• Index
• Introduction
  • Acknowledgments
  • Objective, Scope, and Structure
  • Overall Conclusions and Suggested Priorities
• External Performance: Efficiency and Effectiveness of Justice Services
  • Courts
  • Public Prosecutors’ Offices
  • Quality of Justice Services Delivered
  • Access to Justice Services
  • Promoting Integrity in the Serbian Judicial System
• Internal Performance Assestment
  • Governance and Strategic Management
  • Human Resource Management
  • Financial Resources Management
  • ICT Management

Financial Resources Management

770. Financial management has a significant impact on both the efficiency and quality of delivering justice as well as on other auxiliary functions of the judicial system (i.e. HR, ICT, infrastructure). Efficient organization of financial management and optimal allocation of financial resources are vital for effective service delivery in all segments of the system.

Main findings ↩︎

771. Financial management has a significant impact on both the efficiency and quality of delivering justice as well as on other auxiliary functions of the judicial system (i.e., human resources, ICT, infrastructure). Efficient organization of financial management and optimal allocation of financial resources are vital for effective service delivery in all segments of the system.
772. Compared to other European countries, Serbia’s judicial system is funded at moderate levels. Serbia’s judicial budget as a percentage of GDP was near the top of its peer countries, while its judicial expenditure per capita is among the lowest in Europe (i.e., EUR 29.1 per capita). When these two dimensions are combined, Serbia’s judicial system could be described as operating at affordable, although relatively low levels compared to other European countries. This held true for both of its main components – the court and prosecution systems.
773. The budgetary system of the Serbian judiciary remains unnecessarily complex and fragmented and hampers the development of rules and guidelines for financial management in the judiciary. As in 2014, the formulation, execution, and reporting of different portions of the judicial budget remain split by the Budget System Law between the MOJ and the HJC/SPC. As a result, there is a lack of accountability for overall judicial budget performance, and no central data is available to allow consistent, ongoing evaluation of financial management.
774. In 2016 judicial institutions were granted access to the budget execution system. This allowed real-time tracking of their annual expenditure and increased transparency of their financial operations. This was necessary but, in the end, an insufficient step towards achieving judicial institutions’ budgetary independence. Judicial institutions’ individual accounts within Treasury were closed, and their budgets started being executed from the central budget execution account. These changes did not earn budgetary independence for judicial system institutions. Instead, in practice, the MOJ and HJC/SPC retained full control of the budgets of judicial institutions by simply replacing the management of transfer requests for budget appropriations management. The issue of lack of flexibility in budget reallocation seems to have been magnified by the recent changes.
775. Budgeting processes are not linked to performance criteria. Annual budgets are prepared by making minor upward adjustments to the prior year’s budget or spending. The entire budget process of the country relied on limits set by the MOF, and judicial authorities could not provide evidence-based rationales for challenging the MOF limits.
776. Budget formulation practices have not progressed much since 2014. With the exception of the courts, there is no budget preparation software linking the direct or indirect budget beneficiaries. Budget preparation and monitoring in the MOJ and SPC is done through an Excel spreadsheet exchange, while since 2017 HJC is using a BPMIS tool that is poorly maintained, inflexible, and incompatible with the BPMIS used by the MOF to prepare the state budget (software collecting budget requests from DBBs).
777. Existing automated case management systems do not allow courts or PPOs to determine their per-case costs, perform full-scale program budgeting or reduce their arrears and the penalties assessed through enforced collections. There is not enough automatic exchange of data between the various information systems used within the judicial system⁶²⁵ for any of these functions to occur. As in 2014, interoperability between the existing systems remains an issue to be addressed in the future.
778. Budget preparation software used in courts allows for manual case-related data entry, but this feature is not sufficiently exploited. The exchange between other systems is at low levels. Since 2014, there have been attempts to link the accounting software (ZUP) with budget execution by allowing the external formulation of payment requests based on accounting records. However, the use of this feature is not very widespread.
779. When compared to other European court systems, Serbia’s share of wage-related expenses lies well below the median (approximately 69 percent compared to 74 percent). However, as the amount of funds spent for other purposes is insufficient overall, judging wage expenses as a ratio of total expenditures does not provide a complete picture. The decrease in the share of wages seen in the period from 2014 onwards is a consequence of the overall increase in capital expenditures on one side and the drop in the overall public sector wage bill in 2015.
780. Capital expenditures increased over the past four years to fund needed, accelerated implementation of large judicial infrastructure investment projects managed by the MOJ. The share of CAPEX in total expenditure went from an average of 2.3 percent over the 2010-2013 period to more than 8 percent in 2019. The increase in capital expenditure matches the trend of increasing funds from international loans and donations, which are at the disposal of the judiciary for infrastructural investments. Internal capacities for capital project implementation have to be further developed to ensure the sustainability of the share of CAPEX in total expenditure. However, more needs to be done to resolve the issue of the lack of procedures for the selection and prioritization of public investments.
781. As a result of the introduction of private notaries and enforcement agents, court fees have dropped more than 40 percent over the past years. Likewise, the share of the judicial budget financed from court fees has dropped significantly compared to the previous period from almost 50 percent to an average of 20 percent of the court system budget. In absolute terms, this is commensurate with the decline in court fees. Instead, these fees are distributed to the general budget. The rate of decrease stabilized in the past couple of years, and court fees are not expected to decline further, at least not significantly.
782. There was no significant progress made in terms of recording and collecting debts related to court fees. The introduction of Tax Stamps facilitated court fees settlement, but the issue of uncollectable court fees persists. Although the level of uncollectable court fees cannot be precisely determined due to a lack of accurate records, some estimates are that between 30 and 40 percent of those remain unpaid.⁶²⁶ The issue is slightly alleviated by the fact that a certain share of court fees (i.e., mostly for enforcement cases) is now collected through enforcement agents on behalf of courts.
783. There were large variations in costs per active case across the judicial system and within the courts and PPOs of the same level. As noted above, the lack of interoperability between CMS and budget execution systems prevented detailed tracking of expenses per case. To a significant extent, the variations were due to disparate views of which criminal investigation costs should be paid by courts and which should be paid by PPOs. This issue relates to ongoing weaknesses identified in the budget formulation process in the 2014 Functional Review and the lack of communication between CMS and the financial software components across the judicial system.
784. Compared to the levels observed at the end of the period covered by the 2014 Functional review (i.e., at the end of 2013), the level of arrears dropped significantly. In the case of courts, arrears dropped from nearly 15 percent of total expenditures at the end of the first quarter in 2014 to just above one percent at the end of 2019. As correctly predicted by the previous Functional Review, one important difference is that the transfer of responsibility for criminal investigation management brought arrears into the prosecutorial system.
785. Ongoing arrears hamper the effective management of current year resources. Even at the lower levels now being experienced, significant effort should be put into properly addressing the source of arrears accumulation – both in courts and PPOs.

Budgetary Framework of the Judicial System ↩︎

786. The Budget System Law (BSL)⁶²⁷ is the cornerstone legislation that governs all aspects of judiciary financial management in Serbia – from budgeting to accounting and financial reporting. It defines the scope of the budget, structure, and management of the Treasury Single Account (TSA) and the general ledger, budget calendar and elements of financial plans of budget beneficiaries, the process of budget execution and accounting, and the reporting framework. It differentiates between direct and indirect budget beneficiaries: direct budget beneficiaries are defined as “the institutions and organizations established by the state” (e.g., ministries and separate administrations at their arm’s length, such as the Supreme Court of Cassation and specialized appellate courts), while indirect budget beneficiaries comprise most judicial and educational institutions. The Rulebook on Budget Execution defines the detailed procedures for financial planning and execution of public institutions’ budgets, which vary depending on an institution’s status as a direct or indirect budget beneficiary.
787. The MOJ, together with the HJC for the courts and the SPC for the PPOs, manages the budgets of the judicial system. The competencies of the HJC, SPC, and MoJ over the budgets of judicial institutions overlap and include harmonizing budget formulation and monitoring budget execution, and collecting and aggregating annual financial statements. Figure 142 below depicts the overlapping structure of the budgetary framework and contains the types and sources of expenditure managed by HJC/SPC and MoJ.

Figure 143: Budgetary Framework of Serbia’s Judicial System

788. The HJC, the SPC, some courts and PPOs, and the Judicial Academy are financially independent of the HJC, SPC, and the MOJ since they are DBBs and are provided with flexibility and independence in executing their budgets. The relevant courts and PPOs have specialized rather than general jurisdiction, i.e., the Supreme Court of Cassation, Administrative Court, Commercial Appellate Court, Misdemeanor Appellate Court, Prosecutor’s Office for Organized Crime, and the Prosecutor’s Office for War Crimes. Their budget preparation process is done in direct communication with the MoF. Also, they are free to utilize their annual operating appropriations to the full extent, as defined by the annual Budget Law.
789. The type of expenditure dictates whether the MOJ or the HJC/SPC manages a particular budget function for an indirect budget beneficiary.⁶²⁸ The Councils manage budget functions for i) wages and wage-related expenses of judges/prosecutors⁶²⁹; ii) material costs (e.g., rent, utilities, gas, office materials, postal services); iii) travel expenses; iv) certain contract services (e.g., mandatory representation and expert witness services); v) current maintenance (e.g., painting and decoration, plumber services, repair of vehicles, computer equipment, furniture), and vi) fines and penalties⁶³⁰. On the other hand, the MoJ manages the budget for wages and wage-related expenses of non-judicial and non-prosecutorial staff, as well as capital expenditures.
790. Starting in the fiscal year 2016, courts and PPOs became the first indirect budget beneficiaries (IBBs) to be included in the budget execution platform (ISIB), which, until that point, had been reserved for direct budget beneficiaries (DBBs) only. Before that, almost all judicial system institutions were IBBs, meaning they had to rely on physical transfers of funds from their superior DBB – HJC/SPC and MoJ to finance their operations. These transfers were made to the sub-accounts of each institution held at the Treasury Administration, which had a web-based application to facilitate the execution of payment orders. The web application was used by the majority of judicial institutions, but others were forced to place their payment orders through the nearest Treasury branch office. Budget preparation was done through the councils and the MoJ, which collected financial plans (draft budgets) from courts, aggregated them, and adjusted them to fit expenditure ceilings set by MoF. Reporting from the accounting records held by each individual judicial institution was done directly only at the end of fiscal years to each of the superior DBBs rather than throughout the year, limiting institutions’ ability (and incentive) to manage resources proactively. It was only through an ex-post audit that the reliability of their expenditure records could be determined, and mid-year adjustments based on expenditure patterns (whether up or down) were infeasible, reducing budgetary responsiveness.
791. The use of the common budget execution platform after 2016 has not effectively added to the budgetary independence or responsiveness of judicial institutions. The budget appropriations of individual courts and PPOs are still decided from the central level (i.e., SPC/HJC and MoJ) at a detailed level in the budget, and in-year appropriation changes have to be approved centrally as well. The appropriation distribution among courts and PPOs are made based on their expressed and determined needs during the budgetary process. Procedures for altering appropriations are complex, rigid, and controlled closely by MoF. SPC/HJC and MoJ indicate that this is why they retain certain shares of the total appropriation to these institutions as undistributed. As a practical matter, this allows MoJ and the councils to increase an institution’s appropriation when necessary, but it does not add to the strategic efforts of Serbia to secure budgetary independence or responsiveness of the judicial system. However, a significant benefit of moving judicial institutions under the umbrella of ISIB has been that expenditure control mechanisms can now be applied before charges are incurred, rather than waiting for a post-doc audit of expenditures. Reporting practices also have not changed since judicial institutions still compile financial reports based on their own records and send them to SPC/HJC and MoJ, which compile and forward them to the Treasury.
792. In 2015, modifications of the BSL allowed the introduction of program budgeting across Serbia’s budgetary system, but there was little progress towards the full implementation of program budgeting, and this is true for the Serbian budgetary system as a whole. The BSL introduced many novelties, including changes in the structure of the budget and the requirement for DBBs to assess the performance of their programs. Unfortunately, in practice, this was not done, so performance assessments did not form the basis for potential adjustments to the financial plans of judicial institutions or the cornerstones of their budget preparation process. Instead, budgets continued to be prepared on an annual rolling basis, based to a great extent on previous years’ budget execution data. The Councils simply combined the budget requests from their courts and PPOs and adjusted them to the overall limits set by MoF.
793. Measuring budget performance is hindered by the lack of integration and interoperability between the CMS and financial management software, and other manual approaches to integrate financial and performance data are not evident. There is no automatic exchange of data between these systems since such functionality is not developed in either system. There is no evidence of systematically considering financial data in the context of case-related analytics – in either the court or prosecutorial system.
794. The current financing structure of Serbian courts is unnecessarily complex, creating much additional workload and confusion.⁶³¹ Although the presentation of the judicial system budget had been split into programs and projects since 2015, different segments of the budget still rested with different institutions. For instance, the budget for Basic Courts is shown under the budget chapter called “Courts”, and the heading “Basic Courts. This heading contains two projects: implementation of court activities (for which the budget is managed by HJC) and administrative support to the work of Basic Courts (for which the budget is managed by MoJ). F managed by MoJ includes only appropriations related to net wages and social contributions of non-judicial staff. The rest of the budget, including capital expenditures and other personnel expenses such as in-kind compensation, employee social benefits, awards, bonuses, and other special payments, for the activities of Basic Courts, is shown under the budget of the MoJ. A very small share of material costs and current maintenance also are financed by MoJ. While some specific capital expenditure projects related to courts are shown explicitly in the MoJ budget, the majority of appropriations for capital interventions made in favor of courts are part of a general appropriation for capital expenditure under MoJ’s budget and are not earmarked for the courts.
795. In addition to the division of authorities for different aspects of the budget, both the MOJ and HJC portions of the budget are financed from both budget revenues (i.e. source 01) and internal (‘own source’) revenues coming from court fees (i.e., sources 04 and 13).⁶³² MoJ also takes a certain portion of the court fees to finance expenditures for court proceedings. Simultaneously, capital expenditures are financed from general budget revenues but also from internal funds. MoJ is financing capital expenditures and non-wage-related personal expenses (i.e., in-kind compensation, employee social benefits, awards, bonuses, and other special payments) while they also cover a certain portion of current maintenance. Apart from the organizational difficulties and natural lack of coordination between the two budgets, such a system lacks clarity and transparency. All of the MoJ administered appropriations – wages as well as capital appropriations - are not shown under courts’ budgets but are, instead, placed within the budget of MoJ, where no distinction is made between courts and PPOs in terms of how much each of the judicial sub-systems is receiving for these purposes.
796. Budget preparation is carried out without a well-developed budget preparation information system (BPMIS). PPOs manually exchange MS Excel files through email, which represents a serious workload issue and presents a high level of risk regarding the integrity of data and general security. Courts have an information system for budget preparation, but all courts do not use it, and it lacks compatibility with the BPMIS used at the central government budget level. The introduction of a well-planned BPMIS across the judicial system should solve the operating shortcomings of current practices and also free staff to build their skills for more effective budget performance assessments; these skills would be particularly important as Serbia deals with the challenges posed by EU accession processes.
797. Procurement of large capital investment projects which are complex to process or envisage multi-year financial commitment are centralized at the MoJ. Courts and PPOs perform projects/purchases that are smaller in scale. MoJ indicates that individual institutions lack the capacity to carry out complex procurement procedures because they do not have staff dedicated exclusively to procurement.
798. Individual appropriations in the capital budget are set differently than for operating funds. MoJ not only continues to act on behalf of DBBs as well as IBBs for large capital, but budgetary funds for these purposes are retained by MoJ. Based on the limits from MoF and the aggregate needs for capital expenditures, the MoJ sets the overall volume of funds earmarked for this purpose. While courts and PPOs prepare their procurement plans, which MoJ approves, funds are not allocated in separate appropriations for courts and PPOs but are part of an overall capital expenditure appropriation under the MoJ’s budget section. Courts and PPOs are then required to file a request to MoJ to initiate the procurement procedure. After the official approval is attained, the procurement starts, and finally, the goods/services are paid at the end once the whole documentation reaches the MoJ and is checked against the Procurement Law.

Budget Levels and Sources ↩︎

Expenditure Benchmarking ↩︎

799. Serbia ranked at the high end in Europe for overall judicial system expenditure measured as a share of GDP in 2018. At the same time, it lies well below the European average when judicial expenditure was measured in per capita terms. In 2018, according to the latest CEPEJ report on efficiency and quality of justice,⁶³³ Serbia spent 0.61 percent of GDP on its overall judicial system, while the European average was 0.33 percent⁶³⁴ (see Figure 143 below). At the same time, per capita expenditure was EUR 37.4 which was well below the European average of EUR 54.6. To expend the average per capita on the Serbian judiciary, an additional 46 percent or RSD 14.8 billion would need to be appropriated.
800. The same trend was observed in other European countries with comparable GDP levels. Most of these countries were Serbia’s regional peers (e.g., Albania, Bosnia & Herzegovina, Bulgaria, Croatia, Montenegro, Romania, and North Macedonia). Within this group, the average expenditure stood at EUR 35.9 per capita and 0.49 percent of GDP, a bit lower than in Serbia.⁶³⁵

Figure 144: Total judicial expenditure, 2018, Serbia and Europe; as percent of GDP (left), per-capita (right)

Source: 2020 CEPEJ Report (2018 data) and authors’ calculations

801. The expenditure level per capita raises a question of financial sustainability. Serbia is, together with Ireland, the European country which spends the least on its court system in per capita terms. Total court expenditure was 0.50 percent of GDP. Excluding countries from the region mentioned above, the only country with somewhat comparable levels of expenditure was Slovenia, with 0.38 percent of GDP (see Figure 144 below). At the same time, Slovenia is the country with the highest per capita court expenditure with EUR 84.5, while the average lies at EUR 47.5. Figure 144 below indicates that Serbia would have to adjust its court system expenditure downwards significantly to align it with its GDP per capita level.

Figure 145: Court expenditure as percent of GDP in the context of GDP per capita, 2018, Serbia and EU

Source: 2020 CEPEJ and WB calculations

802. Compared to the court system expenditures of its regional peers, Serbia is in the mid-range of financial sustainability. The average regional GDP per capita in 2018 was EUR 7,400, while the per capita court expenditure was EUR 26.1. With the GDP per capita being close to the average (i.e. EUR 5,191), Serbia was roughly aligned with the average regional spending. The only countries which obviously were out of the average were Montenegro, which had very high per capita expenditure levels (i.e. EUR 44.2), and Albania, which seems to be underspending per capita (i.e. EUR 5.9); Croatia spends almost twice as much as Romania (i.e. EUR 40.3 versus 24) with almost identical GDP per capita.

Figure 146: Court expenditure per capita in the context of GDP per capita, 2018; Serbia and EU (left), Serbia and regional peers (right)

Source: 2020 CEPEJ and WB calculations

Figure 147: Prosecution expenditure as percent of GDP in the context of GDP per capita, 2018, Serbia and EU

Source: 2020 CEPEJ and WB calculations

803. Likewise, with EUR 5 per capita, Serbia’s prosecution system expenditures were at the very bottom when compared with EU countries, while it ranked among the top spenders when expenditure is scaled with GDP. Compared to regional countries, Serbia’s prosecution expenditure was at the average and roughly aligned with its wealth level.

Figure 148: Prosecution expenditure per capita in the context of GDP per capita, 2018; Serbia and EU (left), Serbia and regional peers (right)

Source: 2020 CEPEJ and WB calculations

Budget Execution, Trends, and Sources ↩︎

804. Expenditures on the court system have continued to grow since 2015, after a sharp decline following the public sector wage bill reduction. The court system expenditure was nearly RSD 25 billion in 2014. In 2015 the aggregate wage bill of the system was reduced significantly – by 13 percent or just short of RSD 2 billion. The reduction of the wage bill coincided with a permanent decrease in expenditures for court services due to transferring responsibilities for carrying out criminal investigation activities from courts to PPOs. The changes in the Criminal Procedure Code that introduced this change were adopted in 2013; however, it took until 2015 for these changes to operationalize and show their effect on the budget. The growth in expenditures since 2015 due not exceed the reductions in the services expenditures and the wage cut that was still in effect at the end of 2017 (i.e., 1.5 percent in 2016 and 3.8 percent in 2017).
805. On an aggregate level, in the case of the court system expenditure units, which act as IBBs⁶³⁶, there is a steady share of budgets managed by MoJ and HJC. HJC is, on average, managing around 58 percent, while MoJ is responsible for the remaining 42 percent. The reason for the stability of the shares managed by one versus the other institution is that there was virtually no shift in responsibilities over the part of the budget financed by MoJ and HJC in the observed period. The mentioned drop-in services expenditure in 2015, which is managed completely by HJC, was compensated by the higher cuts in wage bill in the part of the budget under MoJ management.
806. Court budget expenditures grew steadily from 2016 to 2019, after a sharp decline in 2015 due to moving expenses for criminal investigations to PPOs from the courts. Court system expenditures were nearly RSD 25 billion in 2014. However, in 2015 the aggregate wage bill of the system was reduced significantly – by 13 percent or just short of RSD 2 billion – as responsibility for the direction of criminal investigations was transferred from the courts to Pos in order to ensure the independence of investigations. Overall court expenditures grew by 1.5 percent in 2016, 3.8 percent in 2017, and 7.6 percent in 2018. Courts that act as DBBs, marked “independent” in Figure 148 below, are shared in the trend.
807. The shift in investigative responsibilities did not affect the relative spending by MoJ and the HJC on the IBB courts.⁶³⁷ On average, the HJC managed approximately 58 percent of the non-employee budgets for those courts, while the MoJ was responsible for the remaining 42 percent. After the 2015 transfer of investigative responsibilities, non-employee expenditures were managed completely by HJC and corresponded to cuts in the wage bills managed by the MoJ.

Figure 149: Court system total expenditures, 2014-Q2 2020, excluding expenditures financed from court fees.

Source: Budget execution reports of judicial institutions and WB calculations

808. Basic and Higher Courts absorbed most of the expenditure cut in 2015, both in relative and absolute terms. Since these two sets of courts are the largest components of the court system, their salaries constituted almost half of the entire system budget. From the total of RSD 2 billion salary decrease in 2015, 1.4 billion was taken from the wage bills of these courts. All other courts (i.e. Appellate, Misdemeanor, and Commercial) had smaller decreases in their budgets.

Figure 150: Court system total expenditure, by type of court, 2014-Q2 2020

Source: Budget execution reports of judicial institutions and WB calculations

809. Prosecutorial expenses also dropped in 2015, but this was offset starting in 2016 thanks to increases in the service-related parts of PPOs’ budgets.⁶³⁸ The increases were due almost entirely to year-end transfers from budgetary reserves to cover the significant arrears that PPOs generated each year, discussed in more detail below, and which totaled more than 600 million in 2016. The increase in expenditure levels continued at a stable pace of around 8 percent on average.

Figure 151: Prosecution system total expenditure, 2014-Q2 2020

Source: Budget execution reports of judicial institutions and WB calculations

810. Different types of PPOs had very different expenditure patterns from 2014 to 2019. All PPOs had cuts in the gross wages in 2015, but the transfer of investigative responsibilities triggered an increase in Higher PPOs expenditures from RSD 169 million in 2014 to RSD 319 million in 2015. On the other hand, Basic PPOs services were kept steady in 2015 and increased from RSD 3443 million in 2015 to RSD 518 million only in 2016. The available data did not offer an explanation of the one-year lag.

Figure 152: Prosecution system total expenditure, by type of PPO, 2014-Q2 2020

Source: Budget execution reports of judicial institutions and WB calculations

Judicial System Financing Sources ↩︎

811. The judicial system in Serbia was financed predominantly from general budget revenues. These revenues moved in the narrow range between 81.3 and 83 percent of the courts’ budgets from 2014 until 2019. and between 96.1 and 96.4 percent of the share of the budget for the prosecutorial system in the same period.

Figure 153:Total expenditure, by source, 2014-Q2 2020, court system (left) and prosecutorial system (right)

Source: Budget execution reports of judicial institutions and WB calculations

812. Collected court fees, included in the “other sources” category in Figure 152 above, made up close to 20 percent of court's budgets and only around 3.5 percent of the prosecutorial system budget. Collected court fees made up more than 90 percent of the ‘other sources’ category; the rest of the revenues in this category consisted primarily of donations, loans, and EU support used for capital projects.
813. Budgeting and expenditure allocation of own court fees is unclear. According to the Law on Court Fees (LCF)⁶³⁹, 40 percent of court fees are to be used for the current expenditure of courts, 20 percent is distributed for non-wage related expenses of public servants from courts and PPOs and capital expenditures, and the remaining 40 percent represent general budget revenue and do not serve the purpose of judicial system financing in any sense. However, court fees are shown only as a gross figure in the budget and are not explicitly distributed to the appropriations financed from this source that appear under budgets of different segments of the court and prosecutorial system. Starting from 2017, they are allocated across the budgets; for instance, each basic court and PPO knows the gross amount they will receive. However, justice institutions are still not aware of what will get financing from this source. Finally, budget execution data shows that, in practice, the mix of appropriations financed from court fees in favor of both courts and PPOs includes virtually all expenditure types. There is no mechanism to follow if the expenditure is in line with what the LCF prescribes.

Figure 154: Court fees distribution matrix

814. It is unclear what the distribution mechanisms are when allocating the financing from court fees between courts and PPOs and across individual courts and PPOs, rendering this procedure untransparent. The distribution seems to consider institutional size (i.e. staffing levels), but there is no formal argument to support this observation. To the best of our knowledge, the MoJ and HJC have not developed transparent criteria to perform these splits. It seems that the distribution of funds is performed on a need basis where MoJ decides arbitrarily on the priority level of individual requests. This should not be interpreted as an issue of improper use of funds but rather a practice that should be eliminated to increase transparency and accountability.
815. The level of court fees declined by more than 46 percent between 2012 and 2018⁶⁴⁰, after the introduction of enforcement agents in 2012 and private notaries in 2014. Court fees dropped by 26 percent from 2012 (RSD 11.6 billion) to 2014 (RSD 8.6 billion in 2014). Court fees then stabilized at approximately RSD 8 billion until legislative changes to enforcement procedures, including the introduction of enforcement agents, triggered a further drop of more than RSD 1 billion in court fees in 2017. The fall continued in 2018, in which collected fees dropped to RSD 6.2 billion.

Figure 155: Level of court fees, 2012-2018

Source: MoJ

816. In the absence of detailed records, court representatives estimated only 30-40 percent of assessed court fees were collected.⁶⁴¹ The Law on Court Fees requires debtors to be told that a court fee must be paid within eight days, and collection should be assigned to enforcement agents if it is not paid. In practice, however, these provisions were not applied. There were attempts to increase the rate of collection in recent years through changes in the Law which now allows court fees to be paid through Tax Stamps – however, the lack of records does not allow to measure the extent to which this is reflected on the collection rate. This payment method is definitely more practical, but the question remains whether it increases fee payment discipline.

Budget Structure ↩︎

817. The budget structure of the judicial system in Serbia is strongly skewed towards wage and wage-related expenses. In the case of courts, this share ranged around 68.5 percent over the 2014-2018 period (see Figure 156), while the prosecutorial system share dropped significantly over time – from 79.3 in 2014 to 70.2 percent in 2017 and started to recover to reach nearly 73 percent in 2018. This earlier drop was a result of increased service-related expenditure due to the transfer of investigation processing responsibility. The share of wage expenses in the expenditure structure of the court's system was maintained because the drop in services expenditure was matched by the decrease in wages from 2015 onwards. At the same time, the service expenditure that spilled over from courts to the PPOs system brought down the share of wages in the prosecutorial system as non-salary expenditures increased.
818. Nonetheless, the percentage of court system expenditures for wages was much lower for Serbia than it was for most other European countries and most of Serbia’s regional peers. As shown by Figure 155, wages for judges and court staff made up only 64.8 percent in 2016, compared to the median figure of 72.9 percent. Wages and wage-related expenses made up roughly 68.5 percent of courts’ expenditures from 2014-2020 (see Figure 156); the drop in expenditures triggered by the transfer of investigative responsibilities was accompanied by the drop in wage expenditures beginning in 2015.

Figure 156: Court system, share of wages, Serbia and EU, 2018⁶⁴²

Source: CEPEJ 2020 Report and budget execution reports

819. The share of wage expenses for the prosecutorial system’s budget went from 79.3 percent in 2014 to 70.2 percent in 2017 due to the transfer of investigatory expenses from the courts to PPOs and the resulting increase in non-wage expenses. However, slower growth of non-wage expenses in 2018 pushed the percentage back to just below 73 percent 2018. During 2019, however, services expenditure grew by almost 15 percent, which lowered the share of wages back to the level below 70 percent. This is also shown in Figure 156.

Figure 157: Court system (left) and prosecutorial system (right), share of wages in total expenditure, 2014-Q2 2020

Source: Budget execution reports of judicial institutions and WB calculations.

820. Higher Courts had the lowest share of wages in their expenditure structure (55 percent) since they handled more complex cases, which tended to have high service (i.e., lawyer and expert witness) costs. They were followed by Basic Courts, which had 66.8 percent spent on wages and other personal expenses. Appellate Courts, which have less demand for the attorney and expert witness fees, spend 90.4 percent of their expenditures on wages.
821. There were large variations in the wage-to-budget ratios among the same categories of courts, with courts in areas with lower populations spending a greater share of their budgets on wages. For example, the average four-year expense for wages among the Higher Courts ranged from 36.4 percent in Kragujevac to 71.12 percent in Valjevo. In the case of Basic Courts, the percentage spent on salaries ranged from 47.6 percent in Novi Pazar to 79.1 percent in Mionica. This is unsurprising as any court has certain staffing requirements, regardless of size. It also reflects less focus on capital and IT expenditures in smaller courts.

Figure 158: Court system, share of wages, per type of court,2014-2019 (average)

Source: Budget execution reports of judicial institutions and WB calculations

822. Non-wage court expenses were relatively stable from 2014-2019, except for the steady increase in penalties and fines paid by courts through the enforced collection process (discussed further below) and a decline in the share of total expenses consisting of services related to court proceedings, such as legal aid attorney fees and expert witness fees. In 2014, the ‘services’ item constituted 62.4 percent of the total non-wage court expenditure. However, the shift of responsibilities over managing the criminal investigation process between courts and PPOs resulted in a substantial decrease in these expenditures in 2015, and hence their share of total expenses dropped to an average of 47 percent in the period from 2015 to 2019. Penalties and fees were included in “other expenses,” which increased from 13.3 percent in 2014 to around 30 percent in 2017 and 2018.⁶⁴³

Figure 159: Court system, structure of current non-wage expenditure, 2014-2018

Source: Budget execution reports of judicial institutions and WB calculations

823. The shift in investigatory responsibilities left the prosecutorial system with an increase in its budget share for ‘services’ expenditure – from 70.9 percent in 2014 to almost 83 percent in 2019. The rise in services expenditures was responsible for the entire increase in prosecutorial system expenditures over the four-year period. Material costs such as utilities and office supplies, the second-largest category, remained at around RSD 180 million, so their share of expenses shrank from 22.7 percent in 2014 to 10.5 percent in 2019. Other categories of expenses included current maintenance and travel expenses as well as ‘fees and penalties’.
824. There were significant differences in the structure of expenditures among PPOs within the same category due to the varying interpretation of Article 261 of the Criminal Code and its language about the payment of costs incurred during an investigation by the courts or PPOs. In some cases, the prosecution offices took over all expenses related to the investigation, while in some, courts are the ones covering expenses if an indictment is issued. This is covered in more detail in the following section.

Figure 160: Prosecutorial system, structure of current non-wage expenditure, 2014-Q2 2020

Source: Budget execution reports of judicial institutions and WB calculations

825. There were significant discrepancies between the amount deducted from court budgets and added to PPO budgets for investigatory expenses. With some fluctuations, PPO budgets for services increased by RSD 350 million from 2014 to 2017, while the court services budgets decreased by RSD 1.45 billion in that period. This insufficient funding for PPOs triggered the acceleration of arrears. Some individual courts which retained responsibility for at least some increased expenses also had increased arrears, as discussed in the following section. This trend changed as in 2018, and 2019 services expenditure increased in both courts and PPOs compared to 2017, predominantly to settle previously accumulated arrears.
826. Capital expenditure grew almost 300 percent from 2014 to 2019, from RSD 479 million to RSD 2.3 billion. This primarily was due to the accelerated implementation of projects that had been under consideration for several years, such as the reconstruction of the Palace of Justice in Belgrade and the Judicial Building in Kataniceva, which alone account for more than a half of the entire capital budget over the period. In 2019, almost RSD 1 billion were invested in the new judicial building in Kragujevac.
827. There was substantial progress in the funding of judicial infrastructure, primarily from external sources. The 2015 addition of the capital budget section of the Budget Law enabled the MoJ to enter into multi-year contracts, which in turn allowed the development of more reliable financial plans for capital investment projects. However, there were still gaps in the capacity of the system to handle large investment projects.
828. The public investment system of the MOJ displayed the same weaknesses as the overall Public Investment Management (PIM0 framework of the Republic of Serbia. There was a pronounced pattern of weak project preparation and selection mechanisms leading to backlogs and poorly performing projects, including those financed by IFI. Overall, the system lacked formal mechanisms for pre-screening, selection, prioritization, and monitoring of projects, which undermined the execution and integrity of the processes.
829. Serbia has to continue investments in judicial infrastructure to prevent further deterioration of judicial buildings and replacement of existing equipment, as discussed in the chapters on ICT and Infrastructure Management. During the period under study, the court system capital budget went from an average of 2.3 percent during the 2010-2013 period to more than seven percent in 2019.

Figure 161: Capital expenditure, judicial system, 2014-2020

Source: Budget execution reports of judicial institutions and WB calculations

830. The MoJ managed large capital investments on behalf of all judicial institutions, while only a small portion of total capital expenditures was managed by the judicial institutions themselves. This is shown in Figure 160, above. Large capital investment projects began appearing as separate items within the MoJ budget only in 2015. However, most projects benefitted more than one judicial institution as many institutions share a single building (e.g., a Basic and Higher Court and/or both a court and PPO in the same town). Formulated as separate projects, it is possible to track their financial implementation, but since the large majority of them benefit more than one judicial institution, they cannot be allocated to any of these institutions in particular but are kept in the financial records of the MoJ. This adds to the complexity of the budgetary structure and makes it difficult to assess the budgetary performance of the judicial system.
831. Most of the MOJ-managed projects involved the construction or reconstruction of buildings; capital expenditures managed by courts and PPOs consisted primarily of capital maintenance (48 percent) and purchase of administrative equipment (45 percent).⁶⁴⁴ This is shown in Figure 161 below. The breakdown of capital expenditure is very stable over the period, with one exception in 2016 when the “other” category included nearly RSD 89 million for the reconstruction of the Basic and Higher PPO building in Sombor was reported in the budget of the Higher PPO Sombor. The remaining portion of the “other” category consisted predominantly of expenses related to preparing technical documentation for large capital projects and purchasing security equipment and vehicles.

Figure 162: Structure of capital expenditure, aggregate, average 2014-2019

Source: Budget execution reports of judicial institutions and WB calculations

832. While the Law on Court Organization⁶⁴⁵ regulated the authority over capital and current maintenance of the courts, there was no official definition of what constitutes capital maintenance assigned to the MOJ versus current maintenance assigned to the SPC. As a result, to address emergency situations, the MoJ sometimes financed work from own-source revenues, based on the provision of the Law on Court Fees which allowed that “up to 20 percent of court fees can be used for improving the material status of the employees, CAPEX, and other expenses”. The 2017 version of the Law on Organization of Courts consolidated authority for both types of court maintenance expenses in the MoJ. However, the distinction between capital versus current maintenance remains for PPOs.

Effectiveness in Budget Execution ↩︎

833. The average cost for all active cases fluctuated from 2014-2018, with variances due to wage decreases in 2015 and 2016, ending at RSD 9,038 in 2019.⁶⁴⁶ The average cost per active case was RSD 10,515 in 2014, RSD 7,442 in 2015, RSD 7,136 in 2016, and RSD 7,393 in 2017, compared to RSD 8,016 in 2018. In 2018 and 2019, the cost per case rose due to an overall increase in court budgets⁶⁴⁷and a relatively stable number of active cases.

Figure 163: Aggregate cost per case per court category, 2014-2019

Source: Budget execution reports of judicial institutions and WB calculations

834. Almost all types of courts brought their average cost per case down in the observed period. The primary sources of the decrease for Higher and Basic Courts from 2014 to 2015 were the drop in salaries and the drop in the cost of criminal cases once the investigative responsibilities were transferred to PPOs. By 2018, as a whole, the expenses of Higher Courts were less than 50 percent of their expenses in 2014, based on the overall drop in expenditures and the consistent increase in active (incoming plus unresolved) cases. Thus, costs in the Higher Courts were not reduced because of efficiencies but rather because of an increase in unresolved caseloads. Basic Courts stabilized their expense per active case at RSD 11,000 from 2017 onwards. Their average number of cases was 916,000, without any significant annual fluctuations.
835. There were significant variations in the per-case expenditures of individual courts within the same categories. The expenditures for Higher Courts from 2014 to 2019 ranged from RSD 12,236 on average for HC Leskovac to as much as RSD 37,805 in HC Negotin.⁶⁴⁸ For Basic Courts, the differences were even higher. The minimum average expenditure per case was recorded in BC Lebane (RSD 5,944), while BC Valjevo had the largest expenditure level of RSD 21,192.
836. In addition to possible inefficiencies within particular institutions, different treatment of the split of investigation-related expenses between the courts and PPO probably accounted for much of these discrepancies. These differences are not being examined to ensure consistency. Article 261 of the Criminal Code defines criminal procedure costs as including “awards” to service providers (i.e., lawyers and expert witnesses) along with other costs, such as travel and material costs (e.g. utilities, office supplies). The article also specifies which expenses should be paid in advance of the investigation process by “the institution managing the process”, but there were different views of when the expenses should be paid and which institution should pay. In some districts, PPOs paid the investigation expenses they incurred regardless of whether an indictment was issued or not. Other courts and PPOs, however, operated on the principle that once an indictment was issued, the court became the “managing institution” and was responsible for paying investigation expenses.
837. Responsibility for examining these vast differences in per-case costs has not been taken on by any governance institution. The additional data are now available to evaluate cost per case by type of institution should be utilized by MoJ and the Councils to examine where efficiencies might be realized.
838. The court system could not track cost-per-case trends in the system or review other aspects of system performance as there are inadequate systems to do so. Since there was no interoperability between CMS and budget execution systems, it was not possible to systematically link expenditure items to cases based on their type, duration, number of parties involved, etc., and the HJC and other authorities were severely hampered in their ability to spot and address inefficiencies of different courts, or set standard ranges or limits for expenditures for various case types or within different levels of courts.
839. The court system finally cut its arrears significantly in 2015 through a one-time intervention of allocating funds from the budgetary reserve. Serbia’s Budget System Law prohibits agencies from incurring liabilities that exceed current appropriations; these liabilities are defined as arrears. Arrears represented 11.5 percent of total expenditure at the end of 2013 and only 1.5 percent at the end of 2018. The assumption of responsibility for criminal investigation expenses by PPOs was a major factor in the accumulation of more arrears by the courts after the 2015 intervention.

Figure 164:Court system arrears, end of period, 2014-Q2 2020, quarterly data

Source: Quarterly arrears reports of HJC

840. Judicial authorities and the MoF also made less successful attempts to tackle the issue of arrears and prevent them from growing again. In 2015, the HJC issued an Act that intended to have all courts in the system pay invoices for services rendered in the criminal proceedings (the largest source of arrears in the system) within 60 days. However, the requirement of payment within 60 days already was part of the 2012 Law on Deadlines for Payments in Commercial Transactions (LDPCT), so the 2015 Act effectively only clarified when the 60-day period began. Greater monitoring of timely payments is not in place.
841. Lawyer and expert witness fees represented the largest sources of arrears in the prosecutorial system and required more examination and control. For both courts and PPOs, these fees fell within ‘services,’ which also included costs for postal services, fees for lay judges, arrest services, and compensation for lawyers and expert witnesses providing their services during a trial.

Figure 165: Breakdown of arrears by type, end of period, 2014-2019

Source: Quarterly arrears reports of HJC

842. The process of assuming commitments in courts and PPOs generally was straightforward. Judges or prosecutors verified service invoices for court proceedings and issued orders for payment of the invoices. Once it was approved (and assuming the service provider did not challenge the amount approved), the invoice was payable and represented a liability of the court or PPO.
843. The budget execution system did not require pre-approval of commitments from budget authorities or the other procedures that could have prevented the accumulation of excessive arrears. In addition, the assumptions of commitments were not recorded against the relevant appropriations, so there was no real-time tracking of the accumulation of arrears.
844. The enforced collection as a mechanism for settling outstanding invoices was not used uniformly against all courts. As confirmed by chief accountants of several courts and PPOs, individual lawyers and expert witnesses make decisions about whether to force collections. Lawyers and expert witnesses may hesitate to exercise this right because they fear courts may cease engaging them. Although courts and PPOs claim that lawyers are called for mandatory representation according to an alphabetical list, in practice, there is nothing stopping judges and prosecutors from calling a lawyer of their preference. The same is true for expert witnesses. Such issue is more pronounced in large courts and PPOs where the market for lawyers and expert witnesses is abundant.
845. One important feature of the LDPCT is it allowed the debt of public sector entities to be settled through the enforced collection. The introduction of enforcement agents, which coincided with the LDPCT, set the stage for settling judicial institutions’ debt through this mechanism. Interviews confirm that most of the arrears come from debt to lawyers and expert witnesses combined with benefits that accrue to lawyers during the process of enforced collection, creating a network of incentives that boosts such practice. There is an estimated 30 percent of unnecessary expenses on top of original debt when an enforced collection is used to settle invoices. These funds consist of various penalties and fees paid to the bailiff, lawyer, NBS, court, etc.⁶⁴⁹
846. Commitments are recorded in two parallel ways – manually (i.e. in notebooks or in MS Excel spreadsheets) and in the accounting software used across the judicial system (ZUP). Both courts and PPOs lack proper incentives to use ZUP since they report on their financial operations on a cash basis. Reporting on arrears happens through a separate procedure. Hence, it seems that the most accurate records are kept manually. The lack of interoperability of these ‘sources’ of commitment and arrears records and BEX creates a world of opportunities for excessive accumulation of uncovered commitments which result in arrears growth.
847. Although the stock of arrears is reported to HJC and SPC quarterly, the accuracy and completeness of those figures are questionable as it highly depends on the financial awareness and responsibility of judicial staff. As a result, accounting departments of courts and PPOs find out about a portion of their unsettled bills only after they get paid through the enforced collection. In practice, there are many cases when judges or prosecutors never notify their accounting departments of an invoice or wait until the end of the process to do that. A large portion of such invoices ends up being settled through the enforced collection. Sometimes it even happens that invoices are not settled regularly based on a verbal agreement between the judge and service provider (i.e., lawyer or expert witness) that it will be settled through enforced collection. It is obvious that such examples of blunt disregard toward the financial aspect of judicial function should be completely eliminated.
848. The reduction in arrears seen in the 2014-2019 period is, thus, partially due to an increase in them being settled instead through the enforced collection, which is very costly and ineffective. This only magnifies operational risks associated with arrears generation as it complicates relationships with main service providers during investigation and trial procedure. The FR team found out through interviews with judges and prosecutors that, for instance, expert witnesses, who are limited in number, are becoming reluctant to provide their services because of the difficulty and uncertainty around settling their invoices. These situations are more common in courts and PPOs occupying smaller territories.
849. Lack of data exchange (i.e. interoperability) between accounting and financial systems on the one hand, and CMS on the other, undermine efforts to obtain comprehensive, accurate, and reliable financial information. If these systems were interconnected, engaging a lawyer or expert witness would be an activity recorded in the CMS, which would flow to the accounting system as an account payable. From there, it would flow to the budget execution system, where such commitment would be recorded and appropriate appropriation encumbrance made. Although this is not easily attainable as it requires joint effort from many parties (primarily MoF), achieving interoperability between these platforms would prevent arrears accumulation and add significantly to the quality of service delivery across the whole system.
850. Budgets of judicial institutions should only be enhanced once these institutions demonstrate awareness of the volume and type of their financial operations. In other words, there has to be a standard way of determining how much it costs to run a judicial institution in Serbia with a certain number of judges/prosecutors handling a certain number and types of cases. Only in these circumstances can the requests for additional funds coming from judicial institutions be assessed and decided properly. Increasing the budgets of courts and PPOs linearly or continuing the practice of settling their debts at year-end with a one-off outlay from the budget reserve is not a solution. In fact, this represents a ‘reward’ for those who act irresponsibly and assume financial commitments beyond what they are allowed to. On the other hand, the more prudent institutions are discouraged from continuing to act responsibly.

Recommendations and Next Steps ↩︎

Examples of recommendations that inspired some reform activity over the past seven years are: i) regular reporting on arrears and settling existing levels of arrears, and ii) introduction of a binding interpretation of financial responsibilities for the costs of investigations. The majority of 2014 Functional Review recommendations in data management, court fees collection, commitment and arrears management, in-year budget management, and financial responsibilities within the judicial system have not been implemented. Although there is clear evidence of efforts made to address the issues of budgetary responsibility and arrears management, these efforts were far from sufficient to resolve them.

Recommendation 1: Improve the financial management infrastructure and institutional framework to enhance operations, improve transparency and efficiency, and add to the budgetary independence of judicial institutions.

• Increase awareness of judges and prosecutors about budgetary matters and public financial management in general. This is the key to achieving better cost-effectiveness across both court and prosecutorial systems. (HJC, SPC – short-term)
• Simplify the management structure of the judicial system budget. This can be achieved by transferring the budget responsibilities of MOJ to HJC and SPC, with the exception of capital budget management, which should remain with MOJ because of: (1) MOJ’s greater capacity related to procurement and (2) the challenge of allocating such costs and responsibilities over multiple institutions occupying the same facility. (MOJ, SPC, HJC, MOF – short-term)
• Introduce a standardized Budget Preparation Management tool (i.e., software) across the entire judicial system, which is fully compatible with the existing BMPIS used by MOF. (MOJ, SPC, HJC, MOF - medium-term)
• Further strengthen the capacity to manage capital investments. In order to maintain and improve current capital expenditure levels, MOJ’s staff skill set needs to be enhanced in the following areas: project preparation, appraisal and selection, and management and monitoring of project implementation. Formulate and introduce project selection and prioritization methodology. (MOJ – medium-term)

Recommendation 2: Strengthen the budget execution process to enhance financial data integrity and completeness, improve current-year monitoring capacities, and ensure standardization and consistency in budget execution.

• Clarify the financial responsibilities of courts versus PPOs within the criminal investigation procedure by modifying article 261 of the Criminal Code and formulating accompanying bylaws to further clarify the issue and ensure consistency in costing. (HJC, SPC – short-term)
• Optimize and standardize all elements of invoice processing (i.e., define precisely the document flow) across judicial institutions to avoid excessive arrears accumulation and eliminate invoice settlement through the enforced collection. (HJC, SPC – medium-term)
• Ensure accuracy and completeness of accounting records within ZUP. This would eliminate the need for keeping parallel manual records of various accounting categories for different purposes. (Courts, PPOs, HJC, SPC, MOJ – short-term)
• Increase the insight of MOJ, SPC, and HJC into aggregate accounting categories in ZUP to enhancetheir in-year analytical focus and inform budgetary policy adjustment/formulation. (MOJ, HJC, SPC - medium-term)
• Enable data exchange (i.e., enable formulation and transfer of payment request and retrieval of transaction settlement information) between ZUP and the budget execution system. (MOJ, HJC, SPC – medium-term).
• Gradually reduce the “buffers” (i.e., reserves) from appropriation management. Increase the financial responsibility of judicial institutions by allocating the full amount of their annual appropriations at the beginning of the year. (HJC, SPC – medium-term)
• Increase transparency of allocation of court fees across courts and PPOs. The subjectivity in distributing the shares of court fees by MOJ and HJC should be eliminated through the introduction of a coherent and comprehensive allocation methodology in line with the Law on Court Fees. (MOJ, HJC – medium-term)

Recommendation 3: Strengthen the budget preparation process. Since budgets of judicial system segments are not based on performance-related criteria, they cannot be used to assess performance, which is the cornerstone of responsible budget management. The following recommendations are designed to: i) enable judicial authorities to determine a credible baseline budget, ii) formulate their budgets based on case-related performance criteria, and iii) measure performance in order to inform decision-making based on reliable data.

• Ensure interoperability between CMS, the budget execution system, and the budget preparation system. Ensuring data exchange between them is an instrumental precondition for introducing performance-based budgeting. (HJC, SPC, MOJ – medium-term)
• Introduce case-costing methodology. This methodology should be able to answer the question of what is an expected range of costs for different types of cases and thus feed into the budget formulation process. (HJC, SPC – medium-term)
• Introduce performance-based budgeting. Develop a baseline budget based on the data retrieved from the CMS and the case-costing methodology. Analysis of the budget will subsequently enable cost-effectiveness and free up resources for other purposes. (HJC, SPC – medium-term)
• As a transitional measure, engage with MOF to gradually increase the investigation services budget. At present, arrears are settled by one-off increases in judicial budgets at the end of the year. This amount should be made available at the beginning of the year to avoid unnecessary fees and penalties paid by courts and PPOs in the process of enforced collection. (SPC, MOF – short-term)