This translati No, V^-cf^-Date: 19/05/2009

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Auditing and Tax Counselling Firm

^^A^diton daa Ul. Vase Pelagića lA-lf^

B A I V . J A L U K A

REPORT ON AUDITED FINANCIAL STATEMENTS OF CITIZENS' ASSOCIATION

"TRANSPARENCV INTERNATIONAL BiH" FOR YEAR 2008

- submitted to the Associat ion's m a n a g e m e n t

Banja Luka, April 2009

"TRANSPARENCV INTERNATIONAL Bili" Binj* LuVt - A u d i t of F i u n c i i l Mi tcBcat i ror VeirlOOS

C O N T E N T S

AUĐITOR'S OPINION

1 INTRODUCTION

2 BASIC INFORMATION ABOUT THE ASSOCIATION

3 RELATED PARTIES

4 AUDIT RISK ASSESSMENT

5 DETERMINATION OF MATERIALITV

6 DOCUMENTATION AND ACCOUNTING

7 ACCURACV AND OBJECTIVITV OF THE PRESENTED BUSINESS CHANGES

8 COMMENTS TO THE FINANCIAL STATEMENTS

9 CONCLUSION

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T e U f a x : + 3 8 7 5 i y 2 l 4 - 6 7 0 and 319-930 and tnob.+38765/522-723 • www.aditon.rs-ba • e-mail: adi ion.dooiggmail .com

N o . o f C o u n Reg. Folio l - l 2 4 6 t - 0 0 m ID N o . with ihe R S Tax Administration 4 4 0 1 6 1 3 6 8 0 0 0 3

• ID No. with the IndiiEct TBXBtH>n Adminlstration 4 0 1 6 1 3 6 8 0 0 0 3 • MBR 1954601

Transfer accountwitl i "NLB Razvojna banka" Banja Luka 5 6 2 0 9 9 0 0 0 1 3 9 8 3 6 1

Auditing and Tax Counsell ing Fitm ''ADITON" DOO Banja Laka

AUDITOR'S O P I N I O N

We have conducted an audit of the balance sheet of the Ckizens' Association "Transparency International BiH" Banja Luka which were made on 31 December 2008 and the perlaining income slatement for the year ending on the said date.

The responsibility for these statements rests with the Association's management.

Our responsibility is to issue, based on the audil we conducted, our opinion as to vvhether the financial reports for 2008 fairly present the Association's property and financial status.

We conducted the audit in accordance with the International Auditing Standards. These standards require us to plan and carry out the audit in such a manner as to ensure that the techniques empIoyed are sufficient to reasonably detect ali quantitatively material errors. The audit entailed examination of a representative sample of documents justifying the amounts presented in financial statements. This audit aiso inciuded the appraisal of the accounting principles applied and signiflcant estimations made by the management as well as the appraisal of the general presentation of financial statements.

We believe that the extent of the audit conducted provides reasonable grounds for issuing our opinion.

In our opinion, the audited financial statements accurately and objectively present the financial status, i.e. business results, of "Transparency Internationa! BiH" on the last day of calendar year 2008.

No. 035-10/09

Banja Luka. 07 May 2009 Authprised auđitoPT

'aničić, B.ScTEćon.

Auditing and Tax CounseUing Firm "ABITON" DOO Banja Luka

SANJA unu •4

T R A N S P A R E N C V I N T E R N A T I O N A L BiH B A N J A L U K A submitted to the Associatioo^s m a n a g e m e n t

REPORT ON AUDITED FINANCIAL STATEMENTS OF CITIZENS' ASSOCIATION "TRANSPARENCV INTERNATIONAL BiH'*

FOR VEAR 2008

1. I N T R O D U C T I O N

The basic tenns and conditions for conducting this audit as wel! as the responsibilities of the auditor and the Association's management are set out in the audit contract concluded on 24 April 2009 betvveen the Citizens' Association 'Transparency International BiH" Banja Luka and the Auditing and Tax Counselling Firm "Aditon DB" d.o.o. Banja Luka.

As required by the International Auditing standards, before commencing the audit activities we had an obligation to become acquainted with the basic financial indicators that are material to the overall activities presented in the financial statements that are the subject of the present audit as well as with the changes in the Association's organisation, management, funding and main objectives, if any, We also had to familiarise ourselves with the basic types of expenditures that were approved by the funding party and the persons (project managers) who were in charge of realising them.

The auditor conducted the abovementioned activities so that he could properly plan the time required for carrying out the audit.

Audit activities inciude assessment of Information about the Association's business operatlon contained in;

Batance sheet made on 31 December 2008 and

Income statement showing the operating revenues and expenses in 2008.

According to the existing audit legislation, generally accepted rules and the Audit Contract, we have the obligation to conduct the audit in accordance with the International Audit Standards, which require the auditor to plan and carry out the activities in a manner that would enable him to ascertain to a reasonable extent that the financial statements do not contain material errors.

Due to the nature of the Association's work and other limitations, there is a certain unavoidable risk that a material error might remain undetected. I-Iowever, we are of the opinion that by use of standardised sampling and inspection methods, and analytical procedures this risk is reduced to a reasonable and allowable level.

We would also Hke to note that the responsibilily for production of financial statements and their adequate and timely publlcation rests with the Association's management. This involves establishment and maintenance of appropriate accounting records, establishment and propet fianctioning of intemal audits, selection and application of appropriate accounting procedures, and provision of full protection of the Association's and donor's physical assets.

During the course of the audit, no additional written explanations were sought from the management in relation to the Information presented in financial statements. Instead, ali questions were clarified in direct conversations with either the project leaders or the persons charged with keeping accounting records.

Auditing and Tax CounseUing Firm "ADITON" DOi

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"TRANSPARENCV INTF.RNATIONAL BiH" Banji Luka • Audit of Financial SOlcmenla for Vear 2008

Since we also had conducted audit of financial statements in the preceding year, there were no issues with the opening baiance values and the audit procedure was accordingly opened in accordance with the existing procedures app[ying to the continuity of auditor's work, i.e. over a number of statement periods.

Afler the audit was conducted, besides the auditor's opinion, we also issued the Report on Conducted Audit, which, in addition to an overvievv of basic Information about the Association's establishment, organisation and basic business objectives, contains elaboration of reasons that guided us in forming the auditor's opinion.

As part of our audit process, we sought from the management a written confirmation of statements given to us in connection wilh the audit.

Our work also entailed establishment of appropriate cooperation with the newly-hired accountant, which we believe was done in a professional way.

2 . B A S I C I N F O R M A T I O N A B O U T T H E A S S O C I A T I O N

'Transparency International BIH" was registered as a non-govemmental organisation in the Register of Citizens' Associalions with the Basic Court in Banja Luka on 28 March 2001 under registration No Rg-23/01 and with the official name:

CITIZENS' ASSOCIATION "ANTI-CORRUPTION COMBAT - BOSNIA AND HERZEGOVINA", i.e. *'Transparency International BiH".

According to the Statute, the TI BiH's main goals and activities are:

to organise expert seminars, round tables and other forms of public discussions and trainings;

to coliect data on experiences in combating corruption;

to draft regulations and other legal documents;

to disseminate infomiation about the Association's activities through print, mSQ electronic and other media;

I - to process data on corruption;

to coliect and disclose data on corruption;

to coliaborate with similar institutions in the country and worldwide;

to perform and conduct various forms of expert and consulting activities.

Mr Boris Divjak from Banja Luka was entered in the Registry as the person authorised for representing the Association.

There were no changes to the Association's registration data in 2008.

Accounting records are maintained, as per appropriate Contract, by the newly-hired accountant Branka Štaka B.Sc.Econ, certified accountant as per Accounting Licence No. 039-0887-05 issued on 21 December 2008. This person is considered responsible for proper maintenance and updating of appropriate transaction records.

Auditing and 1'ax Counsell ing Fiim "A! M T O N " QĐO Banja Luka

( ^ / -

The original accounting documentation about business transactions that are the subject of this audit is kept in the Association's premises, while the copies of accounting and financial documents are forvvarded to the hired accountant.

Transparency International BiH conducts its financial transactions in domestic currency (Convertible Marics) through transaction account No. 555-007-00006307-57 with "Nova banka" Branch Office Banja Luka, while foreign currency transactions are carried out through account No. 555-00700000000-63, ID No. 01943740, intemal code 006307, opened with the same bank.

IN addition to the basic account, the Association also opened sub-accounts to track the inflovv and outflovv of funds in each project. Forthese purposes. transaction sub-accounts No. 555-007-00006307-73 and No. 555-007-00006307-89 were opened for the CAPP project and ALAC projects, respectively. The purpose and effects of using such a fiind-tracking method will be discussed in more detail in relevant sections,

The tax authorities assigned 4401564530009 as the Association's identification number.

3 . R E L A T E D P A R T I E S

According to International Auditing Standards No. 550 - Related Parties, the auditor shouid conduct the procedures that are designed in such a manner as to help obtain satisfactory auditing evidence with regard to the identification and disclosure of related parties by the management and effects of business events with related parties that are material to the audited financial statements.

The responsibility to identily and disciose the related parties and business events with these parties lies with the management. This responsibility is in connection with the management's obligation to apply the appropriate accounting system and control for the purpose of ensuring proper identification of business events wilh the related parties in accounting records and their disclosure in financial statements.

Based on the conducted standard procedures and enquiries to the management, we did not identify the existence of any related parties or confiicts of interesi.

4. A U D I T R I S K A S S E S S M E N T

Inherent risk is the susceptibility of an audit area to error which could be material, individually or in combination with other errors.

Assessment of inherent risk was carried out at the level of financial statements and maleriality of the Association's individual key business transactions and their entries in accounting records.

At the financial statement level, we have also conducted assessment of the integrity of the Association's management and managing structure, complexity of the organisational structure and materiality of factors affecting the Association's industry as a whole.

Assessment of inherent risk at the account balance level indicated that such risk was low.

Control risk is the risk that an error which could occur in an audit area, and which could be material, individually or in combination with other errors, will not be prevented or detected and corrected on a timely basis by the accounting system or intemal control system.

Auditing and Tax Counselling y O ^ Firm "ADITON" DOO Ebinja Luka

Through regular detailed reports that are submitted to donors and audit obligations stemming from certain programmes, the Association's contro! mechanism system meets the standards for this type of organisation and this volume of business transactions. We find that the issue that was present in previous years with regard to the completeness and fullness of correspondence between the management and the accountant has been resolved in full, which is considered a positive element in reducing the control risk.

The control risk is therefore assessed as low.

Detection Risk - assessment of the inherent and control risks as being low leads to the conciusion that the volume of audit procedures must be high, and in some segments even expanded, if a sufficient amount of audit evidence is to be obtained, on the basis of which the auditor will form his opinion.

The detection risk is assessed as medium.

Overaii audil risk. based on the assessment of the inherent, control and detection risks, is considered to be at an acceptable level. The risk that a material error will not be detected is reduced, in the auditor's opinion, to a reasonable and acceptable level by use of the conducted audit procedures.

5. D E T E R M I N A T I O N O F M A T E R I A L I T V

By accepting the standard methods for determination of materiality, i.e. the limit up to which the presented error is not considered material from the point of view of overall assessment of objectivity and accuracy of financial statements, the auditor decided to determine the amount of preliminary allowable material error on the basis of total assets and the amount of income produced in 2008:

No. I T E M AMOUNT

INKM

Selected coefticient

The amount of a]lowable

material error that is not deemed

signiflcant 1 Operating assets 280,954 - -2 Total income 283,170 - -3 - -

T O T A L : 5 6 4 , 1 2 4 0 . 0 2 iU82 1 1 , 0 0 0

The materiality determined as shown above was retested before conciusion of the audit. The level of materiality determined during preliminary assessment was found to have remained unchanged.

Auditing and THX Counsell ing Firm "ADI' inja Luka

6. D O C U M E N T A T I O N A N D A C C O U N T I N G

Ali the documentation related to financial operations in 2008 which was presented to Ihe auditor was properly numbered with project designation and receipt's ordinal number, which was checked with the persons in charge of Association's individual projects and the person in charge of finance and records.

The documentation is kept in the Association's main office, sorted by projects and in chronological order by months. In the accounting office the documentation is kept and sorted by types of business events: incoming bills for incurred expenditures, services contracts with the employees and independent contractors, commercial bank's report on transfer account tumover in KM and foreign currency as original documents, and salaries accounting and treasury bills as intemal documents.

The documentation is archived in the manner required by the applicable standards and accounting regulations.

The accounting is done through automated data processing by means of appropriate computer soflvvare. The recording of business changes is done in accordance with the prescribed chart of accounts.

7. A C C U R A C V A N D O B J E C T I V I T V O F T H E P R E S E N T E D B U S I N E S S C H A N G E S

7.1. Inventorv of assets, receivables and liabilities

In line with the basic principles of the Framework for Producing and Presenting Financial Statements of the International Accounting Standards and MRS I - Presentation of Financial Statements, each person who has the obligation to maintain their records by means of the dual accounting system is bound to compare the actual and accounting situation at least once a year, i.e. to make a flill inventory of assets, receivables and liabilities. As far as the associalions and organisations like Transparency International are concemed, the inventory boils down to the making of an inventory of physical assets (office and ICT equipment), flinds, tax liabilities and financial obligations to empIoyees and business partners. The inventory was drawn entirely in compliance with the general rules contained in the Standards and was accompanied with the appropriate elaboration report, which had not been the case before. No surpluses/deficits were found in fixed assets and the inventory. Surpluses/deficits in cash register {cash in hand) were presented only in Ihe amount below 5 pfennigs (KM -0.01) because there are no coins below that value in the payment system, vvhereas the amounts of bills and other documents on the basis of which payments were made from the cash register were presented in the values below 5 pfennigs.

The inventory elaboration report was produced in line with the obligations taken on by the inventory commission. The report provides a detailed list of assets, receivables and liabilities. Certain items are accompanied with notes about whether they belong to current balances from 2008 or have been carried fonvard from previous years. This is, for example. the case with liabilities for taxes on honoraria in the amount of KM 12,122 and receivables from overpaid taxes (KM 10,759), which were carried forward fi-om previous years. We have already discussed

i ^ D O O B ^ i i Auditing and Tax Counsel lmg Firm "AĐITO Luka

Auditing and Tax Counselling Fiim "ADITOf*" DOO

the need for comparing these balances with the rax Adminlstration in recommendations put forvvard in previous audit.

Grounds for recoggising business changes

Having conducted standard audit procedures, we ascertained that every payment effected, whether through bank transfer or in cash, is accompanied with an appropriate document proving the effected financial transaction (bili, contract, expense report, etc.). Part of the expenditures presented as travel costs, per diems, smali bilis for postal services, cleaning costs, representation, etc. were paid in cash (in total KM 23,347), whereas other payments, namely those connected with regular operation, salaries and wages, were effected through bank transfers.

Having inspected an appropriate representative sample of documents, their formal and accounting accuracy, validity of transactions and presentation in account books, we did not find anything that would čast doubt on authenticity, accuracy or legitimacy of transactions and documents. What is more, by means of analyticai procedures we obtained additional confirmation that the audited documentation does not contain evidence that a transaction not pertaining to Transparency International or its employees was presented in the inspected documentation. with the exception of bills for electricity, central heating, gas and landline telephone, which are ali addressed to the physical persons fmm vvhom Transparency International rents its offices in Banja Luka and Sarajevo (natural persons Mr Sead Zahirović, Mr Enes Hubijar, Mr Nenad Radović and Mr Bahrija Bajrić). These arrangements are defined more precisely by means of an appropriate contractual relationship. However, since the bilis are addressed to natural persons and not to Transparency International, tax authorities might give a special treatment to these payments as they might be considered as settlement of personal expenditures of Ihird persons. Further, we are not certain whether some of the author's contracts shouid be treated as such, e.g. contract on production of financial statement (contract No, 16-15/08) or preparation of the final ALAC project report (contract No. 02-10/08). By their nature, these are expert works and we are not certain whether they can be characterised as author's work. Hovvever, this matter is decided by the lawyer who is responsible for drawing up Association's contracts. Differentiation of expert and author's works sometimes affects the amount of tax liability to be calculated and paid as vvithholding tax, i.e. as contribution to social insurance funds. The Association's management calculated taxes on these fees using the tax base from which standardised expenses were not deducted, which is the common method when author's honoraria are concemed. This, however, did not reduce the tax liability. Quite the contrary, when author's vvorks were concemed, the tax was even calculated and paid in the amount that is higher than the liability that would be obtained if standardised expenses were deducted from the tax base.

After statistical sampling, inspection and analytical procedures that were conducted for individual entries of disciosed expenditures (incomes of project coordinators and independent contractors. purchase of computer equipment, rent, overheads, etc.), we ascertained that the documentation does contain documents on presented expenditures, equipment purchases and inventory, i.e. liabilitles.

8. C O M M E N T S T O T H E F I N A N C I A L S T A T E M E N T S

Certified and signed forms of standard financial statement templates that refer to business year 2008 were submitted in a timeiy feshion to the institution designated to receive and process the submitted financial statements on behalf of the Tax Authorities.

Suggestions presented herein do not contain an imperative attitude towards errors or material inconsistencies in application of accounting regulations; rather, they are given with the purpose of harmonising the financial reporting with the standards that apply to associations and foundations founded by citizens which are flinded through subventions, membership fees, grants and other sources, vvithout performing profit activities.

Below are our main comments and observations with regard to some important balance components, namely income, expenditure, assets and liabilities entries.

3 % B A L A N C E S H E E T On 31 December 2008

I

I T E M Comment

AMOUNT (BAM)

AMOUNT m EURO

(BAM 1.95583 = e 1) I T E M Comment

G T O S S Conection Nct

31/12/2008 Amount last yeat

N e t 31/12/2008

Amount last year

1 2 3 4 5 6 7 8

A S S E T S

FDCED (NON-CtJRRENT) ASSETS 1 48,607 35 .468 13,139 6,393 6,718 3,269

Equipment 47,642 34.503 13,139 6,393 6.718 3,269

Tools and stock 965 965 0 0 0 0

CURRENT ASSETS 267,620 0 267,620 48 ,940 136,832 25,023

SHORT-TERM ACCOUNTS RECETVARLE AND MVESTMENTS

2 10,759 0 10,759 11,520 5.501 5,890

Other acoounta reče i vabi e 10,759 10,759 11,520 5,501 5,890

CASH AND CASH EQUIVALENT 3 256,861 0 256,861 37 ,420 131,331 19,133

Cash eqiiivalenl 255,454 255,454 36 ,389 (30 ,612 18,605

Cash 1,407 1,407 1,031 719 527

P R E P A V M E N T S A N D A C C R U E D I N C O M E 4 195 195 118 100 60

T O T A L A S S E T S 316,422 35 ,468 280,954 55,451 143,649 2 8 3 5 2

L I A B I L I T I E S

ACCOUNTS PAYAH1£ 280,954 55,379 143.649 2 8 3 1 5

L O N G - T E R M ACCOUNTS PAVABLE 0 0 0 0

SHORT-TERM ACCOUNTS PAVABLE 280,954 55,379 143,649 2 8 3 1 5

1 Received advances, deposils and caution 1 mooey

5 262,363 38,823 134,144 19,850

1 Suppiiers 6 3,740 982 1,912 502

1 Liabilities for lax and contributions 7 13,840 13,796 7.076 7,054

' Other liabilities 1

8 1,011 ! ,778 517 909

Auditing andTax Counselling Firm "ADITO ia Luka \ m "Kl

ACCRUALS AND DEFERREDINCOMT-: 72 0 37 T O T A L LlABlLrriES 280,954 55,451 143,649 28352

Comment 1 - Fixed Assets

In 2008 the Association invested in procurement of computer equipment and office ilimiture in iine with the budgets approved by the donors.

The procurements were recorded on the basis of suppliers' receipts. The auditor conducted inspection of the procurement procedure, checked if the relevant documentation is complete and inspected the computers procured.

Depreciation was calculated on the basis of the purchase value ofthe equipment and inventory, in accordance with the rates ofthe Nomenclature of Depreciating Assets.

Purchases of items of lower value were recorded In the appropriate fixed assets account. The purchase vaiue ofthe small inventory was presented as expenditure in the year of purchase, and ali the purchases presented are 100 per cent in line with the policy of presenting small inventory expenditures.

Comment 2 - Short-term Accounts Receivable

The balance sheet item "accounts receivable" refers mostly to the short balances of taxes that were paid during the period when tumover tax was collected and which were not calculated, i.e. compared (reconciled) with the tax authorities. This mostly relates to the tumover tax on services (author's fees, i.e. honoraria) and special tax for the Railways of RS (K.M 10,755). The remaining amount refers to overpaid contributions (k.22301 in the amount of KM 42).

Comment 3 - Cash and Cash Eguivalents We had not been present at the inventory of cash in hand because we were hired after the period when the value of individual operating asset items could be determined in an alternative way without a risk. As the cash-in-hand transactions in 2008 were recorded in a proper way, and the inventoried state corresponds to the actual state (with the exception of a negligible difference in the amount of KM 0.01), we can confirm, with a high level of confidence, that the presented balance in the amount of KM 1,407 is accurate. With regard to the monetary assets in the bank account in domestic currency (KM) and foreign currency (€), whose presented balance was in the total amount of KM 255,454, by comparing financial cards and the abstract of account provided by the commercial bank on 31 December 2008, we ascertained that this cash entry was fairly presented. Of the total monetary assets, KM 233,875 is in domestic currency (convertible marks), and the remaining amount of 21.579 in foreign currency, i.e. Euros. This was additionally verified by inspecting opening values in the bank account in 2009.

Audilmg and Tax CounseUing Fiim "ADITOH" DOO ika

Comment 4 - Prepavments and Accrued Income

This balance sheet refers to interesls calculated by the commercial bank on sight deposits. By inspecting the appropriate document on the amount of interests, we ascertained that this asset item was presented accurately.

Comment 5 - Received Advances. Deposits andCaution Monev

After deducting effected and presented costs and fixed assets depreciation from approved funds, in Hne with the adopted budgets and the dynamics of implementation ofprogramme activities, one of the most imporlant entries remaining under funding sources is the donors' unutilised funds, so the "received advances" item is formed as liability to the ftinders of individual projects (TI Secretariat in Berlin, EU, Helsinki Committee of the Kingdom of Sweden, SOROS Foundation, etc).

This amount was calculated as difference betvveen the recetved monetary assets and presented current expenses in the business year.

Comnient 6 - Liabilities to Suppliers Balances were not confirmed wilh suppliers due to their individually small nominal values. Based on payments that are effected continuously and Information on suppliers (unpaid bills received in January pertaining to the year covered by the financial statement, etc.), this entry is found to be objectively and accurately presented.

Comment 7 - Liabilities for Taxes. Contributions and Other Dues

The "Other Liabilities" item consists largely of the liabilities in the form of taxes carried over from the previous period. It shouid be noted that it is necessary to compare (reconcile) this component with the component "Other Accounts Receivable" (see Comment 2) and harmonise these with the tax records maintained by the competent tax authority.

Comment 8 - Other Liabilities

This liabilily item refers to outstanding payments to the employed or hired persons for expenses that these persons covered with their own money, which was recorded as k. 47380.

Audiling and '\'ax. Counsell ing Firm "ADITOPT DOO

S T A T E M E N T O F I N C O M E For year 2008

I T E M CommenI AmounI in KM (BAND AmounI in EUROS

(€ 1 = BAM 1.95583)

2008 2 0 0 7 2008 2007

1 3 3 4 5 6

R E V E N U E S 1. Preniium, subsidy and grani intomcs and othet similar

incomes 9 282,557 227,377 144,469 116,262

2 Interesi income and other ftnancla! incomes 9a 6 1 3 1,097 3 1 3 561

I R E V E N U E S (1+2) 283.170 228,474 144.783 116,817

EXPeNDITURES

1, Material and energy costs 10 21 ,150 14,192 10,814 7,256

2. Wages, income bcnefila and other personal incomes 11 45 ,768 80,485 23,401 41 ,153

3, liepreciation costs 12 1,751 1,691 895 865 5. Non-matetial costs [ 3 214,501 131,080 109.673 67 ,020 6, Tax costs 6 0 31 7. hiterest expenses and other expenses 1,026 525

II E X P E N D I T U R E S (1 -7 ) 283,170 228,474 144,783 116,817 S U R P L U S R E V E N U E S - P R O F I T ( H I ) 14 0 0 0 0

S U B P L U S E X P E N D I T U R E S - L O S S ( n - I > 0 0 0 0

Comments 9 and 9a - Revenues

Donor Hinds account for the only source of fI BiH's income (with the exception of rather insigniflcant interests accrued from the money deposited on the transaction account). The most important projects are "ALAC" programme and ''CAPP".

Utilisation of flinds follows the dynamics of the approved budget and presented expenditures.

It shouid be noted that the revenues in 2008 are connected with Ihe impiementation of certain projects that had not been completed in 2007, so the dynamics of their completion have affected the amount of the total revenues presented.

Financial incomes inciude interests on deposits in the commercial bank and other incomes recorded as k. 6799.

Comment 1 0 - Malerial and Enerev Costs Material costs inciude the presented expenditures for office stationery, hygiene products and other operating supplies used in TI BiH's daily activities. These expenditures are recorded on the basis of individual receipts issued by the suppiiers for the procured products.

Accuracy, justification of the presented expenditures, qualification and demarcation of expenditure entries as well as other expenditure items contained in the Statement of Income, were verified on the basis of a statistical sample of documents pertaining to particular costs.

Auditing and Tax Counselling E-irm "ADITO

We did not find any costs that had not been incurred by TI BiH. any inconsistency in accounts or any documents failing to identify the type of transaction, place, time and persons involved in the particular transaction.

Energy costs consist of the expenditures recorded on the basis of bills for consumed electricity issued by the Povver Supply Company, bills for consumption of central heating issued by the City Heating Plant as well as bills for consumed natural gas. As has already been mentioned above in connection with these costs, due to the fact that they are associated with the owners of the offices rented by the Association, the bills for these expenses are not addressed to TI but to physical persons.

Direct admission of costs of liquid fiiel for motor vehicles is usually associated with the possession of a vehicle, whereas in use of one's own vehicle only the amount obtained on the basis of fiiel priče and Information about the distance travelied in kilometres is admitted. The tumover in account 51310 shows that the presented fuel expenses in 2008 were KM 10,390. Of course, if the costs of use of one's personal vehicle for business purposes are presented only in the amount of the Iliel consumed during the particular trip, this shouid be presented as a percentage of the fuel unit priče per kilometre. The Law on Income Tax provides that 20 per cent of the priče of I litre of fuel per 1 kilometre travelied is recognised as non-taxable amount, but the taxpayer can, by virtue of his intemal general act, set this percentage at 10, 15 or 30 per cent. In case that 30 per cent is set as admitted expenditures for use of one's personal vehicle, tax is calculated and paid for the amount exceeding the non-taxable part.

Comment 11 - Wages. Income Bencfits and Other Personal Incomes

Wages, income benefits and other personal incomes are calculated in accordance with employment contracts and the applicable regulations goveming liabilities in the form of taxes and income contributions. Operating costs were charged based on these liabilities.

Comment 12 - Depreciation Costs

Uniike 2007, when the auditor had recommended that the calculation of depreciation be corrected and depreciation of fixed assets be admitted in accordance with the applicable standards, which led to an unusually high amount of this cost, in year 2008 depreciation was calculated absoiutely correctly, without the auditor's intervention.

Comment 13 - Non-material Costs In this year quantitatively significanl costs are the expenditures connected with the promotion of TI BiH's overall work and the public campaign in the media (daily newspapers, magazines, etc.).

The most significant expenses are author's fees, followed by promotion and public campaign expenses. Other significanl costs inciude rental fees, business trip a!lowances (accommodation costs and travel costs), payment operation costs, administrative and court fees, etc.

Each payment of author's fees is accompanied with a contract concluded between TI and the author, regardless of whether the author is a TI employee or an independent contractor. However, it is necessary to produce a calculation of taxes as a document confirming the

Auditing andTax Counselling Firm "ADtTON

in which the amount of tax paid has been determined. So, regardless of the fact that the tax has been paid duly and in a timely fashion, it is necessary to produce the appropriate calculation.

Temporary and periodical services inciude cleaning services and certain administrative jobs as well as accounting services,

Relevant taxes are calculated on ali the above-mentioned personal incomes (author's fees and fees for temporaiy and periodical services).

The auditor checked if income taxes on author's fees and fees for temporary and periodical services had been paid in accordance with the lav^ by inspecting a selected number of contracts conciuded with authors and contractors. Taxes on author's fees and fees for temporary and periodical services were paid in appropriate amounts.

Non-materials costs inciude:

No. DESCRIPTION Amount in K M (BAM)

Amount in Euros

(1 e-1,95583 B A M )

1 2 3 4 1 Author's fees as per copyright contracts 106,908 54,661 2 Rental costs 31,777 16,247 3 Opinion poli costs 17,567 8,982 4 Fees for temporary or periodical services 14,646 7,488 5 Printing and publication costs 8,913 4,557

6 Costs of audit and other non-produčtive services 7,293 3,729 7 Telecommunication services 6,003 3,069 8 Entertainmenl costs 4,379 2,239 9 Travel costs for business trips 2,991 1,529 10 Advertising costs 2,313 1,183 11 Per diems and business trips allowances 2,104 1,076 12 Banking service costs 1,643 840 13 Costs of utilisation of private vehicle for business purposes 810 414 14 Other nonmaterial costs 7,154 3,658 14

TOTAL: 214,501 109,673

CommenI 14 - Business Result - Sur plus/Deficit

Non-profit nature of the Association's work necessitates the revenues to be admitted only in the amount of expenditures that the donor or fiinder provided for in the approved budget for the given calendar year or one part of it. The received tlinds are Justified per individual projects, and annual revenues are admitted only in the amount of the approved expenditures, with predefined tolerance. l'his allows equalisation of revenues and expenditures, so the surplus revenues are not presented.

Auditing and Ta* Counselling Fimi "ADITC

"TRANSPARENCV INTERNATIONAL BiR" Binj i Luka - Audil of Financial Stilementi for Vear 20«W

9. C O N C L U S I O N

The present Report on Audit ofthe Association's Financial Statements contains auditor's bellefš regarding the components presented in the offlcial Balance Sheet and Statement of Income forms for year 2008.

If the Association's management accepts the Report as well as the auditor's opinion as to whether the Association's financial statements provide an accurate and objective presentation of the financial balance, i.e. the operating results in the stated period, it is proposed that the management disciose the auditor's opinion and present it to the founder for consideration.

No. 035-10/09

Banja Luka. 7 May 2009

ised auditor:

(čić, B.Sc.Econ.

Auditing and Tax CounseUing F im "ADITON" DOO Banja Luka

No. o 9 Date: 19/05/2009

I, Vojislav Boljanić, certified court interpreter for the English language, appointed in accordance with the decision of the Ministry of Justice of the

RepubHc of Srpska No. 01/2-704-33/04 of 13 December 2005, hereby certify that the foregoing translation is true to its original in the Serbian language.

Banja Luka, 19 May 2009