FC 110/14

finance committee

Table of Contents

I. FAO Audit Committee (Internal) – Annual Report to the Director-General for 2004

A. INTROduction and background

B. committee’s modus operandi

C. specific observations of the audit committee on the activities of the office of the inspector general

Specific areas reviewed and detailed accomplishments

Conclusions

D. work programme of the fao audit committee for 2005

The Director-General has the pleasure to provide attached, for the information of the Finance Committee, the 2004 Annual Report of the FAO Audit Committee. The Director-General wishes to express his appreciation for the work undertaken by the Audit Committee and for the advice provided.

I. FAO Audit Committee (Internal) – Annual Report to the Director-General for 2004

A. INTRODUCTION AND BACKGROUND

1. This is the second annual report of the Audit Committee following its establishment in April 2003. It provides an overview of the Committee’s activities, the important issues that have arisen and the actions taken by AUD and other stakeholders involved in the audit processes. Background information on the Committee is provided in Annex 1.

B. COMMITTEE’S MODUS OPERANDI

2. The Committee met three times during 2004. The External Auditor was invited to the April 2004 meeting. The main aspects considered at each meeting were as follows:

• The Inspector General’s reports on the activities of AUD;
• AUD’s plan of work;
• The status of implementation of internal and external audit recommendations;
• The summary and status of implementation of the Committee’s decisions and recommendations; and
• The status of the Committee’s discharge of its functions and responsibilities.

3. A Summary record was prepared for each of the three meetings and cleared with Committee members.

C. SPECIFIC OBSERVATIONS OF THE AUDIT COMMITTEE ON THE ACTIVITIES OF THE OFFICE OF THE INSPECTOR GENERAL

Specific areas reviewed and detailed accomplishments

4. During 2004, the Committee made substantial progress in relation to the objectives and responsibilities outlined in its Terms of Reference. In particular, it contributed to the following aspects:

• increasing awareness of AUD and its contribution within FAO by stimulating managers’ involvement and commitment to the audit process. In this regard, among others, the following important issues needing improvement were brought up at the Senior Management Meeting, where the Director-General established targets and gave pertinent instructions: a) the timeliness of auditees’ response to draft internal audit reports and b) prompt implementation of audit recommendations.
• Strengthening FAO’s operations by ensuring action on some critical AUD observations, e.g. (i) steps to establish a proactive business contingency plan; (ii) help to divisions to better comply with requirements for Letters of Agreement. In this regard, the Committee considered implementation of AUD’s recommendations on disaster recovery insufficient and pursued pertinent progress at each meeting, promoting prompt action. In addition, the Committee continued to follow the progress made by the Working Group on Letters of Agreement, urging completion of the task.
• Supporting AUD in its establishment of a more systematic way for tracking recommendations, monitoring and following up on their implementation and promoting improved efficiency within AUD by speeding up the audit process from planning to reporting. The Committee reviewed the status of recommendations issued from 2000 to 2004, focussing on the most significant open items, and expressed concern over the number and importance of outstanding recommendations and the slow progress made by FAO divisions on implementation. The Committee recommended that AUD intensively monitor implementation and regularly report back to the Committee on progress made.
• Assisting the Organization in strengthening audit and inspection strategies by providing direction on the risk analysis and the resulting audit plan for the biennium 2004-2005, as well as AUD’s activities and role with regard to the Oil-for-Food Programme and the Security Council Resolutions relating to Iraq.
• The Committee reviewed AUD’s progress against the work plan for 2004 and requested additional statistical information on work units delivered. It discussed the provisional plan for 2005, making suggestions for areas meriting audit attention - including areas within FAO where there might be work duplication, and areas to be deferred. In this regard, the Committee extensively discussed the feasibility and potential scope of governance audits included in the initial plan and suggested that those planned for the biennium 2004-2005 should not be carried out.
• With regard to the Oil-for-Food Programme, the Committee received a full update at each meeting on pertinent audit activity and the work of the Independent Inquiry Committee and provided guidance, as appropriate. The Committee received assurance from FAO management that, to the best of its knowledge, as at the beginning of April 2005, the IIC had not communicated any substantiated complaints related to FAO.
• Supporting, reviewing and monitoring the implementation of the observations of the former External Auditor to strengthen AUD, as well as other organizational areas and providing guidance, as necessary. This is a standard item on the Committee’s agenda.
• Ensuring that FAO has procedures in place to properly address fraud allegations, cases are investigated in a timely manner and disciplinary action taken, where warranted, and the details of fraud cases are used to strengthen internal controls. The Committee reviewed all fraud cases and relevant reports prepared by AUD in 2004 and provided guidance, where necessary.
• Enhancing the quarterly and annual reports of the Office of the Inspector General, including additional detail on audit results and recommendation implementation status, among others.

Conclusions

5. Based on the foregoing, the Committee concludes that:

1. The Office of the Inspector General has sufficient independence to ensure objective audits and studies to management.
2. AUD’s internal planning process ensures that significant risks facing FAO are duly considered for effective audit coverage of its activities.
3. Suspected mis-management, irregularities and fraud are promptly investigated and reported upon.
4. AUD conducts its work in accordance with its Charter and adheres to appropriate Internal Audit Standards.
5. The resources of AUD seem adequate, but certain vacancies need to be filled.
6. AUD should continue to focus on the implementation of recommendations for the biennium 2004-05.
7. AUD has duly addressed the main issues on the internal audit function raised by the former External Auditor in his report to the Finance Committee for the biennium 2000-01.

6. Finally, the Committee analysed its own performance against its terms of reference and concluded that it had broadly achieved its objectives in 2004.

D. WORK PROGRAMME OF THE FAO AUDIT COMMITTEE FOR 2005

7. The Committee will continue to focus on improving the monitoring of implementation of audit recommendations, the timeliness of managers’ response and commitment in this regard, and the duration of the audit process from planning to reporting. In addition, among others, the Committee plans to review a number of individual audit reports in order to advise AUD on potential relevant improvements and will continue to provide guidance to AUD on a variety of issues, including review of the risk assessment exercise that will form the basis for audit planning for the biennium 2006-07. Committee membership is expected to remain stable for 2005.

Annex 1

1. Following a recommendation of the former External Auditor and in accordance with FAO’s commitment to the 100^th Session of the Finance Committee, the Director-General established the FAO Audit Committee (Internal) in April 2003. Its composition and terms of reference are set out in DGB No. 2003/6 Rev. 1 of 2 April 2003, as amended by DGB No. 2005/5 of 20 January 2005.
2. The Committee’s composition is as follows:
1. Internal Members:

Mr. D Harcharik, Chairman

Mr. K. Mehboob, Permanent Member

Mr. G. Pucci, Permanent Member

Ms. L. Fresco, Rotating Member¹, or her alternate,

Mr. I. Nomura

Ms. A. Lo Faso, Secretary

2. External Members²:

Mr. P. Maertens, Head Internal Audit, European Investment Bank

Mr. B. Kass, former Director of Internal Audit, WFP and Senior Consultant

3. The Committee operates as an advisory panel to the Director-General and to the Office of the Inspector General with the aim of providing guidance and assistance. The Committee continued to focus on the following areas:
• advice on the audit and inspection strategies, priorities and work plans of AUD taking into account the Organization’s risks and needs;
• progress in implementing audit recommendations, and assessing the resulting remedial actions taken by auditees;
• note of the plans of the External Auditor and the outcome of his work and monitoring timely follow-up of his recommendations;
• the independent role of the Office of the Inspector General, AUD; and
• the Organization gain house-wide acceptance of the importance and value of the internal audit, inspection and investigation functions.

¹ Appointed for a two-year term, extendible at the discretion of the Director-General, to be replaced on a rotational basis.

1. ² Appointed for a two-year term, renewable for one or two years at the discretion of the Director-General.