Identifier
Created
Classification
Origin
02ROME4499
2002-09-17 06:30:00
UNCLASSIFIED
Embassy Rome
Cable title:  

FAO'S EXTERNAL AUDITOR RECOMMENDS OVERHAUL OF

Tags:  EAID EAGR AORC PREF KUNR WFP UN 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 ROME 004499 

SIPDIS

FROM U.S. MISSION IN ROME

STATE FOR PRM/P, EUR/WE AND IO/D
USAID FOR A/AID, AA/DCHA AND PPC/DC
USDA/FAS FOR RTILLSWORTH AND ICD
BRUSSELS FOR USAID
USUN FOR CSERWER AND SMCLURG
NSC FOR JDWOKEN
UNCLASSIFIED

PAGE 02 ROME 04499 01 OF 02 170654Z
OMB FOR TSTOLL
PARIS ALSO FOR OECD

E.O. 12958: N/A
TAGS: EAID EAGR AORC PREF EAGR AORC PREF KUNR WFP UN KUNR EAID WFP UN
SUBJECT: FAO'S EXTERNAL AUDITOR RECOMMENDS OVERHAUL OF
ORGANIZATION'S INTERNAL CONTROLS


-------
SUMMARY
-------

UNCLAS SECTION 01 OF 02 ROME 004499

SIPDIS

FROM U.S. MISSION IN ROME

STATE FOR PRM/P, EUR/WE AND IO/D
USAID FOR A/AID, AA/DCHA AND PPC/DC
USDA/FAS FOR RTILLSWORTH AND ICD
BRUSSELS FOR USAID
USUN FOR CSERWER AND SMCLURG
NSC FOR JDWOKEN
UNCLASSIFIED

PAGE 02 ROME 04499 01 OF 02 170654Z
OMB FOR TSTOLL
PARIS ALSO FOR OECD

E.O. 12958: N/A
TAGS: EAID EAGR AORC PREF EAGR AORC PREF KUNR WFP UN KUNR EAID WFP UN
SUBJECT: FAO'S EXTERNAL AUDITOR RECOMMENDS OVERHAUL OF
ORGANIZATION'S INTERNAL CONTROLS


--------------
SUMMARY
--------------


1. FAO'S EXTERNAL AUDITOR, WHILE ISSUING AN UNQUALIFIED
AUDIT OPINION ON FAO'S BIENNIUM ACCOUNTS FOR 2000-2001, HAS
RAISED CONCERNS RELATED TO THE ADEQUACY AND GENERAL
EFFECTIVENESS OF FAO'S INTERNAL AUDIT MECHANISM. THE
EXTERNAL AUDITOR HAS OUTLINED A NUMBER OF IMPROVEMENTS
REQUIRED INCLUDING ESTABLISHMENT OF AN INDEPENDENT AUDIT
COMMITTEE, CLEARER DELINEATION OF THE ROLE OF FAO'S
INSPECTOR GENERAL, AND A REINVIGORATED INTERNAL AUDIT
DIVISION. THE FAO, APPARENTLY STUNG INTO ACTION BY THE SHARP
CRITICISM, BASICALLY ACCEPTED ALL RECOMMENDATIONS AND
PRESENTED AN ACTION PLAN FOR IMPLEMENTATION LAST WEEK TO THE
FAO FINANCE COMMITTEE. THE VACANCY FOR THE INSPECTOR
GENERAL'S POSITION HAS ALREADY BEEN POSTED ON THE FAO
WEBSITE. END SUMMARY.

--------------
UNCLASSIFIED

PAGE 03 ROME 04499 01 OF 02 170654Z
BACKGROUND
--------------


2. FAO HAS PRESENTED ITS CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 2000-2001 BIENNIUM, WHICH WILL BE REVIEWED AT THE
THIRTY-SECOND SESSION OF THE FAO CONFERENCE NOVEMBER 29-
DECEMBER 10. THE REPORT OF FAO'S EXTERNAL AUDITOR (THE
FRENCH GOVERNMENT'S COUR DES COMPTES) CENTERS ON THE CHANGES
INTRODUCED DURING THE BIENNIUM UNDER REVIEW IN TERMS OF
DECENTRALIZATION AND IMPLEMENTATION OF NEW INFORMATION
SYSTEMS (ORACLE INTEGRATED SOFTWARE IN PARTICULAR) WHICH
HAVE LED TO GREATER RESPONSIBILITY BEING GRANTED TO BUDGET
HOLDERS BOTH AT HEADQUARTERS AND IN THE FIELD. THE EXTERNAL

AUDITOR CONTENDS THAT "THESE CHANGES SHOULD HAVE LED TO A
REASSESSMENT OF INTERNAL CONTROLS."

--------------
STATUS OF FAO'S INTERNAL AUDIT
--------------


3. AFTER REVIEWING FAO'S INTERNAL CONTROLS, THE EXTERNAL
AUDITOR LISTED THE FOLLOWING DEFICIENCIES:

- INTERNAL AUDIT DIVISION HAD A LARGE SCOPE OF
RESPONSIBILITIES BUT FURNISHES INADEQUATE AUDIT COVERAGE;
- THE AUDIT DIVISION SUFFERS FROM RECURRENT VACANCIES AND
LACK OF ICT EXPERTISE;
- FAO LACKS A FORMAL AUDIT PLAN;
- FAO FAILS TO CONDUCT REAL RISK ASSESSMENTS (I.E.,
REVIEWING PAST CASES OF FRAUD AND MISUSE OF THE
ORGANIZATION'S RESOURCES IN ORDER TO DETERMINE THE FACTORS
UNCLASSIFIED

PAGE 04 ROME 04499 01 OF 02 170654Z
THAT FACILITATED THEIR HAPPENING AND RECOMMENDING WAYS OF
PREVENTING FUTURE OCCURRENCE);
- MAJOR INADEQUACIES ARE NOTED IN FAO'S AUDIT MANUAL(S)
(ADJUDGED BY THE EXTERNAL AUDITOR TO BE BELOW UN STANDARDS);
- INADEQUATE ATTENTION IS PRESENTLY PAID TO COMPARISON
BETWEEN PLANNED AND ACTUAL AUDITS;
- FOR SOME AUDIT ASSIGNMENTS, FORMAL REPORTS ARE LACKING.
FAO HAS NO STANDARDIZED AUDIT REPORT FORMAT;
- INCOMPLETE AUDIT RECOMMENDATIONS ARE OFTEN OBSERVED.
GAPS EXIST IN REPORTING ON IMPLEMENTATION OF PAST AUDIT
RECOMMENDATIONS;
- FAO, IN THE BIENNIUM UNDER REVIEW, WAS, IN EXTERNAL
AUDITOR'S VIEW, NOT GETTING "ADEQUATE VALUE" FROM LOCALLY
SELECTED AUDITING FIRMS AT THE FIELD LEVEL.

--------------
RECOMMENDATIONS OF THE EXTERNAL AUDITOR
--------------


4. IN THIS LAST REPORT OF THE PRESENT EXTERNAL AUDITOR
(HAVING COMPLETED AN EIGHT-YEAR MANDATE),THE COUR DES
COMPTES MAKES A NUMBER OF SPECIFIC RECOMMENDATIONS RELATED
TO REVITALIZING FAO'S INTERNAL AUDITING APPARATUS:

UNCLASSIFIED

UNCLASSIFIED PTQ1945

PAGE 01 ROME 04499 02 OF 02 170654Z
ACTION PRM-00

INFO LOG-00 NP-00 AID-00 AMAD-00 CIAE-00 WHA-00 SRPP-00
EB-00 EUR-00 UTED-00 TEDE-00 INR-00 IO-00 L-00
MMP-00 NSAE-00 NSCE-00 OES-01 OIC-02 OIG-03 OMB-01
TEST-00 TRSE-00 SAS-00 /007W
-------------- E84D4F 170741Z /38
P 170630Z SEP 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC PRIORITY 5860
INFO EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
AMEMBASSY BERN
USDA FAS WASHDC 2273
USEU BRUSSELS 2804
USMISSION USUN NEW YORK

UNCLAS SECTION 02 OF 02 ROME 004499

SIPDIS

FROM U.S. MISSION IN ROME

STATE FOR PRM/P, EUR/WE AND IO/D
USAID FOR A/AID, AA/DCHA AND PPC/DC
USDA/FAS FOR RTILLSWORTH AND ICD
BRUSSELS FOR USAID
USUN FOR CSERWER AND SMCLURG
NSC FOR JDWOKEN
UNCLASSIFIED

PAGE 02 ROME 04499 02 OF 02 170654Z
OMB FOR TSTOLL
PARIS ALSO FOR OECD

E.O. 12958: N/A
TAGS: EAID EAGR AORC PREF EAGR AORC PREF KUNR WFP UN KUNR EAID WFP UN
SUBJECT: FAO'S EXTERNAL AUDITOR RECOMMENDS OVERHAUL OF
ORGANIZATION'S INTERNAL CONTROLS

-ESTABLISHMENT OF AN INTERNAL AUDIT SECTION ON FAO'S
INTRANET CLEARLY DELINEATING ITS ORGANIZATIONAL STATUS AND
MANDATE, ORGANIZATIONAL CHART, WORK PLAN FOR THE CURRENT
YEAR, ANNUAL ACTIVITY REPORTS FOR AT LEAST THE LAST TWO
BIENNIA, SETTING UP A CONFIDENTIAL "HOTLINE" TO REPORT
FRAUD, WASTE AND ABUSE;

-AUDIT TIME DEDICATED TO FAO HEADQUARTERS SHOULD BE
INCREASED SIGNIFICANTLY AND AREAS SUCH AS ORACLE FINANCIAL
IMPROVEMENT IMPLEMENTATION, INVESTMENTS AND OTHER TREASURY
FUNCTIONS BE MADE PRIORITY OBJECTIVES IN VIEW OF CLEAR RISKS
AND SHORTCOMINGS. INTERNAL AUDIT SHOULD DOWNSIZE ATTENTION
SPEND ON REVIEWING FAO'S COMMISSARY AND CREDIT UNION (WHICH
ALSO FALL UNDER THE EXTERNAL AUDITOR'S PURVIEW);

-THE MANDATE OF FAO'S INSPECTOR GENERAL NEEDS TO BE MADE
EXPLICITLY CLEAR. IN PARTICULAR, A SPECIFIC UNIT FOR
INVESTIGATION SHOULD BE ESTABLISHED AND STAFFED WITH PERSONS
WITH APPROPRIATE COMPETENCE AND SKILLS (EG., LAWYERS,
CERTIFIED FRAUD EXAMINERS, EX-POLICEMEN, ETC.);

-LISTING OF FUTURE VACANCIES FOR FAO'S INSPECTOR GENERAL'S
UNCLASSIFIED

PAGE 03 ROME 04499 02 OF 02 170654Z
POST ON FAO'S INTRANET AND INTERNET SITES ALONG WITH
ATTACHED JOB DESCRIPTION;

-ESTABLISHMENT OF AN INDEPENDENT AUDITING COMMITTEE IS
PROPOSED, POSSIBLY CHAIRED BY AN EXTERNAL PERSON AND TO
INCLUDE A REPRESENTATIVE FROM ANOTHER UN ORGANIZATION.


5. FAO MANAGEMENT PRESENTED A DETAILED PLAN OF ACTION TO
THE FINANCE COMMITTEE AT MEETINGS SEPTEMBER 9-13 WHICH
ACCEPTED VIRTUALLY ALL THE RECOMMENDATIONS MADE BY THE
EXTERNAL AUDITOR AND OUTLINED A TIMETABLE FOR
IMPLEMENTATION. THE INSPECTOR GENERAL, WHOSE MANDATE HAD
BEEN EXTENDED BY THE DIRECTOR GENERAL ANNUALLY FOR FIVE
CONSECUTIVE YEARS ALTHOUGH THE INCUMBENT HAD REACHED
MANDATORY RETIREMENT AGE, WILL BE REPLACED, AND THE VACANCY
HAS ALREADY BEEN POSTED ON THE FAO WEBSITE. ESTABLISHMENT
OF AN AUDIT COMMITTEE WAS DEEMED TO BE A VERY USEFUL STEP AS
WELL TO REESTABLISH CREDIBILITY OF THE INTERNAL AUDITOR.
FINANCE COMMITTEE MEMBERS WILL MONITOR COMPLIANCE WITH THE
EXTERNAL AUDITOR'S RECOMMENDATIONS AND INCORPORATE THE
ACTION PLAN INTO THE INCOMING AUDITOR'S PROGRAM OF WORK.

--------------
COMMENT
--------------


6. THE OUTGOING EXTERNAL AUDITOR MAY HAVE BEEN UNUSUALLY
CANDID IN ASSESSING "FLAWS" IN FAO'S INTERNAL AUDITING
PROCESS IN THIS REPORT. HOWEVER, THE FACT REMAINS THAT THE
SHORTCOMINGS ARE NOW CLEARLY IDENTIFIED AND THE FAO
UNCLASSIFIED

PAGE 04 ROME 04499 02 OF 02 170654Z
RECOGNIZES THESE RECOMMENDATIONS REQUIRE IMMEDIATE
ATTENTION. WHILE REPRESENTATIVES OF DONOR COUNTRIES
CHARACTERIZED THE REPORT AS "DEVASTATING" REPRESENTATIVES OF
DEVELOPING COUNTRIES DEFENDED THE ORGANIZATION AND THE
DIRECTOR GENERAL. THIS "LAST HURRAH" OF THE COUR DES COMPTES
REPORT WILL, IN USMISSION'S VIEW, EQUIP THE U.S. AND OTHER
REPRESENTATIVES OF DONOR COUNTRIES ON THE FINANCE COMMITTEE
TO VIGOROUSLY PURSUE THE REFORM OF FAO'S INTERNAL OVERSIGHT
CAPABILITIES. HEILEMAN

UNCLASSIFIED

>
2002ROME04499 - Classification: UNCLASSIFIED