Rome, 6 - 10 May 2002
2001 Annual Activity Report of the Office of the Inspector-General
Attached for the information of the Members of the Finance Committee is the 2001 Annual Activity Report of the Office of the Inspector-General.
Table of Contents
|II.||Matters of Special Importance||4-32|
|C.||Special Management Assignments||41-44|
|IV.||Tender Panel Operations||45-46|
|Attachment A -||Internal Audit Reports|
|(iii)||Special Management Assignments|
|Attachment B -||Structure of the Office|
1. When the annual activity report was first developed in 1995, its purpose was to provide the Director-General with a summary of the work carried out by the Office of the Inspector-General. In effect, it was a consolidation of the quarterly activity reports prepared throughout the year. Since 1996, the Director-General has made the annual reports of the Office available to the Finance Committee to enable its members to review the nature of the work carried out by the Office. This initiative was welcomed by the members of the Committee and it has become a standing item on its agenda for the May session. Thus this is the sixth such report and is provided to the Secretary of the Committee for translation and distribution at the same time as it is presented to the Director-General.
2. Over the years, the annual report has generated considerable interest and on several occasions members have made suggestions for improvement in the presentation. These have been accommodated wherever feasible and notably the current report has provided greater detail on the items identified as being of special importance, although that section of the report is intended primarily to indicate the type and nature of matters covered in reporting the results of comprehensive audits.
3. In the past year, a total of 88 reports were released by the Office. These are identified in Attachment A, which is arranged by organizational group within the Office. This presentation coincides with the Programme Elements outlined in the PWB. The staffing situation is indicated in Attachment B. The work of the Office was conducted within the net allotment ($1,611,600) provided for the second year of the biennium 2000-2001 Programme of Work and Budget.
4. This section highlights a variety of issues dealt with by the Office in the year 2001. Wherever appropriate, it also provides an indication of the measures taken by various levels of management in responding to the issues identified.
5. The Charter is now recognized as an integral element of the oversight activities of the Organization. It is quoted and referred to frequently in connection with the work of the Office and is readily available to all staff members. For example, it was introduced initially in the year 2000 under cover of a Director-General's Bulletin, it has been incorporated into the FAO Administrative Manual, all new staff are advised of its significance during the Orientation Programme, and it is posted continuously on the Intranet.
6. The Charter also provides an opportunity for the Inspector-General, at his discretion, to submit any specific report to the Finance Committee where he deems that senior management has failed to deal appropriately with any issues raised. Again this year no such situation prevailed.
7. The internal auditors located in the four major Regional Offices, as well as occasional missions from Headquarters, directed particular attention to the new arrangements for the field programme; the new computer systems and related procedures; human resources management; contract and procurement matters; and administrative and financial management. With regard to the financial issues it was noted that in general the transactions were properly authorized, supported and accounted for in the books and records in accordance with FAO rules and procedures. Where specific recommendations were made for corrective action or improvement, the various levels of management took appropriate steps to address the issues raised.
8. In conjunction with audit missions to FAO Representations, the Office generally plans reviews of specific projects, which often include Technical Cooperation Projects and projects under the Special Programme for Food Security.
9. As implementation of the new arrangements for the field programme continued throughout the year, audit effort at the FAO Representations placed increased emphasis on the delegated responsibilities, in particular covering accounting system matters, budgeting and reporting. Other aspects considered included the project cycle, field programme development as well as financial reporting and control, administrative and personnel matters, relations with local government and other liaison issues. Once again, it should be noted that management at the local level has been receptive to the recommendations for improvement and that those responsible at Headquarters have followed up vigorously.
10. The Office undertook a review of the system of internal controls designed to prevent improper use of the Organization's resources. As part of the review, the Office conducted an Organization-wide survey of potential users and potential recipients of requests for assistance covering a three-year period, from August 1998 to August 2001. The review was in response to the External Auditor's report for 1998-99 considered by the Finance Committee in May 2001.
11. The review concluded that, overall, the Organization has designed and put in place an adequate system of internal controls for the proper use of both human and material resources. However, improvement in the application of these controls is required, and recommendations were made for management to periodically communicate to staff on what the Organization considers to be acceptable and unacceptable practices, the conduct expected from staff, the role of the Office of the Inspector-General in the system of internal control, including its availability as a confidential channel of communication without fear of reprisal. Other suggestions included updating basic policies and guidelines and consolidating them into one authoritative instrument in order to facilitate access and avoid confusion.
12. The staff survey did not disclose any significant problems, only minor issues. However, it had a major impact on raising staff awareness about the conduct expected from them and the fact that the Organization is determined to detect and eliminate any improper activity.
13. The Annual Activity Report of the Inspector-General for the year 2000 indicated that the Panel of External Auditors of the United Nations, the Specialized Agencies and the International Atomic Energy Agency was being approached to clarify its definition of Fraud/Presumptive Fraud. In the year 2001 the response was received. In this regard, fraud is defined as "... an intentional act by one or more individuals among management, employees, or third parties, which results in a misrepresentation of financial statements.... Fraud may involve manipulation, falsification or alteration of records or documents, misappropriation of assets, suppression or omission of the effects of transactions from records, recording transactions without substance, and misapplication of accounting policies". Presumptive fraud is defined as "...a fraud which, though not established clearly on documentary or testimonial evidence as having been committed by the perpetrator, causes loss of valuable resources to the organization".
14. We have revisited the cases reported to the External Auditor for the 1998-1999 biennium in the light of the above definitions, have no further comments to offer and consider that from an audit perspective the cases are closed.
15. In 2001, two reports were issued that specifically covered losses of cash and property. One referred to an armed robbery of $6,000 belonging to a project based in Indonesia. The investigation carried out by the Office suggested that a staff member's negligence had contributed to the loss, however the relevant legal authorities were of the view that "gross negligence" could not be substantiated and the case could not be pursued further.
16. The second investigation into losses of cash, airline tickets and non-expendable equipment valued at $3,870 occurred in a project in Angola. Recovery of $2,435 was effected from the administrative assistant, the person considered to be primarily responsible. She is no longer with the Organization. The balance was written off, as responsibility could not be attached to any particular staff member.
17. The Office reviewed the Organization-wide use of Letters of Agreement. These are instruments signed with governmental, regional inter-governmental, parastatal or other non-profit institutions for the supply of particular services or other specified work. With commitments of over $25 million in the year 2001, Letters of Agreement represent a substantial outlay for the Organization.
18. Six specific reports were issued covering four departments at Headquarters and two Regional Offices. These addressed the current policy and guidelines, value-for money considerations, monitoring aspects, and compliance with specified requirements. The reports noted that the justifications for selecting a particular Recipient Organization were rarely identified, there was little or no monitoring and evaluation of the activities foreseen under Letters of Agreement, and financial control was inadequate. Concern was expressed that applicable regulations were not always adhered to, particularly where Letters of Agreement were used in lieu of more appropriate procurement instruments having more stringent requirements. Recommendations were made to revisit the guidelines and enhance their clarity, improve monitoring to ensure the timely production of expected outputs, improve financial control and accountability, encourage competition where feasible, properly justify the choice of a particular Recipient Organization, and enforce compliance with mandatory requirements. Management is currently addressing the issues raised in these reviews, and the Office is planning follow-up action in the next biennium.
19. The Oil-for-Food Programme continues to be an area of major audit attention and a top priority for the Organization. As a result of the increase in size and complexity of the programme and the greater audit risk, the Organization initiated action to reinforce the administration, management and control of the programme by increasing the manpower resources dedicated to it during the 2000 and 2001 biennium. This included posting a resident auditor in Iraq and, in this respect, enhancing the role and responsibility of the internal auditor based in Cairo.
20. The Office issued eight specific reports during 2001 addressing a variety of matters as outlined in Attachment A(iii). Recommendations were made for enhancing the effectiveness of management initiatives in resolving constraints in the areas of recruitment, financial management, programme planning and evaluation, staff safety and security, improving cash management and security, enhancing internal controls, competition and transparency of local procurement, and increasing the efficiency and effectiveness of FAO's observation role in the centre/south Iraq. These matters were received positively by management in the field as well as at Headquarters. Corrective action has been undertaken where possible, or is in the process of being taken or otherwise under active consideration.
21. FAO maintains rigorous standards of staff members' educational qualifications, and in the course of the year, the Office carried out extensive work on the controls surrounding this important area. It was noted that while there is general adherence to the relevant policies, procedures and guidelines, certain incidents of falsification or misrepresentation of educational qualifications were detected. Accordingly, the Office made recommendations both to strengthen control and to resolve the individual incidents identified. These reports recognized the influence of the Internet on distance learning, and the proliferation of so-called "degree mills". The recommendations were designed to enhance control including improvements to the Personal History Form to ensure that candidates report their qualifications more precisely without attempting to equate them to qualifications of other countries or in other languages; to encourage review by technical divisions of the quality and relevance of the documentation presented by candidates; to promote participation of the Human Resources Management Division in its advisory role and to provide more transparent and equitable assessment of the educational qualifications of the various categories of staff. Senior Management's response to this work has been extremely positive, all the recommendations have been accepted and implementation has begun.
22. Building on previous reports on TeleFood activities at Headquarters (TeleFood Bank Accounts, 1999 and TeleFood Operations, 2000), the Office performed an assessment of progress made in the administration and monitoring of TeleFood activities in 2001. It was noted that significant progress had been made to streamline TeleFood administrative matters. Many of the recommendations from our previous reports had been implemented, and others were in the process of implementation. These covered such areas as the need for better communication with the field regarding the operation of the project cycle, strengthening management and control responsibilities over the financial aspects of TeleFood micro-projects, implementing the improved accounting methodology, accountability and efficiency in accounting for TeleFood, controlling the accuracy of banking information published on the Internet for the public to make contributions, and cash management over TeleFood contributions. The recommendations were accepted by management and implementation is already in process.
23. After several delays, missed deadlines and cost over-runs, the Oracle financial system replacing the old FINSYS system is now fully operational. During the year 2001, the Office carried out a complete financial and operational audit of the Oracle Accounts Payable module and the management of the responsible unit. The review resulted in four reports, addressing organizational and staffing issues; procedural matters; transaction and data security issues; and technical aspects of the Oracle Accounts Payable module. Recommendations were made in relation to staffing levels, workload and overtime management, use of non-staff human resources and leave management; procedural issues which had given rise to delays and errors; security over transactions and data, including segregation of duties, audit trail and log-on and access controls; and technical matters including the users' interaction with the graphical user interface, system performance and printing functionality. The recommendations were accepted in principle by management and, where practical, implementation has already started.
24. The Information Products Revolving Fund (IPRF) is managed by the Sales and Marketing Group within the General Affairs and Information Department . This fund has been accumulating cash deficits for almost six years. Accordingly, the Office conducted a review of the financial situation as well as the strategies and initiatives taken by the IPRF's management to achieve self-sustainability. The review focused on the assessment of the Business Plan for 2000-2001 designed to establish the IPRF's working framework.
25. The Office reported that the Business Plan had only been partially accomplished and that the IPRF had not yet managed to eliminate the deficit. Indeed, the deficit had increased over the last two years. However, it was noted that the internal organization of the group had significantly improved and should have a positive impact for the future. Recommendations were made to place higher focus on marketing, take certain initiatives to improve the commercial potential of publications, give the IPRF higher flexibility in deciding on the titles to print, and strengthen cooperation and coordination with technical departments in the design and execution of publication plans. The need for these steps was acknowledged by management and appropriate measures are underway to address the issues raised.
26. Local Purchase Orders (LPOs) are used to buy non-stock stationery and other small items, within a certain ceiling, without going through the Procurement Service. The Office reviewed the use of LPOs in seven divisions or departments at Headquarters and concluded that the existing formalized procedures were obsolete and needed to be updated to reflect the current organizational situation and provide appropriate guidance to users of this instrument. It was noted, however, that divisions or departments had generally complied with acceptable procurement principles. The reports also pointed out that the Procurement Service should enhance its monitoring of the use of LPOs and conduct periodic purchasing-trend analyses to help in decision making.
27. During the year the Office carried out an examination of certain aspects of IT security. The review indicated that no comprehensive IT risk assessment had been undertaken since 1991, and concern was expressed that FAO may not be adequately protected against current threats. It was recommended that a proper risk assessment be undertaken and repeated on a regular basis. Management is in agreement with this recommendation and is in the process of drafting specifications for such a risk assessment.
28. On 1 January 2002, Euro notes and coins were introduced, replacing the national coinage of 12 countries of the European Union. In preparation for the introduction of the new currency, the Office conducted a review of the arrangements in place in FAO. The review covered payroll, banking, accounts payable, Oracle, accounts receivable, travel, Money and Medals, the Credit Union, the Commissary and other on-site services. As a result of this review, the Office produced an assurance report, which concluded that FAO's main business systems were capable of handling transactions in the Euro by January 2002. A few minor activities within FAO were not fully prepared for the introduction of the Euro, and the report alerted management to them and appropriate action was taken.
29. During this year there was extensive collaboration with other UN Agencies. In one case, WFP brought to the attention of the Inspector-General a special personnel case existing in one of the Regional Offices. This matter was actively pursued and resolved. The review uncovered deficiencies in the recruitment process, notably related to insufficient reference checks. In another instance, the Office sought the assistance of UNDP auditors to clear up some pending matters regarding procurement activities in the field. Such assistance resulted in prompt follow-up action and a settlement for lower payments under the contract under review. By the same token, the Office collaborated on other personnel issues with the Office of Internal Oversight at the UN in New York and with the IAEA in Vienna.
30. As reported last year, and it is worth repeating, the matter of "audit resolution" is taken very seriously at FAO. The Assistant Director-General/Directeur de Cabinet has been assigned responsibility for the implementation of audit recommendations. He accomplishes this task by informing individual programme managers of the Director-General's instructions with regard to implementation, by setting specific dates for information on action taken and by conducting subsequent follow up when necessary. This is an extremely powerful "audit resolution" tool, and coupled with the normal follow-up by the Office of the Inspector-General, has proven to be highly effective.
31. The Representatives of Internal Audit Services of the United Nations and Multilateral Financial Institutions (RIAS) met in Bangkok in June 2001. This presented an opportunity for the Inspector-General to visit the FAO Regional Office, and meet with other professional contacts operating in Bangkok. The formal sessions of RIAS provided an excellent forum for the exchange of views and experiences of internal auditors and other oversight bodies from the international community of audit professionals. The third Conference of Investigators of UN Organizations and Multilateral Financial Institutions, organized by the World Bank in Washington and originally scheduled for the week of 11 September 2001, was cancelled due to the tragic events that week.
32. The Office arranged a highly successful on-site seminar in Rome. The topics were Internal Auditing Trends and Best Practices/Assessing Risk and an Advanced Fraud Symposium. They were conducted by internationally recognised experts in the area and were attended by all staff of the Office. In addition, staff from sister organizations, including WFP, IFAD, IAEA, UNIDO, UNESCO, WHO, ITU, UNOG and OSCE participated on a cost-sharing basis. Also in terms of outreach the Inspector-General had regular monthly meetings with counterparts from the Rome-based agencies, and maintained close contact with the heads of audit and investigation units in other UN agencies and international institutions.
33. The audit activities of the Office are planned, organized, managed, and reported upon by programme element. As the Programme of Work and Budget of FAO is developed on a biennial basis, so too is the audit plan of work. It is devised on a top-down basis taking into account the Strategic Framework, the Medium Term Plan, the Programme of Work and Budget, discussions in the Conference, Council and the Programme and Finance Committees as well as policy statements and initiatives of the Director-General. The plan is subsequently developed in more detail within the Office on a bottom-up basis and made available to the Director-General for his review and concurrence. Notwithstanding the foregoing, it is a flexible plan. It can be modified depending on changing circumstances, either on the request of senior management or by the Inspector-General himself.
34. Audit activities usually result in specific audit reports. However, the contribution of the Office of the Inspector-General to the overall process of management control in the Organization goes considerably beyond the presentation of formal reports. These activities are outlined in the following paragraphs indicating the nature and extent of the work carried out during the year, and Attachment A identifies the specific reports released in 2001.
35. The prime focus of the Headquarters group is in conducting comprehensive audits in the Administration and Finance Department. However, more and more of the audit work of the Office is encompassing the technical departments. While the main expertise in this group continues to embrace the disciplines associated with finance, treasury, accounting and administration, it is also the focal point for office technology, information systems, and other aspects of electronic data processing. The Headquarters Group also has responsibility for the annual audits of the Credit Union, the Commissary, and certain elements of WFP, all of which are conducted on a cost-recovery basis.
36. A total of 19 reports were released by this group in the current year and these are identified in Attachment A(i).
37. This group has prime responsibility for all audits at the Regional, Sub-regional and Liaison Offices as well as the FAO Representations and selected specific projects in the field. The one exception to this is the Oil-for-Food Programme. Because of its size, complexity, and special staffing arrangements, this responsibility has been allocated to the Special Management Assignments group.
38. Decentralized activities include not only work carried out by the audit staff located in the four Regional Offices, but also covers the related functions at Headquarters. The work in the Regional Offices encompasses the full range of audit activity associated with comprehensive audits. This includes providing advice to management and technical units on such issues as financial, accounting and administrative matters, staff establishments, recruitment and selection of staff, as well as organization, internal control, and other matters that arise from time to time.
39. This group also follows closely the work of the local audit firms engaged as part of the internal check or internal control mechanism operated by the Finance Division, and frequently refers to their reports as part of its planning and monitoring function. These are also used in connection with the briefing and orientation programme for newly appointed FAO Representatives and for subsequent contributions to the evaluation of performance while in service, and the handover arrangements on the termination of FAOR assignments.
40. In the year 2001, this group produced a total of 45 reports: 15 related to various aspects of Regional and Sub-regional Offices, 16 on FAO Representations and 14 reports on specific projects as identified in Attachment A(ii).
41. This group handles practically all special enquiries, inspections, special audits and investigations in the Office of the Inspector-General. Many of these originate in the Office of the Director-General or from other members of senior management, or on occasion from individual staff members. These activities, particularly the special investigations, do not always result in formal audit reports, but more often are concluded by informal briefings or confidential memoranda.
42. This group is also involved with matters relating to procurement, (notably the review of requests for waivers from the competitive process and Tender Panel operations), communications, travel, health insurance and employee benefits. It also represents the Office of the Director-General on the FAO Appeals Committee. Under the recent realignment of responsibilities within the Office, this group supports the Inspector-General with many of the internal management, personnel and administrative matters.
43. This group is also responsible for the review and expression of opinion on the financial situation and monthly expenditures in the immediate Office of the Director-General and the related expenses carried in departmental budgets.
44. A total of 24 specific audit reports were produced in the course of the year as identified in Attachment A(iii).
45. The procurement of equipment, supplies, and services is governed by the principles and procedures set out in the FAO Administrative Manual. This assigns to the Office of the Inspector-General responsibility for receiving, opening, recording and retaining under secure conditions, all bids in response to tender invitations. This ensures the independence, objectivity, security and transparency of the tendering process.
46. In the past year, the Tender Panel met on 127 occasions and dealt with 407 tenders. For these tenders 7551 firms were invited to submit bids and 2180 were received. In all respects the level of operations compared with previous years has increased considerably due largely to the Oil-for-Food Programme, the activities in Kosovo and a deliberate more frequent and wider testing of the market for procurement activities.
47. Consideration was given to reporting this section under the often used elements of management: planning, organizing, staffing, directing and controlling. However, it was decided the less formal narrative was better suited for the style of this activity report.
48. The Office is represented on a number of important "standing committees" in the Organization: the Programme Policy and Advisory Board, the Information Management Technology Committee (and its sub-committees), the WAICENT Committee, the Procurement Committee, the Advisory Committee on Medical Coverage, the Committee on Investments and its Advisory Committee, the Oracle Implementation Steering Committee, the Joint Committee on Food Services and the Board of the Credit Union. The Office also participates in ad-hoc internal review groups, task forces, evaluation panels and so forth. It follows closely the deliberations of the Programme and Finance Committees, Council and the Conference and its senior members meet from time to time with senior officials and representatives of Member Nations, the External Auditor, the Joint Inspection Unit and colleagues from oversight functions in other UN and international organizations.
49. The staff situation is graphically depicted in Attachment B to this report. Three of the four vacancies in the professional category are in the final appointment stage and one is in the process of being advertised. It is expected that the Office will soon be at full strength with a well balanced team of highly qualified and experienced staff both at the professional and general service levels. However, during 2001, the Office was again hampered by the number of staff vacancies and secondments to other divisions in FAO. Nonetheless, it was able to compensate with the use of the various partnership programmes, short-term consultancies, and work realignments as appropriate. Details on the staffing situation as well as some summary demographic information, is contained in Attachment B.
50. Training and development continues to be an important aspect of the overall management of the Office. This comprises three elements: professional audit training; language training; and training in the use of office technology. On the professional side the two-part "on-site" seminar and symposium described in section 2 under audit outreach was highly successful. Good use was made of the facilities available within FAO for language training and for our office technology training needs. One auditor is enrolled in a distant learning programme with a U.K. university, and staff also participate from time to time in other training programmes arranged through the Human Resources Management Division. This commitment to training and development will continue in the year 2002.
51. The Office continues to have regular theme-oriented staff meetings where FAO experts make presentations to the audit staff on current developments in their areas of expertise. This not only covers the traditional finance and administrative fields, but for the most part draws on senior officers from the technical divisions.
52. A useful internal management device used in the Office is the time control system. All staff record their time in half-hour units of activity and the time sheets are reported to the Inspector-General. In this way the audit effort is monitored against the target set at the beginning of the year. The target established for the year 2001 was 30% for Headquarters activities, 40% for decentralized activities and 30% for special management activities. The actual audit effort reported in 2001 was 26% for Headquarters activities, 54% for decentralized activities and 20% for special management activities. The variance from target was due to the increased focus on work in the field.
53. In closing, the Office would once again like to express its appreciation to all levels of staff contacted in the course of its audit work, and particularly to members of management for their support and positive responses, cooperation and assistance throughout the year.
Office of the Inspector-General
List of Reports Issued in 2001
Accounts Payable Unit
FAO Credit Union
Reports relating to Regional and Sub-regional Offices
Reports relating to FAO Representation
Reports on Specific Projects
Special Management Assignments
Letters of Agreement
Local Purchase Orders
Office of the Inspector-General
|Secretarial Support||Administrative Support|
K. Travers (80% G-4)
M.T. Baiani (Registry)
|A. Lo Faso||D-1||DECENTRALIZED
S. Saluja (Consultant)*
Y. Ogino (RAP)
* Stationed in Iraq with the Oil-for-Food Programme - post to be converted to FT January/2002
** Reports to Principal Auditor on Oil-for-Food Programme matters
N.B. Staffing actions are underway for all AUD vacant posts.
Staffing Table for the Office of the Inspector-General
|Professional Audit Posts||
|1 Principal Auditor||D1||1|
|2 Senior Auditors||P5||1||1|
|1 Regional Auditor||P5||1|
|4 Regional Auditors*||P4||2||1||1|
|General Service Audit Posts||3|
|1 Audit Assistant||G6||1|
|1 Audit Clerk||G5||1|
|1 Audit Clerk||G4||1|
|Secretarial Support for Audit||2|
|1 Bilingual Typist (80%)||G3||1|
|Other Support Staff||2|
|1 Director's Secretary||G6||1|
|1 Records clerk||G4||1|
The following countries are represented in the above: