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: Financial audit

Audited entity: Political parties: Liberal Party of ; 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

Subject‐matter of the Annual Financial Statements of political parties for 2012 audit:

Audit duration: 120 auditing days

Auditing Board Dragiša Pešić, member of the Senate – head of the Auditing Board members: Branislav Radulović PhD, member of the Senate – member of the Auditing Board

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 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. 4011‐06‐1398 of 24 December 2012); . Decision of the Auditing Board IV competent for carrying out this audit (No. 40113‐04‐3444 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.

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 05/006/08‐5927 of 19 June 2008. 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 , as well as in local units, where the Albanians do not have majority (, 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.

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.).

3.2. 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.

3.3. Revenues

In 2012, the Party generated total revenues in the amount of €36,911.00. Generated revenues pertain to: revenues under a coalition agreement in the amount of €30,200.00, revenues from municipal budgets in the amount of €6,679.90 and financial revenues resulting from interest in the amount of €30.81. The following table presents a comparison of total revenues by type for 2011 and 2012. Share in Share in Amount for Amount for No Type of revenue total total 2011 2012 revenues revenues Revenues from the Budget of 1. 26,400.00 79.19% 30,200.00 81.82% Montenegro Revenues from local self‐governments 2. 6,413.96 19.24% 6,679.90 18.10% budgets 3. Private sources – membership fees 500.00 1.50% 0,00 0.00% 4. Financial revenues 23.18 0.07% 30.91 0.08% TOTAL 33,337.14 100.00% 35,910.81 100.00%

The following figure presents generated revenues from regular operations by their share in total revenues.

0.00% 0.08%

Revenues from the 18.10% Budget of Montenegro Revenues from local self‐ governments budgets 81.82% 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 €960.18, 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 €12,484.00 and other expenditures in the amount of €1,043.02.

The following table presents a comparison of incurred expenditures for 2011 and 2012. No Description Amount % share Amount % share for 2011 for 2012 1. Expenditures for office and other 2,585.00 8.55% 960.18 2.16% supplies 2. Expenditures for other services 0.00% 2,369.59 5.32% 3. Expenditures for fuel 0.00% 2,886.00 6.48% 4. Expenditures for remunerations 21,020.00 71.96% 11,730.00 26.34% 5. Expenditures for scholarships and 0.00% 4,020.00 9.03% donations 6. Expenditures for rent 2,400.00 8.22% 2,550.00 5.73% 7. Expenditures for advertising and 0.00% 2,918.47 6.55% marketing in country 8. Expenditures for business 0.00% 3,573.54 8.02% entertainment 9. Other non‐tangible expenditures 0.00% 12,484.00 28.03% 10. Other expenditures 3,206.00 10.98% 1,043.02 2.34% TOTAL 29,211.00 100.00% 44,534.70 100.00%

The following figure presents incurred expenditures from regular operations by their share in total expenditure.

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 2011.

3.6. 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 2012. 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 04‐40113‐444/12 of 19 November 2013) to the SAI Preliminary Report (No 40113‐04‐444/112 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 €12,800.00 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 €5,193.00 (which pertain to: expenditures for advertising and marketing in the amount of €2,024.00, expenditures for cultural events in the amount of €2,500.00 and expenditures for administrative and technical services in the amount of €669.00).

3. The Party has paid out remunerations in the amount of €12,000.00 (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 €350.00) 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 2011.