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Serbia Justice Functional Review

Internal Performance Assessment > Financial Management

c. Budget Structure

  1. The wage bill is the most significant budget item and judicial system has a strong preference for funding salaries rather than investing into system modernization (see Figure 129). Currently, Serbia spends less than 2.5 percent of the total budget on capital investments. This budget breakdown into capital investment and current expenditures is within range of EU member states. However, Serbia has much greater capital investment needs than most EU Member States. As part of the EU accession process, the Serbian judiciary will be expected to undertake significant investments in infrastructure and ICT to align its performance with European practice. As a result, the funds dedicated to capital investments should rise far above the current 2.5 percent. Given the current budgetary constraints, that investment will need to be sourced through savings from current expenditures, preferably salaries.

i. Current Expenditures

  1. Salaries dominate the court system’s current expenditures. The budget for salaries follows a Human Resources Plan which is set outside of the budget process. Salaries represent 81 percent of current expenditures of the courts and 92 percent of the current expenditures of the PPOs (see Figure 130 and Figure 131)
  1. Often, the budget lines do not transparently convey the purpose of expenditures that they fund. For instance, budget line 4235 ‘Other Contractual Services’ under line 423 ‘Contract Services’ is used to pay not only such expenses as expert witness fees, lay judges, security staff but also compensation to acquitted defendants and postage.705
  2. The Serbian court system spends a larger share of its budget on salaries compared with EU Member States (See Figure 132). Serbia’s salaries-to-budget ratio was 86 percent. Only three EU Member States out of the 21 shown below have a higher share of salaries in their budgets. The EU Member State with the highest salaries-to-budget ratio of 95 percent is Croatia. As discussed in the Human Resources Chapter, Serbia’s complement of both judges and court staff is higher than in most EU Member States. Judges’ compensation represents the largest component of the court’s salary expenditures. A gradual reduction in the share of the budget spent on judicial salaries would free up resources for items that are critical to improving productivity such as automation, infrastructure and mid-level specialist staff.
  1. Serbia’s 2012 level of capital investment in relation to the court system’s budget is consistent with the EU range (see Figure 133). This, however, may draw a misleadingly optimistic picture because Serbia’s 2012 level of capital investment of 5 percent of the executed budget was unusually high for the reporting period of 2010-2013. The average for the period 2010-2013 was only 2.33 percent. In 2012, only Slovakia had a similarly low capital investment budget; however Slovakia’s existing stock of capital assets is likely of a higher quality than in Serbia, so its lower capital investment may be justified.707
  1. With the exception of a few externally co-financed projects, capital investment projects have been insignificant in comparison with the real needs. The Infrastructure Chapter documents the lack of courtrooms and office space, as well as the poor state of the buildings in which the courts and PPOs are located. The ICT Chapter provides insight into the ineffectiveness and insufficiency of the ICT infrastructure. Despite that, the capital investment budget was at times drastically reduced in budget rebalancing and reprogrammed for other purposes, such as paying court arrears. At other times, capital investment budget failed to fully disburse due to capacity constraints (discussed below).
  2. The court system’s capital investments are predominantly executed by the MOJ. These expenditures, which in Figure 134 are labeled as FC-330, also include some other expenditure which cannot be disaggregated. Capital expenditure executed under the budgets of individual Basic Courts followed in scale but their amount varied significantly from year to year.
  1. From 2010 to 2013, the capital investment budget focused on infrastructure emergencies, as well as some relocation of courts and PPOs, as necessitated by two re-organizations of the court network. Very little has been devoted to system modernization and upgrades.
  2. Apart from financial constraints, capital investment was impeded by the lack of technical capacity and an inflexible and opaque regulatory framework. There is a lack of technical capacity among MOJ staff in areas such as engineering, procurement and contract management. In addition, neither HJC nor SPC have a dedicated person who will deal with these issues. There is currently no mechanism in place to objectively appraise and prioritize investment projects within the sector. Restrictive budget rules require that capital investment projects must be funded from a single year appropriation. A lack of a clearly defined distinction between capital and current expenditures, which affects the entire public sector, further complicates both formulation and execution of capital investment budget.
  3. There are a few capital investment projects, all of which have been funded under a single fiscal year appropriation. The MOJ had a three-year capital investment plan that included a prioritized list of projects with a total value of 1.97 billion RSD for 2013, 1.31 billion RSD for 2014, and 2.00 billion RSD for 2015. However, the MOJ is unable to engage in a contract for longer than a year, making multi-year investments challenging to execute.
  4. Box 25: Can the cost of inadequate office space be quantified? The Pancevo Misdemeanor Court has been occupying an apartment in a residential building on a temporary basis since 1988. Because of the shortage of office space, the court’s 10 judges have to work in two shifts, with working hours set in compliance with the curfew provided by the municipal regulations. The second shift, which starts at 14:00, overlaps with the first shift, which ends at 15:30. During the 1.5 hours the court has no physical space for the visitors. A 1.5 hour downtime for 10 judges per day translates into the salary and benefits cost of 45 judge’s work days per month not counting overhead expenses.
    The MOJ is responsible for the court system’s capital investments, while the HJC is responsible for current maintenance. Within the MOJ, the Section for Investments is responsible for the central government- owned facilities used by both the courts and public prosecution.710 The Section manages all capital investment projects funded directly by the MOJ, and advises courts on the design and implementation of technical investments funded under their own budgets. According to the MOJ, the Section for Investments will take over the HJC responsibility for current maintenance of capital investments in order to ensure coherence in facility management. The MOJ believes it should retain the responsibility for capital investment beyond 2016 as it is cost-effective to share the same building by courts and PPOS, and it is more effective to manage a building by one institution. Some stakeholders express concern with this option on the basis of financial independence, however, several European justice systems allocate these functions to their respective MOJ for similar reasons.
  5. The MOJ and HJC rely on different definitions of capital investment and current expenditures, and this causes confusion and delays across the sector.711 Both definitions list activities that can be deemed as current/capital maintenance, but do not specify limits in terms of financial resources that will represent the boundary between these two types of the expenditures. A single official distinction between capital investment and current expenditures does not exist. Further, there are two kinds of maintenance projects in Serbia: ongoing maintenance and capital maintenance of fixed assets. For the courts, the determination of the type of a maintenance project for which they were seeking funds determined to whom they should submit the request: the MOJ or the HJC. The courts complain that this lack of clarity prevents the efficient running of courts. Courts are required to submit duplicate requests to the MOJ and HJC in the hope that one of the two organizations will fund their maintenance. Yet, requests for funding maintenance projects are repeatedly rejected because both the MOJ and the HJC each report that the other should pay. While the argument continues, the facilities remained in disrepair. The consolidation of responsibility for both capital investment and all maintenance in the hands of the MOJ should prevent such disruptions in the future.
  6. Making binding financial commitments for a multi-year capital investment project is still not possible under the Budget System Law. The Law does not allow beneficiaries of public funds to enter into contracts that impose on them financial obligations beyond the amount that has been already appropriated in the state budget of that year. As a result, those capital investment projects taking more than a year to implement may be funded during the second year with the balance carried over from the previous year. The MOJ has no experience of implementing capital investment projects that would go beyond the following the year. This makes any long-term investments in physical or information infrastructure almost impossible. Fixing this problem will be essential for the court system to achieve the kind of capital upgrades that will be required to align the judiciary with EU practice.