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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, evaluations and investigations completed by the Office of the Inspector General (OIG) during the calendar year ended December 31, 1999. 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 offices, departments, programs, divisions, units, activities and projects, both at General Secretariat 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 :
The internal audit function is a management control that operates by measuring and evaluating the effectiveness of other management controls. 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. The Inspector General is responsible for reporting to the Board of External Auditors on the issuance of all reports as they are 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
During the 12-month period covered by this report, the Office of the Inspector General conducted a total of fifteen audits, ten of which were carried out in dependencies located at Headquarters and five in offices and projects of the General Secretariat located in the Member States. In addition, two investigations were performed at Headquarters. 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 maintain significant audit coverage at Headquarters and to concentrate on high risk areas and/or those with the greatest potential for increasing efficiency, economy and effectiveness. The appointment of the new Inspector General took effect on January 1, 1999. In the 1998 Audit Report the Board of External Auditors expressed concern about the location of a Junior Auditor position in Panama. As indicated in the 1998 annual report of the OIG, the Inspector General reviewed the situation and advised the incumbent that the position will be relocated to Headquarters. Initially the staff member agreed to be relocated to Headquarters, but she subsequently requested early retirement. The Secretary General considered that the staff member's retirement is in the best interest of the organization and approved her request for early retirement. As a consequence of Article 54(f) of the General Standards and Staff Rule 110.7, the post is not available for recruitment for a period of nine months which ends in March 2000. Except for Audit SG/OIG-03/99 in which the OIG was allowed only limited access to records by an International Organization, 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. The Inspector General is satisfied with the proposed amendments to GS/OAS policies and procedures related to projects executed by International Organizations to ensure full, free and unrestricted access to all project records. 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 during the year 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. There continues to be a high degree of compliance with our recommendations on the part of the dependencies of the General Secretariat to which they have been directed. Every effort is made to establish priorities as to the implementation dates as recommended by the Board of External Auditors. The Inspector General continues to work with the various areas to ensure the satisfactory and timely implementation of recommendations within the available resources of the General Secretariat. Although 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, it also requires systematic and selective audits of all operations in accordance with a long term cyclical plan that ensures complete auditing within an appropriate time period. During the period January 1 to December 31, 1999, the OIG carried out fifteen audits and two investigations. Audit activities focused on operational and compliance audits. In 1999 effort was made to maintain significant audit coverage at Headquarters as recommended by the Board of External Auditors. At the same time activities were directed towards operations with the highest degree of risk and those with the greatest potential for increasing efficiency, economy and effectiveness. In addition to the audit related to the unpaid liability at June 30, 1999 in the amount of $1,002,188, audit activities identified amounts of $101,278 due from various staff members for overpayments of overtime, travel allowances and reimbursements to the FEMCIDI account, as well as the need for improved internal controls in the Department of Financial Services and the new computerized system. Audits also resulted in disciplinary action against five staff members for violating OAS directives. Annex 1 provides a list of completed audits and shows that, in addition to the two investigations conducted, eight compliance and seven operational audits were performed. Operational audits review not only records and other 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, including agreements between the General Secretariat and other parties e.g. donor agencies. It should be noted that internal control weaknesses may not only erode OAS ability to use funds for planned activities but could also result in achievements which are less than expected. Audits of the computerized systems are undertaken to ensure that operations and computer equipment are adequately controlled and safeguarded, that provision is made for adequate backup systems for recovery in the event of a catastrophe, that adequate security is built into the system and that processes are appropriately documented. The audits performed of the computerized systems have resulted in the appointment of a Security Officer, issue of a formal statement on security and an increased awareness of systems security among General Secretariat staff members. The audit of the Department of Financial Services was undertaken to review internal controls in the area of the General Secretariat where the exposure to risk is thought to be the greatest and to determine the proper conduct of financial operations, proper custody of OAS assets and reliability of financial records. The Inspector General is concerned that if the existing internal control environment within the DFS is not enhanced, OAS ability to record, process, summarize and report financial data will be adversely affected and could impact OAS financial operations and opinions expressed in future audited financial statements. In addition, the lack of a comprehensive and tested business continuity plan increases the risk that critical business processes cannot be timely recovered in the event of a disaster. DFS is currently undergoing a restructuring effort designed to correct identified weaknesses. Audit of OAS/UN Billing Costs for MICIVIH, Haiti (SG/OIG-05/99) was requested by the Secretary General. Except for the audit related to the investigation regarding Misuse of Internet Connectivity (SG/OIG-12/99), all other audits performed were identified in the approved 1999 annual work plan. The number 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. The quarterly activity reports which provide a summary of the findings of audits completed during the calendar year ended December 31, 1999 have been submitted to the Permanent Council in conformity with Article 114 of the General standards and the provisions of operative paragraph 5 of Executive Order 95-05 of May 8, 1995. Table
1
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. Although systems implementations are not without problems, the 1999 audits identified that there is no centralized and organized process by which functionality issues and problems can be reported to Oracle support groups. Further, there is need for clear and direct policies and procedures as well as the full commitment and participation of all areas of the General Secretariat to ensure that the system is successful and for providing meaningful reports to donor agencies. Although some desk top 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 the Contracting Manual, Budgetary and Financial Rules. The Inspector General is pleased to report that the new Contracting Manual is in its final editing stages and we have been advised that this should soon be available for distribution. We have also been informed that other manuals related to formal procedures including Oracle Security, Budgetary and Financial Rules and Field Financial rules are being developed. The Inspector General continues to monitor the efforts made by the General Secretariat in order to achieve this objective. During 1999 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 HRMS Project Implementation Team, the Board of Publications, the Selections and Awards Committee and the Committee for disposal of surplus and/or obsolete assets (COVENT). At the request of certain managers and in keeping with the mandate to assist management in the proper discharge of their responsibilities, the Inspector General attended various staff meetings to explain the internal audit function, the role of the Office of the Inspector General and discuss internal control weaknesses found in audits conducted. The implementation of the new Oracle System has substantially changed the basic operational activities for recording transactions within the General Secretariat. This creates a need for the skills of professional auditors with not only the required internal audit qualifications and experience but also computer expertise and significant experience in internal audits of computerized systems, such as Oracle applications. Subject to available resources, proposed 2000 audit activities are designed to review major processes of the relevant areas of the General Secretariat and provide an objective opinion on internal controls. 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 2000, which is attached as Annex 3 to this report:
In the 1998 Audit Report the Board of External Auditors expressed concern about the Office of the Inspector General's audit coverage, staffing, independence and follow up of recommendations. 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. In 1999 OIG audit activities focused on areas of high risk and audit efforts concentrated on maintaining significant audit coverage at Headquarters as recommended by the Board. In 1999 the OIG's planning methodology was modified to ensure that high risk areas received primary focus. Consequently this approach allowed the Inspector General to better prioritize the use of limited resources with increased operational complexities which have become a by-product of the Oracle Financials system implementation. Annex 1 and Annex 2 provide a list of completed compliance and operational audits as well as audits completed according to technical areas. I am pleased to report that in 1999 the rate of audit coverage of operations at Headquarters was 60% of the audit activities performed. In 1999 the Board expressed concern about the level of staffing in the OIG including the location in Panama of the Junior Auditor position and in July 1999 the Secretary General approved the Junior Auditor's request for early retirement. However as a result of the conditions of early retirement under Article 54(f) of the General Standards, that post is not available for recruitment until March 2000. The Board commented that adequate and appropriate staffing is especially vital considering the staffing constraints in the OAS. In the1999 Audit Report the Board recommended that an auditor with computer expertise be appointed to ensure that qualified personnel are available to review the new MIS program and ensure that adequate internal controls are maintained within the OAS. The Inspector General agrees with the Board's opinion regarding the need for qualified and experienced auditors in the OIG. Executive Order 95-05 requires that audits should be conducted in accordance with the Standards for Professional practice of Internal Auditing. In 1999, in coordination with the Department of Human Resources, the Inspector General evaluated all posts within the OIG to ensure that (a) the OIG is adequately staffed with the professional and experienced auditors required for performing internal audits in accordance with professional standards and (b) vacant positions are filled with individuals who possess the necessary experience in auditing a computerized environment, such as Oracle. The recruitment of suitable candidates for filling all vacant positions, including the position of Deputy Inspector General, is now in process. In 1999 it was necessary to supplement OIG staffing requirements with performance contractors not only for audits identified on the 1999 Work Plan but also for those audits which required technical skills that were not available within the General Secretariat . In this regard the Inspector General wishes to express sincere gratitude to the Government of Canada for providing the services of an experienced and qualified auditor for two months as an additional contribution to the 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. In 1999 the audit reports issued by the Inspector General contained 149 recommendations and all reports and recommendations were promptly approved by the Secretary General. A system to track actions on recommendations has been established in the Office of the Inspector 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. 66% of the recommendations have been fully implemented and 34% are still in process. Most of the recommendations which are still in process relate primarily to weaknesses identified in the Department of Financial Services, as well as the need to strengthen Systems Security, the need for formal procedural manuals and additional training in the Oracle Financials ™ system. A restructuring effort is currently in process in the Department of Financial Services designed to correct identified internal weaknesses including the need for improved management, the selection of a qualified and experienced Director and additional qualified staff. Every effort is made 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. 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. As stated earlier in this report, the Secretary General forwards approved reports to the auditees requesting implementation of the approved recommendations. 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. Executive Order 95-05 also requires auditees to submit formal responses within thirty days after being notified of the approved report by the Secretary General. In the 1998 Audit Report the Board suggested that a formal policy be established to include formal comments as an appendix to each report. Although auditees' responses are not available at the time of issuing the report and consequently are not attached to the reports, the Inspector General has provided the Board with a summary of the status of all recommendations analyzed according to the level of risk, as well as copies of all formal comments regarding implementation of recommendations which were submitted to the OIG. In 1999 the Board recommended that because of limited resources, the OIG should pursue a working relationship with the Latin American and Caribbean Organization of Supreme Audit Institutions (OLACEFS). The Inspector General investigated the possibility of using the services of OLACEFS to perform an audit of one of the national offices, including evaluation of projects executed in that Member State. However after an initial attempt to arrange this with OLACEFS considerations related to the internal nature and direct oversight responsibilities of the OIG were identified. In an effort to avoid a potential conflict of interest and at the same time maintain independence and control by the Inspector General, this audit (SG/OIG 15/99) was performed by the senior auditor of the OIG.
ANNEX 1
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