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Annual
Report of the Index
GENERAL INFORMATION Pursuant to Article 114 of the General Standards for the operations of the General Secretariat, I hereby submit for consideration of the Permanent Council the annual report on audits, completed by the Office of the Inspector General (OIG) during the calendar year ended December 31, 2000. The Report makes reference to the recommendations of the Board of External Auditors and the adequacy of resources, including the level of staffing allocated to the Office of the Inspector General. In accordance with Article 112 of the General Standards, the Secretary General has established appropriate internal auditing procedures to verify compliance with standards and regulations in force, especially through systematic and selective examination of official transactions and operational procedures related to the resources administered by the General Secretariat. The internal audit function provides an ongoing program for appraising performance, maintaining financial integrity and measuring compliance with policies and procedures. Internal audit assists in detecting and correcting conditions, which pose unnecessary risks and helps the Organization achieve objectives while keeping risks within tolerable limits. The Office of the Inspector General has been established as the dependency responsible for applying these procedures and exercising the functions related to the internal auditing procedures. Executive Order 95-05 issued by the Secretary General on May 8, 1995 established the Office of the Inspector General and provided the declaration of responsibility, purpose and authority with respect to internal audits and the composition of the OIG. The general objectives of the OIG include promoting economy, efficiency and effectiveness in General Secretariat operations and all OAS programs and projects, as well as assisting all levels of management in the prevention or detection of fraud and abuse and the risk thereof in programs or operations. Specifically, the Office of the Inspector General is responsible for ensuring systematic review of internal management and accounting controls, and when necessary, inspections and investigations of all GS/OAS offices, departments, programs, divisions, units, activities and projects, both at Headquarters and in all Member States, to determine whether the functions of planning, organization, management, documentation, accounting, custody and control of resources are carried out efficiently, effectively and economically and in accordance with:
The internal audit function is a management control that operates by measuring and evaluating the effectiveness of other management controls. In order to ensure objective analysis of facts and impartiality of judgment, the OIG does not take part in operating procedures except with regard to their review and evaluation. The Inspector General reports directly to the Secretary General and is governed by the Articles of the General Standards for the operations of the General Secretariat, Executive Order 95-05 and Budgetary and Financial Rules of Procedures, as well as other OAS directives. The Inspector General is responsible for reporting to the Board of External Auditors on the issuance of all reports submitted to the Secretary General. The program budget for the Office of the Inspector General has been submitted to the responsible bodies without any changes. 
INTRODUCTION
Executive Order 95-05 requires that audit activities are directed towards operations with the highest degree of risk and/or those with the greatest potential for increasing efficiency, economy and effectiveness as well as systematic and selective audits of all operations in accordance with a long term cyclical plan that ensures complete auditing the General Secretariat within an appropriate time period. The Inspector General and Staff of the Office enjoy full, free and unrestricted access to all functions, activities, operations, records, properties and staff of the General Secretariat, as may be considered necessary for planning and effective performance of audits. During the 12-month period covered by this report, the Office of the Inspector General conducted a total of nineteen audits, ten of which were carried out in dependencies located at Headquarters and nine in offices and projects of the General Secretariat located in the Member States. In accordance with the General Standards, audits were conducted with special emphasis on the proposals of the Board of External Auditors, particularly regarding the need to concentrate on high risk areas and/or those with the greatest potential for increasing efficiency, economy and effectiveness. Executive Order 95-05 provides that the Inspector General should submit a timely report of findings and recommendations to the Secretary General and quarterly reports of audit activities to the Permanent Council. Article 115 of the General Standards provides that the Secretary General is required to respond to the Inspector General's reports within thirty days of the date of submission. If no observations are put forward within that period, then the Inspector General can automatically assume that the report is accepted. I am pleased to report that all reports submitted by the Inspector General have been promptly approved by the Secretary General. Executive Order 95-05 provides that Directors and other supervisors responsible for the appropriate corrective action, which has been recommended, must report to the Inspector General within 30 days following receipt of the transmission of the report by the Secretary General. The Office of the Inspector General has successfully established a system for tracking actions taken by the General Secretariat on implementation of OIG recommendations. Reports generated by this tracking system are provided to the Board of External Auditors during their annual review. The Inspector General continues to work with the various areas of the GS/OAS to ensure the satisfactory and timely implementation of recommendations. During the period January 1 to December 31, 2000, the OIG carried out nineteen audits which focused on operational and compliance audit activities. In 2000, audit efforts were directed towards operations with the highest degree of risk and those with the greatest potential for increasing efficiency, economy and effectiveness within the General Secretariat. During the year under review the OIG performed audits of the procurement, payroll and petty cash fund processes at Headquarters, and evaluated internal controls related to the operational activities of five of the dependencies of the General Secretariat at Headquarters, including internal controls within the Inter-American Development Agency, as well as the Model General Assembly of the OAS, the NT Server and Oracle Applications and Database Servers. In addition, audits of the operational activities of GS/OAS offices located in six Member States and a number of OAS projects executed in the field offices were completed. The results of the audits carried out by the OIG, which provided 175 recommendations for the continuous improvement of programme performance, management accountability and the economy and efficiency of the General Secretariat of the OAS, are difficult to quantify. As a result of audit recommendations, a staff member's contract was not renewed because of identified inefficiencies in the performance and violation of OAS directives. OIG recommendations of the systems audits resulted in security being improved, technical exposures have been closed, internal reorganizations have clarified administrative responsibilities, overall management of the Oracle Environment is more effective, and policies and standards have been clearly established, defined and communicated to achieve compliance with stated objectives regarding security, integrity and maintainability. Recommendations were also provided for reimbursement of unused project funds, improvement of project management, additional training in the Oracle Financialsä System, improvements to physical and systems security, provision of procedural manuals, improvement of internal controls in the disbursement and receipt of funds. More notable achievements which have resulted from the combined efforts of the OIG and the General Secretariat are:
The Board of External Auditors has informed the Inspector General that OIG achievements during 2000 are significant events that will benefit OAS in the future. Special mention was made of those auditing activities which focused on following up on the 1999 recommendations of the Board, activities on high risk internal control weaknesses directed towards the Management Secretariat including stabilization of the Oracle Financials™ system, the security vulnerabilities of the current system configuration as well as internal controls in the Department of Financial services and several GS/OAS Offices in the Member States, identifying the need for written policies and procedures and clearer documentation trails. The General Secretariat is to be commended for the significant efforts made to comply with OIG recommendations and the increase in the implementation rate by those dependencies of the General Secretariat to which recommendations were directed. Annex 1 provides a list of completed audits and shows that, seventeen operational and two compliance audits were performed, including operational activities of six GS/OAS Offices in Member States. Operational audits review not only records and supporting documentation but also recommend actions, which lead to more efficient operations, improvements in management and accounting controls, reduction in costs and prevention of losses. Compliance audits primarily determine whether the General Secretariat complies with OAS mandates, established rules, standards, procedures and regulations, as well as agreements between the General Secretariat and other parties e.g. donor agencies. Audits of the GS/OAS Offices in the Member States are undertaken to review the operational processes of GS/OAS Offices in the Member States. Simultaneously and primarily for cost effective purposes, review of those operational activities also includes projects executed in those Member States to determine compliance with the terms of project agreements and whether project objectives have been achieved in a cost effective manner. The 2000 audit program also concentrated on many of the financial and management issues identified in the 1999 audit report of the Board of External Auditors. Audits of the Oracle computerized systems were undertaken to review the progress made in implementing recommendations of prior audits, examine security and operational control to determine whether (1) security of operational activities and computer equipment are adequately controlled and safeguarded (2) provision is made for adequate backup systems for recovery in the event of a catastrophe (3) adequate security is built into the system and (4) processes are appropriately documented. OIG audits, particularly the Oracle Financials and the various processes in the Secretariat for Management including internal controls in the Department of Financial Services, had a positive impact and resulted in written policies and procedures, as well as clear defined and assigned roles and responsibilities. In addition to correcting those identified weaknesses which resulted in the 1999 "reportable condition" OIG audits resulted in the provision of organization-wide training in Oracle to empower the users for assigned responsibilities. The quantity of audits performed and a list of completed audits according to the technical areas of the General Secretariat are provided in Table 1 and Annex 2. Table
1
Article 114 of the General standards and the operative paragraph 5 of Executive Order 95-05 of May 8, 1995 require the submission of reports on audit activities to the Permanent Council. Reports of all audit activities for the calendar year ended December 31, 2000, have been submitted to the Permanent Council. The implementation of the Oracle Financials™ System has greatly changed major operational processes, particularly those relating to disbursements, performance contracts, accounting for projects and disbursements and financial reporting. The audits completed in 2000 determined that although written procedures related to systems processes have been provided to users, there is an urgent need for formal procedural manuals to provide policies and procedures governing the daily operational processes of the General Secretariat, including Budgetary and Financial Rules and the Field Financial Rules. The Inspector General is pleased to report that a manual of Daily Operational Processes within the Department of Financial Services as well as formal procedures for procurement processes and Systems Security have now been finalized and distributed. In addition the draft manual of Budgetary and Financial Rules has been distributed for comments, prior to being finalized. There is an urgent need for an updated Field Financial Manual, which will effectively implement and stabilize financial management operations in those offices as a result of the changes to the basic operational activities from the implementation of Oracle. Internal auditing is a management tool that operates by measuring and evaluating the effectiveness of other management controls. In carrying out this mandate during 2000, the Inspector General and representatives of the OIG participated as observers in various committee meetings and working groups of the General Secretariat including the weekly meetings of the Oracle Action Group, the Selections and Awards Committee and the Committee for Disposal of Surplus and/or Obsolete Assets (COVENT). The Inspector General also met individually with various department directors and attended various staff meetings to discuss internal control weaknesses found in audits conducted, implementation of recommendations for correcting those internal control weaknesses, as well as other operational issues which were brought to the attention of the Office of the Inspector General by the respective directors. The 2001 work plan is designed to cover audit activities with the highest degree of risk and those, which promote economy, efficiency and effectiveness in GS/OAS operations as well as OAS programs and projects. The implementation of the new Oracle System has substantially changed the basic operational activities for recording and accounting for transactions within the General Secretariat. Those functions have now been decentralized from the Secretariat for Management and users are now empowered to carry out their individual responsibilities. Furthermore, all the financial records of the GS/OAS Offices in the Member States are no longer maintained within the Department of Financial Services but, for the most part, supporting invoices are kept in those offices. The lack of an update to the Field Financial Manual, which will provide uniformity in the processing of field financial operations, particularly as a result of the changes to the basic operational activities from the implementation of Oracle, remains a matter of concern for the OIG. Consequently the 2001 work plan includes audits of selected GS/OAS Offices in the Member States to ensure the adequacy of internal controls in high-risk areas associated with cash management, timely recording of transactions and recording of OAS assets. In addition the need for procedural manuals to document procedures for controlling cash, fixed assets, bank accounts, and the handling of financial transactions in GS/OAS Offices in the Member States is critical for avoiding inconsistencies. The General Secretariat has advised the OIG that the 11i Oracle upgrade package will better serve GS/OAS communication needs with the GS/OAS Offices in the Member States for more timely recording of financial transactions. An audit of the systems upgrade is included in the 2001 work plan to ensure the adequacy of internal system audit controls. The establishment of the Inter-American Agency for Cooperation and Development provides for complete autonomy in the management and financial control of resources in the Agency as well as the accounting for those resources. The 2000 audit completed on internal controls of the IACD revealed that there is need for improvement in the existing financial system and financial management infrastructure particularly for project management. The follow up audit planned for 2001 is designed to review the implementation of OIG recommendations as well as action taken to correct internal control weaknesses identified in the 2000 report of the Board of External Auditors. The following are some of the major issues included in the proposed audit activities identified in the work plan of the Inspector General for the year 2001, which is attached as Annex 3 to this report:
In the 1999 Audit Report the Board of External Auditors commented on the audit coverage, staffing, independence and follow up of recommendations by the Office of the Inspector General. The Board also stated that the status and role of the OIG are important to the Board since the internal audit function works as an ongoing safeguard in the control environment. OIG activities are required to be coordinated with those of the Board and the independent auditing firm, which is designated to conduct audits. As stated earlier in this report, the Board of External Auditors has informed the Inspector General that OIG achievements during 2000 are significant events that will benefit OAS in the future. The Inspector General continues to make every effort to address the concerns expressed by the Board and to review the areas of concern on a continuing basis, to the extent of available resources. In 2000 OIG audit activities focused on areas of high-risk and audit efforts concentrated on maintaining significant audit coverage throughout the General Secretariat. The OIG's planning methodology ensures that high-risk areas receive primary focus and consequently this approach allows the Inspector General to better prioritize the use of limited resources. In 2000 the rate of audit coverage of operations at Headquarters was over 50% of the audit activities performed. Annex 1 and Annex 2 provide a list of completed compliance and operational audits as well as audits completed according to technical areas. In 1999 the Board was concerned with OIG staffing resources and indicated that the General Secretariat should ensure that the OIG has sufficient permanent staff resources to fulfill its role as advisor to the Secretary General and as a deterrent to waste, fraud and abuse. The Board expressed concern in 1999 about the level of staffing in the OIG and suggested that the OIG strengthen its effort towards staffing the function. The Inspector General is pleased to report that qualified individuals with significant auditing experience have now filled the four auditor positions approved in the Regular Program Budget for the OIG. The Board also commented on the need for sufficient outsourcing resources to acquire needed talent on a short-term basis to cover required expertise which is not available from permanent staff and which would allow for the conduct of specialized audits, such as the computerized system environment. In 2000 the amount of resources available for contract audit services remained at the same level as the prior year. The lack of adequate resources continues to present difficulties to the OIG in fulfilling its mandate to maintain significant audit coverage throughout the General Secretariat, i.e. Headquarters, the GS/OAS Offices in the Member States, as well as projects managed by the GS/OAS. The Inspector General has complete independence in planning audit programs and in all audit activities. The Inspector General submits the operating budget for the office directly to the Secretary General and no restrictions were imposed on the items allocated to the Office of the Inspector General. The OIG is subject to the austerity measures, which are currently in force in the General Secretariat. A system to track actions on recommendations has been established in the Office of the Inspector General and the Board of External Auditors uses reports generated by this system. It should be noted that the Board of External Auditors stated in the 1999 report, that it was highly impressed with that initiative of the current Inspector General, particularly with the layout of information. The OIG continues to provide these reports to the Board during their annual review. In 2000 the audit reports issued by the Inspector General contained 175 recommendations and all reports and recommendations were promptly approved by the Secretary General. I am pleased to report that the rate of implementation demonstrated during the year and the timeliness with which the General Secretariat has reported on actions taken for compliance with the recommendations, is satisfactory, 55% of the approved recommendations have been fully implemented and 45 % are still in process. In carrying out follow up action, every effort is made by the OIG to take into consideration the austerity measures which are in place within the General Secretariat and to work with the various areas towards implementing recommendations in an appropriate and timely manner with available resources. The OIG continues to discuss all findings and recommendations with auditees and all comments provided to us are taken into consideration in finalizing each report. In several cases weaknesses were corrected prior to finalizing the audit report and comments to that effect are included in the relevant audit report prior to submission to the Secretary General. Upon approval by the Secretary General, approved reports are forwarded to the GS/OAS Directors and/or Managers of the departments, offices or programs audited, with a request to implement the approved recommendations. As mentioned earlier in this report, Executive Order 95-05 requires auditees to submit formal responses within thirty days after being notified of the approved report by the Secretary General. We are pleased to report that the level of response from the General Secretariat to OIG queries and recommendations showed marked improvement in 2000.
ANNEX 1
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