FC 92/11





Finance Committee



Ninety-Second Session

Rome, 3 - 7 May 1999

1998 Annual Activity Report of the Office of Inspector-General



Table of Contents


1. Introduction

The purpose of this annual report is primarily to consolidate the quarterly reports provided to the Director-General on the work of the Office of the Inspector-General in the past year. This presents in a familiar format a convenient summary of the major issues of concern addressed by the Office and comments on the actions taken by the Organization in response to them. It also gives an indication of the variety of matters dealt with by the Office, and the extent of activity in the previous year.

In keeping with the decision taken by the Director-General to make his annual activity report available to members of the Finance Committee, this is the third such report to be so provided and it will be distributed for information purposes prior to the Committee's next session in May 1999.

2. Matters of Special Importance

This section highlights some of the more important matters raised in audit reports, or as a result of other audit activities throughout the year. Wherever possible, it provides a summary of the measures taken by various levels of management in responding to the issues identified.

Review of Major Contracts at Headquarters

Cleaning services at headquarters cost in excess of Lit 2.5 billion annually. Our review proposed modifications to tender practices and reinforcement of internal controls, enhanced monitoring of contractors performance, measures for cleaner work environment, and improved record keeping. Management agreed with the recommendations and has indicated its intention to implement those where it has not yet taken corrective action.

Shipping costs for the removal of household goods and personal effects are of the order of $ 5 million per annum. We reviewed the arrangements for the handling of this expense and noted a considerable change in the requirements of the Organization due largely to the effect of decentralization. We made a series of recommendations related to decentralizing the procurement and administrative arrangements, increasing focus on cost containment, and changing the basis of the contract with the firm providing the service. Management has our proposals currently under review.

Atrium Project

Several reviews were conducted of the work in progress in the Atrium between Buildings A and B. There has been some delay in completion of this project due largely to difficulties in clarifying issues relating to building permits with pertinent Italian authorities. These and other relevant matters are being actively pursued by responsible offices in FAO in order to expedite completion of the project.

Use and Administration of Consultants

A comprehensive review of the use and administration of non-staff human resources (consultants) was conducted which also served as a follow-up to prior reports. Our overall conclusion was that qualified and experienced persons were employed under the various contractual schemes. However, we also reported on the need to improve and standardize procedures over the recruitment, contracting, monitoring, controlling and assessing the work of persons employed under the various contracting arrangements.

We are also of the view that there should be a reduction in the number of contract types, as well as simplification in types of contracts used and entitlements pertaining thereto. Decisions have been taken to address these issues in association with the introduction of the new Oracle system.

Year 2000 Computer Problem

This problem was first mentioned in our 1997 report and a follow-up review was conducted in 1998. The Organization has established an appropriate mechanism to ensure that this issue is kept under continuous surveillance. However, we identified a number of significant areas, which needed immediate attention. These included structural matters, the need to focus attention on decentralized offices, testing requirements, and recognition that this is an organization-wide management issue and not only a technical concern.

All of the above matters are now being addressed by the Y2K project team and Senior Management.

Money and Medals Programme

In the course of 1998 three audit reports were completed on this Programme. One dealt with the financial statements, one covered inventory control and the third focused on management and operational issues which contributed to the heavy stock build up in the Programme. We expressed an unqualified opinion on the financial statements and drew attention to a number of important matters in relation to the performance of the Programme, its management and questions on inventory and other internal controls.

Management has developed a business plan which took into account some of the issues raised in our reports. It is presently under review and we will be following up on further action taken to improve the operations and management of the Programme.

Oil for Food Programme

A detailed follow-up review to our 1997 report on this topic focused on the procurement and distribution of agricultural inputs, provision of storage, maintenance services, technical support and management of the funds allocated for the three Governates in the north of Iraq and the related administrative and operating costs.

We were able to conclude that the procedures and practices employed did provide reasonable assurance, that the financial and physical resources were managed economically and efficiently, and that they were safeguarded and controlled, except for the need for reducing the cash management risks and improving internal financial controls. We also noted improvements in the effectiveness of operations and in the management of human resources.

Senior management has reviewed our concerns and recommendations on all the matters raised, most notably on the risks of cash exposure. We understand there has been some success in reducing the build up of cash in the Northern Governates, and efforts to improve the arrangements for the transportation of cash to Baghdad are continuing.

Technical Cooperation Programme (TCP)

A three-part comprehensive review was conducted on the TCP: one aspect covered the global perspective, one focused on the capacity to manage the Programme, and the other looked at the management of the project life cycle. In essence, we concluded that the established procedures were adequate but there is room for improvement in coordination and monitoring; there is a need for greater capacity to manage the day to day activities of the Programme; and while we noted improvements in the control over the TCP process, it could be speeded up, even though the increasing complexity requires more intensive appraisal activity. Many of our recommendations have already been acted upon by TCP management, and the remainder are under active consideration.

Integrated Pest Management

We reviewed administrative, financial and management issues related to the inter-country programme for rice in Vietnam and the Philippines. In essence, we found the that organizational structure and overall management was adequate to support implementation of the programme and that the staff were well motivated.

In the course of our review we noted the need for improvement in the areas of contracting, budgetary, accounting and inventory control and some aspects of personnel management. We are satisfied with the extent to which management has addressed our major concerns.

Staff Relations

Several instances of staffing difficulties and wrongdoing were identified, evaluated, and a number were subject to special review and investigation. These occurred both at Headquarters and at offices away from Headquarters. We were satisfied with the action taken by management, which in some cases involved the application of official disciplinary measures, while in others the problems were resolved through other means or were found to be groundless.

Decentralization

Previous reviews had indicated that there was room for improvement in terms of coordination, clearer definition of responsibilities, and greater access to the corporate data and accounting systems in order to enhance efficiency and effectiveness between headquarters and decentralized locations. During the course of the year we continued to review the status of the foregoing and are able to report improvements in all these areas, including related actions taken by management to provide staff training and expediting the filling of the vacant posts.

Local audit arrangements

The engagement of local auditors to perform periodic audits of FAO Representations and
Liaison Offices was continued in 1998. During the year, 412 reports were received in the Office of the Inspector-General. Analysis revealed that for approximately 60% of the offices reviewed the local auditors reported no material findings or recommendations. This was a significant improvement over 1996 and 1997. For the other offices the auditors' recommendations were primarily concerned with improvements in accounting and related procedural matters, which were monitored on a regular basis in cooperation with the Finance Division.

The favourable results of this operation were reflected in the decision to reduce the frequency of the auditors' reports from the original monthly basis in 1996 to quarterly in 1997 and now to semi-annually for 1999.

The Office continues to view the local audit arrangements as a useful control device, helpful to local administration and part of the "early warning system" of risk management. In addition to providing valuable input to the internal audit planning process and the evaluation of administrative performance in the field, this arrangement also enables the Organization to respond promptly to the specific recommendations made by the local audit firms.

Management Support Units

In the past year we began a series of reviews into the experience with management support units both at headquarters and in the regional offices. The first of the reports was based on a broad survey and gives a general overview, the second is specific to the Agriculture Department. In essence the overall report indicated that with the imminent introduction of Oracle this would be a good time for some adjustments to be made to the original arrangements. With respect to the report on the MSU in the Agriculture Department, we found that senior management in the Department are satisfied with the service and noted specific benefits, but this view was not shared by all the divisions in the Department. The specific recommendations are currently under review by management.

Commissary Matters

The Commissary provides a wide selection of international merchandise at competitive prices to FAO and WFP staff as well as Permanent Representatives to both organizations. This is done in consultation with the Joint Commissary Committee and under the limitations of the Headquarters Agreement. Our review of the accounts included related administrative, financial and operational controls. In essence we found the Commissary to be operating in accordance with the appropriate guidelines and established procedures. We also noted considerable improvement both in the variety of items now available and in the general layout of the retail shop and warehouse facilities. We made a number of recommendations for improved inventory control, monitoring of cash receipts, lost and damaged goods and several accounting matters. These were discussed at length with Commissary Management which undertook to rectify noted deficiencies and improve operating procedures wherever appropriate.

3. Audit Activities

The audit activities of the Office are organized, managed, and reported upon by programme element in accordance with the audit plan of work. The annual audit plan was conceived on a top-down basis with reference to the Strategic Framework, the Medium Term Plan, the Programme of Work and Budget, decisions and resolutions of the Conference and Council, discussions in the Programme and Finance Committees and various policy statements and initiatives by the Director-General. The plan was subsequently developed in more detail within the Office on a bottom-up basis and presented to the Director-General for review and approval.

While audit activities are primarily represented by specific audit reports, that does not by any means represent the full picture of the contribution of the Office of the Inspector-General to the overall process of management control in the Organization. The following sections provide a brief summary of the nature and extent of the work carried out in the course of the year.

a) Headquarters Audits

The headquarters unit houses much of the Office's expertise in financial, legal, accounting and treasury functions. It also serves as the focal point for office technology and other areas of information systems and electronic data processing. Its prime responsibility is for conducting comprehensive audits at Headquarters and providing advice to all levels of management on matters falling within its competence.

This unit also has responsibility for reviewing and expressing an opinion on the monthly financial statements and the cash flow forecasts presented to the Director-General. It also reviews and comments on the monthly reports of expenditures in the immediate Office of the Director-General (including his expense reports), and the related expenses carried in departmental budgets.

Specific audits were conducted and reports released on fifteen areas throughout the year. They included important reviews on the use of consultants, the Money and Medals Programme, the Year 2000 project, the operation of MSUs, the microbanking system and various aspects of the Credit Union operation.

b) Field Audits

This unit is responsible for all audits, special reviews, inspections and investigations at offices away from headquarters, and in related activities operated from headquarters. This includes not only the Regional, Sub-Regional and Liaison offices, but also the FAO Representations and specific projects in the field. It also serves as a major source of expertise on decentralization and regionalization issues, and the work associated with the use of local audit firms. It is the prime focal point for the auditors in the four major regional offices, who not only perform the whole range of audits in their regions, but also provide advice on management issues such as staff establishment, recruitment and selection as well as organization and internal control matters that arise from time to time.

The field audit unit also participates actively in the briefing and orientation programme for all newly appointed FAORs, provides input to the evaluation of their performance and is involved in the handover procedures on the termination of their assignments

In the course of the year, the field audit unit produced three special management reviews on the Technical Cooperation Programme, 12 reports on various aspects of Regional and Sub-Regional Offices, 11 reports on FAO Representations (3 in Asia; 4 in the Near East and 4 in Africa) and 19 reports on specific projects (see attachment A).

c) Management Advisory Services

This group deals with the majority of the requests for enquiries, inspections, and investigations originating in the Office of the Director-General or with other members of Senior Management or on occasion from individual staff members. These activities, particularly the special investigations, do not always lead to formal audit reports, but more often are concluded by informal briefings or confidential memoranda. 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.

Areas receiving particular attention in 1998 included major contracts such as for cleaning arrangements, maintenance, medical insurance and shipment of household goods and personal effects of staff members. In addition, ten specific audit reports were produced in the course of the year.

4. Tender Panel Operations

The procurement of equipment, supplies, and services is governed by the principles and procedures set out in the FAO 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.

In the past year, the "Tender Panel" met on 98 occasions and dealt with 278 tenders. For these tenders 2,930 firms were invited to submit bids and 1,311 were received. This level of activity is reasonably consistent with that of previous years.

5. Management Activities

The Office is an active participant or observer in a number of important "standing committees" in the Organization: the Programme Policy and Advisory Board, the Information Systems and Resources Committee (and its sub-committee), the WAICENT Committee, the Procurement Committee, the Advisory Committee on Medical Coverage, the Advisory Committee on Investments, the Advisory Committee on Borrowing, the Oracle Implementation Steering Committee, and the Board of the Credit Union. We are also called upon to participate in ad hoc internal review groups, task forces, evaluation panels and so forth. In addition, we follow closely the deliberations of the Programme and Finance Committees, Council and the Conference and meet from time to time with senior officials and representatives of Member Nations. We also maintain regular contact with the Joint Inspection Unit, other oversight services in the UN system, the Specialized Agencies, and other related entities. Our relations with the external auditors continue to be good, and there is continuous liaison on audit planning and substantial audit issues throughout the year.

On the staffing side, we are now practically at full strength with a well balanced team of highly qualified and experienced staff both at the professional and general service levels. However, for the most part of 1998 we were considerably short-handed, particularly at the senior level at headquarters and in the regional offices. This came about because of internal transfers, secondments, and unexpected resignations. We managed to cope with this difficult situation through the use of the various partnership programmes, short-term consultancies, and work realignments as appropriate. Attachment B to this report provides details on the staffing situation as well as some summary demographic information.

Training and development is an important aspect of AUD's management activities. In 1998, this comprised three elements: professional audit training; language training; and training in the use of the new office technology. On the professional side we had an "on-site" seminar on Communication in Audit (conducted by one of the leading experts in this field). Several sister organizations participated on a cost-sharing basis. An "in-house" language training programme has been developed for AUD staff requiring such training, and we have made good use of the facilities available within FAO for our office technology training needs.
One auditor is enrolled in a distant learning programme with a U.K. university, and another in a senior management training programme, both arranged through the Personnel Division.

We have instituted a series of group meetings with the Evaluation Division; we met with the new team of external auditors; AUD participated actively in the annual meeting of Heads of Internal Audit in the UN system and Multilateral Financial Institutions where the Inspector-General led the discussion on relations with Governing Bodies. In addition, the Inspector-General gave several presentations on internal oversight at the European Conference on Internal Auditing. We also continue to have regular theme-oriented staff meetings where in-house experts address the audit staff on current developments in their areas of expertise, and where audit and administrative (including budget monitoring) matters are discussed.

In closing, the Office would like to express its appreciation to senior management, and indeed to staff at all levels for the positive responses, cooperation and assistance received in carrying out our various assignments throughout the year.


ATTACHMENT A

List of Specific Project Reports Issued in 1998

Strengthening National Forestry Action Plan in Vietnam
Laboratory Diagnosis of Swine Fever in Kenya
People's Participation in Rinderpest Campaign in Kenya
Epidemiology Component of the Rinderpest Campaign in Kenya
Special Programme on Food Production in Kenya
Forestry and Food Security in Syria
Range Rehabilitation (Wildlife Reserve) in Syria
Participatory Upland Conservation and Development in Tunisia
Improvement of Fisheries Statistics in Tunisia
Community Forestry and Wildlife Management in Mozambique
Integrated Watershed Development in Nepal
A Management Issues
B Administrative and Financial Aspects
Oil for Food Programme in Iraq (follow-up report)
Groundnut Seed Production - Nigeria
Milk Production - Samoa
Milk Processing and Marketing - Samoa
Support for Fruit and Vegetable Market - Nepal
Seed Quality Control - Nepal


ATTACHMENT B

Staffing Table for the Office of the Inspector-General

  Grade Male Female Vacant Total
           
Professional Audit Posts D2 1     15
1 Director P5 21 22    
4 Senior Auditors P4 33 1    
4 Regional Auditors P4 1      
1 Auditor P3 24 1    
3 Auditors P2 2      
2 Auditors          
Para-professional Audit Posts         3
1 Audit Assistant G6

1

     
1 Audit Clerk G5   1    
1 Audit Clerk G4   1    
Secretarial Support for Audit         3
1 Director's Secretary G6   1    
1 Clerk (80%) G3   1    
1 Stenographer G3   1    
Other Support Staff         1
1 Records clerk G4   1    
Total:  

12

10

  22

The following countries are represented in the above:

Country

Professional

General Service Total
  Headquarters Region    
         
Antigua 1     1
Bahamas 1     1
Canada 1 1(RNE)   2
India 1     1
Italy 3   4 7
Jamaica   1(RAF)   1
Japan   1(RAP)   1
Pakistan 1     1
Sweden 1     1
UK 1   3 4
USA 1 1(RLC)   2
         
Total 11 4 7 22

N.B. The average age of all staff is 45 years.

1 Seconded to AFF

2 One senior with EOD 1.2.99

3 One auditor with EOD 9.1.99

4 One auditor with EOD yet to be determined