MINISTER OF FINANCE WELCOMES U.S. TECHNICAL ASSISTANCE ON

UNCLAS SECTION 01 OF 02 KABUL 004091 SENSITIVE SIPDIS DEPT FOR S/SRAP AND SCA/A TREASURY FOR LMCDONALD, MNUGENT, JCASAL E.O. 12958: N/A TAGS: EFIN EAID PGOV PREL AF SUBJECT: MINISTER OF FINANCE WELCOMES U.S. TECHNICAL ASSISTANCE ON INTERNAL AUDIT ¶1. (SBU) Summary: On December 16, Coordinating Director for Development and Economic Affairs (CDDEA) E. Anthony Wayne met with Afghan Minister of Finance, Omar Zakhilwal, to discuss the internal audit capability of the Ministry of Finance (MOF). CDDEA Wayne also introduced Bob Cortesi, a visiting Treasury advisor assessing MOF's needs for internal audit technical assistance. Due to the recent reinstatement of Article 61 by the Ministry of Justice, MOF again has authority to audit all line ministries in the Government of the Islamic Republic of Afghanistan (GIRoA). (Note: We are seeking confirmation that the MOJ letter can overturn the Presidential decree that had revoked Article 61.) Minister Zakhilwal noted that despite this authority, MOF's Internal Audit Department (IAD) does not yet have the capacity to execute audits across ministries. He noted that assistance to build this capacity was both welcome and needed. End summary. MINISTRY OF FINANCE'S CAPACITY FOR INTERNAL AUDIT REMAINS LIMITED ¶2. (SBU) Minister Zakhilwal stated that the reinstatement of Article 61 of the Public Finance and Expenditure Management Law has granted MOF enormous authority and responsibility to conduct audits of all ministries within GIRoA. Despite this authority, the Minister indicated that he did not believe IAD has the capacity to effectively execute this charge. Minister Zakhilwal also expressed lack of confidence in the IAD and pointed out that, while he is personally following several "serious cases" of corruption within GIRoA, he is doing so without IAD involvement. Moreover, Zakhilwal also pointed out that he does not "trust anyone beyond the Ministry" to handle sensitive, corruption-related cases that come to his attention. ¶3. (SBU) Minister Zakhilwal's goal is to make IAD a "lean, clean, and capable" department. His short-term focus is to increase IAD's ability to conduct audits within MOF. Then, once capacity has been increased, IAD will begin to audit other ministries. Zakhilwal noted this will require stronger leadership within IAD. Zakhilwal said if he stayed on as Minister of Finance, he would replace the Director General of the IAD and people in several other key positions at MOF with more "effective leaders." (NB: President Karzai announced Zakhilwal's reappointment as Finance Minister on December 19.) ¶4. (SBU) Treasury Advisor Bob Cortesi outlined the initial results of his assessment of the IAD. Overall, he was impressed with many of the structures and procedures in place. He credited much of this success to the World Bank's continuing provision of training, development of manuals and procedures, and logistical support to IAD. Mr. Cortesi noted future assistance by the Treasury's Office of Technical Assistance is designed to build upon the strong foundations established by the World Bank and other donor programs, rather than duplicate efforts. He also noted that the World Bank is "very supportive" of Treasury's proposal and views it as a positive development in an important area of public financial management. Mr. Cortesi recommended that the Minister of Finance consider having Treasury provide the following technical assistance positions in MOF: - One resident advisor to assist in the design and implementation of new audit responsibilities designated under Article 61. The advisor would assist the Director General of IAD in developing staffing plans, audit programs, techniques, training, and mentoring in the area of financial audits. (Additional support in this area may result in the deployment of an additional resident advisor(s) and/or intermittent advisory assistance). - One advisor to assist in developing and providing audit programs, procedures, audit plans, training and mentoring on performing Information Technology (IT) systems audits. (The government currently has several IT systems and databases which support government functions and can be subjected to audit, including AFMIS (financial),ASYCUDA (Customs),and TIN (Tax). - Mr. Cortesi also suggested placing advisors to help improve the current audit resolution procedure. Minister Zakhilwal reacted positively to the proposed positions and asked for greater support in improving the Financial Investigative Unit (FIU),which conducts IAD's investigations. Mr. Cortesi, who has more than 30 years of investigative experience, said he would work on developing an investigative training plan when he returns in mid-January. MINISTER OF FINANCE SEEKS QUICK "BIG WINS" THROUGH INTERNAL AUDIT ¶5. (SBU) Minister Zakhilwal noted his main frustration with the current Deputy General, Mohammad Dindar, was that he focused on "trivial cases" rather than searching out big money cases. Zakhilwal noted his respect for DG Dindar's attention on process but emphasized the need for "big wins." The difference in focus is KABUL 00004091 002 OF 002 reflected in differing strategies for expanding MOF's internal audit operations out to other ministries: DG Dindar's plan is to initially focus on six ministries, building up capacity and processes; Minister Zakhilwal however said he prefers a more aggressive and targeted approach focused on investigating "important" cases, where large sums of money are at stake, regardless of ministry. ¶6. (SBU) Comment: We welcome Minister Zakhilwal's attention to improving internal audit but remain concerned that he may be looking for "big wins," at the expense of establishing greater long-term technical capacity and sound procedures. Zakhilwal's audit bodies must be able to walk before they can run. Technical advice provided by the U.S. Treasury to MOF will emphasize the importance of establishing high-quality internal audit practices and procedures to prevent fraud and abuse. End comment. RICCIARDONE