FC 107/9

Finance Committee

Hundred and seventh Session

Rome, May 2004

Programme of Work of the
External Auditor for 2004-2005

1. External Audit presented their Plan of Work for the 2004-05 biennium to the Finance Committee in their 104th Session. This included a proposal to audit up to four topics from a list of six topics of VFM audits indicated by the External Auditor. Finance Committee agreed with selection of two topics (Official Travel and Contract for Local Services) and requested External Auditor to provide information on the remaining four topics to facilitate understanding the rationale for section of audit topics (Document No. CL 125/4). The Committee also requested External Auditor to examine the possibility of merging the two topics: Oracle-based information management system and efficiency gains due to extension of IT facilities. In keeping with this request, we included this topic in the scope of review of Oracle-based information management system.

2. This paper discusses the rationale behind the proposal for taking up VFM audit on three topics, namely Treasury Operations, selected areas of Human Resource Management and Oracle-based information management. We propose to take up any two of these topics for review and seek the suggestions of the Finance Committee on this matter.

      1. Audit of Selected Areas of HR Management

3. Efficient management of human resources holds the key to ensure effective operation of FAO to deliver its programme and meet its stated objectives. Expenditure on human resources remains the most significant part of FAO expenditure.

4. In a paper on HR Management Reform (document No. FC 97/15), Management discussed the efforts for reform of human resource management in FAO in developing human resource strategies and policies. The External Auditor covered some of the areas in their report on accounts for 1998-1999. JIU covered several HRM aspects in their report JIU/REP/2002/08. Management presented progress reports on these issues to the Finance Committee in their papers FC 99/10 (May 2002), FC 102/23 (May 2003) and FC 104/15 (September 2003). We propose to review in audit the key aspects of HRM reforms in the context of these reports and revisit some areas which were covered in the earlier audit in view of their continued importance.

5. The document No. FC 97/15 identified two key areas: progressive decentralisation of human resource management to line managers, coupled with enhanced accountability and creation of central human resource management to design new policies and strategies, provide guidance and support to departments and monitor application of human resource policies.

6. Under the new arrangements, AFH is responsible for providing planning, advisory and support services while the high level Human Resource Committee is responsible for advising the Director-General on human resource management issues and steering the human resource reform. Successful implementation of these reforms remains a matter of high importance.

7. We propose to examine the issues in effective utilisation of human resources for FAO programmes and operations as addressed by the Central Human Resource Unit (AFH) and the HR Committee. Audit will focus on the functioning of AFH and the role of the HR Committee in strengthening the ongoing reform and decentralisation. We will also examine the progress achieved in streamlining procedures in various areas of HRM.

8. Another area of audit focus will be project-related HRM activities. Keeping in view the decentralisation of HR Management functions to the line managers in various departments, we propose to review the consistency and soundness of procedures and internal controls as evolved following the decentralisation, in respect of HR Management relating to projects. As part of this audit, we propose to revisit the issues raised by the previous External Auditor in the use of other human resources (Consultants).

      1. Audit of selected areas of Treasury Operations

9. Treasury Operations of FAO cover management of investments and banking operations. Investments (short and long-term) constitute 92% of total FAO assets as at 31 December 2003 (source, Draft Accounts of FAO 2002-03). These items are the most significant assets on the FAO balance sheet. While income from short-term investments is credited to donor accounts, income from maturities from long-term investments are intended to be utilised to fund staff-related schemes. In view of the significance of these assets, continued audit attention to the inherent soundness of internal policies and procedures for management of these funds is necessary. Accordingly we propose to review selected aspects of management of these funds.

10. The short-term investments and cash constitute 70% of total FAO assets as at 31 December 2003. These investments are largely funded from surplus funds held on Trust Fund/UNDP programmes. Any loss of funds that donors have entrusted to FAO without any specific investment instructions, may have to be compensated from the FAO budget. The safety of such funds therefore is of great importance to FAO and risk of loss of capital on this count is to be minimised so that the FAO budget is not affected. During 2002-03, Management engaged new managers for short-term investment and changed the portfolio composition. Our review will assess the efficiency and results of the new arrangements, management evaluation of investment options, effectiveness of monitoring arrangements and performance of asset managers.

11. In long-term investments, significant loss was reported in the past. As per the Interim Accounts of FAO for 2002, a loss of US$12.21 million was booked on these investments. Proper monitoring of investments and diversification of asset managers for these funds were emphasised by the External Auditors. Management is taking various corrective measures in this area including increased staffing support and monitoring arrangements. In view of the significance of this matter for the financial health of FAO, Audit will review these measures.

      1. Review of Oracle-based information management system

12. Implementation of Oracle Project during 2002-03 made important progress in Oracle Financials including Oracle Version 11i and Datawarehouse. In their report (FC 102/27) Management informed the Finance Committee of the following developments:

Migration from Oracle 10.7 to 11i and upgrading of Datawarehouse were completed. In 2003 steps were taken to monitor and stabilise the workflow and complete the first year end closure cycle in the new, upgraded environment. Budget maintenance module was completed. A new data set was created in Datawarehouse regarding Accounts receivables. Oracle release 11i was implemented within the agreed timeframe with a more restricted scope and PRINCE 2 was adopted as the methodological framework for the project. HRM Module, Phase I is in progress. Development of PIRES support to PWB was functional during the preparation of PWB 2004-05. We also noticed that utilisation and application of IT tools in Field Programme Management Information System (FPMIS) were strengthened during the biennium.

13. The current FAO IT system architecture therefore includes eBMM, PIRES, Oracle Financials, FPMIS and sub-systems such as Atlas and FAS. We propose to examine the scope for rationalisation of some of these applications to reduce duplication of efforts in effectively meeting management requirements. Another issue is the adequacy of existing IT applications such as FAS and DWH to meet the business requirements of FAOR and Regional Offices following decentralisation of operational activities and significant change in their roles and responsibilities. We propose to review the measures taken by management in addressing these issues and strengthening IT support to decentralised units and their integration with Oracle Financials. We also propose to review progress made in implementing the HRMS project, in line with the Project Charter approved by the Oracle Project Management Committee. Scope of efficiency gains in these areas will be covered in audit examination.

14. We intend to take up these reviews in the first quarter of 2005 and report our findings to management through Management Letter and based on their response finalise our long-form report to the Finance Committee.