FINANCE COMMITTEE

LONG FORM REPORT

External Auditor's Recommendation

Priority

External Auditor's Suggested Timetable

Action taken, status and time-frame for implementation

Auditor's Comments

FINANCIAL MATTERS

Format of the Financial Statements

Manual Adjustments

I recommend that the Organization critically review the chart of accounts to identify further possibilities of reducing manual adjustments (See paragraph 12).

Significant

Before the 2002-03 closure

This task has been completed.

Status: Implemented

This is under verification.

Rounding Policy

I recommend that, starting with the 2002-03 financial statements, a note relating to the rounding policy be included clearly indicating the level of rounding off. [paragraph 18]

Merits attention

For the 2002-03 accounts

The rounding policy applicable to the Organization's financial statements is now stated in a note to the biennial accounts.

Status: Implemented

Verified.

Financial Position of the Organization

Applicable Rules and Regulations for Employment of Retirees

I recommend the following:

• The existing guidelines and practices for the re-employment of former staff members who have been separated should be consolidated into a comprehensive policy, which should address, in particular, the following issues: minimum time lapse between termination and re-employment, maximum time of employment, nature of the assignment, financial and other conditions of employment.
• As far as the first point is concerned, I consider the UN standard rule of three years minimum to be a good practice. It should be duly recalled in all termination agreements. The Director-General could, of course, always grant a waiver to this rule on the basis of detailed justifications. The maximum time of employment could be based on the one for retirees (six months).
• Once defined, the rules governing re-employment of separated staff should be incorporated into the FAO Manual under Section 300 [paragraph 31].

Significant

Early in 2003

While the partnership programme on the use of retired experts at present addresses the issues raised by the External Auditor, the Organisation recognises the need for a further review of these issues in the light of the experience gathered since the implementation of the programme, with a view to formulating a more comprehensive and effective policy. Amendments will be made to the relevant Manual Section.
The Organization maintains that the current practice, as described in the internal administrative document (Key Information Circular – KIC 99/7 dated 1 July 1999), should continue to apply, i.e., no re-employment of a former staff member can be considered during the period covered by the indemnity of an agreed termination.
Status: In course of implementation, except as indicated above
Expected completion: December 2004

Progress on this matter will be verified after implementation is reported.

MANAGEMENT MATTERS

Implementation of the “Oil for Food” Programme

Management of the Locally Generated Funds

I recommend that the Organization continue to make the necessary efforts to solve all pending matters regarding LGF [Locally Generated Funds] procedures and that LGF income and expenditure be duly included in the FAO's financial statements for the 2002-03 biennium. [paragraph 97]

Fundamental

Before the 2002-03 closure

The pending matters referred to by the External Auditor have now been resolved. LGF income and expenditure are included in the FAO's financial statements for the 2002-03 biennium.
Status: Implemented

This is under verification.

REVIEW OF THE ORGANIZATION'S INTERNAL CONTROLS

Organization of the Overall Function of Oversight at the FAO

Applicable Rules and Regulations

I recommend that the Financial Rules, which constitute Section 202 of the FAO Manual, and Section 108 that relates to the AF Department be updated as soon as possible in order, notably, to give a comprehensive view of the oversight functions within the Organization. [paragraph 131]

Merits attention

Before the end of 2002

A revised draft of the functional statement of Finance Division (Manual Section 108) has been prepared and is currently under review. A revised draft of Manual Section 202 has also been prepared and is currently being reviewed within the context of a broader revision of accounting policies and procedures and financial rules. This exercise will continue throughout 2004.
Status: In course of implementation
Expected completion: end of 2004

Progress on this matter will be verified after implementation is reported.

Overall Organization and Respective Mandates

I recommend that the FAO examine the possibility of combining AUD and PBEE with the view of creating a single office or division for oversight. The present Controls Branch, which operated at a different level, could remain within the Finance Division. However, working relationships should be formally established in order to avoid any duplication of work. [paragraph 137]

Merits attention

Before the end of 2003

Documents entitled "The Independence and Location of the Evaluation Service" were presented to the Joint Meetings of the Programme and Finance Committees in May and September 2003. The Committees decided to further enhance the independence of the Evaluation Service and agreed to various steps in this regard. It also agreed that it would not be useful to combine evaluation and audit functions within one office.

Status: After further analysis and consideration, as indicated above, this item is not for implementation.

No further verification is required.

Review of the Office of the Inspector-General

Audit Planning

I recommend that a risk assessment process should be conducted and updated on a regular basis (at least once per biennium). Its overall objective would be to collect and analyse data, both quantitative and qualitative, to describe the form, dimension, and characteristics of the risks faced by the Organization. [paragraph 156]

Significant

By mid-2003

AUD has changed its approach to the audit planning process by using risk-based assessments to identify the critical areas and activities to be audited. It is expected that this approach will result in better targeted reviews and more effective use of staff resources. In this regard, AUD has developed the necessary risk assessment and audit planning application. The Audit Plan for the 2004-2005 biennium has been prepared based on this revised approach.

Status: Completed for the 2004-2005 planning cycle. This recommendation continues to be valid, and updating of the risk assessment will continue on a regular basis.

Verified.

Training

I recommend that training be intensified and focused, in particular, on information system audit. In addition, some existing auditors should be encouraged to become CISAs [Certified Information System Auditors] or Oracle “Certified Professionals”. [paragraph 168]

Significant

For the 2003 training plan

Training and development continue to be important aspects of the overall management of the Office of the Inspector-General. Such training comprises three elements:

• professional audit training,
• language training, and
• training in the use of office technology.

As part of the ongoing training efforts, a course on information systems audits, concentrating on auditing Oracle applications, was held in Rome for the entire Office in November 2003. In addition, audit staff is encouraged to enrol for the Certified Information System Auditors (CISA) programme. In this regard, one staff member will take the examination in 2004.

Status: Completed for 2003 training cycle. The Office will continue its efforts to target and focus on training.

Verified.

Performance of Audit Work

I recommend the following:

Dramatic improvements should be made to the audit manual to turn it into a useful tool for the auditors. Priority should be given to include sections on risk assessment, statistical sampling and materiality. The section dedicated to Headquarters should be expanded to cover the information system, treasury functions and investments, procurement and human resources audits [paragraph 172].

Significant

By mid-2003

AUD has started work on updating the audit manual. A section on risk assessment methodology has been developed for incorporation into Volume 1 of the manual (Audit Overview), together with:

(a) the new standards for the professional practice of internal auditing, which were adopted in June 2002, and

(b) the guide on statistical sampling and materiality.

In addition, Volume 2 of the manual (Audit Programmes) is under constant review as AUD updates it with revised or new audit work programmes, as applicable, whenever audits or reviews are carried out.

Status: In course of implementation

Expected completion: second half of 2004

Progress on this matter will be verified after implementation is reported.

Reporting and Follow-up of Audit Findings

I recommend the following:

For each type of audit assignment a standard report should be developed. Compliance to the agreed content and format should be closely monitored [paragraph 175].

Significant

Immediate effect

AUD has completed a comparative review of the practices of other agencies. As a result, AUD has introduced certain standardised aspects into the reporting format, including a table of recommendations with a suggested time-frame for implementation.

Status: Implemented

Verified.

Review of the Internal Controls over the Use of the Organization's Resources

In view of the deficiencies of the review conducted and the unreliability of the results, I recommend that another review be conducted as soon as possible with an appropriate methodology, namely a risk assessment. The assessment should first look back at past cases of fraud and misuse of the Organization's resources in order to determine the factors that facilitated their occurrence. On the basis of how existing rules, regulations and procedures were indeed applied, the assessment should then look ahead and try to predict the possible risks of misuse of the Organization's resources and recommend ways of preventing them [paragraph 187].

Fundamental

In 2003

AUD started work in this area during the second quarter of 2003 and the relevant audit report was issued at the end of 2003.

Status: Implemented

Verified.

Review of the Set-up of Controls in Oracle

Systems-development Process

I recommend that priority be given to the following:

• an overall strategy should be formalised;
• a well-proven project methodology should be adopted for the Human Resources and Budget projects and any other future projects;
• existing documentation should be completed and/or updated (especially all parameters' guides) and procedures defined for their maintenance;
• all controls carried out either at the level of AFI or AFFS should be formally documented. [paragraph 195]

Fundamental

Before the end of 2002

Procedures and controls in relation to system access security have been formally documented and published on the AFF Intranet. The other items have already been implemented and reported to the Finance Committee (see Finance Committee document FC 102/8).
Status: Implemented

Verified.

Interfaces

Although I acknowledge that the Controls Branch has started to address these problems through the monitoring and reporting of interface activity and follow up of issues arising, I recommend that efforts be continued to establish procedures for the following: frequency of up-dates; regular analysis of rejects; recycling and audit trail. [paragraph 196]

Significant

Immediate effect

A significant amount of work has been carried out in the interface monitoring environment comprising the documentation of existing interfaces and development of reports to provide positive assurance on the correct functioning of interfaces between Oracle Financials Systems and also between non-Oracle and Oracle systems. Work will continue in this area in relation to areas where specified requirements have not yet been fully introduced or where possible improvements to existing reports have been identified. Other improvements will include, where appropriate, the use of 11i workflow functionality in the interface monitoring process.
Status: Implemented

This will be verified.

FOLLOW UP REVIEW OF THE TREASURY MANAGEMENT

Organizational Arrangements

Advisory Committee on Investments

I recommend that the ACI [Advisory Committee on Investments] meet twice a year, by teleconference and that informal consultation be encouraged in between. Minutes should be prepared in all cases, even for informal consultation, and promptly issued, as previously recommended. [paragraph 213]

Merits attention

In 2003

The recommended approach is being implemented depending on the availability of ACI members and the issues to be discussed. The Committee meets in Rome once a year (usually in April) and urgent issues will be discussed by way of phone conference calls.
Status: Implemented

Verified.

Banking Arrangements

I recommend prompt action to implement the third tier of the strategy in order to further streamline the number of retail banking relationships and reduce the cost of banking. [paragraph 215]

Significant

Before the end of 2003

With regard to the third tier of the banking strategy, a banking expert was engaged to assist with restructuring the FAO's field banking relationships. Contacts have been made with the main banking service providers for the FAO regions and proposals have been presented for Senior Management's approval.

Status: In course of implementation

Expected completion: September 2005

Progress on this matter will be verified after implementation is reported.

Long-Term Investments

2002 Update

While regretting that the existing arrangements were not reviewed earlier, as recommended in my previous report, I urge the Organization to progress on this issue (transfer of the long-term investments) as soon as possible now that a Chief, Treasury Unit has been appointed. [paragraph 224]

Fundamental

By mid-2003

With regard to the arrangements for long-term investments, the Organization terminated the previous investment manager's contract in April 2003, at which time both bonds and equities were transferred to two existing investment managers. The implementation of this phase of the long-term investment strategy is complete.

Status: Implemented

Verified.

FOLLOW UP REVIEW OF THE AFF REORGANISATION AND STAFFING

Staffing review

I recommend that on the basis of the final report of the consulting firm, a detailed action plan on how to address the unresolved issues faced by the AFF division be prepared and that its implementation be closely monitored through the regular issuance of progress reports. [paragraph 254]

Significant

Detailed plan of action before the end of 2002

This recommendation was taken on board within the planning exercise for the 2004/2005 biennium budget. However, budgetary pressures within the Organization may now lead to yet further cuts in the resources available to Finance Division with reductions in the number of posts to a level that will be below the level identified as an acceptable minimum by the consulting firm.

Status: Dependent upon availability of funding

In view of the current situation, progress can be verified after the final position emerges.

ACTION TAKEN IN RESPONSE TO PREVIOUS REPORTS

Human Resources Management

Use of Other Human Resources

Regarding the use of other human resources, I recommended that the conditions of services and contracts be standardised and that a control and monitoring system over the corporate use of external collaborators be put in place [paragraph 119 of my 1998-99 report]. At the time of writing this report, my staff were informed that the envisaged new contractual arrangement called “Personal Services Agreement”, which would replace four previous types of contracts, and would be implemented in October 2002.

Not indicated

Not indicated

Experience with the implementation of the new contractual arrangement called “Personal Services Agreement (PSA)“ was reviewed and some adjustments to the contract document were made to take into account users' feedback and needs. The revisions to the PSA have been completed and the matter is awaiting internal clearances and system changes.

Status: In course of implementation

Expected completion: May 2004

Progress on this matter will be verified after implementation is reported.