Serbia Justice Functional Review

Summary with Recommendations

b. Financial Management

Main Findings

The judicial system in Serbia is not under-resourced, measured on either a per capita basis or as a share of GDP. In 2012, court expenditure was 0.66 percent of GDP, which is higher than any EU Member State monitored by the CEPEJ. Prosecution expenditure was 0.11 percent, which is slightly lower than the EU average.
In 2012, court expenditure represented 0.66 percent of GDP, which is higher than any EU Member State monitored by the CEPEJ.
Any increase in the judicial budget is highly unlikely in the medium to long term. Serbia faces a tight fiscal environment, characterized by a double-dip recession, high and growing public debt. The Serbian Government recognizes the need to find savings, including by reducing the wage bill and rightsizing the public sector. It would be difficult for the sector to argue for more resources, particularly given the low levels of efficiency and effectiveness in the use of existing resources. Budget cuts may be expected, and the sector may need to ‘do more with less’, including by funding innovations via savings identified within the resource envelope.
The courts are partly funded by court fees, and this poses some opportunities and some significant risks.⁷⁷ In 2013, the courts collected 10.22 billion RSD in fees.⁷⁸ However, collection rates are low, and courts manage to collection only around one-third of the fees due. The courts are not well equipped to play the role of a collection agency, as the lack the legal tools to pursue delinquent debtors⁷⁹ and lack the technical capacity to dedicate to fee collection. More concerning, court fee revenue is declining, and will soon decline rapidly.⁸⁰ With the imminent transfer of verification services from courts to private notaries, court fees can be expected to decline by as much as 30 percent by next year.⁸¹
Courts manage to collection only around one-third of court fees due.
Budget planning and resource allocation are not linked to service delivery needs. Rather, it is based on historical allocations of inputs, which are adjusted rarely in reaction to extraordinary events, such as the reorganization of the court network or emergencies that may disrupt judicial work. Resource allocation is not based on any caseload forecast, performance targets, or objective norms, and the resource allocation mechanism does not provide the courts and the prosecution service with the incentives or opportunities to improve cost-effectiveness.
From 2010 to 2013, less than 2.5 percent of the court system’s budget was spent on capital investments, which is about half the EU average.
The resource mix favors personnel over all else. The large wage bill crowds out other expenditures, including in much-needed areas such as training, ICT and infrastructure. From 2010 to 2013, less than 2.5 percent of the court system’s budget was spent on capital investments, which is about half the EU average. Given the pressing need for widespread ICT and infrastructure upgrades, a more significant investment is warranted. However, disbursements on capital projects are slow due to limited procurement capacity, and funds earmarked for capital projects are routinely reallocated in supplementary budget processes.
The courts are generating massive and growing arrears.⁸² The main reason for accumulating arrears is poor planning in the budget preparation process and the legislative reform process. Frequently, new legislation imposes increased requirements on courts and other agencies to deliver services or fund costs of legal procedures. However, financial and regulatory impact assessments are not conducted and budgets are not adjusted. Arrears are increasingly impacting service delivery by courts, including by causing delays in hearings. Arrears also generate a significant amount of work, as court presidents and financial departments operate in a continuous crisis management mode, including the management of litigation against service providers.
Budget rigidity could be eased with more modern systems and better coordination between stakeholders, consistently with the Budget Law.
The lack of automation in the processing of requests for funding reallocation results in excessive budget rigidity, preventing courts and PPOs from adjust funding to business needs. This rigidity is not a requirement from the Ministry of Finance (MOF) but of the HJC, SPC and MOJ respectively, which lack both human and technical capacity to process reallocation requests and so refuse them. The problem could be eased with more modern systems and better coordination between stakeholders, consistently with the Budget Law. Without addressing this problem, it is difficult to see how the sector could unlock the funds necessary to achieve the transformation required to align with EU benchmarks.
The divided management authority and lack of clear division of responsibility and accountability over judicial budget poses coordination challenges for financial management. The budget authority is split between the Councils (the HJC and the SPC) and the MOJ. While the Councils are responsible for the wage bill for judges and prosecutors the MOJ is responsible for wages for all other staff in courts and PPOs. The division of budget responsibility and accountability in other areas, such as funding for maintenance and capital investments, is not clearly defined which slows progress and disbursements on much-needed capital projects. The authority over other non-financial matters, which may have a major financial impact, is also separated from the budget authority, including decisions that affect the large wage bill.
Financial systems are fragmented and outdated. Multiple financial management systems operate simultaneously, and staff are required to enter and transfer data between systems manually. The judicial system lacks a clear cost structure, and there is very little information on unit costs or data that would relate costs to outputs, making analysis of costs per case challenging. There is no alignment between case management and accounting systems, so financial management is unable to inform decision-making or support performance improvements.

Recommendations and Next Steps

Recommendation 30:
Improve the quality of financial data that decision-makers require for performance analysis and planning.⁸³ Implementation of this recommendation would give Court Presidents, judges and managers the information that would allow their greater and more meaningful engagement in court administration, as per good European practice.⁸⁴

Ensure interoperability of different financial management systems and establish a centralized data storage management system where financial data needs to be entered only once and is then exported to authorized users. (HJC, SPC, SCC, RPPO, MOJ – medium term)
Ensure that information management systems align financial and non-financial data around the core business processes (e.g., once a new case is registered in case management software, it should be reflected in accounting systems). (HJC, MOJ – medium term)
Do no further harm to information fragmentation by requiring that any future automation initiative does not exacerbate the existing fragmentation between various systems. (MOJ -short term)
Utilize the analytical potential of financial data that are already collected, e.g. by developing a standard methodology for calculating cost-per-case and encouraging courts to improve cost-effectiveness. (HJC, SPC, SCC, RPPO, MOJ – short term)

Recommendation 31:
Strengthen court fee collection. Consider establishing a body within the sector that is responsible for the collection of all court fees.⁸⁵ Implementation of this recommendation would contribute to better collection of court fees and would enable courts with more resources to respond to newly emerging needs.

Assess the full budgetary impacts of the transfer of verification services from courts to private notaries. (HJC to lead, MOJ - short term)
Consider amendments to Law on Court Taxes and related legislation to enable courts to charge interest and late fees and to refuse hearings to delinquent debtors in certain circumstances. Assess the fiscal impacts. (HJC, SCC – short term)
Assess the feasibility of centralizing responsibility for all court fee collection in a specialized organization. (HJC to lead, with MOJ and MOF – medium term)

Recommendation 32:
Strengthen the accounting of financial commitments and expenditures of the courts and PPOs.⁸⁶ Enhanced procedures should ensure that delays in registering new commitments are minimized; and that commitment data is accurate, complete and easily reconcilable with the budgets and shared with decision-makers.

Within the public sector accounting framework, strengthen procedures for the accounting and reporting of financial commitments by the courts and PPOs. (MOJ with HJC, SPC – short term)
Generate regular reports that present commitment data against budgets. (MOJ with HJC, SPC – short term)
Establish a workgroup which will collect and analyze detailed information on arrears within the system. (MOJ with representatives from budget and accounting departments from HJC and SPC – short term)
Based on the analysis of arrears work with MOF on settling existing arrears. (MOJ with HJC, SPC, MOF – medium term)
Identify options for ensuring that courts and PPOs are informed when their arrears are about to be collected from the accounts of central government agencies. (HJC, SPC, MOJ and MOF – short term)

Recommendation 33:
Allow the courts and PPOs greater flexibility to reallocate funds within their individual budgets to optimize the use of resources and reduce arrears.⁸⁷ If implemented, this recommendation would increase the effectiveness of appropriated resources and reduce the number of instances when the courts have to return unspent funds because the funds’ economic classification breakdown did not match their needs.⁸⁸

Develop transparent rules and procedures enabling the courts and PPOs to reallocate funds with the approval of the Councils or MOJ respectively, consistently with the Budget Law. (HJC, SPC with MOJ – short term)
Prioritize the timely processing of budget reallocation requests, and establish timeliness standards for these processes. (HJC, SPC – short term)
Automate the submission of ad hoc reallocation requests by courts and PPOs to their respective Councils to minimize the administrative burden on Councils and enable the Councils to process requests. (HJC, SPC, Courts – medium term)

Recommendation 34:
Clarify the division of financial responsibilities in key areas of the budget.⁸⁹ Articulate definitions of capital and current expenditures, and clarify which institution is responsible for each.⁹⁰ Clarify the division of financial responsibilities for the costs of legal procedure between the courts and PPOs. Improve coordination with service providers (i.e. prison facilities, attorneys, expert witnesses, and enforcement agents). Clarity and coordination would improve the effectiveness of resource allocation by the HJC, SPC and MOJ. It would also improve operational efficiency and minimize unnecessary disruptions, reduce arrears and prevent duplication and equivocation among courts and PPOs.⁹¹  Within the existing regulatory framework, develop transparent criteria for defining and distinguishing between capital and current expenditures. The justice sector does not need to wait for a government-wide solution on the distinction between current and capital expenditures, but should one later be articulated, the justice sector could adapt it and be no worse-off. (MOJ, MOF – short term)  Incorporate these definitions into regulations to guide the cycle of budget planning and execution within the judiciary in order to prevent duplications in requests and delays in budget execution. (HJC, SPC, MOJ with approval from MOF – short term)  Establish a working group to clarify the division of financial responsibilities for the costs of procedure between the courts and PPOs for mandatory expenditures relating to criminal investigation by either adjusting the regulatory framework or by issuing a binding interpretation. (HJC, SCC, SPC, RRPO and MOJ and participation MOF/Treasury and, possibly, of the Judicial Committee of the Parliament – short term)