REPORT OF THE JOINT AUDIT BODY

Transcription

1 INTERNATIONAL OIL POLLUTION COMPENSATION FUNDS Agenda item: 5 IOPC/OCT15/5/5 Original: ENGLISH 7 August Fund Assembly 92A Fund Executive Committee 92EC65 Supplementary Fund Assembly SA11 REPORT OF THE JOINT AUDIT BODY Note by the Audit Body Summary: Action to be taken: In accordance with its mandate, the joint Audit Body for the 1992 Fund, the Supplementary Fund and, in prior years, the 1971 Fund, shall report on its work to each regular session of the governing bodies. The joint Audit Body s report on its activities since its election in October 2014 is at Annex I Fund Assembly and Supplementary Fund Assembly Note the report of the Audit Body set out at Annex I and consider the Audit Body s recommendation regarding the adoption of the 2014 Financial Statements (see paragraph 3.3.5, Annex I). 1 Introduction 1.1 Pursuant to the mandate of the joint Audit Body of the 1992 Fund, the Supplementary Fund and the former 1971 Fund as decided at the October 2008 sessions of the governing bodies, the Audit Body shall submit to each regular autumn session of the governing bodies, a report on its activities since the previous autumn session. This report is reproduced in Annex I and covers the work of the Audit Body during the year under review except for the work and associated recommendations relating to the appointment of the IOPC Funds External Auditor which is dealt with in a separate document IOPC/OCT15/6/ The Audit Body s current Composition and Mandate is at Annex II. However, the Audit Body notes that, as the 1971 Fund was dissolved on 31 December 2014, the Director is proposing in document IOPC/OCT15/6/3 to amend the Composition and Mandate in order to remove references to the 1971 Fund. 2 Action to be taken 1992 Fund Assembly and the Supplementary Fund Assembly The 1992 Fund Assembly and the Supplementary Fund Assembly are invited to: (a) take note of the report of the Audit Body (Annex I); and (b) consider the Audit Body s recommendation regarding the adoption of the 2014 Financial Statements (Annex I, paragraph 3.3.5). * * *

2 ANNEX I JOINT AUDIT BODY REPORT COVERING THE PERIOD DECEMBER 2014 TO JUNE Introduction 1.1 At its October 2014 session, the 1992 Fund Assembly elected six members and the external expert to the joint Audit Body <1> for a period of three years as follows: Mr John Gillies (Australia) Mr Makoto Harunari (Japan) Mr José Luis Herrera Vaca (Mexico) Mr Michael Knight (External expert) Mr Eugène Ngango Ebandjo (Cameroon) Mr Giancarlo Olimbo (Italy) Mr Jerry Rysanek (Canada) (Chairman) 1.2 The Audit Body operates on the basis of an annual cycle consisting of three meetings. For the period covered by this report, meetings were held on 10 December 2014, 10 April 2015 and 3-5 June As the 1971 Fund was dissolved on 31 December 2014, the Composition and Mandate of the Audit Body needs to be revised by removing all references to the 1971 Fund. This will be dealt with by the Director under a separate agenda item (cf document IOPC/OCT15/6/3). The Audit Body s current Composition and Mandate (as adopted in October 2008) is at Annex II. 2 Audit Body s programme of activities 2.1 At its inaugural meeting in December 2014, the fifth Audit Body planned the programme of activities for its three year tenure and adopted its work plan which is in Appendix I to this report. The work plan includes all core and ongoing activities established in the fourth Audit Body, thus ensuring continuity and smooth transition between the fourth and fifth Audit Bodies and is submitted to the governing bodies for information. 2.2 In carrying out its programme, the Audit Body has worked closely with the Director and Secretariat while being mindful of the balance required between the management responsibilities of the Secretariat and the oversight role of the Audit Body. In the conduct of its work, the Audit Body has also remained mindful of the need to ensure that the work of the Audit Body did not impose unnecessary demands on the resources of the Secretariat. 2.3 The programme of activities of the Audit Body focuses on six main areas: (a) ascertaining the adequacy and effectiveness of the Funds management and financial systems; (b) reviewing the effectiveness of the Funds risk management; (c) reviewing the Funds Financial Statements and Reports; (d) promoting the understanding and effectiveness of the audit function within the Organisations; (d) managing the process for the selection of the External Auditor; and (e) undertaking any other tasks or activities as requested by the Funds governing bodies. <1> For ease of readability, the joint Audit Body is hereinafter referred to as the Audit Body. IOPC/OCT15/5/5, Annex I, Page 1

3 3 How the Audit Body carried out its programme of activities This section reports on the work carried out by the Audit Body in relation to each of the six major areas as presented above in section 2.3 in the period since its appointment in October Ascertaining the adequacy and effectiveness of the Funds management and financial systems The Audit Body performed this core function largely through its review and consideration of the work of the External Auditor, supplemented by periodic presentations by the Secretariat on systems and other relevant topics. As yet, the Audit Body has not commissioned any special reports on key systems due to heavy emphasis on other aspects of its mandate. However, consistent with established practice, the Audit Body met in December 2014 with the External Auditor to review the audit programme for the 2014 Financial Statements which the External Auditor then carried out in January and April The Audit Body also reviewed the Director s responses to the External Auditor s recommendations following their audit of the 2013 Financial Statements The Audit Body recognises that responsibility for the conduct of the external audit and the external audit opinion rests entirely with the External Auditor. Nonetheless, the mandate of the Audit Body calls for it to discuss with the External Auditor the nature and scope of each forthcoming audit and provide input to the development of the strategic audit plan Accordingly, the structured approach, which underlies the conduct of the Funds external audit, allows for a constructive and productive working relationship with the External Auditor. It enables the Audit Body to be aware of the planned scope and focus of the audit, including the assessment of high risk areas and the timetable for audit reports. 3.2 Reviewing the effectiveness of the Funds risk management Risk management Risk management is a key responsibility of the Secretariat. The mandate of the Audit Body calls for it to review the effectiveness of the Funds risk management procedures with particular focus on financial and operational risks. The Audit Body s work programme prescribes a number of activities which have a bearing on the Funds risk management process as well as its management and operating systems On an ongoing basis, the Audit Body seeks to monitor the way in which the Secretariat addresses risk while discharging its responsibilities of managing the Funds operations. While it is the Secretariat s role to identify and manage risks, the Audit Body s oversight centres on ensuring that the Secretariat s risk management framework is adequate and that its internal controls are effective. To this end, the Audit Body received a comprehensive briefing from the Secretariat on the Funds Risk Management Framework at its April 2015 meeting and, at its June 2015 meeting, on the risk management annual review conducted by the Secretariat and the Key Risks identified by the Secretariat. Investment Advisory Body (IAB) While acknowledging the separate and distinct mandate of the IAB, the Audit Body has found it particularly useful, in the exercise of its own mandate, to have a good understanding of the views of the IAB on investment and financial risks and their approach to currency exposure and hedging policy. The Audit Body received a presentation from the IAB in December 2014 concerning current risks and associated risk management strategies. The Audit Body intends to revert to bi-annual presentations from the IAB for 2015/2016. IOPC/OCT15/5/5, Annex I, Page 2

4 3.3 Reviewing the Funds Financial Statements and Reports At its April 2015 meeting, the External Auditor provided to the Audit Body an interim report based on their audit work in January 2015 and a final report in June 2015 following their work on the 2014 Financial Statements. The Audit Body also had closed sessions with the External Auditor without members of the Secretariat being present during both its December 2014 and June 2015 meetings As in previous years, the Audit Body looked to the external audit for reasonable assurance that the Financial Statements were free from material misstatement, whether caused by fraud or error. In its review of the Financial Statements and Reports, the Audit Body was attentive to completeness and consistency, whilst also taking into account the findings and comments by the External Auditor The Audit Body welcomed the External Auditor s opinion that the audit of both the 1992 Fund and the Supplementary Fund Financial Statements for 2014 confirmed that, in all material respects, the transactions underlying the Financial Statements had been made in accordance with the Financial Regulations and applied to the purposes intended by the respective Fund s Assembly and in accordance with International Public Sector Accounting Standards In a closed session, the External Auditor shared with the Audit Body the proposed recommendations arising from the 2014 external audit which would be included in the Report of the External Auditor for the year ending 31 December Recommendation to the governing bodies: Pursuant to its review of the Financial Statements and consideration of all relevant reports and comments by the External Auditor and in light of the assurances provided by the results of the external audit, the Audit Body recommends that the relevant governing body approve the Financial Statements of the 1992 Fund and the Supplementary Fund for the year ending 31 December Winding up of the 1971 Fund In light of the decision of the 1971 Fund Administrative Council to wind up the 1971 Fund at the end of 2014, the Audit Body through its external expert participated in the preparation of the final Financial Statements of the 1971 Fund which were found to be satisfactory, thus enabling the Audit Body to recommend their adoption at the special meeting of the former 1971 Fund States convened by the International Maritime Organisation (IMO) on 17 April Promoting the understanding and effectiveness of the audit function within the Organisations As part of its mandate, the Audit Body is to promote the understanding and effectiveness of the audit function within the IOPC Funds. The Audit Body addresses this core responsibility through a number of means The Audit Body carries out its work plan on the basis of an annual cycle of scheduled activities which support consistency and rigour in the Audit Body s approach and interactions. By means of its programme of activities and annual report to the governing bodies, the Audit Body has sought to make clear the nature of its interactions with various entities (ie the Secretariat, the External Auditor and the IAB) The meetings of the Audit Body provide a forum to discuss a broad range of matters relevant to the Audit Body s mandate and involve the participation of the Director, Deputy Director and representatives of the External Auditor. Other members of the Secretariat are invited to attend discussions where agenda items being considered are related to their area of responsibilities. By means of these meetings, the Director also keeps the Audit Body fully apprised of the activities of the IOPC Funds, including developments on incidents and the outcome of sessions of the governing bodies The periodic participation of one or both of the Chairmen of the governing bodies at meetings of the Audit Body further serves to promote effective communication. The Chairman of the Audit Body, IOPC/OCT15/5/5, Annex I, Page 3

5 external expert and other members of the Audit Body attend the regular autumn sessions of the governing bodies. This ensures reporting of the activities of the Audit Body and allows the Audit Body to gain better insight of the work of the IOPC Funds and appreciation of the perspectives and positions of Member States on key issues and developments. Attendance of the Audit Body members at the regular autumn sessions of the governing bodies also permits informal interaction and discussions with representatives from Member States. 3.5 Managing the relationship between the IOPC Funds and the External Auditor The mandate of the Audit Body provides for it to manage the process for the selection of the External Auditor. This function comprises two elements: (i) an annual element which deals with the effectiveness of the relationship between the External Auditor and the IOPC Funds; and (ii) a periodic or rotational element which deals with the selection and appointment of the External Auditor. Effectiveness of the external audit relationship Following the tender and selection process carried out by the Audit Body in 2010, the governing bodies decided that the annual review and monitoring of the Audit Body would be the primary basis for determining if the external audit relationship with the IOPC Funds was effective (document IOPC/OCT10/11/1, paragraphs and ) In this regard, the Audit Body s programme of activities calls for an annual statement to the governing bodies on the effectiveness of the external audit relationship. The Audit Body takes into account the following elements in considering the effectiveness of the relationship between the Funds and the External Auditor: the effectiveness of the working relationship with the Audit Body and the IOPC Funds Secretariat; the effectiveness of the audit process and assessment of key risks; the quality of review of the Financial Statements; the communication of key issues between parties; and the independence and value for money of the External Auditor The working relationship between the Audit Body and the External Auditor is described earlier in this report (section 3.1 above). The annual statement of the Audit Body regarding the effectiveness of the relationship between the Funds and the External Auditor is provided in Appendix II. Selection and appointment of the External Auditor The task that took most of the fifth Audit Body s time since its inaugural meeting in December 2014 was the competitive process for the appointment of a new External Auditor as instructed by the governing bodies at their October 2014 sessions. The Audit Body presented its interim report on the progress of the competitive process to the governing bodies at their April 2015 sessions (document IOPC/APR15/5/1). The final report of the Audit Body submitted to this session of the governing bodies is contained in document IOPC/OCT15/6/2, including the Audit Body s recommendation on the appointment of the new External Auditor for or any such period as may be decided by the governing bodies. 3.6 Undertake any other tasks or activities as requested by the Funds governing bodies Outstanding oil reports and contributions The Audit Body has also undertaken to revise 1992 Fund Resolution N o 11 as instructed by the governing bodies at their October 2014 sessions. It will be recalled that the Resolution currently deals IOPC/OCT15/5/5, Annex I, Page 4

6 with the issue of outstanding oil reports. The Audit Body was asked to elaborate a new Resolution that would also address the issue of outstanding contributions. The work on this project is progressing well, in close cooperation with the Secretariat, and the new Resolution should be ready for submission to the governing bodies for consideration and approval at their spring 2016 sessions. Provisional payments At its April 2015 session, the 1992 Fund Administrative Council, acting on behalf of the 1992 Fund Assembly, instructed the Director to examine section 7 of the Internal Regulations of the 1992 Fund, in consultation with the Audit Body, and to report back with proposed changes to the governing bodies. The Audit Body has included this piece of work in its work plan for 2015/2016 (see Appendix I). 4 Concluding remarks 4.1 The Audit Body regards the effectiveness of the system of internal controls exercised by the Secretariat in respect of financial reporting, operational procedures and risk management to be critical to the long term viability and veracity of the IOPC Funds. As well, the work of the External Auditor helps to ensure that operations of the IOPC Funds are carried out in conformity with recognised standards and procedures. 4.2 The Audit Body remains satisfied that the Director shares this view and carries out the management of the IOPC Funds accordingly. Jerry Rysanek Chairman, Joint Audit Body 17 July 2015 * * * IOPC/OCT15/5/5, Annex I, Page 5

7 APPENDIX I Audit Body work plan schedule 2014 to Audit Body input to external audit cycle 1.1 Audit Body review of External Auditor Planning Report/input to audit strategy 1.2 Audit Body review/comment on External Auditor s interim report 1.3 Audit Body review/comment on External Auditor s long form report and recommendations 1.4 Monitor Director s response to External Auditor s recommendations December Audit Body meeting Spring Audit Body meeting June Audit Body meeting June December Review at December Audit Body meeting 2 Audit Body activities in respect of the adequacy and effectiveness of the Organisations management and financial systems 2.1 Review risk management process, operating procedures systems and internal controls 2.2 Review of Key Risk Register 2.3 Review jointly with Secretariat enhancements to Claims Handling System 2.4 Audit Body input to Secretariat review of business process, risk identification and mitigation strategies Ongoing June Audit Body meeting Ongoing Initiated June 2011 Periodic Briefings to Audit Body Preliminary work plan/ Briefing to Audit Body December 2014 Preliminary report from Secretariat Spring 2015 Review of Key Risk Register: June 2015 Rotational Occasional 3 Audit Body review of Organisations Financial Statements and Reports 3.1 Review of Financial Statements presentation/accounting policy 3.2 Review Financial Statements 3.3 Monitor IPSAS implementation Ongoing December Audit Body meeting Spring/June Audit Body meetings IOPC/OCT15/5/5, Annex I, Appendix I, Page 1

8 4 Audit Body activities to promote understanding and effectiveness of audit function within the Organisations 4.1 Provide forum to discuss matters in relation to management/financial systems, risk management and external audit 4.2 Annual report to governing bodies on mandated activities 4.3 Audit Body meeting with Investment Advisory Body Audit Body meetings throughout the year October Bi-annual December/June Audit Body meetings Ongoing 4.4 Study/promote best practices of audit committees 4.5 Promote effective communications Ongoing between Audit Body, Secretariat, governing bodies, Investment Advisory Body, etc. 4.6 Functioning of the Audit Body Preliminary note: December 2015 Revised note: March/December 2016 Revised draft: June 2017 Final document to be submitted to governing bodies: October 2017 / Rotational 5 Audit Body management of the process for the selection of External Auditor 5.1 Annual statement to governing bodies 5.2 Selection process preparedness and recommendation to governing bodies as part of Audit Body Chairman s report October Audit Body report to October 2015 sessions 6 Any other tasks or activities as requested by the Funds governing bodies 6.1 Audit Body report to governing bodies on effectiveness of (1) Policy measure on non-submission of oil reports and (2) Resolution N o 11 (October 2009) in respect of outstanding contributions 6.2 Provisional payments. Director to examine section 7 of the Internal Regulations of the 1992 Fund in consultation with the Audit Body Draft Resolution (recast of Resolution N o 11) to be revised for Audit Body December 2015 meeting Preliminary document for Audit Body December 2015 meeting Rotational Occasional Occasional * * * IOPC/OCT15/5/5, Annex I, Appendix I, Page 2

9 APPENDIX II Statement of the Audit Body regarding the effectiveness of the relationship between the IOPC Funds and the External Auditor Pursuant to the directive of the IOPC Funds governing bodies at their October 2010 sessions, the Audit Body is attentive to the effectiveness by which the External Auditor discharges his responsibilities to the IOPC Funds. In this regard, and for the period under review, the Audit Body considers the structure, approach, scope and coverage of the audit process to be both relevant and comprehensive. The Audit Body finds the examination of the Financial Statements carried out by the External Auditor to be thorough and systematic. The results of the audit process are communicated in a clear and timely manner. The work of the External Auditor, and the results of the audit process, help to ensure compliance with the accounting policies, regulations, standards and procedures of the IOPC Funds. The Audit Body finds the work of the External Auditor in the examination of operational procedures and processes to be helpful in ensuring the adequacy of internal controls. The Audit Body considers that the External Auditor carries out his functions with an independent and objective approach while maintaining an effective and professional relationship with the Director and Secretariat. Equally, the working relationship between the External Auditor and the Audit Body is constructive and suitably focused. Overall, it is the view of the Audit Body that the work of the External Auditor is effective and of tangible value to the operations of the IOPC Funds. * * * IOPC/OCT15/5/5, Annex I, Appendix II

10 ANNEX II COMPOSITION AND MANDATE OF THE JOINT AUDIT BODY OF THE 1992 FUND, THE 1971 FUND AND THE SUPPLEMENTARY FUND (REVISED IN OCTOBER 2008) COMPOSITION 1 The members of the Audit Body shall perform their functions independently and in the interest of the Organisations as a whole and shall not receive any instructions from anyone, including their Governments. 2 The Audit Body shall be composed of seven members elected by the 1992 Fund Assembly: six named individuals nominated by 1992 Fund Member States and one named individual not related to the Organisations ( external expert ) with expertise and experience in financial and audit matters, nominated by the Chairperson of the 1992 Fund Assembly. Nominations, accompanied by the curriculum vitae of the candidate, should be submitted to the Director in response to a call for nominations made by the Director. The Chairperson of the 1992 Fund Assembly will, in consultation with the Chairpersons of the 1971 Fund Administrative Council and of the Supplementary Fund Assembly, propose the name of one of the elected members of the Audit Body for consideration and approval by the governing bodies as Chairperson of the Audit Body. 3 Members of the Audit Body shall hold office for three years, once renewable. Should nominations for election to the Audit Body not be sufficient to fill vacancies at an election, existing members of the Audit Body having served two terms will be eligible for a once-only re-election, provided they are renominated by one or more 1992 Fund Member States. The external expert shall hold office for three years, twice renewable. 4 Travel and subsistence expenses of the members of the Audit Body shall be paid by the Organisations. The Assembly of the 1992 Fund will, from time to time, decide on the quantum of the honorarium paid to the six elected members and the fee paid to the external expert. The timing and method of payment will be agreed between the Audit Body and the Director. MANDATE 5 The Audit Body shall: (a) (b) (c) (d) (e) (f) review the adequacy and effectiveness of the Organisations management and financial systems, financial reporting, internal controls, operational procedures, risk management and related matters; promote the understanding and effectiveness of the audit function within the Organisations, and provide a forum to discuss matters referred to in (a) above and matters raised by the external audit; discuss with the External Auditor the nature and scope of each forthcoming audit and provide input to the development of the strategic audit plan; review the Organisations Financial Statements and reports; consider all relevant reports by the External Auditor, including reports on the Organisations Financial Statements, and make appropriate recommendations to the Funds governing bodies; manage the process for the selection of the External Auditor; and IOPC/OCT15/5/5, Annex II, Page 1

11 (g) undertake any other tasks or activities as requested by the Funds governing bodies. 6 The Chairman of the Audit Body shall report on its work to each regular session of the 1992 Fund Assembly, the 1971 Fund Administrative Council and the Supplementary Fund Assembly. 7 Every three years the functioning of the Audit Body and its mandate shall be reviewed by the 1992 Fund Assembly, the 1971 Fund Administrative Council and the Supplementary Fund Assembly on the basis of an evaluation report from the Chairman of the Audit Body. IOPC/OCT15/5/5, Annex II, Page 2