UNITED NATIONS OFFICE FOR PROJECT SERVICES (UNOPS) INTERNAL AUDIT REPORT 3 JUNE 2014 PROJECT NAME: PROJECT NUMBER: 00075434 COUNTRY: AUDITOR: SECOND CUSTOMS REFORM AND TRADE FACILITATION PROJECT AFGHANISTAN (SCRTFP) AFGHANISTAN MOORE STEPHENS LLP PERIOD SUBJECT TO AUDIT: 21 DECEMBER 2012 TO 21 DECEMBER 2013
Cntents Acrnyms and abbreviatins... 3 Executive summary... 4 The engagement cntext... 4 Audit bjectives... 4 Audit scpe... 4 Audit rating... 4 Key issues and recmmendatins... 5 Detailed assessment... 7 Annex I - Definitins... 12
Acrnyms and abbreviatins IAIG IPSAS PC RO SCRTFP TOR UNOPS USD Internal Audit and Investigatins Grup Internatinal Public Sectr Accunting Standards Prject Centre Reginal Office Secnd Custms Refrm and Trade Facilitatin Prject Terms f Reference United Natins Office fr Prject Services United States Dllars
Executive summary The engagement cntext Frm 15 t 26 March 2014, the Internal Audit and Investigatins Grup (IAIG) f the United Natins Office fr Prject Services (UNOPS), thrugh Mre Stephens LLP ( the audit firm ), cnducted an audit f Secnd Custms Refrm and Trade Facilitatin Prject (SCRTFP) (Prject ID 00075434) ( the prject ), which is implemented and managed by the UNOPS Operatinal Hub in Afghanistan. The audit firm was under the general supervisin f IAIG in cnfrmance with the Internatinal Standards fr the Prfessinal Practice f Internal Auditing. The prject reprted expenditure amunted t USD 15,989,969 during the perid frm 21 December 2012 t 21 December 2013. The fllwing dnr cntributed t the prject: Wrld Bank (IDA). Audit bjectives The verall bjective f the audit was t assess the management f the prject peratins t btain reasnable assurance twards the achievement f the prject bjectives. The areas f fcus included: a) Effective, efficient and ecnmical use f resurces; b) Reliability f reprting; c) Safeguarding f assets; and d) Cmpliance with applicable legislatin. The purpse f the audit was t prvide reasnable assurance that: a) Client/dnr cntributins and prject expenditure are prperly accunted fr; b) Prject expenditure was incurred in accrdance with the cntributin agreement, and is supprted by adequate dcumentatin; and c) The related financial statements prepared by UNOPS fr the year under review present a fair view f the peratins. In particular, the audit firm prvided an verall assessment f the peratinal and internal cntrl systems that are in place fr the management f the prject s that related transactins are prcessed in accrdance with UNOPS plicies and prcedures t achieve the prject s bjectives. Audit scpe The audit firm cnducted the audit in accrdance with Internatinal Standards n Auditing issued by the IASSB and UNOPS internal audit practices, and in cnsideratin f the requirements f Internatinal Public Sectr Accunting Standards (IPSAS). Audit rating Based n the audit reprt and crrespnding management letter submitted by the audit firm, IAIG assessed the management f the prject as partially satisfactry which means Internal cntrls, gvernance and risk management prcesses were generally established and functining, but needed imprvement. One r several issues were identified that may negatively affect the achievement f the bjectives f the audited entity. The details f the audit results are presented in Tables 1 and 2.
Table 1: Summary results f the financial audit Prject title Perid Prject n. Secnd Custms Refrm and Trade Facilitatin (SCRTFP) 21 December 2012 t 21 December 2013 00075434 Financial statement Statement f nn-expendable prperty Amunt USD Opinin Amunt USD Opinin 15,989,969 Unqualified 422,966 Unqualified Table 2: Internal cntrl rating summary fr prject Rating summary by functinal area Functinal area Prject management Finance Prcurement and supply chain Human resurces General administratin Overall rating f internal cntrl Rating Partially satisfactry Satisfactry Satisfactry Satisfactry Partially satisfactry Partially satisfactry Key issues and recmmendatins Of the tw audit findings, neither were nted t be caused by factrs beynd the cntrl f UNOPS. There are tw recmmendatins, nly ne f which is ranked f high pririty. Belw is a list f the audit findings, further details f which can be fund in the detailed assessment sectin. N. Functinal area Audit finding title Pririty rating (high / medium) Financial impact (USD) 1 2 Prject management General administratin Inadequate prject versight by the Prject Steering Cmmittee Nn-cmpliance with the prvisins regarding asset management cntained in the Financial Management Manual High - Medium - Ttal -
Mark Hendersn Partner Mre Stephens LLP 150 Aldersgate Street Lndn EC1A 4AB 3 June 2014
Detailed assessment # Observatin Recmmendatin Functinal area: Prject management 1 Title Inadequate prject versight by the Prject Steering Cmmittee, Cmparisn criteria Schedule 2 t the Financing Agreement (FA) dated 28 June 2010 prvides guidelines fr prject executin and implementatin arrangements and requires establishment f a Budget Cmmittee (als appendix 1, clause 38 f the MSA dated 28 December 2010) and f a Steering Cmmittee (appendix 1, clause 7, sectin D f the MSA dated 28 December 2010). Sectin 2.2 f the prject Financial Management Manual (FMM) requires the Prject Steering Cmmittee t have scheduled quarterly meetings and, in additin, ad hc meetings when required. Sectin 5.4.9.4 f the prject FMM identifies management f risk as ne f the imprtant parts f the Prject Steering Cmmittee s and Prject Manager s jb. The FMM includes the fllwing as part f the prject risk management prcess: 1) Risk Lg: Identified risks are nt kept separate (e.g. business, prject, Stage Plan). They are all entered in ne Risk Lg which is always We recmmend that meetings f the Prject Steering Cmmittee and Budget Cmmittee be held in accrdance with the terms f the Financing Agreement, namely that they are cnducted at least quarterly and additinally if and when required. The Prject Manager r apprpriate prject staff member shuld establish a clear meeting agenda in advance f this meeting which is circulated with relevant dcuments in sufficient time t allw meeting attendees t prepare fr the meeting. We recmmend that n mnthly preparatin f the risks in the Highlights Reprt, the status f risks Management cmment and actin plan Financing Agreement des nt prescribe any frequency schedule fr the meetings f Prject Steering Cmmittee r Budget Cmmittee. The schedules are mentined in the FM Manual. But, cnsidering that the PSC is headed by the Finance Minister and the Secretary f the cmmittee is Directr General, it is nt within the mandate f prject t schedule these meetings. Agenda f the PSC is discussed with the client and dnr befre its finalizatin as may be seen frm the exchange f emails mentined belw. Fr instance, between diverse dates frm 13 June 2013 up t 23 December 2013 ver seven emails with attachments f draft prpsed agenda and Respnsible manager / due date / pririty Respnsible manager: Shahid Meezan Due date: 30-June-2014 Pririty: High
reviewed in its entirety. 2) The risks analysed and evaluated fr impact activities plans are then drawn up fr mnitring, cntrlling and mitigating the risks. These shuld be included in the Highlights Reprt. 3) The reprts are discussed and agreed upn. The minutes fr the agreed upn measures are submitted t the PSC. 4) The PSC apprved the risk mitigating measures put frward in part r in its entirety. 5) Risk management is cntinuus prcess and cmmunicatin and feedback is essential fr the whle life f the prject. Facts / bservatin We nted that the Prject Steering Cmmittee met nce during the perid under audit review, n 29 December 2012, and nt quarterly as per the FMM. A further meeting was held n 23 December 2013, i.e. tw days after the perid under review. (The minutes f this meeting were nt signed ff and finalised at the time f the audit fieldwrk cmmencement). There was n evidence f financial versight by the Prject Steering Cmmittee. The PSC was presented with a 2014 Budget Cmmittee apprved budget and wrk plan but minutes stated these were nt discussed in detail as these had already been reviewed and apprved at Budget Cmmittee level. In additin, there was n evidence f the PSC reviewing the prcurement plan, Prcurement Mnitring Reprts r a detailed situatinal analysis. The prcurement prcess was nt reviewed t ensure a fair and transparent prcess had been perating. The Risk Lg had nt been updated since February 2013 despite mnthly Highlights Reprts between March and Nvember 2013 identifying changes in risks. There are a number f entries in February and changes shuld be reflected in the Risk Lg s that it is cntinuusly maintained. We recmmend als that the review f the Risk Lg and Highlights Reprts are perfrmed by the Prject Steering Cmmittee. Evidence f this review shuld be retained. Actin taken Reprt n the decisins f the last meeting (29 December 2012) f the Prject Steering Cmmittee initiated by prject TL/CTA were shared with ACD, WB and UNOPS in preparatin fr PSC meeting in accrdance with FMM. We have prvided the PSC planning and draft agenda circulatin as described with ur cmments. As far as prject s Risk Register is cncerned, the same is reviewed regularly and shared with UNOPS AFOH Prgramme Office. We have submitted emails alng with ur cmments. The PSC finally met n 23 December 2013. The prject will endeavur t bserve the requirements f FMM n PSC prject gvernance schedules and Risk Lg and Highlights Reprt shall be shared with PSC in gd time and evidence f such reviews recrds retained within the current financial year.
2013 which are marked under actin as Engineering Crdinatr t take actin withut any fllw up thrughut the remainder f the year under audit review. The Risk Lg is therefre nt being maintained as a cntinuus lg. There is n evidence f the regular review f the Mnthly Highlights Reprt prepared by the Prject Manager, n minutes f discussins/agreement f actin and n evidence f such minutes/reprts being submitted t the PSC thrugh the meeting Agenda r the minutes. Impact Lack f peratinal and strategic gvernance f the develpment f the prject. Cause Due t the members f the cmmittees cnsisting f high level individuals frm different bdies it prvide difficult t arrange regular meetings.
# Observatin Recmmendatin Functinal Area: General Administratin 2 Title Nn-cmpliance with the prvisins regarding asset management cntained in the prject s Financial Management Manual. Cmparisn criteria Chapter 5. Article 5.2.4.1 f the prject Financial Management Manual (FMM). Facts / bservatin We recmmend that UNOPS shuld cmply with all f the specific prvisins f the Financial Management Manual regarding asset management in rder t reduce the risk f misapprpriatin, lss r damage, r mis-reprting f assets. Management cmment and actin plan The Central Lgistics f UNOPS AFOH has been requested t carry ut biannual inventry f prject assets. Respnsible manager / due date / pririty Respnsible manager: Ahmad Javed Nawabi Due date: 30-April-2014 Pririty: Medium Prvisins f FMM UNOPS, thrugh its Central Lgistics Organisatin, cnducts a bi-annual inventry f all prject assets. Impact Observatins nted We nted that nly ne cunt (March 2013) was carried ut by the UNOPS Central Lgistics Organisatin during the perid under review. Bi-annual cunt was nt carried ut. Specifically a bi-annual cunt f inventry shuld be cnducted by the UNOPS Central Lgistics Organisatin. Failure t cmply with the prvisins regarding asset management f the FMM leads t expsure t the fllwing threats: Misapprpriatin f prject assets;
Cause Damage r lss f assets; and Misreprting f prject assets. Guidance: Inadequate r lack f supervisin by supervisrs. Resurces: insufficient resurces (funds, skill, staff) t carry ut an activity r functin.
Annex I - Definitins Standard Audit Ratings fr verall perfrmance f internal cntrl system The harmnized rating system being applied by the internal audit services f UNICEF, UNFPA, WFP, UNDP and UNOPS effective 1 January 2010 is based n the fllwing principles: There are three categries: (a) satisfactry, (b) partially satisfactry, and (c) unsatisfactry. The elements f the rating system take int accunt the audited ffice s internal cntrl system, risk management practices, and their impact n the achievement f ffice bjectives. The definitins f the ratings are, as fllws: Standard Rating Satisfactry Partially Satisfactry Unsatisfactry Definitin Internal cntrls, gvernance and risk management prcesses were adequately established and functining well. N issues were identified that wuld significantly affect the achievement f the bjectives f the audited party. Internal cntrls, gvernance and risk management prcesses were generally established and functining, but needed imprvement. One r several issues were identified that may negatively affect the achievement f the bjectives f the audited entity. Internal cntrls, gvernance and risk management prcesses were either nt established r nt functining well. The issues identified were such that the verall bjectives f the audited entity culd be seriusly cmprmised. Categries fr pririties f audit recmmendatins The audit bservatins are categrized accrding t the pririty f the audit recmmendatins and the pssible causes f the issues. The categrized audit bservatin prvides a basis by which the UNOPS cuntry ffice management is t address the issues. The fllwing categries f pririties are used: Categries High Medium Lw Definitin Prmpt actin is cnsidered imperative t ensure that UNOPS is nt expsed t high risks (that is, where failure t take actin culd result in critical r majr cnsequences fr the rganizatin). Actin is cnsidered necessary t avid expsure t significant risks (that is, where failure t take actin culd result in significant cnsequences). Actin is cnsidered desirable and shuld result in enhanced cntrl r better value fr mney. Nte: Lw pririty recmmendatins, if any, are dealt with by the audit firm directly with UNOPS management either during the exit meeting r thrugh a separate mem subsequent t the fieldwrk. Therefre, lw pririty recmmendatins are nt included in the reprt.
Pssible causes The fllwing categries f pssible causes are used: Guidelines: absence f written prcedures t guide staff in perfrming their functins; Lack f r inadequate crprate plicies r prcedures Lack f r inadequate RO/OC/PC plicies r prcedures Inadequate planning Inadequate risk management prcesses Inadequate management structure Guidance: inadequate r lack f supervisin by supervisrs; Lack f r inadequate guidance r supervisin at the RO/OC/PC level Inadequate versight by Headquarters Resurces: insufficient resurces (funds, skill, staff) t carry ut an activity r functin; Lack f r insufficient resurces (financial, human, r technical resurces) Inadequate training Human errr: Un-intentinal mistakes cmmitted by staff entrusted t perfrm assigned functins; Intentinal: intentinal verriding f internal cntrls; Other: Factrs beynd the cntrl f UNOPS. List f functinal areas The fllwing categries f functinal areas are used: Prject management Finance Human resurces Prcurement and supply chain General administratin (which includes asset management) Infrmatin and cmmunicatins technlgy