The State Auditing Institution: Unstaffed, Officeless, Penniless

Efforts to get the State Auditing Institution up and running started on Sept. 24 last year when the organization's Council was appointed. However, the SAI still lacks many of the things it needs to begin doing its job. It does not have office space and auditors, and also stands to get only half of what it requested in funding this year, according to what Radoslav Sretenovic and Ljubica Nedeljkovic, the chair and deputy chair of the SAI Council, tell us.

- Why the delays in providing the SAI with funding?

Sretenovic: I'd like to point out that the Law on the State Auditing Institution designates the SAI the highest state body for auditing public funds. It answers to Parliament and its run by its Council, which consists of five members who are also senior officials and permanent employees of the SAI.

According to the law, the cabinet is supposed to provide the State Auditing Institution with office space, equipment, and funding. At present, however, the members of the organization's Council, which is to say the people in charge, are operating out of Parliament, which unfortunately is not enough. The SAI needs offices that meet certain requirements, such as providing security for the data that the SAI needs to do its job.

The SAI believes it will need about 1,000 square meters of properly situated office space. It has approached the authorities about this, while also notifying the cabinet, which is expected to come out with a proposal by the end of January or permit the SAI to rent its own offices.

The auditing body's funding is derived from the state budget and it did not use a part of its allotment for last year. In addition, the cabinet has also approved additional funding from this year's budget reserve for the purchase of equipment. Money set aside for salaries remains unspent because circumstances have prevented the SAI from hiring senior auditors and other staff.

Nedeljkovic: The 2008 budget includes 150.3 million dinars for the SAI as opposed to our financial plan, which called for 296.4 million dinars. Given the independent status of the SAI, the law states that Parliamentary Finance Committee is supposed to approve any financial plan before it is send to the Finance Ministry. This procedure was flaunted even though we sent in the financial plan on Oct. 18.

According to the calculations of the SAI Council, just paying the 116 people employed in the institution will cost 124.5 million dinars this year. This does not include operating expenses such as rent and the contract personnel, mostly the outside assistants and consultants that the SAI is required to hire by law. Then there is the cost of obtaining equipment. These expenses have been determined by the SAI based on its needs and without taking into consideration uncertainties such as equipment provided by the cabinet or international community.

These expenses are estimated at 171.9 million dinars, bringing the total to 296.4 million dinars (about EUR3.7 million).

The 2008 budget proposes giving the SAI the sum of 124.5 million dinars for salaries and other operating costs, together with another 25.8 million for other expenses, a far cry from the 171.9 million requested. Clearly, we will not be able to make the SAI operational with that kind of money. Although we did not discuss our funding proposal with the Finance Ministry, we did direct it to their attention, although that did not have any effect on the final sum budgeted for the SAI.

Sretenovic: It's clear that there will be more negotiating on the funding that the SAI needs to be able to operate. If the cabinet can come up with some office space, the SAI won't have to pay rent. Similarly, if the space is adequate in the sense that it possesses sufficient security, then money wouldn't have to be spent on renovation and adaption. Additionally, if the international community was to cover the expenses of additional training for SAI staff or equipment or cars, then the sum that we initially planned for the SAI would be reduced.

- Do you have any objections concerning the way the SAI's authority and duties are handled in the law? Are any amendments in order?

Nedeljkovic: The State Auditing Institution Law is based on international experience in the field and many provisions have been borrowed from neighboring countries. The law states that any body that receives funding from the state can be audited and which of these are to be subject to auditing on an annual basis. The exact number remains to be seen but according to the latest budget, it appears that there will be about 9,500 entities receiving state money. The SAI needs access to all documentation and anything else pertinent to the way public money is spent. In our case, the SAI has much broader powers than in other countries in the region, such as Slovenia, Macedonia, or Republika Srpska. With the last of these we have a special cooperation deal on the exchange of know-how.

In addition, the Council has complied with its legal obligation to submit its operating procedures with Parliament, which it did on Dec. 24, 2007. These procedures, which are fully in accordance with the law, deal with all aspects of the auditing process. Incidentally, the law only gives guidelines for these procedures and we noticed several problems along the way concerning jurisdiction, deadlines, and how objections are handled. However, we don't expect any of this to make auditing any more difficult than it would otherwise be.

The Public Procurement Law, the validity of which is currently being debated, also grants certain powers to the SAI. The SAI Law also covers matters such as the salaries of SAI staff, its president and vice president, the Council members, secretaries, and senior auditors.

The same rules that apply to other public-sector salaries apply to these salaries. Although the pay received by SAI employees is tied to that of the speaker of Parliament and his deputy, SAI employees get more benefits which could be a problem organization and responsibility-wise. Under certain circumstances, some SAI staff could end up making more than the auditor-general. The salaries are also dependant on the number of personnel hired. Consequently, experienced auditors might not be encouraged to transfer to the SAI. In other words, the salary guaranteed by law for such a complex job with a high level of responsibility could impact the quality of SAI staff and their financial independence.

Sretenovic: We've discussed this with Deputy Prime Minister Bozidar Djelic and have arranged for changes to be proposed to the SAI Law in order to alter the way that a number of matters are regulated. Further amendments will be based on experience from implementing this law, which means that an accurate picture will be available only after the first reports come in.

- What will the SAI's first job be and will it involve outside personnel?

Sretenovic: Logically, the first audit will target the final budget report for 2007. However, in addition to that, the SAI has an obligation to audit financial reports submitted by the Pension Insurance Fund, National Bank of Serbia, a number of local governments, and a number of public companies.

In line with its legal obligations, the SAI has submitted a document outlining its preliminary plans with the appropriate parliamentary committee. Additional details will be worked out during January such as funding availability, international cooperation, and the selection of consultants. The SAI is required by law to appoint its seven supreme state auditors and 76 state auditors within six months of the appointment of its Council, which means by March 27 this year.

First we wanted to get the supreme state auditors in office by Jan. 1. 2008, together with a part of the lower-ranking auditors, finishing up in March. The rate at which we are hiring personnel will certainly depend on the rate at which our basic operating conditions begin to materialize, and our actions will adjust accordingly.

The targets and extent of the SAI's auditing plans for 2008, the year of its inception and initiation, will depend on how quickly the cabinet can provide it with the things it needs to get its job done.

Another factor is whether the SAI will be able to hire consultants to handle various job, especially the 2007 final budget report. In cases where the SAI is forced to rely on outside consultants, necessary when its own staff lacks the necessary expertise, for auditing final reports or parts of reports, then the institution is responsible for the views expressed by the consultants. This is very important, especially in the first several years, since we have to draw up a set of requirements that future state auditors will have to meet. All existing employees working as auditors will have to pass the exam within 18 months of the adoption of the program.

Nedeljkovic: That practically means that if we hire outside experts for a certain job, and I'm talking about experts with international experience, we would try to get a certain number of our own people involved to help them acquire new skills.

Right now, it looks like the SAI won't be able to hire and train as many experts as its needs for obvious reasons. As a result, it will be unable to cope with even the minimal number of financial reports from 2007 required by law.

- What are the negative consequences of Serbia's lateness in introducing a national auditing body and getting it operational?

Sretenovic: The introduction of the new budget system, the new account plan for budget accounting, requirements dealing with the financial reports that recipients of state money need to file, audits and checks of state fund recipients, and public procurement in 2007 signalled the beginning of public finance reform. Now all organizations and institutions receiving money from the state have to meet the same accounting requirements and are subject to the same evaluation and auditing system. This system has been adjusted based on what was learned in the enforcement phase, and the process has come to an end with the introduction of the State Auditing Institution.

Had the SAI been established years ago, adherence to financial regulations and auditing procedures would've been ensured from the get-go.

As for the possible consequences of the authorities' failure to get the whole system up and running right away, we can't answer that question right now. We'll have more information after the first audits but we really have to emphasize the complexity of the system. For instance, internal checks and audits, which the law requires every institution to have, remain nonexistent in many of them even though the legal framework was introduced as far back as 2002.

- What kind of effect will the SAI have on combating corruption?

Sretenovic: The SAI Law has created conditions for the auditing of all recipients of public funding. There is no limitation in regard to the documentation that such bodies have to provide to SAI personnel during the auditing process, which is a major institutional improvement when it comes to tackling corruption. The establishment of the SAI and its cooperation with other government bodies are a further precondition for the successful enforcement of the law.

The main objective of the SAI is to increase the transparency and reliability of public financial reports, which in itself is a major element of the prevention of corruption and detecting of corruption mechanisms. By mandating financial transparency, the role of the public in keeping the government in check will expand. Many surveys indicate a strong link between media freedom and corruption. This is especially important since the SAI has a legal obligation to file annual reports on its activities. In addition, it has to file special reports with Parliament throughout the year, hold news conferences, issue public statements, and use other means to keep the public posted on what it is doing, thereby contributing to curbing corruption.

Nevertheless, the most significant finding of the surveys is that political will is the top condition that has to exist before an institutional solution can be put into effect. In the absence of determination to deal with corruption, no type of system, no matter how good, can produce results. It is precisely the SAI that will improve the ability of the judiciary and Parliament to monitor the executive branch.

- What has the SAI Council been doing in the last three months?

Nedeljkovic: The Council has met 10 times and approved many important documents regulating its operations, procedural issues, small purchases, and fixed and mobile phone use. The operating procedures have been sent to Parliament for approval and preliminary plans have been drawn up and sent to the parliamentary Finance Committee.

In early 2008 the Council began work on documents covering the organization of the SAI, the number and type of personnel, and after that it will begin hiring. A number of meetings have been held with representatives of the European Integration Office, World Bank, and European Agency for Reconstruction. As part of its activities, the Council also provided its official opinion on a number of draft laws approved by the cabinet or in the process of public debate.

(BETA)