Talk:KPMG audit of the Development Fund for Iraq

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I was going to put this in the main article. But, really, it needs to be annotated, and trimmed down. -- Geo Swan 01:04, 16 July 2005 (UTC)

[edit] Excepts

Excerpts from the appendix on internal controls:

[edit] 1.2 Accountability of CPA personnel

1.2.1 As mentioned above, the Fund consists only of bank accounts and is not a conventional business. The DFI does not have employees but relies on CPA personnel to operate and control various aspects of the Fund.

1.2.2 During the course of our audit work we encountered difficulties in performing our duties and meeting with key CPA personnel. These included a lack of documented defined roles and responsibilities of CPA personnel, the rotation of key personnel, limited access to the CPA Senior Advisor to the Ministry of Finance, in the absence of the CPA Administrator and the dissolution of the CPA on 28 June 2004.

1.2.3 The CPA Senior Advisor to the Ministry of Finance, who is also the Chairman of the Program Review Board (PRB), was unable to acknowledge the fair presentation of the statement of cash receipts and payments, the completeness of significant contracts entered into by the DFI and responsibilities for the implementation and operations of accounting and internal control systems, designed to prevent and detect fraud and error.

1.2.4 Due to the sudden departure of the CPA Administrator, the statement of cash receipts and payments was approved by Mr Nash, Director of the Iraq Reconstruction Management Office, responsible for completing transition efforts and continuing with the Iraqi reconstruction. Mr Nash was not involved in the administration of the CPA.

[edit] 1.3 Accounting system

1.3.1 In accordance with CPA Regulation2 date 15 June 2003, the CPA was required to obtain the services of an independent, certified public accounting firm to assist in the accounting function of the DFI. A firm was appointed in October 2003, and began their work during November 2004. The lead consultant represented to us that they are not a certified public accounting firm but a consulting firm. The consulting firm was tasked to develop a functional accounting system, to be run in parallel with the old system during March 2004, and became operational in April 2004.

1.3.2 The CPA had originally implemented spreadsheet-based accounting records that became rapidly insufficient to meet the requirement of the Fund. The revised accounting system consists of excel spreadsheets and pivot tables maintained by one individual from the consulting firm. The accounting system designed and implemented is a cash-based, single entry transaction listing rather than an accrual-based double-entry bookkeeping system.

[edit] 1.5 Inspector General duties

1.5.1 US Public Law 108-106 established an Inspector General (IG) function for the CPA on 7 November 2003, while the CPA was established in May 2003. This law stated that the IG would be appointed within 30 days thereafter, however the IG was appointed only on 20 January 2004. The IG initially visited Baghdad in February 2004 and additional IG staff mobilized during March 2004. The delay in appointment of the IG may have resulted in the loss of performance improvement opportunities. The IG informed us that work had commenced and reports had been completed to date.

1.5.2 Based on the IG interpretation of the US Public Law, the IG's scope did cover Iraqi Ministries and the expenditures. We were informed by the IG, that the IG staff did not perform any audit work at Iraqi Ministries as the relied on the work performed by Internal auditors of the Iraqi Ministry of Finance (MoF) and the Iraqi Board of Supreme Audit (BSA).

[edit] 1.6 Disbursement controls over Iraqi Ministries

We were informed by the CPA Senior Advisor to the MoF, that the CPA relied mainly on the work performed by the internal auditors of the MoF and the BSA as the main control over Iraqi Ministries' spending of allocated budgets. We understand that due to security issues and non-availability of office premises, the number of visits to Iraqi Ministries by the BSA was limited in the first months post-hostilities.

[edit] 1.7 Segregation of duties

The CPA Comptroller's office was responsible for recording DFI transactions, having signatory authority over DFI bank accounts and custody of cash with Coalition Forces. A separate department such as a treasury department should be responsible for the custody of cash to ensure a clear and adequate segregation of duties.

[edit] 2 Program Review Board

[edit] 2.1 General background

The PRB was responsible for recommending expenditure of resources from the the Fund and other sources. The PRB was also responsible for reviewing all identified resource requirements, and their subsequent prioritization and integration into a funding plan. The funding plan forecasts available resources, recommends allocation of these resources and justifies the proposed expenditures and the recommended manner of expenditures. All funding plans (programs) were to be recommended for approval by the PRB prior to approval by the CPA Administrator.

During our work we noted the following issues regarding the PRB:

[edit] 2.2 Minutes

2.2.1 We noted PRB minutes did not always contain detaile, complete or clear documentation to obtain an understanding of discussions and issues. Additionally, the resolution of questions raised by participants was not always documented in PRB minutes. Minutes should be sufficiently detailed to ensure transparency of the fund allocation process.

2.2.2 Additionally, we found the PRB minutes did not include voting details for each PRB program recommended or rejected and justification for the decision. PRB programs are to be recommended on a majority basis, and therefore minutes should include voting details for each PRB program.

2.2.3 CPA Regulation 3 states the PRB may take official action only in formal sessions at which no fewer than 70% of the eleven voting members of the Board are present. We noted one case when a program funded by the DFI was recommended by only four voting members present, one case by only six voting members present and eight cases by only seven voting members present. The PRB should follow the CPA Regulation to ensure that the PRB process remains transparent.

[edit] 2.3 Iraqi involvement

We noted PRB voting members consisted of ten CPA officials and one official from the Iraqi Ministry of Finance. Of the 43 PRB meetings held during the period to 32 December 2003 we noted the Iraqi official attended two meetings.

[edit] 2.4 Approval of programs by the PRB

2.4.1 We noted one case when a contract was awarded prior to the program being recommended for approval by the PRB. Contracts should not be awarded prior to program being recommended for approval by the PRB.

2.4.2 CPA Regulation 3 states the PRB may recommend programs for approval only in formal sessions. We noted one case when a program was delayed pending further justification during a PRB meeting, but subsequently recommended for approval out-of-session by the board members without documentation in subsequent PRB minutes. All allocations of funding to be recommended for approval by the PRB should only be taken in formal sessions and documented in PRB minutes.

[edit] 2.5 PRB funding

2.5.1 We noted one case when a program was recommended to be funded using Appropriated Funds (APF), with DFI funds to be used only if APF were not approved. The program was subsequently funded by the DFI without further documentation. When DFI funds are used as a secondary source of funding, the reason for not utilizing the primary source of funds should be documented.

2.5.2 Additionally, we noted one case when a program was to be funded by a mixture of seized assets and DFI funds without documentation of the allocation of funds from each source. The two funding sources have separate accounting records and documentation of the funding allocation should be clarified to ensure transparency and prevent funds being utilized in excess of the approved allocation.

[edit] 3 Contracting

[edit] 3.1 General background

Programs recommended by the PRB and subsequently approved by the CPA Administrator, requiring contractual assistance, are transferred to the CPA Contracting Unit (CU) together with the statement of work prepared by CPA staff. The role of the CU is to issue the Request for Proposal (RFP), evaluate bids received, award the contract and subsequently monitor the performance of the contractor.

During our work, we noted the following issues regarding the contracting process:

[edit] 3.2 Request for proposal

3.2.1 The deadline given to contractors to prepare bids in response to the RFP was often very short. We ntoed a number of RFPs with deadlines for submission of bids of less than 5 days. This short deadline may have given potential contractors insufficient time to assemble a comprehensive bid for the contract under tender or may deter contractors from bidding. Furthermore, we noted numerous RFPs were issued several weeks of months after the submission deadline. While the cause of the delays is not known, a more timely issue of the RFP and award process could lead to improved efficiency. In addition, contractors should be given more time to prepare bids, ensuring all aspects of program requirements are considered.

3.2.3 A Technical Committee, appointed to evaluate bids received, did not always consider key elements when reviewing proposals. We noted one contract where three unsuccessful proposals had included key elements not considered by the successful bidder or by the Technical Committee. After commencement of the contract, terms of the contract were amended to include these key elements at additional cost, as they were necessary to fulfill the original intention of the program. Furthermore, the additional requirements were not tendered, but offered as a sole sourced contract to the original bidder. The Contracting Unit and the Technical Committee should have sufficient technical knowledge to ensure all the objectives of each program are met.

[edit] 3.3 Contract awards

3.3.1 We noted that the contract award evaluation criteria and discussions by the Technical Committee on strengths and weaknesses of individual bids were not always documented.

3.3.2 CPA contracting procedures state that financial background checks are to be performed by Contracting Officers (CO) to ensure adequate financial resources are available for performance of the contract. We noted one case when a large contract was awarded to a newly formed company without adequate background checks. A full financial background check helps to ensure that the successful bidder has the necessary resources to perform the contract.

[edit] 3.4 Sole-source contracts

When contracts are awarded to a sole-sourced bidder, justification is not always documented in the contract file in accordance with the CPA's contracting procedures. Due to a high level of staff turnover, lack of organization in the CU and missing files, COs were unaware of whether certain contracts were sole-sourced or had been tendered for. All sole source contracts should be clearly documented in the contract file.

[edit] 3.5 Post-award monitoring

3.5.1 We noted COs do not always document justification for progress payments in the contract file regarding contracts for services, in accordance with the CPA contracting procedures. If contracts performance is not monitored, payments may be made to a contractor on the basis of invoices issued to the CPA rather than on performance of the contract.

3.5.2 We noted one case when an advance payment was made without a guarantee being obtained from the contractor for non-performance. To date, the contracted goods have not been delivered and are more than five months overdue. A bank guarantee should be obtained for all advance payments to contractors that cannot clearly demonstrate their reliability, based on previous experience and reputation.

[edit] 3.6 Other contracting issues

3.6.1 We noted the filing system in the CU was not well organized. The CU took substantial time to locate files and, in certain cases, was not able to locate several files we requested for our procedures. A filing system should be implemented without further delay, including a file tracking system.

3.6.2 We noted contract files did not always include documentation in accordance with the requirements of the CPA contracting procedures.

3.6.3 We noted contracts were not always re-assigned to another CO on a timely basis after CO rotation. The high level of staff turnover in the CU resulted in a significant loss of knowledge on re-assigned contracts. During our work, we were informed by re-assigned COs that they did not have sufficient knowledge of the contract history to address all our queries. All contracts should be re-assigned on a timely basis to ensure a comprehensive transfer of knowledge.

[edit] 4 Other issues

During our work, we noted the following additional issues:

[edit] 4.1 Cash on hand

4.1.1 The CPA cash instruments were not reconciled to accounting records by the CPA Comptroller until April 2004. A formal reconciliation process is necessary to maintain control over cash balances.

4.1.2 Since the CPA Comptroller took over the custody of cash, independent parties (e.g. officials from ohter departments) did not verify cash held in the CPA vault. Independent cash counts improve the control over cash balances held in the CPA vault.

[edit] 4.2 Payments

4.2.1 We noted three cases when the total value of signed contracts and disbursements exceeded the total allocation approved for PRB programs. Evidence that an increased allocation had been requested was not documented on the contract file.

4.2.2 We noted one case when funds had been transferred to an Iraqi Ministry as part of a project to equip police. To date, no supporting documentation has been received from the Ministry for disbursement of these funds. Documentary evidence for all disbursements made on behalf of the Iraqi ministries should be retained on the contract file.

4.2.3 We noted one case when a PRB was allocated, approved and funds disbursed on the basis of several quotes without evidence of goods being delivered or invoice being issued.

4.2.4 The World Food Program (WFP) and the CPA agreed that the Iraqi Ministry of Trade (MOT) should act as the procurer for the 2003 Iraqi wheat and barley harvest. We were informed by CPA Advisors to the MOT that they lacked supporting documentation for disbursements made by the MOT. In accordance with the agreement between the WFP, the CPA and MOT, an audit is to be performed by an international accounting firm. To date, an audit has not been contracted for by any parties.

[edit] Suggestions for Improvement of this Encyclopedia Article

If I may, I would like to suggest Wikipedia Administrators screen for soapboxes and check their accuracy as new articles are created on Wikipedia about Iraq. This article and most of those listed below could use some major editing and consolidating:

Spelling out the words of acronyms would be helpful for those readers unfamiliar with their meaning. Is there an easy access to a spell checker in this editor? Ariele 02:23, 1 August 2005 (UTC)