VZCZCXRO7307
PP RUEHPOD
DE RUEHPOD #0167/01 1361613
ZNR UUUUU ZZH
P R 161613Z MAY 07
FM AMEMBASSY PODGORICA
TO RUEHC/SECSTATE WASHDC PRIORITY 0229
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHPOD/AMEMBASSY PODGORICA 0242

UNCLAS SECTION 01 OF 03 PODGORICA 000167 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR OASIA/IDB:S.ALTHEIM 
STATE FOR EEB/IFD/ODF:M.SIEMER 
 
E.O. 12958: N/A 
TAGS: EAID EFIN MARR MW
SUBJECT: TRANSPARENCY OF MONTENEGRIN MILITARY SPENDING 
 
REF: STATE 61929 
 
¶1. (U) This cables responds to requests for information in Ref. 
Montenegro only established its Ministry of Defense in November 
2006, following independence in June 2006.  A number of key laws 
in the defense area remain in draft, such as the Law on Defense, 
the Law on the Armed Forces, and the Law on Military Doctrine. 
The GoM understands the importance of transparency in military 
budgeting and spending, but the laws and procedures are still 
nascent. 
 
 
 
¶A. General Overview of Auditing Procedures 
 
--------------------------------------------- 
 
 
 
¶2. (U) The first Montenegrin budget to include defense 
expenditures was adopted in December 2006. 
 
 
 
(i) On the Basis of the Law on Budget, the Department for 
Financial and Economic Affairs of the Defense Ministry is 
responsible for procurement, and oversight of spending within 
the Ministry. The Minister of Defense has authorized his deputy 
(currently one, another may be added) and the Chief of Staff to 
approve financial transactions on behalf of the Defense 
Ministry. 
 
 
 
The funds are spent according to the specific purposes and the 
various needs at the level of the sectors. Each of the six 
sectors in the Defense Ministry comes up with spending proposals 
in accordance with defined needs. 
 
 
 
Within the Defense Ministry there is a Department for Property 
and Legal Issues to ensure compliance with the law during the 
procurement procedure, specifically the Law on Public 
Procurements. However, procurements of weaponry are carried out 
by the closed tenders. 
 
 
 
(ii) The expenditures of the Defense Ministry are internally 
audited by the Financial Department of the Defense Ministry. The 
Financial Department consists of two Bureaus: Bureau for 
Analytical Planning and the Bureau of Financial and Economic 
Affairs. According to the existing regulations, Defense Ministry 
has also envisaged an (additional) Inspection and Internal 
Control Bureau which has not yet become functional. 
 
 
 
All payments of the Defense Ministry are made through the 
Treasury of the Finance Ministry. All six sectors within the 
Defense Ministry are required to submit reports to the Financial 
Department of the Defense Ministry before and after payments. 
The Bureau of Analytical Planning is required to assess the need 
for the item or service which is to be purchased while the 
Bureau of Financial and Economic Affairs is responsible for 
auditing the financial transactions. 
 
 
 
Military expenditures will also be externally audited annually 
by the State Audit Institution, an extant independent body. The 
Institution audits all central government expenditures. Post 
considers the Institution to be a functioning system. 
 
 
 
(iii, iv) Audits conducted by the State Audit Institution are 
required to be provided to the Parliament. The ministers of the 
various ministries all receive copies of the requests as well. 
The Minister and Deputy Minister of Defense are civilians 
(neither were career military, or general officers). 
 
 
 
Within the Defense Ministry, the audits are further reviewed by 
the Defense Ministry's Financial Department, with 15 civilians 
and five military. 
 
 
 
 
PODGORICA 00000167  002 OF 003 
 
 
(v) There is an existing framework for conducting annual audits 
of government expenditures.  With the relevant laws on the 
defense sector still in draft, Montenegrin law at this time does 
not explicitly include military expenditures among the 
government expenditures to be audited. Post fully expects that 
the law will subject military expenditures to the same auditing 
requirements as other government expenditures. Passage of the 
relevant laws is expected in 2007, in time to permit auditing of 
the first defense budget, passed in December 2006. 
 
 
 
The existing framework is regulated by: Law on Public 
Procurements, the Decree on Compensation of Travel Expenditures 
for Army, and the Decree on Earnings of Civil Servants. Fiscal 
year lasts until December 31, and the Annual Balance Sheet is to 
be submitted the following year, by April 1. 
 
 
 
 
 
(vi) Government policy requires annual audits of all funds 
received by the government, to include the military.  Again, 
with the relevant laws on the defense sector still in draft, 
Montenegrin law at this time does not explicitly include 
military receipts among the government receipts to be audited. 
Post fully expects that the law will subject military receipts 
to the same auditing requirements as other government receipt. 
 
 
 
Deficiencies in the auditing of military expenditures and 
receipts are the result of delays in passing relevant 
legislation. The parliament has deferred such legislation until 
the Republic of Montenegro adopts its first constitution as an 
independent state. Adoption of the constitution has been delayed 
by non-defense related issues. 
 
 
 
Additionally, the Defense Ministry is still lacking some human 
resources in almost all segments of its activities. 
 
 
 
(U) B. The Military Budget And On-Budget And Off-Budget Revenues 
And Expenses 
 
--------------------- 
 
 
 
¶3. (U) (i) The defense budget of the Republic of Montenegro 
includes only outlays for the armed forces. Security forces, 
mainly police, are funded under a separate budget. 
 
 
 
(ii) To post's knowledge there are no significant off-budget 
military receipts. Montenegro is decreasing the size of its 
military, and disposing of excess property and equipment 
(including weapons). Proceeds from the sales are publicly 
disclosed and recorded as government revenue. 
 
 
 
¶C. THE MILITARY COMPONENT OF THE NATIONAL BUDGET 
 
--------------------------------------------- ---------- 
 
 
 
¶4. (U) (i) Defense expenditures in 2007 are 2.04 percent of GDP, 
according to the GoM May 2007 NATO Presentation Document. In the 
mid-term, the GoM has stated a goal of keeping defense 
allocations at the 2 percent of GDP level. The GoM seeks to 
pursue defense reform, "without putting at risk the living 
standards of the citizens and our economic growth." 
 
 
 
(ii) A Security Oversight Board was established in the 
Montenegrin Parliament in late 2005. With Montenegrin 
independence, Defense issues were added to its mandate. The 
Board includes MPs from the ruling coalition and the opposition. 
The Board reviews defense and security policy, including 
funding, and makes recommendations to the Parliament at large. 
The annual GoM budget, including defense and security, is 
proposed by the Government and passed into law by the 
 
PODGORICA 00000167  003 OF 003 
 
 
Parliament. The budget is published, and posted on the GoM 
website.  The fiscal year matches the calendar year. 
BARNES