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International Advisory and Monitoring Board
Minutes of the meeting held at the IMF Headquarters in Washington, DC on May 30–31, 2006.
The following members of the IAMB were present:
Arab Fund for Economic and Social Development: Mr. Khalifa Ali Dau, Senior Financial Advisor,
International Monetary Fund: Mr. Bert E. Keuppens, Director of Internal Audit,
Government of Iraq (IGI): Adviser, Ministry of Finance,
United Nations: Mr. Jean-Pierre Halbwachs, Representative of the UN Secretary-General,
World Bank: Mr. Fayezul Choudhury, Vice-President and Controller.
Also in attendance were the following:
International Monetary Fund:
Mr. Chris Hemus, Alternate Member
Ms. Mary Hoare, Officer, IMF Finance Department
United Nations:
Mr. Moses Bamuwamye, Finance Officer
World Bank:
Mr. Charles McDonough, Alternate Member
Ms. Caroline Harper, Lead Operations Officer
Government of Iraq:
Alternate Member, Chartered Accountant/Auditor
President, Board of Supreme Audit (BSA)
Advisor, Ministry of Finance
Invitees from the United States Department of Defense
Mr. Joseph Benkert
Mr. Adam Lovinger
Invitees from the United States Department of State
Amb. James Jeffrey
Dr. Stephen Krasner
Mr. Joshua Voltz
Special Inspector-General for Iraq Reconstruction (SIGIR)
Ms. Karen Bell
- The meeting was opened by the Chair.
- The agenda for the meeting was unanimously adopted.
Audit of the DFI
Briefing by Ernst & Young
- Representatives of Ernst & Young briefed the Board on the of status of audit of the Development Fund for Iraq (DFI) for the period 1 June to 31 December 2005. They indicated difficulties in obtaining the necessary information from the various Ministries. They, however, undertook to complete the audit by 15 July 2006.
- The Board was concerned at the slow progress in completing the audit and reiterated the need for its timely completion.
1 January–30 June 2006 DFI Audit
- The IAMB discussed the options available with regards to the audit of the DFI for the January – June 06 period. Given the tight timeframe, it was agreed that the Iraq Government representatives would negotiate with the current auditor regarding DFI audit for the six months ended 30th June 2006 and submit their recommendation to the IAMB for consideration at its next meeting.
Follow-up on the implementation of the recommendations from the previous audits
- The IAMB was briefed on the progress the Government of Iraq had made in implementing the previous recommendations of both the Auditors and the IAMB.
Metering
- The representative from Iraq informed the IAMB of the delays in completing the installation of an effective metering system to control and measure the quantities of crude oil and oil products produced and distributed through exports and internal consumption. The IAMB was informed that smuggling of oil and oil products from southern Iraq continued and that a letter on the subject was sent by the President of the BSA to the Prime Minister emphasizing the economic consequences of the delays in installing an effective metering system. The Government of Iraq had informed the IAMB in March that the Iraqi Ministry of Oil had concluded an agreement with the US Government to rebuild the metering system in the Basrah oil port of the Southern Oil State Company, funded by a grant from the US Government and expected to be completed by end-2006. In addition, a preliminary agreement has been entered into by the Government of Iraq with the Shell Oil Company to act as a consultant to the Iraqi Ministry of Oil in matters relating to metering and calibrating, which would include the establishment of a measuring system for the flow of oil, gas and related products within Iraq, and export and import operations, within the next two years. The IAMB welcomed the action the Government of Iraq is taking on the implementation of the IAMB recommendations, but continued to reiterate its concern that key actions, especially the installation of an oil metering system, needed to be comprehensive and were taking a long time to implement.
Controls in the Ministries
- The IAMB was informed of measures taken to enhance the control environment at ministries including: i) a new department formed in each Ministry to deal with audit observations, ii) the closure of all dollar accounts in each ministry, and iii) the development of a financial manual and the work in the progress with regards to the development of a Financial Information System.
Capacity-building of the Bureau of Supreme Audit
- The Iraq representative and the President of the BSA gave an outline of the training and development courses which have been held and planned to strengthen the BSA. These courses have been arranged through the assistance of international organizations, and national auditing bodies. The BSA has increased its strength (to about 2000 personnel) and is organizing seminars on international accounting and auditing standards. The BSA has also expanded its audit coverage of contacts so that most contracts are now audited either prior to commitment or as part of post audits.
Briefing by the Department of Defence
- In line with its earlier decisions, the IAMB requested an independent verification of the global settlement of all six DFI funded task orders under the Kellogg, Brown and Root (KBR) contract reached between the U.S. Government and KBR on December 22, 2005 as well as a review of the remaining sole-sourced contracts to determine whether excess costs were incurred that would be the subject of renegotiation. However, progress has been slow in executing these special audits. The follow-up audit of sole-sourced contracts has only recently been awarded to KPMG. The US Government is still in the process of identifying a suitable audit firm to complete the review of the KBR settlement. The IAMB urged the expeditious completion of these special audits.
- With regards to the review of the KBR settlement, the IAMB was informed that none of the major accounting firms were interested in performing the review. The IAMB requested the representative of the U.S. Department of Defense to proceed with obtaining solicitations from other accounting firms.
Follow-up briefing by SIGIR
- As part of its oversight role over the use of resources of the DFI, representatives of the IAMB met with SIGIR in Arlington, Virginia, on April 5, 2006 to seek clarification of recent SIGIR reports and to determine the impact of those reports on the DFI. SIGIR's reported concerns echo concerns consistently raised by the IAMB and the DFI external auditors regarding the use of DFI resources. SIGIR provided further clarifications to this meeting of the IAMB.
Transitional Issues
- Under its mandate, the IAMB will cease operations effective end of 2006. The IAMB therefore discussed the transitional arrangements to be put in place to ensure continuity of an independent oversight responsibility for the DFI, any successor petroleum revenue account and oil export sales. The IAMB noted that transparency in the collection, recording, investing and spending of oil revenues is of paramount importance in providing assurance that Iraqi oil resources are properly managed and spent. The IAMB also noted that an integral component of that transparency is an independent external audit of the activities of the petroleum revenue account to be conducted in accordance with international standards and the formation of a suitable independent oversight body. Audits of the spending of oil revenues by the ministries will be the responsibility of the BSA.
- In that respect, the IAMB decided to draft terms of reference for a successor independent oversight body which should be composed of financial experts and provide oversight of the audit processes and internal controls relating to the petroleum revenue account activities and oil export sales. The IAMB also decided that these terms of reference would be submitted to the Government of Iraq for its consideration.
Press Release
- The members agreed on a press release.
Other Business
- The next meeting of the IAMB has been tentatively scheduled for 17-18 July 2006.
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