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The following members of the IAMB were present:
Arab Fund for Economic and Social Development: Mr. Khalifa Ali Dau, Senior Financial Advisor,
International Monetary Fund: Mr. Bert E. Keuppens, Director of Internal Audit,
Government of Iraq (IGI): Adviser, Ministry of Finance,
United Nations: Mr. Jean-Pierre Halbwachs, Representative of the UN Secretary-General,
World Bank: Mr. Fayezul Choudhury, Vice-President and Controller (via Video Conference).
Also in attendance were the following:
International Monetary Fund:
Ms. Mary Hoare, Officer, IMF Finance Department
Mr. Jayantilal Karia, Director Accounts Division
Mr. Moses Bamuwamye, Finance Officer
Mr. Charles McDonough, Alternate Member (Via Video Conference)
Ms. Caroline Harper, Lead Operations Officer
Government of Iraq:
Alternate Member, Chartered Accountant/Auditor
President, Board of Supreme Audit (BSA)
Invitees from the United States Department of Defense
Mr. Victor Rostow
Mr. Adam Lovinger
Invitees from the United States Department of State
Mr. Joshua Voltz
Special Inspector General for Iraq Reconstruction (SIGIR)
Mr. Joseph McDermott
- The meeting was opened by the Chair.
- The agenda for the meeting was unanimously adopted.
AUDIT OF THE DFI
1 June to 31 December 2005
- Ernst & Young presented the draft audit reports on the audit of the DFI for the period 1 June to 31 December 2005.
- The audit reports continue to be critical of the financial and accounting control systems in place in the spending ministries, the US agencies in respect of the outstanding commitments using DFI resources, and the Iraqi administration of DFI resources.
- The audit reports note in particular that the DFI overall control systems are ineffective, inter alia, due to (i) the lack of written policies and procedures and adequate governance arrangements, (ii) the focus on basic daily transaction controls rather than the overall control environment, (iii) staff who are not properly trained to deal with the nature and complexity of DFI transactions, and (iv) an ineffective internal audit function for the DFI.
- The audit reports recommend that the DFI's internal control system and governance arrangements be developed, for instance, by the appointment of a fund manager to direct the overall DFI activities, the establishment of an executive committee to oversee the DFI operations, and training of DFI staff in basic internal controls.
- The Board decided to urge the Government of Iraq to take concrete steps to address the audit findings and recommendations to ensure that oil resources are better protected.
- A summary of the preliminary results of the audit will be posted on the IAMB website. The final audit reports will be posted when received.
- Subsequent to the meeting, the representative of the Government of Iraq communicated the following clarification and view on the findings of the audit to the IAMB:
"The Iraqi representative on the IAMB thanks the independent auditor for the DFI accounts for the period 1 st July to 31 st December, 2005 for his objective and comprehensive audit reports. The comments and observations raised in these reports will be studied and investigated intensively by the Iraqi Board of Supreme Audit in conjunction with the related Iraqi ministries and institutions and a formal response to the audit reports will be issued and made public in due course. In the meantime, however, and to redress any imbalance in impressions which audit responds may convey, the Iraqi representative wishes to make the following initial comments, particularly in relation to the auditor's report on spending ministries.
"The auditor's comments on the overall control systems in the Iraqi Government institutions are too sweeping and encompassing all Government institutions to be wholly accurate. While it is agreed that IT technology and internal control procedures used are outdated, this weakness is not applicable to all institutions and not in the same degree. The same reservation may be applied to the auditor's comment on payroll systems. It is, simply, not true that all payment payroll sheets are prepared manually. Many Iraqi institutions, including state owned companies, have been using computerized payroll systems for a long time.
"Furthermore, the auditor's comments about procurement and contracting are too encompassing to be wholly reflective of actual practices. The Ministry of Planning, as an example have issued binding instructions about basic aspects to be observed in drawing up and negotiating contracts including general conditions of contracts. There may be some cases of non compliance, but it is not wholly accurate to say that there are no unified systems and no formal standard procurement contracts in all government institutions.
"The observation that payment of medium and long term procurement contracts are made in advance upon opening Letters of Credit is not correct. Again, there may have been many cases of non-compliance with general rules (payments according to progress of work and any advance payments must be covered by bank guarantees) but the generality of this observation is an exaggeration and can be misleading. Similar sweeping and exaggerated comments are made by the auditor in respect of budget preparation process.
"The above Iraq representatives' initial comments do not in anyway belittle the usefulness of the auditor's comments nor reduce the importance of his observations. The Iraq representatives' comments are intended to avoid misconceptions until a formal response to the auditor's reports is issued."
- The IAMB concurred with the Representative of Iraq that the next audit of the DFI should cover the period January–December 2006 with an interim audit for the period from 1 January–30 June. The IAMB approved the reappointment of Ernst & Young as the DFI auditor for 2006.
FOLLOW UP ON THE IMPLEMENTATION OF THE RECOMMENDATIONS FROM THE PREVIOUS AUDITS
- The IAMB was briefed on the progress the Government of Iraq had made in implementing the previous recommendations of both the auditors and the IAMB. The Iraqi representative undertook to provide the IAMB with a comprehensive written status report on the implementation of audit and IAMB recommendations at the next IAMB meeting.
FOLLOW UP ON THE RESULTS OF THE SPECIAL AUDIT OF SOLE-SOURCED CONTRACTS
- The IAMB was briefed by representatives of the United States Department of Defense, KPMG and Crowe Chizek on (i) the review of the settlement between Kellogg, Brown and Root (KBR) and the US Government, and (ii) the further review of other sole-sourced contracts using DFI resources. The follow-up audit of sole-sourced contracts by KPMG is scheduled to be provided to the IAMB by the end of September.
- The IAMB was informed that the US Government was finalizing the contract with Crowe Chizek, the audit firm selected to complete the review of the KBR settlement. The IAMB was subsequently informed that the contract for the work has been signed.
- The IAMB urged the expeditious completion of these special audits and expected to be provided with draft reports in advance of the next IAMB meeting.
- The IAMB was informed by the Iraqi representative that steps are being taken to establish an Iraqi oversight body to succeed the IAMB with a formal handover of responsibilities in December 2006.
- The members agreed on a press release.
- The next meeting of the IAMB has been tentatively scheduled for 30–31 October 2006.
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