In Bosnia and Herzegovina most utilities have financial and accounting departments in their organizational structure. However, there are variations with financial and accounting records and bookkeeping in water utilities.

In case when a utility does not exclusively deal with water supply and sewerage activities, financial and accounting tasks are performed mainly within common administrative services, which carry out these services for the entire company. This sector mainly performs purely financial and accounting tasks while, in many cases, they neither implement budgeting/planning of costs, particularly at the level of designed cost centres, nor analyse the implementation of the potential plan.

Many tasks are performed manually and there are overlaps in operations and records, where some data are entered multiple times. Outdated or even incomplete accounting software’s in many water utilities do not allow making the links between different accounting modules. Only legally prescribed reports are produced using the accounting software, if it has such an option enabled, whereas many reports are done manually, by simple adding and computing, performed by a head of the department. There are also cases when all possibilities of the existing accounting software’s for preparation of various reports are not utilized because there are no adequate capacities in the relevant service.

The applicable entity-level Rulebooks on accounting frameworks and implementation of chart of accounts for legal persons, i.e. the companies, prescribe the accounting framework and contents of the accounts for legal persons. Pursuant to these Rulebooks, the assets and changes in assets, equity and liabilities, revenues and expenses, and business results are recorded in compliance with the International Financial Reporting Standards, in a form of a three-digit account in the framework chart of accounts. Rulebooks provide very detailed descriptions of 9 classes of accounts (one digit), with clear definitions of each group of accounts within a class (2 digits) and each account (3 digits). Legal persons may add additional digits to these accounts.

A frequent situation in BiH is that water utilities are not able to analytically differentiate every operation or activity (water supply, wastewater discharge, other activities such as management of waste disposal, heating, parks, etc.), since they keep only consolidated balance sheets on revenues and expenses for the entire company.

It is necessary to have harmonized and unique chart of accounts to enable uniform recording of revenues and expenses.

Clearly separate cost centres in the utility have to be defined, which will enable unbundled records kept for costs (as well as revenues) of water supply from the ones of sewerage service, and of course, from the costs of all other services. Revenues need to be recorded per cost centres/operating units too, while the accounting software should enable cost and revenue reporting per operating units too. Of course, such a software also has to enable synthetic reporting by higher organisational levels, comprising the individual cost centres, hence, accordingly, the consolidated reporting for the entire company too.

The Methodology recommends at least four cost centres:

• Water supply (can be broken further down to sub-cost centres of pumping, distribution, etc.);
• Wastewater collection and discharge;
• Wastewater treatment (this type of service will be introduced by all utilities on the long run; if they do not have it initially, this cost center will not record any revenues and expenses); and
• Common services (which can be further broken down to sub-cost centres legal affairs, accounting, etc.).

It is obvious that all direct service-related costs should be recorded by the corresponding cost centres (or even better, in order to track and minimise costs, by the best sub-cost centre). Indirect costs such as accounting, administration, etc. should be recorded to the appropriate sub(cost) centre of common administration services, according to the determined key (individual or cumulative for all such costs) serving for subsequent redistribution of these costs to all types of services, i.e. respective cost centres, with the consent of all business units. Common administration services do not realise their own revenues, but their activities play an important role in providing the conditions for operations of other business units. They serve other business units; therefore these should finance their costs too. In case of a complex utility, it is recommended that other functions/services too should be set as a basis for establishing the cost centres, which would certainly help in efficient determination of these functions’ costs and thereby their tariffs as well. In doing this, one should follow all basic principles of good accounting, such as the principles of consistency, continuity, truthfulness, comparability, prudence and comprehensiveness of data.

All direct costs should be recorded exclusively on operating units as cost centres, at the lowest possible level, by all means including the following:

• Staff wages and compensations per operating/business units;
• Depreciation of fixed assets (pertaining to operations of individual/respective business unit);
• Electricity costs;
• Fuel and lubricants costs;
• Raw material costs;
• Costs of registration and insurance of vehicles associated with the respective business unit;
• Costs of assets maintenance related to respective business unit; and
• Service contracts concluded by respective business unit, etc.

It is necessary to further emphasize the need of proper and complete calculation of depreciation of fixed assets, since it is noted that this is not the case in current practice. Records of all fixed assets should be kept by cost centres, not only at the level of the entire company. If the fixed assets managed by the utility are not precisely listed in full, calculated depreciation and balance sheet will be incorrect. The organizational structure should follow the structure of cost centres, which enables separate monitoring of financial results for every level of the company.

The Rulebooks on accounting frameworks and implementation of chart of accounts for companies, which set forth the legal requirements for all types of legal persons, should be amended with regard to specific regulations for water and sewerage utilities in BiH. This can, for instance, be left to the regulatory body, as a task to prepare an analytical accounting framework applicable specifically to water utilities. In that case, all the analytical details would be stipulated, which would both ease the staff’s task of analytical recording and meet the needs of the Institutes for Statistics in BiH and in both entities in terms of statistical analyses. Of course, this chart of accounts would still be flexible enough to be developed analytically for specific purposes of such companies.

For more information please check the Report, section Needed adjustments in bookkeeping records and facilitating adequate reporting page 30.