TRANSPARENCY OF MONTENEGRIN MILITARY SPENDING

UNCLAS SECTION 01 OF 03 PODGORICA 000167

SIPDIS

SIPDIS

TREASURY FOR OASIA/IDB:S.ALTHEIM
STATE FOR EEB/IFD/ODF:M.SIEMER

E.O. 12958: N/A
TAGS: EAID EFIN MARR MW
SUBJECT: TRANSPARENCY OF MONTENEGRIN MILITARY SPENDING

REF: STATE 61929


1. (U) This cables responds to requests for information in Ref.
Montenegro only established its Ministry of Defense in November
2006, following independence in June 2006. A number of key laws
in the defense area remain in draft, such as the Law on Defense,
the Law on the Armed Forces, and the Law on Military Doctrine.
The GoM understands the importance of transparency in military
budgeting and spending, but the laws and procedures are still
nascent.




A. General Overview of Auditing Procedures

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2. (U) The first Montenegrin budget to include defense
expenditures was adopted in December 2006.



(i) On the Basis of the Law on Budget, the Department for
Financial and Economic Affairs of the Defense Ministry is
responsible for procurement, and oversight of spending within
the Ministry. The Minister of Defense has authorized his deputy
(currently one, another may be added) and the Chief of Staff to
approve financial transactions on behalf of the Defense
Ministry.



The funds are spent according to the specific purposes and the
various needs at the level of the sectors. Each of the six
sectors in the Defense Ministry comes up with spending proposals
in accordance with defined needs.



Within the Defense Ministry there is a Department for Property
and Legal Issues to ensure compliance with the law during the
procurement procedure, specifically the Law on Public
Procurements. However, procurements of weaponry are carried out
by the closed tenders.



(ii) The expenditures of the Defense Ministry are internally
audited by the Financial Department of the Defense Ministry. The
Financial Department consists of two Bureaus: Bureau for
Analytical Planning and the Bureau of Financial and Economic
Affairs. According to the existing regulations, Defense Ministry
has also envisaged an (additional) Inspection and Internal
Control Bureau which has not yet become functional.



All payments of the Defense Ministry are made through the
Treasury of the Finance Ministry. All six sectors within the
Defense Ministry are required to submit reports to the Financial
Department of the Defense Ministry before and after payments.
The Bureau of Analytical Planning is required to assess the need
for the item or service which is to be purchased while the
Bureau of Financial and Economic Affairs is responsible for
auditing the financial transactions.



Military expenditures will also be externally audited annually
by the State Audit Institution, an extant independent body. The
Institution audits all central government expenditures. Post
considers the Institution to be a functioning system.



(iii, iv) Audits conducted by the State Audit Institution are
required to be provided to the Parliament. The ministers of the
various ministries all receive copies of the requests as well.
The Minister and Deputy Minister of Defense are civilians
(neither were career military, or general officers).



Within the Defense Ministry, the audits are further reviewed by
the Defense Ministry's Financial Department, with 15 civilians
and five military.




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(v) There is an existing framework for conducting annual audits
of government expenditures. With the relevant laws on the
defense sector still in draft, Montenegrin law at this time does
not explicitly include military expenditures among the
government expenditures to be audited. Post fully expects that
the law will subject military expenditures to the same auditing
requirements as other government expenditures. Passage of the
relevant laws is expected in 2007, in time to permit auditing of
the first defense budget, passed in December 2006.



The existing framework is regulated by: Law on Public
Procurements, the Decree on Compensation of Travel Expenditures
for Army, and the Decree on Earnings of Civil Servants. Fiscal
year lasts until December 31, and the Annual Balance Sheet is to
be submitted the following year, by April 1.





(vi) Government policy requires annual audits of all funds
received by the government, to include the military. Again,
with the relevant laws on the defense sector still in draft,
Montenegrin law at this time does not explicitly include
military receipts among the government receipts to be audited.
Post fully expects that the law will subject military receipts
to the same auditing requirements as other government receipt.



Deficiencies in the auditing of military expenditures and
receipts are the result of delays in passing relevant
legislation. The parliament has deferred such legislation until
the Republic of Montenegro adopts its first constitution as an
independent state. Adoption of the constitution has been delayed
by non-defense related issues.



Additionally, the Defense Ministry is still lacking some human
resources in almost all segments of its activities.



(U) B. The Military Budget And On-Budget And Off-Budget Revenues
And Expenses

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3. (U) (i) The defense budget of the Republic of Montenegro
includes only outlays for the armed forces. Security forces,
mainly police, are funded under a separate budget.



(ii) To post's knowledge there are no significant off-budget
military receipts. Montenegro is decreasing the size of its
military, and disposing of excess property and equipment
(including weapons). Proceeds from the sales are publicly
disclosed and recorded as government revenue.




C. THE MILITARY COMPONENT OF THE NATIONAL BUDGET

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4. (U) (i) Defense expenditures in 2007 are 2.04 percent of GDP,
according to the GoM May 2007 NATO Presentation Document. In the
mid-term, the GoM has stated a goal of keeping defense
allocations at the 2 percent of GDP level. The GoM seeks to
pursue defense reform, "without putting at risk the living
standards of the citizens and our economic growth."



(ii) A Security Oversight Board was established in the
Montenegrin Parliament in late 2005. With Montenegrin
independence, Defense issues were added to its mandate. The
Board includes MPs from the ruling coalition and the opposition.
The Board reviews defense and security policy, including
funding, and makes recommendations to the Parliament at large.
The annual GoM budget, including defense and security, is
proposed by the Government and passed into law by the

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Parliament. The budget is published, and posted on the GoM
website. The fiscal year matches the calendar year.
BARNES