Geneva, March 1997
|Programme, Financial and Administrative Committee||PFA|
SECOND ITEM ON THE AGENDA
1. At the Governing Body's 265bis Session (6 June 1996), the Committee considered the report of the External Auditor on the accounts of the 1994-95 financial period. The report of the External Auditor included recommendations and observations on certain financial and operational matters which are addressed below in the order in which they appear in the report, the relevant paragraph numbers being indicated in brackets.
Common accounting standards and changes
in the format of the financial statements
2. The general accounting policies and reporting practices applied in the ILO reflect the requirements of the Financial Regulations and Financial Rules. Subject to these requirements, they are consistent with generally accepted accounting principles and take into account as far as possible the United Nations system accounting standards (the prescribed formats for the presentation of the accounts have been adopted by the ILO in full). The main outstanding issue is the adoption of accrual accounting. It will be recalled that at its 259th Session (March 1994), the Governing Body, in examining this matter in the context of its review of the accounting standards, noted that for the present the ILO would continue to record income on a cash basis. A study will be carried out in due course on the application of the outstanding issues. Should the study show that there would be advantages in changing the existing practice, appropriate amendments to the Financial Regulations and the Financial Rules will be submitted to the Governing Body and to the Conference.
Funds received from UNDP (paragraph 34)
3. Procedures have now been modified to ensure that both recorded and forecast expenditure are taken into account in calculating the amounts required to fund UNDP activities implemented by the ILO. In addition, the estimates are reviewed on a monthly basis and monitored against actual experience. UNDP has already transferred funds to cover the shortfall identified by the External Auditor.
ILO Staff Pension Fund (paragraph 35)
4. An actuarial review was carried out on the ILO Staff Pension Fund at 30 June 1996 and was considered by the ILO Staff Pension Board at its last meeting in January 1997. This review indicated that the balance on the Fund would be exhausted during the 1998-99 biennium. As there is an obligation on the part of the ILO to the beneficiaries, the Board agreed that the ILO should make provisions in its future budgets for such payments on a "pay-as-you-go" basis. This would avoid the need for large capitalization of the Fund. Accordingly, an amount of US$1.7 million has been included in the draft Programme and Budget proposals for 1998-99.
Fraud and presumptive fraud (paragraph 37)
5. Although all cases of fraud and presumptive fraud have been reported to him on a regular basis, the External Auditor recommended that the Financial Regulations or Rules be amended to reflect this. At its 267th Session (November 1996) the Governing Body approved the amendments to Financial Rules 8.40 and 11.40 to provide that cases of fraud or presumptive fraud be reported to the External Auditor.
Financial control and decentralization
Organization (paragraph 40)
6. As recommended by the External Auditor, the Director-General has taken several measures to strengthen the decentralization process. At its 267th Session (November 1996), the Governing Body approved amendments to the Financial Rules which establish more clearly the financial responsibilities of staff in the regions and at headquarters in respect of the delegation of financial authority made to them. Under the amended Financial Rules, officials to whom specific delegations of authority have been made shall be accountable to the Treasurer and Financial Comptroller for the responsibilities delegated to them. These responsibilities will also be reflected in the manuals of procedure for use by the external offices and headquarters departments, which are being updated. Staffing resources in external offices will be kept under careful review to ensure adequate separation of duties and, where necessary, appropriate measures will be taken to minimize the financial exposure of the ILO (reduction in imprest levels with more frequent replenishment, priority verification of imprest returns by the regional offices/headquarters, more frequent visits by internal audit, use of local UNDP support facilities etc.). Detailed briefings are given to staff prior to their taking up appointments in the field, and these are followed up on subsequent visits to the regional offices and headquarters. The training of finance and administrative staff in the external offices is incorporated in the formal training programmes for staff that are now being developed. The External Offices Manual, which sets out the procedures and guidelines for financial and administrative staff in the external offices, will be brought up to date as conditions permit.
Budgetary control (paragraph 42)
7. As suggested by the External Auditor, the formats of the monitoring, evaluation and reporting system (MERS) have been modified to include estimates of resource requirements. In addition, the use of MERS or similar programme monitoring systems has been extended to apply to all departments in the Organization. The new Budgetary Management System which is under development to support the decentralization to the external offices provides the facility to monitor and control expenditure against individual obligations. In briefing sessions, the attention of managers will be drawn to the importance of this facility in monitoring implementation of their programmes.
Payment controls (paragraph 45)
8. The External Auditor expressed concern that balances held in suspense accounts had built up significantly during the biennium and contained old items. Payments of taxes pending reimbursement by recipient governments and charges which lack sufficient supporting documentation are typical of items normally placed in suspense. In briefing sessions for directors of external offices, emphasis is given to the need to reduce to the minimum the number of transactions charged to suspense accounts and to conduct regular reviews to clear old items. This is reinforced by monitoring of the outstanding balances by staff in the regional offices and headquarters.
Control of assets (paragraph 49)
9. Although generally satisfied with the security, replenishment arrangements and spot checks carried out by senior staff on cash holdings in the offices visited by the External Auditor, there was still some room for improvement in the management of cash and bank accounts. In those countries where settlements have to be made in cash because of banking problems, directors of external offices have been requested to keep such payments to the minimum. In addition, the verification teams in the regional offices are monitoring the promptness of bank reconciliations and replenishments of imprest accounts more closely. The PC-based software to support the preparation of the imprest accounts also contains a warning mechanism to alert the user when the bank balance falls below a certain amount. With regard to the recommendation to standardize the inventory system in field offices, it is planned to extend the new computerized inventory system at headquarters to the field offices.
Data entry, verification and oversight (paragraph 53)
10. While welcoming the benefits of the new imprest system in reducing the time required for external office transactions to be entered into the general ledger, the External Auditor noted that the roles of the verification staff were changing, with greater need to monitor compliance with established financial procedures as well as the scrutiny of advance and suspense accounts. In those regions where the new imprest system has been introduced, the post descriptions of the verifiers are being amended and checklists modified to reflect the changing tasks. It should be recalled, however, that the prime responsibility for compliance with financial directives rests with the certifying officers in the operating departments and offices, and not with the verifiers. With regard to the internal audit function, the Governing Body, at its 267th Session (November 1996) approved amendments to the Staff Regulations and the Financial Rules so as to afford a greater measure of autonomy and independence to the Chief Internal Auditor.
The decentralization process
Coordination (paragraph 54)
Delivery (paragraphs 57 and 58)
Funding (paragraph 60)
Budgetary decentralization (paragraph 61)
Support and training (paragraph 62)
11. The External Auditor made several recommendations to improve the development, coordination and implementation of the decentralization process. The points are well taken. Although the regional offices are already closely involved in the design and testing of the systems, the minutes of all meetings of the steering committee overviewing the development of the PC-based imprest and budget support software are circulated to the field offices to improve coordination. Senior administrative staff from the regional offices are also invited to participate in the steering committee meetings while on mission at headquarters. Action has been taken to establish an in-house computer section in the Americas region and a qualified person will begin in early 1997. The three UNDP-financed projects participating in the pilot exercise in budgetary decentralization were visited and provided with additional training, and the situation in the central units in the Financial Services Department is monitored carefully to ensure that controls do not weaken as financial responsibilities are delegated to the external offices. As mentioned in paragraph 7 above, all departments will use the MERS system to monitor their activities. This will ensure that in considering the development of future systems, strategic decisions and sound funding can be identified for the effective implementation of infrastructure projects.
12. (Paragraph 11) The External Auditor indicated that there was still a need to establish work plans in respect of UNDP technical cooperation support costs to allow the completion of identified tasks and outputs to be measured. In the meantime, the UNDP Executive Board, by decision 96/31, has decided on further modifications to technical cooperation support cost arrangements to be introduced from 1 January 1997. Inter alia, the TSS1 and TSS2 have been replaced by Support Services for Programme and Policy Development (SPPD) and Support for Technical Services (STS). Consequently, the procedures are being amended and will take into account the need to ensure adequate work plans.
13. (Paragraph 15) The External Auditor noted that the ILO had not updated its Strategy and Implementation Plan for information technology since 1992. ITCOM is in the process of gathering information on the short- and long-term information technology needs of user departments so as to generate a common set of requirements for the Organization. This will be used as a basis for a major update to the 1992 Information Technology Strategy and Implementation Plan, which is expected to be completed by mid-1997.
14. (Paragraph 18) The External Auditor noted that the establishment of a formal security policy had not been addressed, a task to be undertaken by the new ITCOM bureau. Although there is not yet an official security policy for information technology, many of the components of such a policy have already been established and are being implemented. Besides its own mainframe system, the ILO performs additional computing operations at the United Nations International Computing Centre (ICC). The ICC has subscribed to a disaster recovery service which will allow the ILO to continue processing the ICC portion of its computing workload in the event of a major breakdown at the ICC. In the event of a disaster in the ILO mainframe computer room, it will be possible to continue ILO mainframe operations at the ICC. The ILO has also selected the ICC as its Internet service provider and a sophisticated firewall security system is in place as part of this service. All network servers and mainframes at the ILO are backed up on a regular basis and, at the desktop level, all PCs connected to the ILO's computer network automatically perform a scan of all local files for viruses. Anti-virus software is currently being tested to provide continuous scanning in the background. These and other measures will be formalized into an official security policy document in consultation with other user departments.
15. The Director-General will continue to work in close liaison with the External Auditor with regard to follow-up on his recommendations, as he attaches great importance to them and wishes to derive full benefit for the Organization from the work performed by the External Auditor.
Geneva, 10 February 1997.