Identifier
Created
Classification
Origin
09ADDISABABA2163
2009-09-04 08:53:00
CONFIDENTIAL//NOFORN
Embassy Addis Ababa
Cable title:  

USAU: FINANCIAL ACCOUNTABILITY AND CAPACITY

Tags:  PREL AU 
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P 040853Z SEP 09
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC PRIORITY 6118
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUEHBS/USEU BRUSSELS
RUEPADJ/CJTF HOA
RUEKJCS/SECDEF WASHINGTON DC
RHEHAAA/NSC WASHDC
RUZEFAA/HQ USAFRICOM STUTTGART GE
RUEKJCS/JOINT STAFF WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 02 ADDIS ABABA 002163 

NOFORN
SIPDIS

STATE FOR AF/FO AND AF/RSA

E.O. 12958: DECL: 09/04/2019
TAGS: PREL AU
SUBJECT: USAU: FINANCIAL ACCOUNTABILITY AND CAPACITY
SHORTFALLS THREATEN EU-AU RELATIONSHIP

Classified By: CDA Roger Meece, reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 ADDIS ABABA 002163

NOFORN
SIPDIS

STATE FOR AF/FO AND AF/RSA

E.O. 12958: DECL: 09/04/2019
TAGS: PREL AU
SUBJECT: USAU: FINANCIAL ACCOUNTABILITY AND CAPACITY
SHORTFALLS THREATEN EU-AU RELATIONSHIP

Classified By: CDA Roger Meece, reasons 1.4 (b) and (d).


1. (C/NF) Summary. A long-awaited European Commission (EC)
financial audit of the African Union Commission's (AUC)
bookkeeping department turned up alarming findings and
threatens existing EU-AU partnership efforts. While the
auditors found no evidence of fraud, financial irregularities
of at least 20 million Euros dating back to 2005 require
repayment to the EC or the withholding of future planned
installments, either of which may impact negatively on the
AU's ability to sustain AMISOM troops. End Summary.


2. (C) At a luncheon on August 26 in honor of EU Special
Envoy for the Horn of Africa Marika Fahlen, EUAU Ambassador
Koen Vervaeke revealed that a team of EC financial experts
had just completed an extensive audit in concert with their
AUC counterparts. The audit's objective was to account for
EC monies granted since circa 2005 in support of the African
Union Mission in Sudan (AMIS),the African Union Mission in
the Comoros (AMISEC),and the creation of the African Standby
Force (ASF). Vervaeke stated that the AU Financial
Department had been transparent and helpful to the EC
auditors, and that the EC financial experts had found no
evidence of fraud. However, up to 60 million Euros could
either not be accounted for, or were deemed ineligible (i.e.
mistakenly spent on things for which the donor never
intended). Consequently, per EC regulations, the AU would
either have to repay the amount in question, or that amount
would be automatically offset against future EC payments to
the AUC.


3. (C/NF) Subsequent to the luncheon, a source inside the AU
confidentially provided USAU with a copy of the EC's final
report which states that "one of the major challenges the AUC
has been facing is to strengthen its financial management up
to a level which is commensurate with its political role and
ambitions."


4. (C/NF) The EC memorandum characterizes the outcomes of the
recent audit as "alarming." The audit found that among AMIS
expenditures, "23.1 million Euros are deemed ineligible, for
ASF workshops 50 percent of expenditures are deemed
ineligible, and for the AMISEC operation only 10 percent of

the expenditures could be verified."


5. (C/NF) The memorandum states that "the present situation
poses serious issues to both institutions; to the AUC since
the launch of recovery orders severely strains its cash flow
and therefore its ability to operate, and to the EC since it
exposes EDF funds to unacceptable levels of risk and poses a
threat to its financial accountability vis-a-vis the control
Authorities. De facto, all further EC payments are blocked
until the existing recovery orders are cleared."


6. (C/NF) The report says that while the EC has been
supporting AUC capacity-building for several years, the
results are "discouraging." It notes that despite the highly
qualified, EC-funded technical advisors seconded to the
Commission, "their advice and recommendations have not been
thoroughly taken on board by the AUC." Other AUC financial
shortcomings highlighted in the EC memorandum include low
absorption capacity, lack of strategic vision in programming,
delayed reporting, and lack of co-financing.


7. (C/NF) On a more positive note, the EC acknowledges that
"recovery orders" (i.e. repayments) have already been issued
for 6.7 million Euros, and expects that audits underway may
lead to another recover order valued at approximately 23.1
million Euros. The EC report cautions, however, that if
immediate and effective action is not taken, the "partnership
will suffer." Noting the extensive efforts of EC advisors
and interlocutors both in Brussels and Addis Ababa, as well
as their patience and understanding over the years, the
report says the "process has reached its limits. A thorough
and quick improvement in the financial management of the AUC
is necessary to prevent damage to the image of both the AUC
and EC and prevent jeopardizing the substantive partnership
between them."


8. (C/NF) Given the AUC's "sub-optimal financial
performance," the EC has announced its intention to reinforce
the monitoring of the projects financed by the EC and

ADDIS ABAB 00002163 002 OF 002


implement additional protective measures, namely a "binding,
real-time monitoring system organized by the EC." Measures
under consideration include embedding a EC technical
assistant in the bookkeeping department, more frequent
intermediate financial reporting requirements verified by
outside experts, and making the release of future
installments conditional on independent verification that
targets are being met. The EC will codify whatever measures
it puts in place, along with a road map including timelines
and deliverables.


9. (C/NF) Comment: The EC is the AUC's biggest donor, and its
long-awaited audit and financial report verifies previous
USAU reporting that capacity in the AUC remains weak despite
the best efforts of reform-minded leaders like AUC Deputy
Chairperson Erastus Mwencha. The damning report, however,
and its financial ramifications may be exactly what the AU
needs to force real structural change. The downside is that
the EC's medicine could negatively impact on AMISOM, as the
EC's payments also fund troop allowances and salaries. USAU
believes that, for the time being, our practice of engaging
African states bilaterally and engaging the AU mostly with
expertise and in-kind assistance inoculates the USG from the
financial risks associated with the AU's lack of capacity.
Missing in all of this is what the AU's likely response will
be. End comment.
MEECE