| GB.268/PFA/3
268th Session Geneva, March 1997 |
| Programme, Financial and Administrative Committee | PFA |
THIRD ITEM ON THE AGENDA
Report of the Chief Internal Auditor
Report of the Chief Internal Auditor
on significant findings resulting from internal audit
and investigation assignments undertaken in 1996
1. In accordance with the decision taken by the Governing Body at its 267th Session (November 1996), the Director-General transmits herewith the report of the Chief Internal Auditor on significant findings resulting from audit and investigation assignments carried out during 1996 (see Appendix).
2. The Director-General considers the work performed by the Internal Auditor to be extremely valuable in assessing strengths and weaknesses in procedures and controls within the Office. Recommendations made by Internal Audit are thoroughly evaluated, and there is constant dialogue between the administrative services and Internal Audit to discuss and to give effect to the various recommendations in order to ensure timely follow-up.
Geneva, 12 February 1997.
Appendix
Report of the Chief Internal Auditor
on significant findings resulting from internal audit
and investigation assignments undertaken in 1996
Introduction
1. The Internal Audit function in the ILO is established under Article 30(d) of the Financial Regulations of the Organization. It is a management control that measures and assesses the effectiveness of other controls and compliance with ILO policies and procedures. The Internal Audit function is directed towards the review and appraisal of financial, administrative and operational procedures and activities, the objectives thereof being to ensure: sound internal control at reasonable cost; compliance with ILO regulations and rules, policies and procedures; the integrity and soundness of management practices; the most economical and efficient use of resources, and the accuracy of the accounting, financial and other data used for management information. The detailed programme of work for the year was coordinated with the External Auditor and all audit findings and recommendations were communicated to the External Auditor.
2. At headquarters, audits were aimed at reviewing selected functions, systems and operations to determine: their contribution to programme objectives; the adequacy of their internal controls; proper authorization and recording of expenditures; control over receivables; compliance with established ILO rules, procedures and policies; the economic and efficient use of resources and the integrity of data generated for management purposes; control security and accounting for fixed assets.
3. Audits of external offices, multidisciplinary advisory teams and technical cooperation projects in summary aimed to ensure that resources were used economically and efficiently, expenditure was properly incurred, authorized and recorded, and that assets were properly controlled, safeguarded from loss and correctly accounted for.
Headquarters audits
4. The policies, procedures and financial controls in place for the contracting of work and services by the ILO, their effectiveness in attaining the most economical and efficient use of resources and the extent of compliance therewith were audited. The audit revealed shortcomings in the clear definition of the circumstances under which the various types of standard contracts used by the ILO for the contracting of work or services should be used; the inconsistent use of the different types of contracts by contracting officers; weaknesses in the administration of contracts. Internal Audit recommended that an overall review of the ILO's contracting of work and services be carried out by management with the objective of having a better definition, standardisation and simplification of contracting processes, while ensuring that operational factors, such as the degree to which contracting functions could be decentralized to the field and the need to obtain the best possible contract delivery times, were balanced with risk factors involved in the contracting function and the need to have effective controls thereof.
5. The policies, procedures and financial controls under which the ILO's Staff Health Insurance Fund (SHIF) is managed, their effectiveness in terms of the economic and efficient use of resources and the level of compliance therewith were audited. The SHIF is operated jointly with the International Telecommunication Union (ITU). It was found that there was no formal agreement between the ILO and the ITU regarding the operation of the Fund, the operating procedures of the Fund had not been fully documented, and more attention was needed to the determination of contribution rates for the voluntary covered dependants component of the Fund. Recommendations were also made concerning improvements in the procedures for the processing of claims on the Fund, the follow-up of doubtful claims made by members, the role of the Medical Advisor to the Fund and the improvement of some of the financial accounting and reconciliation procedures.
6. An audit was conducted of the inventory component of the newly introduced Building Management System (BMS) and included system development and project management, the physical inventory of assets, the conversion of records to the new system and the procedures in place for the control of assets. It was shown that the project design process for the inventory component did not include the establishment of sound user requirements or the preparation of cost benefit analyses followed by design specifications and a project budget. As a result, Internal Audit recommended that the project be reviewed from the users' perspective and that all facets of the inventory process be analysed to establish sound user requirements and that it should then be decided whether any revisions of the current system design were needed. It was further recommended that a review be made of the feasibility of incorporating the control of technical cooperation equipment, which is currently controlled by a separate computerized system, into the BMS. This would result in the elimination of one computing system and the associated maintenance and upkeep costs, and the improvement of the return on investment of the BMS system. It was also shown that a work plan for the overall Building Maintenance System, of which the inventory component is a part, had been prepared in 1993 but had not been updated and was, therefore, not used as a tool to manage the project. Additionally, a project budget had not been prepared for the overall BMS project, and there was no designated Project Manager. During the audit, a work plan was developed and it was recommended that a project budget be developed, a Programme Manager be designated, and individual work plans for all of the components making up the BMS be developed. Regarding the physical inventory it was found that the ILO headquarters inventory of fixed assets included small items that did not meet the criteria for being considered as fixed assets, which made the process of reconciliation and control of fixed assets unnecessarily complicated and costly. Internal Audit was notified that this information was included for the purposes of planning office moves, scheduling maintenance, planning and budgeting for office removals, etc. It was recommended that management review this problem with a view to rationalizing the additional time and expense of monitoring the additional records with the benefits gained therefrom. A physical inventory of all fixed assets in headquarters was completed in early 1996 and was being reconciled with inventory records. It was recommended that this important exercise be given priority. It was also found that operating procedures for the control of non-expendable assets needed to be developed or updated and it was recommended that this be done.
7. An audit of policies and procedures relating to travel, transport and customs clearance at headquarters was carried out to determine whether these provided adequate control over the use of resources and whether procedures employed were effective in providing maximum value for the resources applied to the function. As a result of the audit it was recommended that management review controls in place concerning proof of travel and their enforcement, measures to increase the usage of the most economical air tickets, control over the use of lump-sum payments for home leave travel and the rationalization of workflows related to the travel, etc., functions. It was further recommended that computerized systems used to control transport costs should be enhanced; policies with regard to the extension of removal rights upon termination of staff should be reviewed and improvements made to the systems covering the follow-up and collection of unused travel entitlements.
Field audits
8. Audits were carried out in eleven external offices and multi-disciplinary advisory teams in the field with an aim of assessing the soundness of internal control, the extent of compliance with established regulations, policies and procedures, whether resources were being utilized in the most economical and efficient manner, the reliability of accounting data and the extent to which assets were accounted for and safeguarded against loss. Weaknesses were found in the application of established controls and procedures in a number of locations for which Internal Audit recommended action by management. The recommendations in summary related to the improvement of bank and cash management controls and procedures; better application of local payroll and other personnel functions; control over local purchasing and contracting; recording and follow-up of accounts receivable; improvements needed in the control, security of and accounting for fixed assets; enhanced control of office budgets, and the need for reviews of staffing levels. In one office there was evidence of personal profiteering from the exchange of currency although there was no loss of resources to the office, and in another office the irregular and illegal sale of used office vehicles was disclosed. The incorrect use of office vehicles for private purposes was also disclosed in several offices.
Assignments in progress
9. At the end of 1996, reviews and appraisals of the headquarters payroll functions, the Payments Authorization Section of the Budget and Finance Branch and the Personnel Information System were in progress and the results thereof will be included in the Chief Internal Auditor's Report in respect of 1997.
Investigations
10. During 1996, Internal Audit was not called upon to carry out any major investigations of fraud or malpractice.
Monitoring of follow-up action
11. Internal Audit is responsible for monitoring the action taken by management on its findings and recommendations. All audit findings and recommendations made in 1996 were accepted positively by management for consideration. Recommendations made have been reported as having been implemented or are in the process of being reviewed by management.
11 February 1997.