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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, Representative of the IMF Managing Director,
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.
Also in attendance were the following:
International Monetary Fund:
Ms. Mary Hoare, Officer, IMF Finance Department
Mr. Moses Bamuwamye, Finance Officer
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 and SIGIR
Mr. Joseph Benkert
Mr. Brian Flynn
Invitees from the United States Department of State
Mr. Joshua Voltz
The meeting was opened by the Chair.
- The agenda for the meeting was unanimously adopted in the executive session.
Transition of Oversight
- The members discussed the continuation of audit oversight of the DFI and oil export sales following the IAMB’s anticipated dissolution at the end of 2005. Building on the provisions of the financial management law, IAMB members agreed that an oversight body should be set up by the Government of Iraq that would be independent, competent and professional to ensure the continuation of external audits of the DFI.
Special Audit of the Sole Sourced Contracts
- KPMG and staff from the Special Inspector General for Iraq Reconstruction (SIGIR) reported on the special audit of sole sourced contracts. These reports have been posted on the IAMB website at (www.iamb.info).
- The special audit of sole sourced contracts called for:
- identifying all non-competitively CPA awarded contracts valued at over $5 million that used DFI funds;
- providing a summary of the findings of audits of such contracts that have already been conducted by various US Government audit agencies; and
- conducting additional audit procedures on non-competitively awarded contracts that have not been the subject of audit, including whether such contracts were in accordance with the purposes outlined in UN Security Council Resolution 1483.
- As mentioned in the minutes of the previous meeting, the US Government had informed the IAMB that KPMG LLP had been selected in April 2005 to undertake the special audit of sole sourced contracts that were funded from the DFI. In September 2005, the US Government informed the IAMB that KPMG had determined that a potential conflict of interest had arisen in respect of auditing the sole source contract awarded to Kellogg, Brown and Root (KBR) due to KPMG’s existing client relationship with Halliburton, the parent company of KBR and had recused itself from auditing the KBR contract. In light of this, the US Government informed the IAMB that it had requested the assistance of the US Special Inspector General for Iraq Reconstruction (SIGIR) to perform the procedures of the special audit with respect to the sole source contract awarded to KBR.
- The IAMB regretted that KPMG had recused itself from conducting the KBR part of the audit only after it had been awarded the audit contract. The IAMB also regretted the fact that it was informed very late by the US Government of the recusal of KPMG and the appointment of SIGIR to conduct the audit of the sole sourced contract relating to KBR, and that the IAMB had not been consulted in this matter. This did not make it possible for the IAMB to pursue alternatives within the available timeframe.
- Of the 24 contracts (value $1.963 billion) identified as sole sourced, 23 (value: $0.563 billion) were audited by KPMG and one (value: $1.4 billion) was audited by SIGIR.
- The KPMG audit revealed exceptions in a number of cases including: i) insufficient documentation to justify non-competitive contracting; ii) lack of support for the provision of services or receipt of goods; and iii) discrepancies in the amounts billed.
- The SIGIR report revealed that: “the non-competitive award of contract…to Kellogg, Brown and Root, was properly justified”. The contract is a cost-plus award-fee indefinite delivery, indefinite quantity contract. Determination of fair and reasonable costs for such contracts, according to SIGIR, is made upon “definitization” of each task order. Six task orders used DFI funds. One of the six task orders has been “definitized” and the costs were determined to be fair and reasonable. The remaining 5 task orders have not been definitized and the process to substantiate expenditures, amounting to $208 million, which has been questioned by the US Defense Contract Audit Agency (DCAA) is still ongoing. The IAMB also noted a key finding in the audit report stating that: (i) the contractor’s proposals as submitted were not acceptable for negotiation of a fair and reasonable price; (2) supporting data for subcontract costs were not always adequate; and (3) proposals were not prepared in all respects in accordance with applicable Cost Accounting Standards and appropriate provisions of the US regulations.
- The IAMB was also informed that $1.2 billion out of the $1.4 billion earmarked for the Kellogg, Brown and Root (KBR) contract had already been disbursed from the DFI. Given the amounts involved and the length of time that this process is taking, the IAMB recommended that the US Government seek resolution with the Iraqi Government concerning the use of resources of the DFI which might be in contradiction with the UN Security Council Resolution 1483 (2003) and that the amount disbursed to contractors that cannot be supported as fair be reimbursed expeditiously.
External Audit of the IAMB
- The IAMB received draft reports of the audit covering the period from January 1, 2005 to June 30, 2005 and a briefing by KPMG. The audits were conducted under the oversight of the IAMB, in line with its terms of reference, and the provisions of UN Security Council Resolution 1546, and are available on the IAMB website
- The IAMB noted that the audits of the accounting of the DFI resources, oil export sales, and the transfers to spending ministries continue to be critical of the overall financial control framework that is currently in place. The reports continue to highlight numerous exceptions to the administrative procedures. The IAMB reiterated its earlier recommendations with respect to addressing these concerns.
- The IAMB was informed that KPMG continued to face certain lack of cooperation among some ministries and required the intervention of the Ministry of Finance to conduct/complete its work.
Report by the Iraqui Representative on the Implementation of the Recommendations from Previous Audits
- The member representing the Government of Iraq briefed the IAMB on steps taken by his government to address the concerns that were raised by the IAMB and KPMG with regard to previous audits of the DFI. The report has been posted on the IAMB website (www.iamb.info). Specific actions taken by the Government of Iraq include:
a) Basic Frame work
The Member reported that audit and oversight responsibilities have been addressed in the new constitution whereby the Board of Supreme Audit and the Integrity Commission will report to the General Assembly. Other control measures have been addressed in the Financial Management Law including the publication of financial reports of oil revenues.
b) Administrative Policies
i) The IAMB was informed that the problem of lack of reconciliations between the Ministry of Finance and the spending ministries has been addressed going forward. A special department has been set up to monitor and reconcile fund movements between ministries;
ii) While acknowledging the problems encountered in the closing of the 2003 accounts, the member informed the IAMB that 2004 had been closed and the financial statements for 2004 will be presented as soon as the 2003 audit is finalized.
iii) The IAMB was also informed that financial rules and regulations to govern disbursement of allocated funds had been issued and circulated to the relevant ministries. In addition, training and development of finance personnel was being intensified.
c) Controls in the Ministry of Oil
- On the issue of metering, the IAMB was informed that an agreement had been reached with a US company to undertake the task.
- The IAMB was informed that other control weaknesses in the Ministry of Oil are being addressed by the Board of Supreme Audit in conjunction with the ministry itself.
d) Effectiveness of Internal Control
- The IAMB was informed that the Board of Supreme Audit had established a separate department to deal with the recent audits and investigations including KPMG audits of the DFI, SIGIR reports, DCAA reports, Ernest and Young reports on the Oil for Food Programme, and the Independent Investigation Committee reports on the Oil for Food Programme.
- The IAMB agreed on a press release.
- The IAMB decided to hold its next, and last, meeting at the United Nations Headquarters in New York in December 2005.