Annual Report of the State Audit Institution for the Period October 2012 – October 2013

EXCERPTS FROM THE INDIVIDUAL AUDIT REPORTS

ON 2012 ANNUAL FINANCIAL STATEMENTS

OF POLITICAL PARTIES

Audit type: Financial Audit

Audited entity: Parliamentary political parties: Social Democratic Party, Socialist People's Party, New Serbian Democracy, Democratic Party of Socialists, Positive , , New Democratic Forces (FORCA), NGO Perspective "Ana e Malit", Bosniak Party, NGO "Civic Initiative", Croatian Civic Initiative, Democratic League in Montenegro and Democratic Union of Albanians

Subject of audit: 2012 Annual financial statements of political parties

Audit duration: 200 audit days

Collegium members: Mr. Dragisa Pesic, member of Senate - Head of Collegium Mr. Branislav Radulovic, member of Senate - member of Collegium

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I. GENERAL DATA

1. Legal Basis

The following legal documents were used as the legal basis for conducting the audit of the annual financial statements and business operations of political parties: Law on State Audit Institution (“Official Gazette of Montenegro” № 28/04, 27/06 and 78/06 and “Official Gazette of Montenegro“ № 15/07, 73/10 40/11); Law on Financing Political Parties (“Official Gazette of Montenegro”, № 49/08, 49/10, 40/11, 42/11, 60/11, 01/12); Annual Audit Plan of the State Audit Institution for 2012 (№ 4011-06-1398 as of December 24th, 2012); Decision passed by Collegium IV responsible for carrying out these audits (№ 40113-04-3444 as of 17th, 2013)

Audit procedures are carried out in accordance with: International Accounting Standards for public sector (INTOSAI); Instruction on Work Methodology of the State Audit Institution; Rules of Procedure of the State Audit Institution (“Official Gazette of Montenegro” № 50/07).

2. Subject of Audit

The subject of performed audits is the Annual financial statements of political parties and compliance of their business operations with legal regulations.

3. Objective of Audit

The objective of audit has been to verify the following: true and fairness of financial statements, enforcement of laws and other regulations related to the organization and financial and accounting operations, regularity in generating revenues, regularity of expenditures execution, i.e. verification whether the funds were used exclusively for the achievement of objectives set forth by the Programme and the Statute of the political party, regularity of the execution of other transactions

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9. BOSNIAK PARTY

Bosniak Party (hereafter: BS in CG) was established and registered on March 24th, 2006, and entered the register of political parties of the Ministry of Justice of the Republic of Montenegro (Decision No. 02 1193/06).

Bosniak Party is a democratic political organization - the party, whose principles, objectives and organization are established by the Programme and the Statute. The Party is seated in Rozaje. The Party is organized on the territorial principle and operates in territory in accordance with the relevant regulations and abroad. The Party is a legal entity.

The objectives of the Party are determined by the Programme of the Party, and they include equality of all the citizens and people and other minority and ethnic groups in Montenegro; democratization of 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 national regulations; new administrative - territorial organization of the State, regionalization, the establishment of new municipalities, particularly establishment of the Municipality of Petnjica and Gusinje; decentralization of authority in accordance with the European Charter of Local Government.

Authorities of the BS in CG are the Congress, the Main Board, the President, the Presidency, the Supervisory Board and the Statutory Commission. The highest organ of the Party is the Congress, and its decisions are binding for all the members and Party organs. The competences of the Congress include: adoption of the Programme of the Party and other political acts, adoption of the Statute of the Party, examination and evaluation of Party’s activities between the two congressional sessions, election of the Main Board, the Supervisory Board, the President and the Statutory Commission. The Main Board Party is the highest body of political management and the implementation of Party’s policy between the two sessions. of the Congress. The competences of the Main Board, among other things, include: decision on the budget and adoption of a Report of the Party’s budget execution, defines the Proposal on the Programme and the Statute of the Party. This body determines a Proposal on performance of the Party, decides on the amount of membership fee and performs other tasks. The President of the Party manages and represents the Party. The Presidency is the executive political body. The Presidency, upon a proposal made by the general Secretary, determines the systematization of posts in professional services of the Party, takes care and disposes of assets in accordance with the Constitution and other laws, monitors the implementation of the Financial plan and adopts the Rules of the material - financial operations and other general acts of the Party which he is authorized to. The Supervisory Board supervises the Party’s material and 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 on the financial operations of the Main Board once a year. Administrative, legal, material-technical and financial affairs, as well as other professional activities in the Party are conducted by the Administrative service of the Party. The work of the service is managed by the General Secretary, 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 Statute provides that the financial operation of the Party shall be conducted through the treasury and bank accounts. Receipt and disbursement of funds may be made only on the basis of appropriate documentation.

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9.1 Audit methodology

The audit was performed by combining the methods of documentary and field audits. After analytical procedures, assessment and analysis of collected documents had been completed, detailed auditing techniques and methods were defined and their application was performed (e.g.: drawing up questionnaires, conducting conversations and interviews, the insight into documentation, inspection of business books and accounting documents that serve as evidence of created business events, verification of mathematical accuracy of financial transactions related to the recorded revenues and expenditures, etc.). Materiality is determined by applying the rate of 1.5% of the total expenditures in accordance with established methodology of the SAI.

9.2 Accounting Records

The Party, as a non-profit organization is obligated, pursuant to Article 23 of the Law on Financing of Political Parties, ("Off. Gazette" №, 49/08, 49/10, 40/11, 60/11, 01/12) to keep accounting records of revenues and expenditures by origin, amount and structure of revenues and expenditures, in accordance with the regulations of the Ministry. Pursuant to the Law on Accounting and Auditing, a Party with the status of a legal entity is obliged to keep business books according to the system of double-entry bookkeeping. Business records include: journal, general ledger and other supporting financial records. A legal entity is required to record all business transactions and keep records in its business books. Accounting records must be based on valid accounting documents.

According to the statement given by the person authorized for carrying out the tasks of accounting records, in 2012 the Party’s business books were kept in accordance with the legal requirements for budget users and accounting records were based on a cash basis. The Party recorded revenues, expenditures and cash operations in its business books.

9.3 Revenues

According to the Law on Financing Political Parties, the Party generated total revenue of EUR 202,261.50 in 2012, whereas its revenue in 2011 amounted to EUR 189,961.16.

The actual revenue refers to allocations from the State budget, amounting to EUR 139,386.07, resources from the budget of the for financing the operation of Deputies clubs, in the amount of EUR 27,448.97, revenue from the municipal budgets, amounting to EUR 28,863.53, contributions of individuals in the amount of EUR 2,817.41, membership fees in the amount of EUR 2,150.00 and other income in the amount of EUR 1,594.52.

The following table provides a comparative overview of the revenue for 2011 and 2012.

№ Type of revenue 2011 (in EUR) Share % 2012 (in EUR) Share % 1 State budget revenues 142,484.16 75.01% 139,386.07 68.91% 2 Revenues from the Parliament of Montenegro 26,198.00 13.79% 27,448.97 13.57% 3 Municipal budget revenues 21,279.00 11.20% 28,864.53 14.27% 4 Donations by natural persons 0.00 0.00% 2,817.41 1.39% 5 Membership fees 0.00 0.00% 2,150.00 1.06% 6 Other revenues 0.00 0.00% 1,594.52 0.79% TOTAL 189,961.16 100.00% 202,261.50 100.00%

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The following Graph shows operating revenues generated in 2012 by their structure and share in the total revenue.

According to the presented tabular overview and graphic display, the largest share of revenues comes from the State budget of Montenegro (69%), municipal revenues (14.27%), revenues from the budget of the Parliament of Montenegro for financing Deputies club (13.57%), and so on.

9.4 Expenditures

In 2012, the incurred expenditure of the Party totalled at EUR 208,711.61. The actual expenses include: fuel and energy costs in the amount of EUR 5,682.48, the expenses of taxes and contributions on wages and earnings-related benefits, amounting to EUR 15,384.64, other personal expenses in the amount of EUR 15,670.83, equipment maintenance costs in the amount of EUR 3,654.15, rental expenses, amounting to EUR 3,651.00, advertising costs in the amount of EUR 2,252.55, the costs of office supplies in the amount of EUR 3,100.65, printing costs, amounting to EUR 1,263.00, representation expenses in the amount of EUR 9,455.43, the insurance and payment system commissions, amounting to EUR 435.49, other non-material expenses in the amount of EUR 124,353.87, expenses for interests in the amount of EUR 7,308.99 and overheads costs and other expenses in the amount of EUR 16,498.53.

The following table provides a comparative overview of expenditures in 2011 and 2012.

№ Type of expense 2011 (in EUR) Share % 2012 (in EUR) Share % 1 Fuel and energy costs 0.00 0.00% 5,682.48 2.72% 2 Taxes and contributions on wages and related earnings 16,240.69 9.04% 15,384.64 7.37% 3 Other personal expenses remunerations 58,045.71 32.29% 15,670.83 7.51% 4 Maintenance costs 5,872.31 3.27% 3,654.15 1.75% 5 Rental costs 5,900.00 3.28% 3,651.00 1.75% 6 Advertising costs 0.00% 2,252.55 1.08% 7 Other material costs - office supplies and equipment 1,035.80 0.58% 3,100.65 1.49% 8 Printing costs 564.00 0.31% 1,263.00 0.61% 9 Representation costs 2,121.80 1.18% 9,455.43 4.53% 10 Payment system and insurance costs 0.00 0.00% 435.49 0.21% 11 Other non-material costs 53,306.00 29.66% 124,353.87 59.58% 12 Costs of interest 36,659.00 20.39% 7,308.99 3.50% 13 Overhead and other costs 0.00 0.00% 16,498.53 7.90% TOTAL 179,745.31 100.00% 208,711.61 100.00%

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The following Graph shows operating expenses by their structure and share in the total expenditure.

According to the graphic presentation, other non-material expenses have the largest share in the aggregate expenses, participating with (59.58%), overhead costs and other expenses with (7.90%), other personal expenses (7.51%), taxes and contributions with (7.37%) and alike.

9.5 Implementation of 2011 Recommendations

The audit of the 2011 Annual financial statements of the Bosniak Party, performed by the State Audit Institution, identified a certain number of irregularities and gave recommendations for elimination thereof, relating to:

establishing an effective system of internal controls - particularly regarding material and financial operations of the Municipal boards, provision of analytical records of assets and records of receivables from the local governments, reduction of cash payments from the treasury and justification of expenses based on the corresponding documentation, calculation and payment of taxes on remunerations paid.

The audit of the Annual financial statements for 2012 has determined that the Party did not implement the recommendations given in the SAI Report for 2011, since the audit has ascertained the same irregularities as those found in the previous year.

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9.6 EVALUATION OF DETERMINED FACTS – OPINION

Based on performed audit, determined factual state and deliberation of audited entity’s Opinion (№ 14/3013 as of 08/10/2013) on the Preliminary report of the SAI (№ of 40113-04-444/70, as of 01/10/2013), and pursuant to Article 50 of the Rules of Procedure of the State Audit Institution – the competent Collegium comprised of Mr Dragisa Pesic – Head of Collegium - member of Senate and Mr Branislav Radulovic, PhD - member of Collegium - member of Senate, adopted the following:

FINAL REPORT on Audit of the 2012 Annual Financial Statements of the Bosniak Party

O P I N I O N

Based on the performed audit, the competent Collegium of the SAI obtained a reasonable assurance that the financial statements of the Bosniak Party for 2012 contain materially significant misstatements in the part related to documenting incurred expenses (under Point 1 and 2 of stated irregularities), and therefore activities, transactions and information presented in the financial statements of the Party were not, in all material respects, in accordance with applicable regulations and IAS.

Accordingly, the competent Collegium expresses a qualified opinion on the Annual financial statements and an adverse opinion on the conformity of operations of the audited entity with regulations.

The audit has identified the following irregularities and omissions that affected the expression of the above opinion:

 Municipal boards (Plav, Berane, Pljevlja and Bijelo Polje) did not justify the use of funds transferred by the Main Board in a total amount of EUR 19,411.00, which is considered materially significant, given the materiality determined by the audit (1.50% - EUR 3,130.67).

The Party has not properly justified expenses in the amount of EUR 37,113.66, as it was based on incomplete and inappropriate documentation (non-fiscal bills, the lack of a contract on lease or a labour contract, etc.), whereas the amount of EUR 19,759.36, included in these expenses, refers to expenses made by Municipal boards (MB Rozaje, MB Bijelo Polje, MB Podgorica and MB Bar).

The party has not established an effective system of internal controls - particularly regarding material and financial operations of the Municipal boards.

 It is deemed necessary for the Party to establish a control over the material and financial operations of Municipal boards, by imposing an obligation to the boards and by defining the time limit for fulfilling the obligation on submission of valid and complete documentation for justification of the spent funds. It is also deemed necessary to provide records of Municipal boards expenses classified by type of expenditure.

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 The Party disbursed a sum of EUR 14,886.00 on the basis of fees paid to the "Media team" in respect to their engagement in the Municipal boards, as well as for and commissions for lease paid to individuals, without the corresponding taxes calculated and paid (the tax liability amounted to EUR 1,130.00).

 It is deemed necessary that the Party calculate and pay tax liabilities arising from disbursements of any kind of fees, commissions and remunerations, in accordance with the Law on Personal Income Tax.

 The Party did not pay the contractual commitments with the legal entities in the amount of EUR 9,110.00 from its bank account, but in cash, from the treasury.

 It is deemed necessary for the Party to pay the liabilities arising from contractual relationships with the legal entities by bank transfers, without the use of cash payments, on the basis of invoices issued by suppliers, as well as to make the cash payments on the basis of valid documentation.

 The Party did not implement the recommendations given in the SAI Report on audit of the 2011 Annual financial report.

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