Annual Report 2001

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, 2001. 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 that 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 internal auditing procedures and exercising the related functions. Executive Order No. 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. The OIG is required 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 No. 95-05 as well as Budgetary and Financial Rules and Procedures, and 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 OIG provides reliable and objective information to the Member States regarding the operational activities of the General Secretariat and associated risks.

Executive Order No. 95-05 requires that audit activities be directed towards operations with the highest degree of risk and/or those with the greatest potential for increasing efficiency, economy and effectiveness. The Office of the Inspector General is also required to perform systematic and selective audits of all operations in accordance with a long-term cyclical plan that ensures complete auditing of the General Secretariat within an appropriate time period. The Inspector General and staff of the OIG 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. 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. The OIG coordinates efforts with the Board of External Auditors and the independent firm of auditors.

During the 12-month period covered by this report, the Office of the Inspector General conducted twelve audits, six of which were carried out in dependencies located at Headquarters and the others in offices and projects of the General Secretariat located in the Member States. During 2001 five investigations were also completed, three of which were performed by the Office of the Inspector General. In keeping with the mandate to assist managers in the prevention or detection of fraud, abuse and program or operational risks, assistance was provided by the OIG to the GS/OAS office directors in two investigations.

Executive Order No. 95-05 provides that the Inspector General should submit a timely report of findings and recommendations to the Secretary General and 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 were promptly approved by the Secretary General.

Executive Order No. 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. The monitoring of the actions taken in implementing OIG recommendations is critical in determining the impact of the OIG on the General Secretariat and in measuring improvements. Reports generated by this tracking system are provided to the Board of External Auditors during their annual review and also provide important information in planning future OIG work programs.

The OIG dedicates its efforts towards assisting the Member States and the General Secretariat in achieving responsible administration of resources, as well as creating an atmosphere of accountability, transparency and improved performance in the execution of OAS programs. During the period January 1 to December 31, 2001, the OIG carried out twelve audits that focused on operational and compliance audit activities. In 2001, 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. Those audits included examination of the operational processes related to tax reimbursements, performance contracts and travel costs at Headquarters. OIG also evaluated internal controls related to the operational activities of three dependencies of the General Secretariat at Headquarters, i.e. the Inter-American Agency for Cooperation and Development and the IACD Division of Cooperation in Development of Human Resources (formerly known as Fellowships Department), as well as the Secretariat for Meetings and Conferences. In addition, audits of the operational activities of GS/OAS offices located in six Member States and a number of OAS projects executed in those Member States were completed.

The results of the audit activities carried out by the OIG in 2001 provided 102 recommendations for the continuous improvement of programme performance, management accountability and the economy and efficiency of the General Secretariat. The 102 recommendations were categorized as fifty-eight High Risk, thirty-three Medium Risk and eleven Low Risk. High Risk recommendations are considered to have the most far-reaching consequences for the Organization’s performance, as their implementation would result in better productivity, workflow and programme effectiveness. Fifty-three recommendations identified a need for improved operational efficiency and effectiveness, twenty-one recommendations related to noncompliance with OAS directives, twelve identified a need for written procedures, eight requested physical inspections of inventory for proper recording of OAS assets, and eight identified the need for reimbursements of unspent project funds and various amounts from staff members. As a result of audit recommendations, a staff member’s contract was not renewed, disciplinary action was administered on two staff members for violation of OAS directives and recommendations were made for refunds due to the General Secretariat in the amount of US$24,661, including refunds to the FEMCIDI account for unspent project funds. Project evaluations examined expenditures, progress reports, the efficiency and effectiveness of project management to determine whether objectives were achieved in a cost effective manner. A number of audits identified the absence of a uniform and timely system for project management in the form of monitoring, implementation and evaluating the results. In addition to internal control weaknesses within the IACD, audits identified the need for more effective management of funds entrusted to the IACD, as well as written policies and standards regarding the fiduciary responsibilities performed by GS/OAS Offices of the Member States, regarding the disbursement and management of funds on behalf of the IACD.

More notable achievements which have resulted from the combined efforts of the OIG and the General Secretariat are:

The Board of External Auditors has confirmed that OIG efforts and achievements are significant events that are essential to the OAS. Special mention was made by the Board regarding those auditing activities that focused on the follow up of the 2000 recommendations.

Annex 1 provides a list of completed audits as well as investigations and shows that nine operational and three compliance audits were performed, including operational activities of six GS/OAS Offices in Member States. Operational audits not only review 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, resolutions, 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 those Offices. Simultaneously and primarily for cost effective purposes, review of those operational activities also includes evaluation of 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 2001 audit program also concentrated on many of the financial and management issues identified in the 2000 audit report of the Board of External Auditors. Review of the Oracle computerized systems was postponed to 2002 because the implementation of the 11i upgrade was not completed until January 2002. The organization–wide training in OASES continued during 2001 so that users may be empowered for assigned responsibilities, including the ability to satisfy donor requirements for program reports.

Annex 1 and Annex 2 provide a list of completed compliance and operational audits, as well as audits performed according to technical areas.

A report of all audit activities for the calendar year ended December 31, 2001 (CP/Doc.3589/02) has been submitted to the Permanent Council in accordance with Article 114 of the General Standards and Executive Order No. 95-05 of May 8, 1995.

The implementation of the OASES system has greatly changed major operational processes, particularly those relating to disbursements, performance contracts, accounting for projects and disbursements and financial reporting. The OIG is pleased with the accomplishments as well as the continuing efforts made by the Secretariat for Management to publish OASES procedural instructions, update GS/OAS directives including the Budgetary and Financial Rules for Headquarters and the GS/OAS Offices in the Member States and also provide ongoing training to the users.

The IACD Statutes provide that the Executive Secretariat for Integral Development is responsible for managing and authorizing the obligation and disbursement of resources from FEMCIDI, the specific funds and other resources entrusted to the IACD, in accordance with applicable regulations and agreements. In view of the substantial funding that is entrusted to the IACD and administered by GS/OAS Offices in the Member States, it is essential that adequate, written, consistent procedures be developed and distributed as soon as possible in order that a uniform and effective system may be established for monitoring and assessing project results. The audits completed in 2001 determined that there is an urgent need for formal IACD procedural manuals to provide policies and procedures governing its daily operational processes, as well as written instructions to those offices in the Member States that disburse funds on behalf of the IACD. The OIG expects that IACD operating procedures should, as a minimum, contain details of responsibilities for ensuring the accuracy and completeness of information, as well as a description of all controls developed by the respective managers that would support staff members in effectively fulfilling their responsibilities.

As stated earlier, internal auditing is a management tool that operates by measuring and evaluating the effectiveness of other management controls. In carrying out this mandate during 2001, the Inspector General and staff members of the OIG participated as observers in various committee meetings and working groups of the General Secretariat, including the weekly meetings of the OASES Implementation Groups, the Selections and Awards Committee, the Committee for Disposal of Surplus and/or Obsolete Assets (COVENT) and the GSB Renovation Committee. The Inspector General met with various department directors to discuss internal control weaknesses found in audits conducted, the implementation of recommendations to correct those inefficiencies, as well as other operational issues which were brought to the attention of the Office of the Inspector General. The OIG attended some meetings of the Permanent Council and its sub committees.

The 2002 work plan is designed to examine 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 2000 report of the Board of External Auditors included a recommendation that the OIG provide follow up action and a report on the implementation of the 11i upgrade to the OASES system. That audit is included in the 2002 work program as the implementation process was completed in January 2002. The 2002 OIG work plan also includes audits of selected GS/OAS Offices in the Member States to ensure the adequacy of internal controls and evaluate the operational processes associated with cash management, timely recording of transactions and OAS assets. Arrangements are being finalized by the Secretariat for Management to link the financial activities of the GS/OAS Offices in six Member States to the OASES system at Headquarters during 2002. The OIG intends to monitor and evaluate this pilot project.

The Board also recommended annual audits of the OASES system to examine data integrity and security as well as follow up action regarding the two reportable conditions and material weakness in the IACD that were cited in the 2001 report. The following are some additional audit activities included in the 2002 work plan of the Inspector General, which is attached as Annex 3 to this report:

In its 2001 report the Board of External Auditors commented on the audit coverage, staffing, independence and follow up of recommendations issued by the Office of the Inspector General. In that report the Board states that the OIG is an important element in internal controls and OIG recommendations important to maintaining such controls. In prior years, the Board has confirmed that the status and role of the OIG are important 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 designated to conduct external audits. The Inspector General continues to make every effort to address the concerns expressed by the Board and to review the identified areas of concern, to the extent of available resources.

In addition to identifying areas of significant or high risk, the Inspector General is responsible for conducting systematic and selective audits of all operations in accordance with a long-term cyclical plan that ensures complete auditing within an appropriate time period. OIG audit activities in 2001 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 2001 the rate of audit coverage of operations was approximately 50% at Headquarters. In addition to the 50% rate of audit coverage maintained in the GS/OAS Offices in the Member States, three of the five completed investigations related to activities performed in the GS/OAS Offices in the Member States. Annex 1 and Annex 2 provide a list of completed compliance and operational audits and investigations, as well as audits completed according to technical areas.

In prior years the Board has expressed concern 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 has also commented on the need for sufficient outsourcing resources to acquire needed talent on a short-term basis to cover required expertise that is not available from permanent staff and which would allow for the conduct of annual specialized audits of the OASES system. 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 review of projects administered by the GS/OAS.

The resources available for the operational processes of the Office of the Inspector General are provided in the Program Budget of the Regular Fund. At present OIG staffing consists of one Administrative Assistant and four auditor positions, including the Deputy Inspector General. The request for an additional auditor position that is included in the draft 2003 Program Budget for approval is supported by the Board of External Auditors. The Inspector General makes optimum use of available resources to accomplish results that add value to the service provided to the GS/OAS and the Member States. OIG staff members attended conferences and seminars to the extent allowed by available resources in order to keep abreast of new developments and maintain continuing professional education. In the 2001 report, the Board of External Auditors reaffirmed its 2000 recommendation that the OIG budget should have sufficient funding to achieve require training.

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.

The OIG continues to discuss all findings and recommendations with auditees and all comments provided to the Inspector General 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. Executive Order No. 95-05 requires auditees to submit formal responses within thirty days after being notified of the approved report by the Secretary General.

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 that system in its annual review. It should be noted that the Board of External Auditors has stated that it was highly impressed with that OIG initiative. The 2001 audit reports issued by the Inspector General contained 102 recommendations and all reports and recommendations were promptly approved by the Secretary General. As of March 2002 sixty-seven (66%) of the approved recommendations have been fully implemented and the remaining thirty-five (34%) were still in various process stages. Twenty-two of the thirty-five recommendations that were in process were considered high risk, of which sixteen identified the need for better internal controls, transparency and effectiveness. Thirteen high-risk recommendations related to internal controls and six that required written policies and procedures were addressed to the IACD.

Except for the findings of the internal audit of the IACD, I am pleased to advise that the GS/OAS rate of implementation is satisfactory and the timeliness in reporting on actions taken for compliance with recommendations continues to improve. 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 Inspector General continues to maintain a working partnership with managers of the various areas of the GS/OAS to ensure the satisfactory and timely implementation of recommendations, improve internal controls and correct those weaknesses that inhibit organizational efficiency and effectiveness so that our common goals may be achieved. The Inspector General requests and receives legal advice and assistance from the Department for Legal Services, as appropriate, with regard to various issues arising in the course of its auditing and investigation activities. The OIG greatly appreciates the continuing efforts and cooperation of the General Secretariat towards overall efficiency and effectiveness in the Organization.

General Secretariat of the Office of the Inspector General Organization of American States
List of Audits and Investigations performed during 2001
	SG/OIG	Audits	Audit Type
1	01/01	Tax Reimbursement Process of the GS/OAS	Compliance
2	02/01	GS/OAS Belize & selected Projects	Operational
3	03/01	Review of the Performance Contracts (CPR) Process	Compliance
4	04/01	Operations and Internal Controls in the IACD Division of Development in Human Resources (Fellowships)	Operational
5	05/01	The Secretariat for Meetings and Conferences	Operational
6	06/01	GS/OAS Office in El Salvador	Operational
7	07/01	Travel Costs incurred in the Regular Fund	Compliance
8	08/01	GS/OAS Office in Grenada, Carriacou and Petit Martinique	Operational
9	09/01	GS/OAS Office in Guyana & selected projects	Operational
10	10/01	GS/OAS Office in Jamaica & selected projects	Operational
11	11/01	GS/OAS Office in Honduras and selected Projects	Operational
12	12/01	Internal Controls in the Inter-American Agency for Cooperation and Development (IACD)	Operational
		Investigations
1	01/01	Guyana – Employee No. 9853
2	02/01	Internal controls related to the disbursement process of the Trust of the Americas within the IACD
3	03/01	El Salvador – Employee No. 6329
4	04/01	St. Kitts and Nevis – Employee No. 7735
5	05/01	Print Shop within the Secretariat for Meetings and Conferences – Employee No. 4468

GS/OAS Office in Guyana & selected projects

3. Trust for the Americas...................................... Inv. 02/01

Chapter 6

Chapter 8