Management letter on the finding arising form the audit of the status of fund statement on the Arficain for Onchocerciasis Control Programme as at 31 December 2003

MANAGEMENT LETTER ON THE FINDINGS ARISING FROM THE AUDIT OF THE STATUS OF FUNDS STATEMENT OF THE AFRICAN PROGRAMME FOR ONCHOCERCIASIS CONTROL AS AT 31 DECEMBER 2OO3 I .,. :'i.rr Lr -'I A rr r) r I c1 t{ - c' r r.l F R /\ L ( 2.2 MANAGEMENT LETTER ON THE FINDINGS ARISING FROM THE AUDITOF THE STATUS OF FUNDS STATEMENT OF THE AFRICAN PROGRAMME FOR ONGHOCERCIASIS CONTROL AS AT 31 DEGEMBER 2OO3 1. CONTENT AND PURPOSE 1.1 The content of this management letter is based mainly on the requirements of Regulation XIV of the Financial Regulations of the World Health Organization and the Additional Terms of Reference Governing the External Audit appended thereto. 1.2 The purpose of this report is to make known the audit observations arising from the final audit and to serve as a basis for comment and corrective measures. 2. OBJECTIVE AND SCOPE 2.1 The audit was conducted in February 2004. The audit team consisted of Mr D Botha and Mr R Nhleko. The object of the audit was to express an opinion on the Status of Funds Statement and the Annexes of the African Programme for Onchocerciasis Control (APOC) as at 31 December 2003 and to ascertain whether the budgetary and financial systems, together with related transactions selected, complied with the financial rules and regulations, whether they were in line with policies and guidelines and provided reliable information in order to ensure the completeness and accuracy of the records of APOC. 2.2 The audit was conducted in accordance with the Common Auditing Standards of the Panel of External Auditors of the United Nations, the specialized agencies and the lnternational Atomic Energy Agency and included a review of the adequacy and effectiveness of the system of internal control and substantive testing of a sample of transactions. 3. FINDINGS 3.1 The specific findings arising from the audit are included in the attached annexure. For the sake of completeness, less material aspects that also warrant management's attention have been included for reporting purposes. The matters raised arose from normal audit procedures that were designed primarily for the purpose of formulating an opinion on the Status of Funds Statement and the Annexes of APOC as at 31 December 2003. Consequently, the audit did not involve a detailed 1 3.2 review of every aspect of APOC and the report should not be regarded as a comprehensive statement of all weaknesses that may exist, nor of all potential improvement areas. 4. APPRECIATION The courtesy extended and the assistance rendered by the staff of APOC during the audit are appreciated. 2 IANNEXURE MANAGEMENT LETTER ON THE FINDINGS ARISING FROM THE AUDIT OF THE STATUS OF FUNDS STATEMENT OF THE AFRICAN PROGRAMME FOR ONCHOCERCIASIS CONTROL AS AT 31 DECEMBER 2OO3 tl lt ,*l AI.,I)IT<LR(9FF,JFR/\] 1. Title deed of property During the 2002 external audit, it was reported that the title deeds to property number 856 in Ouagadougou, Burkina Faso, a vacant lot of land next to the main building, could not be obtained. ln the response to the management letter, it was noted that APOC would follow this matter up. During this audit visit, it was noted that while APOC had initiated follow- up actions, the above-mentioned title deed had not yet been secured. It is recommended that the management of the Programme continue to pursue this matter as a priority. 2. Non+xpendable equipment 2.1 Compliance with closure instructions ln terms of the closure instructions issued by WHO headquarters for the 2002-2003 period and dated 22 October 2003, the Programme was required to submit a return in respect of non-expendable equipment, furniture and vehicles to headquarters by 30 January 2004. During the audit, which was conducted in February 2004, it was found that the required return had not been prepared. lt was determined that the responsible officer was not aware of this requirement. As a result, the final return of non-expendable equipment could not be provided for audit purposes. It is recommended that the Programme strictly adhere to the requirements of the closure instructions. 2.2 lnventory count summaries We were informed that an inventory count had been carried out during September/October 2003 and that it was decided to take advantage of this opportunity to also update the inventory records, particularly the inventory numbering and inventory "values" following the previous audit recommendations. This information was used to prepare consolidated inventory records and a copy of this report was provided to the audit team. Through discussions with the relevant staff, it was ascertained that values attached to some of the inventories, and in particular those acquired from OCP, had been arrived at through estimations. However, it was noted that there is a lack of evidence to support the above-mentioned inventory count procedures. For example, the updated inventory summaries had not been signed or dated by the compilers and they had not been reviewed and/or approved by management. A proper audit trail of the count performed therefore does not exist. It is recommended that management ensure that a proper audit trail exists after an inventory count has been performed. 3. Obligations 3.1 Delay in the implementation of activities and validity of obligations During the review of unliquidated obligations, it was noted that the contractual periods of a number of LOAs, which were obligated in 2003, were being amended to commence in 2004. As a result, it is questionable whether these obligations represented actual legal liabilities as at 31 December 2003. The following cases serve as examples. Management informed us that during the September 2003 session of the Technical Consultation Committee (TCC), six projects of the National Onchocerciasis Task Force (NOTF) of the Democratic Republic of Congo were approved. ln October 2003, the LOAs covering the period of 1 December 2003 to 30 November 2004 were prepared and sent to the NOTF. The intention was to start the activities before the end of the year. Unfortunately, a delay at national level in signing the LOAs, which automatically led to the delay in the transfer of funds to these projects, did not allow activities to commence as planned. At NOTF's request, the implementation letters were prepared to reschedule the period of implementation for the period 1 March 2OO4 to 28 February 2005. Management's explanation with regard to this unforeseen situation is noted. However, the criteria for valid legal liability as at 31 December 2003 require activities to have commenced as at period end. Accordingly, it is recommended that a more thorough review of unliquidated obligations be performed at period end to ensure that the 2 Obligation Descrlptlon Unliquldated amount (usD) ou03007489 L.A. N'08/1 81 t7 07 I (i\t 03 01 I 12t03-30 t 1 1 t04 (RDCEQKI)Cap Eq 88,100 ou03007584 L.A. N"08/1 U n 04 I (i)t03 01 I 12t03-30 I 1',t t04 (RDCTSHl)Cap. Eq. 71,965 ou03007523 L.A. N'08/1 8 1 /705(iy03 o',t I 12t 03-30 I 1 1 tO4 (RDCUBSI)Cap. Eq 67,565 ou03007567 L.A. N"08/1 81 t7 O3t (t)t03 01 I 12t03- 30/1 1/O4(RDCLUAI) Cap. Eq. 67,565 ou03007601 L.A. N'08/1 8 1/698(iy03 01 t12t03-30t 1 1 tO3 (RDCKATNl)Cap. Eq 67,565 ou03007541 L.A. N "08/1 8 1 t7 Ozt (i) I 03 01 t',t 2t 03-30 I I 1 I 04 (RDCMONGl)Cap. Eq 66,705 ,7 provisions of the Financial Regulations and Financial Rules and further instructions issued by the Chief Accountant are complied with. 3.2 Delay in the implementation of activities in countries subject to civi! unrest During the perusal of unliquidated obligations as at the end of December 2003 it was found that there were no or little rnovement on the following obligations: It was determined that the planned activities could not be performed due to civil unrest in the countries concerned. Management confirmed that a decision was taken tg retain these funds as a risk management procedure, as the implementation of CDTI activities in civil unrest situations are negatively impacted. Management noted at the time of the audit that the situation in the countries concerned appeared to be more peaceful. A post-war mission had been planned for Liberia and the evaluation of the situation was expected to be during the last week of March 2004. A fund management training session had also been planned for the last week of March 2004 to launch the activities in Burundi. Management's comments are noted 3.3 Unliquidated obligations with no movements The review of unliquidated obligations revealed cases where no movement had been experienced on the obligations created during 2003. It was established that this was largely due to the significant delays in receiving the inter-office vouchers (lOVs) from other WHO offices. As a result of these delays, financial information was not recorded on a timely basis, thus impacting on effective programme monitoring. The following serve as examples: 3 Obligation l'Description ::; Unliqfjdfted amguiit- ' usb,' 'Date of last action ou03003552 L.A. N"08/1 I 1 t682t (i)l 03 01 I 04t 03- 31 t03t2004 (BURCIB 1 ) Field 100,505 16-May-03 ou02013585 L.A. Ns08/1 81/634(l)02 cDTl(LlBSWl )0 1 /09/02- 31/08/03(Lib6ria) 69,730 01-Jan-03 Obligation Description Unliquidated amount USD Date created ou03006696 Contrib. d'APOC aux activit6s de TDR(Recherhe op6rat. 2003) 635,000 30-Sep-03 ou03005185 L.A. N"08/1 B1 /700(iv)/03 01 104103- 81,270 20-Jul-03 I a+ 31103t04 (RDCS4) Field ou03005427 Budget raffinage & compl6ments d'enqu6tes REMO en RDC 75,689 25-Jul-03 ou03005202 L.A. N"08/1 81/701 (iv)/03 01 104103- 31103104 (RDCKAS4) Field 74,356 20-Jul-03 It is recommended that management, in collaboration with the Regionat office for Africa and headquarters, review the current processes for effecting disbursements, especially those made to the NOTFs, to ensure that the most efficient mechanisms are used in this regard. Outstanding lOVs should continue be followed up on a regular basis. 3.4 LOA signed after agreement period started The audit reveated instances where the respective parties only signed the LOAs after the date of commencement of the agreement. This results in the situation where activities are being implemented and related expenditure is incurred without a valid agreement in place. There is a potential risk that funds are transferred before the agreement has been signed. The following serve as examples: lt/anagement confirmed that funds had not been transferred before the agreement had been signed. However, to allow activities to continue without interruption, advances are sometimes given to the projects by the NGDO partner(s), usually after the green light from APOC management. Projects are also authorised to use the balance of funds from previous LOAs on condition that the amount used is deducted from the approved amount in the subsequent LOA. Management noted that the signing of these LOAs normally occurs before the implementation date of the project(s) but could, from time to time, be done after the starting date if the actions mentioned in the paragraph above have been taken to allow activities to continue. The operational issues surrounding programme management are noted. However, it is recommended that complete and signed LOAs be in place before the implementation of activities commences. 4 Obligation Descrlptlon LOA period Signed by APOC Signed by lnstitution ou/03/000369 LA No08/181/687(lV)/03 01/01/2003- 31t12t2003 27t03t2003 10t04t2003 ou/03/003915 L.A No08/181/6161(ll)lo2 01t03t2003- 28t02t2003 2610512003 06/06/2003 ou/03/003413 L.A Ns08/181/697(VyO3 01/05/2003- 30t0412003 23t06t2003 30t07t2003 .) ., 3.5 Revision of obligations Financial rule 106.5 states that revisions to an obligation shall be subject to the same procedure as the original obligation. lnstances were noted where obligations had been revised directly on the computer system without any proof of authorisation for such a revision. The following serves as an example: Management noted that before increasing the amount of any obligation related to internal commitments, approval is obtained from the Budget and Finance Officer. This isolated incident was an oversight on the part of the operator. Management's comments are noted. This matter is nonetheless mentioned to serve as a reminder of the importance of obtaining and retaining evidence of the approval for the revision of obligations. 3.6 Long-outstanding returns on projects As in previous audits, it was again noted that expenditure returns were not always received in a timely manner. This has an impact on the accuracy of the records of the Programme. Furthermore, the timely submission and subsequent review of the expenditure returns are fundamental in ensuring proper accountability for the funds advanced. The following cases serye as examples: amended as per management's response to audit observation 5 Obligation number Description Original amount USD Date of revislon Amount of revlsion USD oulo3t000221 Bulk requisition of coded items 4,000 23 May 2003 29 May 2003 7,500 600 Country Project Last return received Number of returns outstanding Nigeria Akwa-lbom TIDC 5 Bauchi State TIDC March 2003 10 Benue State TIDC December 2002 1* Borno State TIDC May 2003 B Gombe State TIDC August 2003 5 Niqer State TIDC July 2003 5 Tanzania Mahenqe August 2003 4 Moroqoro TIDC September 2003 4 Cameroon North West Province TIDC September 2003 4 RDC NationalHQ July 2003 6 Bas-Conqo TIDC September 2003 4 Uqanda Phase ll Kabale August 2003 5 Phase lll Rukunqri Auqust 2003 5 Liberia Lofa Bonq TIDC April2003 0* South Eastern TIDC April2003 4 1It is recommended that renewed efforts be made to ensure prompt submission of the required expenditure returns. During the agreement phase of the LoA, NorFs should be made aware of the necessity of submitting the required reports. 4. Staffing of key positions It was noted that a number of positions in both the finance and the information technology branches were being filled by persons on short- term contracts. ln this regard, according to the authorised position list of 1 January 2004, the positions of Budget and Finance officer, the Finance Officer, the entire Budget and Finance section, as well as the lnformation Technology Officer and the lnformation Systems Officer were either short-term professional or short-term general service staff positions. Most contracts were for a period of eleven months. A sound internal control framework needs to be supported by an appropriate staff structure that takes into account, inter alia, the competency and skills of staff, an adequate segregation of duties, the continuity in key positions and the level of exposure to potential fraud. The current situation is viewed with concern, as there is an increased risk of a lack of accountability in the Budget and Finance section. Furthermore, continuity in the key areas of work performed by these staff members is placed at risk through forced contract breaks and the potential for frequent staff changes. !n her memorandum of 27 October 2003 dealing with fraud prevention measures, the Comptroller notes the increased risk of short-term staff members holding positions involving cash handling/cheque issuance/ bank account arrangements and access to the safe. lt was mentioned that Finance Officers should ideally be fixed-term staff members. !t is recognised that the Programme is funded by voluntary contributions and that the Programme has not yet been fully funded for the period 2005 to 2010. lt is also appreciated that the creation of fixed-term positions within the context of these financial constraints and uncertainties needs to be carefully and sensitively managed. This matter is, however, raised to highlight the potential risk and to recommend that management carefully review the staffing structure of the Programme, in the context of sound internal control structure. b