans. 6. The audit has established that, under the Decision of the Presidency ref. no. 09/13 dated 30 January 2013, on the grounds of material costs for municipal boards in Berane, Nikšić and Žabljak the funds in the total amount of 9, were transferred to the accounts held by natural persons (the presidents and secretaries to the municipal boards), as follows: for Berane 8,500.00, for Nikšić , and for Žabljak The transfer was done in this manner since in 2013 municipal boards did not hold transfer accounts for financial operations. The auditee should ensure that the municipal boards perform their financial operations via the transfer accounts opened to those purpose. 7. In 2013 the auditee made cash payments from the cash holdings of the Main Board and municipal boards in the total amount of 25,741.40, or 52.87% of the total recorded costs. In order to reduce cash payments, the SAI recommends to the auditee to perform payments as per service agreements and lease agreement to the transfer accounts of natural persons. 273

274 10. THE LIBERAL PARTY OF MONTENEGRO The Liberal Party of Montenegro (the LPCG) was entered in the Register of Political Parties by the Decision of the Ministry of Justice (ref. no /04 of 02 November 2004) and by the Decision ref.no / /2 of 09 November 2012) in the Register of Political Parties kept by the Ministry of the Interior. The party is represented by its President, Andrija Popović. The LPCG pursues the goals of creating and expressing political will, and of political actions of the citizens who wish to set up and build Montenegro as a civic, democratic, independent, internationally recognized state. The LPCG objectives are to pursue, through its activities based on the principles and traditions of European liberal democracy, the ideals of a free individual, of liberal democracy, private property, free market and social justice. The LPCG stands for the principles of a democratic, free and well organized society, with the civilization values shared by the advanced and prosperous parts of humanity, for the freedom of critical thinking and original values of tradition and democracy. The LPCG bodies set in its Articles of Association include: the Conference, the President, the Vice Presidents, the Main Board, the Council, the MP Club, the President s Collegium, and the Council of Honour. The LPCG collects revenues from membership fees, voluntary contributions, publishing activity, sale of advertising materials, organizing party events, from the central Budget, from municipal budgets and other sources allowed by law. The Main Board of the LPCG sets the amount of the membership fee for the current year. The amount of the membership fee may vary among different categories of members: MPS, members of the executive branch, party officials, students, pensioners, etc Accounting records Under Article 23 of the Political Party Financing Law, the Party is obliged to keep accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. Under the Accounting and Auditing Law, the party holds legal personality and is obliged to maintain the double entry bookkeeping system. The business books are: the transaction journal, the general ledger, and the ancillary records. The accounting records must be based on valid documents. In 2013 the auditee kept the following books: the transaction journal, the general ledger and the cash holdings ledger. The accounting records of revenues and expenditures were cash based. The general ledger provides the records of assets (fixed and operating), the capital, liabilities, revenues and expenditures, but failed to provide the records of receivables from local budgets. The SAI recommends to the auditee to ensure in its business books that records are kept of receivables from local self government to be done based on certified and reconciled documentation Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures. 274

275 10.3. Revenues Annual Report of the State Audit Institution for the Period October 2013 October 2014 In 2013, the LPCG stated the revenues in the amount of 83,990.80, the breakdown of which is as follows: the central Budget 75,808/32, the budget of the Parliament of Montenegro 6,331.29, municipal budgets , membership fees 1,234.54, and financial income The table below gives a comparative overview of revenues in 2012 and No Description 2012 revenues Share 2013 revenues Share 1 Central budget ,97 53,4% ,3% 2 the Parliament 1285,07 15,8% 6, ,5% 3 Local budgets 6.393,00 30,8% ,7% 4 Membership fees 0,00 0,0% 1, ,5% 5 Financial revenues 0,96 0,0% ,1% Total ,00 100,0% ,80 100,0% Below is the chart of the shares of revenues used for regular operation by type Expenditures In 2013 the total expenditures of the LPCG were 83, broken down as follows: office and other supplies 3,092.00, energy and fuel 7,757.68, gross salaries and contributions borne by the employer 4,273.34, contractual fees 9,970.00, business travel 11,515.71, postal services 1,763/33, renting business premises 5,515.90, advertising and propaganda 12,521.04, occupational health and safety , depreciation , entertainment 8,698.55, costs of relations with associated entities 12,033.75, aid and sponsorships 4, and other costs 1, Out of the total, 2, were spent on election campaigns for the local elections in Cetinje and Petnjica. The table below gives an overview of expenditures in 2012 and No Type of expenditures Share expenditures expenditures Share 1 Office and other supplies 3, ,72% 2 Electricity and fuel 7, ,34% 3 Gross salaries and contributions borne by the employer 4, ,14% 5 Fees payable per service agreements 9, ,00% 6 Business travel 11, ,86% 7 Transportation and postal services % ,12% 9 Lease 5, ,64% 11 Advertising and marketing 4.268,78 55,50% 12, ,07% 12 Occupational health and safety 491,00 6,38% ,43% 13 Depreciation 709,87 9,23% ,58% 15 Entertainment 8, ,47% 18 Costs from relations with associated entities 12, ,48% 19 Aid and sponsorship ,85% 20 Other expenditures ,99% 1, ,29% Total 7.691,87 1, ,12 1,00 275

276 Given the above, it is noted that the largest share of costs is accounted for by advertising and propaganda with 15%, business travel costs with 14%, other costs from relations with the associated entities 14%, service agreement fees 12%, entertainment 10% etc. Below is the graph showing the shares of expenditure for regular operation by type Implementation of recommendations from the previous year By auditing the 2012 Financial Statements of the LPCG, the SAI established certain irregularities and gave a recommendation concerning the adoption of internal general documents. The audit of the 2013 Financial Statements of the LPCG established that the auditee only partly implemented the recommendation, since not all internal documents were adopted (the Rulebook on Internal Organization and Job Systematization, the Rulebook on Material and Financial Operations, the Rules of Procedure, etc.) Assessment of facts the Opinion Pursuant to Articles 4 and 12 of the SAI Law and Article 23 of the Political Party Financing Law, the SAI carried out the audit of the 2013 Annual Financial Statements of the LPCG. The audit work was planned and carried out with the aim of offering reasonable assurances whether the financial statements were prepared in line with the valid legislation, and whether the operation was in line with the law and other regulations. Based on the performed audit, the determined facts and the deliberation of the audited entity s Opinion (ref. no. 49/14 dated 14 October 2014) to the Draft SAI Report (ref. no /103 of 24 October 2014), and pursuant to Article 44 of the SAI Law and Article 50 of the SAI Rules of Procedure, the Auditing Board comprised of Mr Nikola Kovačević, Head of the Auditing Board, Senate member, and Mr Branislav Radulovic, PhD, member of the Auditing Board, Senate member, adopted the following. Final Audit Report for the 2013 Financial Statements of the Liberal Party of Montenegro OPINION The SAI Auditing Board responsible for the audit concerned, gave its UNQUALIFIED OPINION to the 2013 Financial Statements of the LPCG and a QUALIFIED OPINION on compliance with legislation due to the inconsistent application of some regulations (the Personal Income Tax Law and the Accounting and Auditing Law). 276

277 The qualified opinion is a result of the following irregularities and omissions: 1. The audit has established that the Municipal Board Bijelo Polje failed to provide to the party headquarters the supporting documents substantiating the expenditures in the amount of In addition, it has also been established that a transfer of 1, from the main party account to a natural person has not been documented. The auditee should substantiate all costs with full and valid sets of documents, and establish control over the financial operations of municipal boards by setting the deadline by which all municipal boards are obliged to provide a full set of valid documents to justify their spending. 2. The audit has established that the auditee failed to adopt all internal documents required (the Rulebook on Internal Organization and Job Systematization, the Rulebook on Financial Operations, the Rules of Procedure, etc.). With a view of putting in place an effective internal control system, the auditee needs to adopt general and specific acts governing specific areas of operation. 3. The audit has established that the auditee failed to record in the General Ledger the deposits held at the municipal board accounts in the amount of 4, The auditee should record in its business books all financial transactions referring to its municipal boards. 4. The audit has established that on the count of renting business premises, the auditee paid the rent fees to natural persons the amount of 5, without calculating or paying the tax liabilities. When performing payments to natural persons, the auditee is to calculate and pay tax liabilities under the Personal Income Tax Law. 5. The audit has also established that the auditee failed to provide in its business books the recording of receivables from the local self governments. The SAI recommends to the auditee to ensure keeping of records of receivables from the local self governments to be done based on certified and reconciled documentation. 277

278 11. THE PEOPLE S PARTY The People s Party (hereinafter: the NS) is a voluntary political organization established to pursue its programmatic goals: a democratic state, the rule of law, market economy, human and civil rights. The NS is organised on the territorial principle and has legal personality. Its seat is in Podgorica. The NS bodies are: the Assembly, the Main Board, the President, the Vice President, the Presidency, the Executive Board, the Supervisory Board, and the Statutory Commission, all elected for the term of four years. The Assembly is the highest body. It adopts the Articles of Association and the party Manifesto, elects and dismisses the Main Boar, the party President and the Vice President, considers Activity Reports, adopts financial statements, makes other decisions relevant for the Party. The Main Board is the highest decision making body in between the assemblies. It carries out the Assembly decisions, appoints and dismisses the Presidency, the Vice President, the Supervisory Board and the Statutory Commission, appoints the Executive Board, adopts the Financial Plan, adopts the Supervisory Board s report on financial operations, adopts Rules of Procedure and other documents and carries out other tasks in line with the Articles of Association. The President is elected by the Assembly to represent the party, and make the party politics. The Presidency consists of: the President, the Vice President, the President to the Executive Board, and the Chief Whip in the MP Club. The Executive Board is the executive arm of the Main Board executing its decisions, coordinating the work of municipal boards, etc. the Supervisory Board supervises the financial operations of the party and its bodies. It is appointed by the Main Board, and is composed of a Chair and four members. The Statutory Commission is responsible for interpreting the Articles of Association, deciding on appeals, proposing amendments to the Articles. It has a Chair and four members. A member of the Statutory Commission may not perform any other functions within the party. Apart from the Main Board, the party has municipal boards, whereas the municipal board of Podgorica functions through the Main Board as a single body (i.e. together make the Main Board). The Main Board also performs financial, or cash operations for the municipal boards in Pljevlja, Tivat, and Bar Accounting records Under Article 23 of the Political Party Financing Law, the Party, as a non for profit organisation, is obliged to keep the accounting records of revenues and expenditures by their source, amount and breakdown as required by the regulations of the Ministry of Finance. The audit has established that the auditee in 2013 provided the following business books: the general ledger and the ancillary records for cash operations (for the municipal board in Podgorica) and the records of fixed assets. It has also been established that in 2013 the auditee kept its books in line with the Rulebook on Unified Classification of Accounts for Budget Users Audit methodology While auditing, care should be taken of possible misrepresentations in financial statements, i.e. the materiality threshold as the highest allowable amount of errors. In setting the materiality by value, the materiality rate ranging between 0.5% and 2.0% was applied, in line with the set SAI methodology. The basis for setting the materiality threshold was the total spending of parties, and the materiality thresholds are set for each party separately. For the parties whose spending amounts up to 100,000.00, the materiality is set at 2% of the total expenditures, for the parties whose spending ranges between 100, and 500,000.00, the materiality is set at 1.50% of the total expenditures, for the parties whose spending ranges between 500, and 1,000,000.00, the materiality is set at 1.25% of the total expenditures, and for the parties whose spending exceeds 1,000,000.00, the materiality is set at 1% of the total expenditures. 278

279 11.3. Revenues Annual Report of the State Audit Institution for the Period October 2013 October 2014 In 2013 the NS stated in its books the following revenues 46,811/31, broken down as follows: local budgets 43,775.55, donations , and other revenues 2, The table below shows an overview of revenues in 2012 and 2013: No Type of revenue AMOUNT % share AMOUNT % share 1 Local budgets 37, % 43, % 2 Donations 2, % 115 0% 3 Other business revenues % 4 Financial income % 0% TOTAL: 40, % 46, % The chart below features the shares of revenues by type: Expenditures In 2013 the auditee stated the total expenditures in the amount of ,75 broken down as follows: net salaries 3.415,83, payroll taxes and contributions 2.192,63, surtax 76,45, supplies2.294,68, services 6.322,88, business travel 1.233,06, entertainment 3.742,32, fuel and expenditures 6.434,88, telephone 5.987,76, payment operations costs 248,15, taxi services 137,00, transfers and sponsorships 4.600,00, utilities 573,75, and other costs 439,77. The table below gives an overview of expenditures in 2012 and 2013: No TYPE OF COST AMOUNT % AMOUNT % 1 Gross salaries 4.893,03 12,21% 3, ,09% 2 Payroll taxes and contributions 3.140,74 7,84% 2, ,84% 3 Surtax 100,68 0,25% ,20% 4 Other personal income 4.864,00 12,14% 0 0,00% 5 Supplies 1.334,82 3,33% 2, ,11% 6 Services 5.220,00 13,03% 6, ,83% 7 Fuel and energy 1.561,37 3,90% 6, ,13% 8 Business travel 899,26 2,24% 1, ,28% 9 Entertainment 4.093,03 10,22% 3, ,96% 10 Telephone 6.687,52 16,69% 5, ,94% 11 Banking services and commissions 195,92 0,49% ,66% 12 Utilities 216,21 0,54% ,53% 13 Taxi services 137,00 0,34% 0 0,00% 14 Costs of services and sponsorships / transfers 4.288,05 10,70% 4, ,25% 15 Other expenditures 2.431,39 6,07% ,17% TOTAL ,02 100% ,16 100,00% Hence, it is noted that the fuel and energy costs account for the largest share of expenditures with 17.13%, followed by services with 16,83%, then land and mobile telephones 15.94% etc. 279