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GB.274/PFA/3
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Programme, Financial and Administrative Committee |
PFA |
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THIRD ITEM ON THE AGENDA
Report of the Chief Internal Auditor
for the year ended 31 December 1998
Report of the Chief Internal Auditor on significant
findings resulting from internal audit and
investigation assignments undertaken in 1998
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 1998 (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 give effect to them.
Geneva, 24 February 1999.
Appendix
Report of the Chief Internal Auditor on significant
findings resulting from internal audit and
investigation assignments undertaken in 1998
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 efficient and economic 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 aimed to ensure that resources were used economically and efficiently, expenditure was properly incurred, authorized and recorded, and assets were properly controlled, safeguarded from loss and correctly accounted for.
Headquarters audits
Cash Office in the Treasury Operations Section (TRES/OPS)
of the Treasury and Accounts Branch (TRESOR)
in the Financial Services Department
4. An audit was carried out of the Cash Office in the Treasury Operations Section (TRES/OPS) of the Treasury and Accounts Branch (TRESOR) in the Financial Services Department. The Cash Office is responsible for effecting all cash and cheque disbursements and accounting for receipts at headquarters, and the custody and safekeeping of cash on hand and other valuables. The objectives of the audit were to reconcile the actual cash on hand with the accounting records, examine safekeeping and security arrangements, and assess the effectiveness of internal control and work processes.
5. The audit did not reveal any major security or procedural weaknesses, but showed that efficiency could be improved by maintaining the cash book on a spreadsheet programme to eliminate manual calculations and simplify the daily balancing done manually; that measures were needed to ensure that all payments are made on the basis of properly authorized documentation; and that the independent verification of the cash balances should be carried out on a more regular basis by a senior official who should also provide evidence of their reconciliation to the accounting records.
Treasury Operations Section (TRES/OPS)
of the Treasury and Accounts Branch (TRESOR)
in the Financial Services Department
6. A comprehensive audit was carried out of the bank account reconciliations, signatory panels and the investment portfolio agreements under the responsibility of the Treasury Operations Section (TRES/OPS) of the Treasury and Accounts Branch (TRESOR) in the Financial Services Department. The objectives of the audit were to review the methods employed by TRES/OPS to reconcile bank accounts under its control with a view to assessing the adequacy of procedures in meeting internal control requirements; ensure that bank signatory panels are adequately controlled and kept up to date; and ensure that agreements signed with investment institutions are correctly maintained and in accordance with the Office's legal requirements.
7. The audit did not reveal any irregularities but identified areas where improvement in control and work procedures were required. The Chief Internal Auditor recommended that the standard format designed for bank reconciliations should be used in all cases to make it easy to follow up on outstanding items; improved controls should be introduced over the accuracy and completeness of the reconciliations and related documentation; the accounting for bank interest, bank charges and difference in exchange rates should be made more promptly; long outstanding items and the actions taken to clear them should be better controlled; control over inactive bank accounts should be more systematic; and control over signed management agreements and signatory panels should be improved.
Personnel Administration Branch (P/ADMIN)
and Personnel Planning and Career Development Branch (P/PLAN)
of the Personnel Department (PERS)
8. An audit was carried out in the Personnel Administration Branch (P/ADMIN) and the Personnel Planning and Career Development Branch (P/PLAN) of the Personnel Department (PERS). P/ADMIN's principal objectives are the provision of salaries, entitlements and benefits in an efficient and timely manner; and the maintenance of harmonious staff management relations. P/PLAN is responsible for recruitment, human resource and career planning, administration of staff movements and training. The objectives of the audit were to review the extent of compliance with established policies and procedures and to review the effectiveness of work methods.
9. Performance in P/PLAN and P/ADMIN was maintained at a very satisfactory level, taking into account available staff resources. The Chief Internal Auditor recommended that in order to gain a higher level of efficiency and effectiveness, an overall review of the responsibilities and work methods of staff within the two branches should be made, and the policies and procedures which are embodied in the various rules, regulations, manuals, minutes and memoranda and which may have evolved over time should be updated and consolidated in the main personnel circulars after a careful evaluation of decisions taken on the application of policies.
10. Internal audit also recommended that the procedures to be followed in the application of the rules defined in the main personnel circulars should be documented in a procedures manual for the guidance of the staff of PERS in order to ensure consistent implementation of policies and rules; further, that a comprehensive personnel manual for the use of managers and officials outside of PERS should be considered, and the briefing programme for Senior Personnel Officers in the regional offices enhanced, with the objective of reducing the number of inquiries coming into the department on application of the policies, rules and procedures.
11. The development of a new performance management system to facilitate performance management was still in progress and, pending its completion, the Chief Internal Auditor recommended that the Personnel Department should stress more on managers the need to complete performance appraisals on a timely basis, and should devise an improved follow-up system on individual performance appraisals.
12. The Chief Internal Auditor also recommended that the efficiency and effectiveness of the current work processes concerning job applications received should be reviewed; and that a policy statement should be established regarding the conditions of employment for national correspondents, spelling out clearly the methodologies for the determination, calculation and approval of salaries and entitlements.
Staff Health Insurance Fund (SHIF)
13. An audit of the ILO's Staff Health Insurance Fund (SHIF) was carried out to determine the extent to which the recommendations made in the June 1996 audit report, conveyed to the Governing Body at its 268th Session in March 1997 (GB.268/PFA/3), has been implemented, and also to examine a sample of claims and benefits paid. The SHIF is operated jointly with the International Telecommunications Union (ITU).
14. The Management Committee of the SHIF considered most of the recommendations of the Chief Internal Auditor at its meeting held in December 1996 and reviewed some outstanding points in subsequent meetings. Action on recommendations not yet implemented is currently on the work programme of the SHIF Management Committee. The Committee had considered that they were linked to the effective implementation of the new Health Insurance Information System (HIIS) developed by the SHIF. It is expected that the HIIS will come into operation shortly and enhance control over the processing of claims and payment of benefits.
Official vehicles at ILO headquarters
15. The use of official vehicles at ILO headquarters was audited with the objective of ensuring that they were being properly used for official purposes only and that internal controls were in place and were effective. The lack of written rules clearly stipulating who has the right to use the vehicles and for what purpose had an impact on the effectiveness of internal controls. Recommendations were made for the issue of written rules covering the use of the official vehicles.
Field audits
16. In 1998, audits were carried out of 18 ILO offices and six multidisciplinary teams in 19 different locations in the field, together with a thorough review of some 17 IPEC projects in three of the locations. The aim of the audits was to assess 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.
17. As a result of the field audits, recommendations were made to management in order to improve control over the bank and cash accounts by ensuring that the panel of authorized cheque signatories is promptly updated; the bank reconciliations are regularly performed and controlled as regards outstanding cheques, receipts and contra items; bank interest, bank charges and exchange differences are promptly accounted for and supported by official documentation; and independent counts of cash on hand and other valuables are periodically performed and reconciled to the accounting records.
18. Regarding contracting for goods and services, internal audit recommended to improve the work procedures and documentation to ensure and evidence more clearly the competitiveness of the prices and the selection of the supplier, the financial clearance process, the due approval of the purchase order by an authorized contracting official, the processing of the payment on the basis of certified receiving report, and the approval of the payment by a duly authorized certifying officer; and to ensure also that expenditure is recorded in the correct financial period.
19. Concerning the accounting and safeguard of fixed assets, audit recommendations were made to improve control over the inventory of equipment and furniture through the prompt updating of the inventory records for additions, withdrawals and location change; ensure the regular physical checks of the most valuable and attractive items; ensure the transparency of bidding and selection procedures on the disposal of equipment; improve the control procedures with respect to the inventory, use and custody of equipment provided to technical cooperation projects; ensure that the various categories of assets are adequately insured and that insurance amounts are updated regularly.
20. Internal audit also recommended that management enhance control to ensure: the economy of travel by selecting the most direct route possible and negotiating special fares; the accuracy of travel claims and entitlements; better follow-up over external accounts receivable and staff advances for the early collection of amounts due to the Office; the respect for deadlines and systematic follow-up regarding information relating to personnel and their dependents in the determination of the validity of local staff salaries and other allowances; the timely approval of leave and the correctness of leave records; the respect for deadlines concerning performance appraisals; the greater use of electronic mail to reduce communication costs; and the reconciliation of sale of publications with stock of publications.
21. Following the substantial progress achieved by the Office in the implementation of the ILO network and the Financial Information Systems for External Offices (FISEXT) in 1997 and 1998, internal audit noted a marked improvement in financial reporting and budgetary control.
22. The review by internal audit of a selection of IPEC action programmes and mini-programmes indicated, in many cases, monitoring, reporting and control weaknesses, deviation by some executing agencies from approved work plans, delayed implementation, and inadequate supporting documentation to substantiate expenditure. The Chief Internal Auditor concluded that management should conduct a thorough review of IPEC action programmes based on the audit findings and recommendations and take corrective action.
Assignments in progress
23. At the end of 1998, a review and appraisal of the insurance portfolio administered by the Internal Administration Bureau and of the insurance administration in the external offices was in progress and the results will be included in the Chief Internal Auditor's report for the year 1999.
Investigations
24. During 1998 internal audit was not called upon to carry out any major investigations of fraud or malpractice.
Monitoring of follow-up action
25. Internal audit is responsible for monitoring the action taken by management on its findings and recommendations. With regard to the action taken by management on the recommendations resulting from the audit assignments undertaken in 1997, as included in the report of the Chief Internal Auditor for 1997 and considered by the Committee at the 271st Session of the Governing Body in March 1998,(1) management has now implemented a substantial number of the recommendations and is working to complete the remainder. The Chief Internal Auditor is monitoring progress on this work.
26. Audit observations made in 1998 were accepted positively by management who was following up on implementation of audit recommendations. Internal audit is monitoring the follow-up action.
Geneva, 19 February 1999.
1. GB.271/PFA/5.