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[Transcript prepared from a tape recording.]
MR. MURRAY: Just a few housekeeping items before we get going. Again, good afternoon. Thanks for coming today. I'm Bill Murray, Deputy Chief Press Officer at the IMF.
This is a briefing of the International Advisory and Monitoring Board on Iraq, of which the IMF is a member. It is IAMB's first briefing since its inception. And although IAMB is currently chaired by the U.N., we're holding this briefing here at IMF headquarters principally because IAMB convened its latest meeting here. So this is a venue of convenience.
The Chairman will be elaborating on the latest meeting in a minute, and I'm sure IAMB's representatives are looking forward to this opportunity to walk you through the initial independent audit of the Development Fund for Iraq.
Just let's go over ground rules a little bit. This briefing, along with the documents that we've posted on the IMF password-protected website are under embargo until 4:30 p.m. today. That's 2030 GMT. I believe we're webcasting this briefing now as well, so the embargo is also in place for those persons watching on the webcast.
Now, let me just briefly introduce the speakers today.
To my immediate right is Fayezul Choudhury, who is the Vice President and Controller at the World Bank.
Next to Fayezul is Jean-Pierre Halbwachs, who is the Assistant Secretary-General at the United Nations and is the Chairman of IAMB. Jean-Pierre will have some opening remarks before we take questions.
Seated immediately to Jean-Pierre's right is Bert Keuppens, a Senior Advisor in the Finance Department at the IMF.
Next to Bert is Mr. Khalifa Ali Dau, the Senior Financial Advisor at the Arab Fund for Economic and Social Development.
These are the representatives of the institutions to IAMB.
Now, let me turn the table over to Jean-Pierre.
MR. HALBWACHS: Thank you. Good afternoon, everybody, and thank you for coming to this briefing. Before we take questions on the audit reports that have been submitted by KPMG, let me briefly review some of the findings in the reports and what the International Advisory and Monitoring Board on Iraq or the IAMB is doing.
As Bill mentioned, this is our first briefing by the IAMB. We had wanted to do a briefing, but we wanted to wait until the KPMG report was out so we had something of substance to present and discuss. And it is our intention to be transparent in the handling of our audit responsibilities.
I think I would anticipate that we will have further briefings down the road, when appropriate, on the technical aspects of the audits of the Development Fund, over which we, as a Board, have oversight responsibility.
We met yesterday and today at the IMF, and I would like to thank IMF for hosting this meeting. And we were presented with the first reports by KPMG covering the audit of oil export sales and the Development Fund for Iraq's operation from inception to the end of December 2003, an audit which had, following our approval, been commissioned by the Coalition Provisional Authority last March. The audit reports, as Bill mentioned, will be published later today on our own website, together with a statement from us regarding the initial findings.
We reviewed the IAMB reports during the last 2 days of meetings here. And we also had the benefit to have with us the person that the interim Government of Iraq has designated as a full-time member of the IAMB. Prospectively, as you know, Resolution 1546 has decided that the IAMB should be enlarged and have a member designated by the Government of Iraq.
I will come back in more detail later on this, but let me start by saying that, with regard to the audit, that KPMG has concluded that all of the known oil proceeds, the reported frozen assets and the transfers from the Oil-for-Food program have all been properly and transparently accounted for in the DFI for the period that ended in December 2003. I think this is an important finding.
We, in IAMB, commenced our operation in 2003 as an audit oversight body for the DFI, and that was pursuant to Resolution 1483 of the Security Council. The mandate and membership of our Board has, as I've mentioned, been extended by Resolution 1546. And the resources of the DFI, which are now controlled by the interim Government of Iraq. We function like an Audit Committee in accordance with international best practices.
And our mandate, we oversee audits conducted by accounting firms of oil export sales to ensure that these sales are consistent with prevailing international market best practices, the accounting for the proceeds of the oil export sales, the DFI financial statement and the disbursement procedures for DFI resources to ensure that the funds are used for the purposes intended.
Decisions on the use of such funds were, as you know, until 28 June, taken by the CPA in consultation with their Program Review Board. And spending allocations now are the responsibility of the interim Government of Iraq.
After an international bidding process in March 2004, we approved the CPA appointment of KPMG to conduct audits in two stages:
First, for the activities of the DFI from its inception to the end of last year, 2003, and this is the audit that we received today; and, second, for the periods January to June 2004, and that is an audit that is currently underway and which we will be receiving at a later stage.
We had previously announced our concern about inadequate controls over Iraqi oil and other aspects of the DFI's operation. In particular, we have repeatedly raised the following issues with the CPA during the meetings we have been having with them, as they have been briefing us as we went on forward with our job.
The first one is the absence of oil metering. We had recommended last March the expeditious installation of metering equipment in accordance with oil industry standard practices.
The second issue is the use of barter transactions for some certain oil sales. We have been concerned that these transactions are not reflected in the DFI, as required by Resolution 1483.
The third point is the use of noncompetitive bidding procedures for some contracts that have been funded from the DFI. DFI funds were used to award contracts on a noncompetitive basis. To ascertain the conditions and circumstances of that, we have requested from the CPA copies of reports on all audits of sole-source contracts that have already been taken by the various U.S. agencies, and we wanted to see these before determining whether additional audits are necessary or whether we could rely on this in doing our job. But despite repeated requests, these reports still have to made available to us.
And the fourth issue on which we had raised concern was the result of a review of the controls in the State Oil Marketing Organization of Iraq, otherwise known as SOMO. The CPA had commissioned a review of the controls in SOMO in February 2004. This review was I believe substantially completed in May of this year, but we have not been briefed, nor have we received a report, despite having repeatedly requested this from the CPA.
In light of these concerns, we had directed KPMG to pay special attention to the treatment of bartered transactions in the DFI financial statement, to pay special attention to sole-source contracting procedures and to control over the oil transactions.
The KPMG reports that we received speak for themselves, stand on their own, and are in line with our earlier IAMB observations. As I mentioned at the beginning, all oil known proceeds, reported frozen assets and transfers from the Oil-for-Food program have been properly and transparently accounted for in the DFI.
At the same time, based on a review of the KPMG reports, the IAMB believes that controls overall were insufficient to provide reasonable assurance for the completeness of export sales of petroleum and petroleum products for the period May 2003 to December 2003, and controls were insufficient to determine whether all the DFI disbursements were made for the purposes intended.
Other significant findings of the audits of KPMG are as follows:
There have been weaknesses in the controls over oil extraction, including the absence of metering, and that resulted in KPMG qualifying its audit opinion of the DFI statement of cash receipts and payment. The CPA believes that unknown quantities of petroleum and petroleum products were illegally exported from Iraq, especially in the early months post-hostilities by passing the authorized process of marketing sales and cash collection.
Other findings relate to control weaknesses identified at the CPA and include the lack of clearly defined roles and responsibilities, a high turnover of CPA personnel, inadequate accounting systems, the nonadherence, in a number of instances, to the Program Review Board's controls over spending allocations, and the uneven application of the agreed-upon contracting procedures, including inadequate record-keeping.
Inadequate controls were also identified at the Iraqi spending ministries, which have been examined until now by KPMG, and these inadequacies refer to the absence of reconciliation procedures for transfer between ministries and for bank accounts, inadequate accounting records, deviation from the tendering procedures designed to ensure competitive bidding, and insufficient payroll records.
Over the next few weeks, we will be considering whether further special audits or investigations are required and necessary. In the meantime, we will follow up on our earlier decision for a special audit of the sole-source contracts that utilized DFI funds. And the result of the second stage of KPMG's work will also have a bearing on any further recommended steps by the IAMB.
Let me conclude by acknowledging, on behalf of IAMB, that KPMG and the CPA have operated under challenging circumstances. We look forward towards continuing collaboration with the interim Government of Iraq, the Iraq Reconstruction Management Office and KPMG.
And now let me open the floor to questions that I, and my colleagues, will be happy to answer.
MR. MURRAY: Let me just add one thing, too. If everybody could use their mikes, it would help your colleagues that are watching via webcast.
Thank you very much.
QUESTIONER: Italian Newswire ANSA.
Are these accusations against Halliburton?
MR. HALBWACHS: No.
QUESTIONER: Cesar Munoz with EFE.
Do you have any idea of how much money from these proceeds has escaped the controls? What are the amounts that you are talking about of oil proceeds that may have escaped any recording?
MR. HALBWACHS: No, we don't have any estimate of this. The CPA itself recognizes that there was, at the beginning, after the hostilities stopped, there was smuggling, if you want, of oil. The extent of which there was such smuggling has not been ascertained. We tried to see whether there was a way to try and quantify this, but I don't think we came to any method that would give us any reasonable assurances that we could come up with an amount that we would feel comfortable with as being reasonably accurate.
QUESTIONER: Michelle Kellerman with National Public Radio.
Can you talk a little bit about the level of cooperation you received from CPA.
And then, secondly, looking ahead, what kind of system was put in place for the Iraqis now to take control of this. How sure are you that these problems have been fixed?
MR. HALBWACHS: Thank you. On the CPA, since after our first meeting, we were in touch with the CPA, and we have requested from them at every subsequent meeting to come and give us detailed briefings on a number of issues that were of interest to us--how they worked their financial procedures and what they have in place and all of this. And we have always received full cooperation from the CPA, as far as the IAMB is concerned. They have always come to our meetings and provided answers to our questions and provided additional information. So, from that angle, I think the cooperation has been very good.
We have not received a number of reports that we have asked for. I am not sure that this is the CPA's doing or whether it is outside their ambit to provide such reports because these were done not by the CPA, these audits, but essentially by outside U.S. agencies.
In terms of the Iraqis, we have this audit. We will get a second one for the period of 2004. We are bringing to the attention of the Government of Iraq all of the deficiencies and the weaknesses that have been uncovered, and I am sure that they are eager to ensure that these are addressed, so that they can get on with their work and have a proper operating financial system, financial operation.
QUESTIONER: Leslie Norton from Reuters.
The fact that they haven't handed over anything from the sole-source contracts, would you say that is intentional, that they don't really--that they've got something to hide or more the fact that there seems to be a level of chaos in the CPA and disorganization?
MR. HALBWACHS: No, I think the audits have been done, so I don't think there's anything to hide. The audit I think is available to the various U.S. authorities.
I don't think it is under the control of the CPA to actually provide that to us. When we were informed at the beginning, in one of our first meetings--correct me if I get it, I don't remember whether the second or the third--that DFI money had been used to fund sole-source contracts to the tune of was it $1.4 billion, a Halliburton contract, I wrote on behalf of this Board to Ambassador Bremer asking for a copy of this contract. He acknowledged that there was such a sole source and that there was a--a copy of the audit, excuse me--and that he would be getting in touch with the U.S. authorities so that the report could be available to us.
So I think that the decision to provide the report was not within the CPA. I think it is beyond them.
QUESTIONER: Jim Landers of the Dallas Morning News. A question further about the sole-source contract matter.
You say that you're going to pursue a separate audit on this question, but you are also still awaiting receipt of these audits from the CPA to see whether it's necessary to do that. I'm trying to find out if you've made a decision at this meeting to proceed on your own, independent of whatever documents you may still receive from the U.S. Government.
Second, could you tell us the amount of money that was in the Fund during this period of the audit?
MR. HALBWACHS: The first question, what we decided to do--it wasn't at this meeting. It was I think last meeting or the one before--is not to do an audit of all sole-source contracts, but to have an audit in terms of to get an inventory of how many sole-source contracts were issued and how many audits have been made of them, so that we can see the scope and see what information is there before deciding whether we should proceed with our own audit ourselves.
On the second question is how much money there was in the Fund. I think it is in the financial statement. I think you will see this on the website. Maybe Mr. Keuppens--it's opened in front of him.
MR. KEUPPENS: Actually, as of the end of December, the receipts amounted to $10.3 billion, of which $5.6--so slightly over half--came from the U.N. Oil-for-Food programs and $3.7 billion came from the export sales of petroleum, but that would be reflected in the financial statements that are available to you.
QUESTIONER: I just want to follow up on the no-bid contracts. It was $1.4 billion? And do you know yet how many contracts that amounted to or was it all to Halliburton? Were there other companies involved?
MR. HALBWACHS: Thank you. The $1.4-billion contract is the one with Halliburton. There have been, we are told, other sole-source contracts--to whom and the amount, we're not aware. That's what we're trying to establish.
QUESTIONER: Marty Krutsinger with the Associated Press.
On that subject as well, you say despite repeated requests, that these reports haven't been provided to you. What explanation do they give for why they're not turning these documents over?
MR.KEUPPENS: Let me help out our Chair for a second on this because there's a number of questions on this issue. What we are trying to do here is first understand the population of single-sourced contracts for which DFI money was spent. We were informed that different U.S. authorities have conducted special audits and investigations of this. The Department of Defense has done investigations on this, and the GAO has done investigations and audits on this.
Rather than duplicating their work, as a first step, we decided that the best course of action was to have access to these audits. So we have asked access to these audits and have received assurances that Ambassador Bremer would contact the responsible authorities so as to make these reports available. We have been told that a number of legal issues need to be clarified before these audit reports can be made available to us.
In the meantime--in the meantime--we have asked the CPA to put out for bids an audit to, as the Chair said, to make a list of all of these single-sourced contracts and to make a list of all the audits so that we can determine what has been audited and what has not and to summarize these audit reports in a way that it's easy for us and, since we operate in a transparent way, for the public to understand what's going on.
Subsequently, I believe we have discussed that once we would have completed that work, we would be able to determine and that it's within our own terms of reference to commission special audits. So that's where we stand.
QUESTIONER: So what you're saying is that what you're waiting for now is an inventory essentially of all of the sole-source contracts and with that information on how many of those have been audited.
MR. KEUPPENS: Plus access to the audit reports.
QUESTIONER: And when have they said that that's likely to be made available to you?
MR. KEUPPENS: We are still waiting for a response, and I would think that, as time goes by, the members of the Board become a little bit more impatient with the response.
QUESTIONER: And are those responses coming from the CPA; is that who you're still dealing with on this?
MR. KEUPPENS: Actually, if I may answer this, they come from the CPA through their Inspector General. They have an Inspector General, which I must add is very much cooperating with us. But it seems to be outside his domain.
QUESTIONER: Inspector General of the CPA, that's who you're dealing with?
MR. KEUPPENS: Yes.
MR. MURRAY: Let's bounce to Leslie, and then we'll come back to you.
QUESTIONER: Leslie Norton from Reuters again.
My question is the DFI, does that include donor money at all?
MR. HALBWACHS: No.
QUESTIONER: And those frozen proceeds from frozen assets, how does--is that liquified and then put in there?
MR. HALBWACHS: Yes.
QUESTIONER: If I may ask two quick questions.
One, when did you ask for these documents from the CPA?
And the second one, you mentioned a series of weaknesses in controls over the money--I mean, the issue of barter and all of that. Do you suspect that there is corruption and that some of the transactions have not been recorded?
MR. HALBWACHS: When we asked for this, I don't have the exact date. I know I wrote to Ambassador Bremer, was it in March? February or March, and we got a reply in April, I think. But we can check on the exact date, if that is what you want to know. I'm sorry. I don't have it in my papers or from the top of my head.
We have not seen or KPMG has not reported to us any evidence of fraud, no.
QUESTIONER: But the fact that there is weakness in the controls make you suspicious?
MR. HALBWACHS: No, we're not suspicious. We deal with facts. But the fact that there are weaknesses, yes, could--and this is a concern--could lead to fraudulent activity. It makes it easier if somebody wants to defraud any operation if the controls are weak. That is one of our concerns, yes.
Mr. Keuppens could add something.
MR. KEUPPENS: If I can expand to that, first of all, very early on we have pointed towards the absence of oil metering. In other words, there was no control over how much oil is extracted and how much oil is sold and, consequently, deposited. So that is a vulnerability.
Early on, the CPA acknowledged that this was a serious issue and oil was indeed shipped out of the country through smuggling activities in what they thought was a not inconsiderable amount. They reinforced these controls, for example, by patrolling the harbors to make sure that at least they had an account of what ships left the harbor so that they would control it physically.
Sure, there were loopholes in the structure. They were aware of that. Some of this was inherited. Some of it was preceding these times.
As far as other controls are concerned, the KPMG report clearly points towards a number of weaknesses not only in the CPA, but also in the spending ministries because that's where our mandate is. We want to make sure that the DFI monies reach the intended Iraqi people. If there are no strong controls in place, there is no assurance that the monies, as appropriated, are spent on the intended Iraqi people.
While we have no evidence of misappropriation, per se, there are strong indications in the report that the controls in the spending ministries are very weak. And perhaps this is a good time to say that what we're trying to do is establish the overall framework of what is going on with the DFI. Our work is not finished yet. This is an interim report.
MR. DAU: Could I add something to this?
MR. HALBWACHS: Yes, Khalifa, please.
MR. DAU: Just to be, have the exact framework. KPMG so far have visited and audited only a few ministries, maybe three or four, and it's the next step that they will go and visit the other ministries as well. So, when we talk about weak financial control systems, we're talking about a few ministries as of now. We still have to see the full picture later on.
QUESTIONER: Jim Landers again of the Dallas Morning News.
The oil-metering question, are there still no meters on the oil exports from Iraq?
MR. HALBWACHS: I'm sorry. Could you repeat that.
QUESTIONER: Are there any meters in place yet to measure the amount of oil that is being exported from Iraq?
MR. HALBWACHS: Mr. Choudhury?
MR. CHOUDHURY: I think there may be some sporadically, but it's not a comprehensive and systematic network. I think they use other mechanisms for establishing quantities, like dipsticks. And when they're loaded onto tankers, they're weight-measured and things that they can use.
But I think the issue here is that, just for a comprehensive control over the oil assets from the extraction of crude through to the production of refined product through export and internal consumption there needs to be a mechanism for making sure that the system is whole and that you're aware of losses, which might be natural losses, but at least you can identify where things might be unaccounted for.
So it's kind of difficult to have an all-or-nothing approach to that issue.
QUESTIONER: I know the Congress of the United States has raised this issue as well at a recent hearing and said that at the Basra export terminal or at the Mina al-Basra export terminal, there were no meters throughout the history of the Oil-for-Food program and that this was a concern.
It sounds as if your examination has shown there's still no meters at this export terminal; is that correct?
MR. CHOUDHURY: I can't comment on specific locations, but that overall system of metering and being able to reconcile quantities is not in place. I don't know specifically about Basra.
MR. MURRAY: I think that's about it unless--we'll take two more questions. We have a two-more-question warning here.
QUESTIONER: Just as a human interest point of view, I was just interested to hear how you felt generally about this process and how you personally felt about being part of this. It must be a very, very difficult task that you have. I just wanted to find out how you just generally felt during this process.
MR. MURRAY: It's not over yet, I might add.
MR. CHOUDHURY: From my perspective, my colleagues at the World Bank aren't easy people either, but--
MR. HALBWACHS: No, I think this is basically a technical job, and we tried to keep it in that way and do it the best we can.
MR. KEUPPENS: I would second that. While this was being established, we spent a lot of time doing this right, and it took a lot of time to get it right and to get this Board functioning properly. And we did that. We followed the best model there is. We want to do it in a fully transparent way. I am sure you have looked at our website. It's all out there, and so far I would say so far we are doing what we were intending to do, and we tried to do the best-possible technical job.
MR. DAU: I think it was very challenging and interesting, and we are looking forward to see how things will go from here. But it was a very nice experience, and we are fortunate enough to have the support of our institutions as well.
MR. HALBWACHS: And I think one of the nicest things is that I think we work very well together. It's a true team. That I think has been very rewarding and I think very useful.
MR. MURRAY: Mike?
QUESTIONER: Mike Schroeder, Wall Street Journal.
Do you know why KPMG did not seek records from the other ministries?
MR. HALBWACHS: It's a question of time. It's not finished. They intend to do this for the audit that will be covering until the end of May 2004.
MR. HALBWACHS: And I think also there are technical difficulties in moving about in Iraq, to go from one ministry to another, it's not sort of--you don't cross the road like going from the World Bank to the IMF. You need a convoy, and it has to be arranged, and so I think it's part of that that also accounts for the situation.
QUESTIONER: As a follow-up, do you think that the ministries will have proper accounting procedures in place to allow you to do audits in the future?
MR. DAU: We don't know. We need to find out.
MR. HALBWACHS: We hope so, but--
QUESTIONER: I mean, since CPA is out of the picture, you're going to depend on the ministries, correct?
MR. KEUPPENS: We don't know, but our respective organizations will continue to play a role in Iraq, and I'm sure this is relatively high on the priority list to make sure that there's a proper governance framework in place. As a matter of fact, this morning we had a briefing of fiscal management law which has already been adopted and which we would strongly support be implemented. So, clearly, this is an ongoing process where continuing progress will need to be made.
MR. MURRAY: Before we take one last question, I just want to make it clear that if you do have any follow-up questions after this briefing, you could either drop myself an e-mail or contact the Press Office at the United Nations to follow up.
IAMB also has a website, which you should all be familiar with, and they have a contact e-mail mechanism through that. So certainly follow up.
Last question from Jim Landers.
QUESTIONER: The recent assassinations of the head of the Supreme Audit Board of Iraq and of the Chief Auditor at the Ministry of Industry, will these complicate your work, and do they give you any concern?
MR. HALBWACHS: The head of the Supreme Audit was someone who attended our meetings and with whom we had developed very good relations, and we were also very impressed by his technical competence and his professionalism. And we were very sorry to hear what happened, which was shortly after our last meeting in Paris. And we had a minute of silence this morning in his memory.
The Supreme Audit Board is still there, and we hope that we can continue to rely on them in our work.
MR. MURRAY: Thank you very much.
Again, a reminder 4:30 embargo, 2030 GMT today, so papers and this briefing.
Thank you very much for coming.
[Whereupon, the press briefing was concluded.]