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International Advisory and Monitoring Board
Minutes of the meeting held in Amman, Jordan 2–3 June 2007
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. Warren Sach, Assistant Secretary-General and Controller
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. Jayantilal Karia, Alternate Member
Mr. Moses Bamuwamye, Finance Officer
World Bank:
Ms. Caroline Harper, Lead Operations Officer
Government of Iraq:
Alternate Member, Chartered Accountant/Auditor
President, Board of Supreme Audit (BSA)
Member of the Committee of Finance Experts (COFE)
Invitee from US Department of State:
Mr. Joshua Volz
Special Inspector General for Iraq Reconstruction (SIGIR):
Mr. Joseph McDermott
- The meeting was chaired by the Iraqi representative.
- The agenda for the meeting was unanimously adopted.
- The IAMB expressed its gratitude to Mr. Jean-Pierre Halbwachs for his valuable contributions to the IAMB as the UN representative and particularly as the chair of the IAMB since its inception.
- The IAMB welcomed the UN Secretary General’s recent appointment of Mr. Warren Sach, Assistant Secretary-General and UN Controller, as his representative to the IAMB to succeed Mr. Halbwachs.
DFI Audits
2006 Audit
- The IAMB was presented with the draft 2006 Ernst & Young audit reports. The audits cover (i) oil export sales to ensure that such sales are consistent with prevailing international market best practices; (ii) the accounting for the proceeds from oil export sales; (iii) the DFI financial statements; and (iv) the disbursements procedures for DFI resources to ensure that funds are used for the purposes intended. It was agreed that a summary of the results of the Ernst & Young audit would be posted on the IAMB website (www.iamb.info).
- While acknowledging the many efforts being made sometimes at great personal sacrifice, the audits indicated that the overall financial system of controls is deficient and financial management reforms need to be pursued further.
- The audits also noted that it was not possible to reconcile quantities of oil extracted with oil distributed including export sales due to an inability to obtain information and the lack of an overall comprehensive system of controls over oil revenues.
- The audit also shows that $638.2 million in 2006 ($1.0 billion from inception) was not deposited in the Oil Proceeds Receipts Account as per UN Security Council Resolution 1483 (2003) and are not recorded in the DFI financial statements. These amounts were deposited in bank accounts controlled by SOMO. This implied that $606.3 million and $31.9 million for 2006 ($975.7 million and $51.4 million from inception) were not recorded in the DFI and the UN Compensation Fund respectively.
- The audits also note that basic administrative procedures in ministries are outdated and their effectiveness need to be strengthened. The system of overall financial governance also needs to be strengthened.
2007 Audit
- With regards to the 2007 audit, Representatives of the Government of Iraq briefed the IAMB on the evaluation process to select an external audit firm to conduct an audit of the resources and disbursements of the DFI.
- The IAMB agreed that the 2007 audit of the DFI should cover the period January 1 to December 31, 2007 with an interim audit for the period from January 1, 2007 to June 30, 2007. As the mandate of the IAMB is expected to end by December 31, 2007, it was agreed that the interim audit will take place under the oversight of the IAMB, while the final audit will be undertaken under the oversight of the COFE.
- The IAMB approved the process and concurred with the recommendation of the Government of Iraq to proceed with the 2007 audits.
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.
- The IAMB expressed concern that insufficient progress was being made with regards to the implementation of the previous recommendations.
- The above notwithstanding, the IAMB noted some progress that has been made with the recent establishment of a committee, consisting of representatives of the Central Bank of Iraq, the Ministry of Finance, the Ministry of Oil and the State Oil Marketing Organization (SOMO), to address external audit management letters in cooperation with the BSA.
- The IAMB was encouraged by the initiative to follow-up on the many recommendations and by the initiative of the Council of Ministers to hold ministries accountable to strengthen internal controls. In this regard, the IAMB urged the BSA to follow-up on all recommendations, monitor their implementation and report to the Council of Ministers on a six-monthly basis on progress being made. The IAMB looks forward to receiving the first BSA report by end 2007.
- The IAMB reiterated its longstanding concerns regarding the lack of oil metering and that a system of metering, as recommended earlier by the IAMB, would go a long way in improving overall control.
- Regarding the status of the installation of a comprehensive oil metering system, the IAMB requested the Government of Iraq to provide copies of the Shell/BP terms of reference and the results of the scoping study undertaken.
- The IAMB was also briefed on the status of the contracts managed by US agencies that have been handed over to the BSA and looked forward to further progress on addressing the IAMB’s concerns.
- To underscore the importance the IAMB attaches to the follow-up of the previous recommendations, the IAMB urged the BSA/COFE to address the following matters with the Council of Ministers:
- The slow and uneven progress towards the installation of a comprehensive and effective metering system for oil and oil products;
- Follow-up to implement and systematically strengthen internal control procedures over cash inflows from oil revenue and for use of the DFI funds by the spending ministries;
- Insufficient and partial compliance with the provisions of UN Security Council Resolution 1483 regarding the requirements to deposit all proceeds from the sale of petroleum and petroleum products and natural gas into the Oil Proceeds Receipts Account for eventual transfer of 95 percent to the DFI and 5 percent the UN Compensation fund. This has also had the effect of providing for only partial funding of the UN Compensation Fund established under UN Security Council Resolution 687 (1991);
- Weak controls in the administration of contracts paid for from the DFI sub account and managed by US agencies. Further, the BSA reported that its own preliminary investigations showed serious flaws in all stages of contracting.
- It was noted that the IAMB believes that substantial progress on the above issues was imperative if the objective of ensuring that the oil revenues of Iraq are used transparently for the benefit of the Iraqi people is to be achieved. The IAMB therefore urged the Government of Iraq to take urgent action to address all the audit findings and in particular the issues raised above.
Transitional Issues
- The IAMB met with the Committee of Financial Experts (COFE) established by the Government of Iraq to continue the work of the IAMB upon its dissolution. The IAMB was briefed on the work of the COFE.
- It was reiterated that the members of COFE will work alongside the IAMB until the expiration of the IAMB mandate and will attend all future IAMB meetings.
- The IAMB noted that the DFI immunity is due to expire at the end of 2007. The IAMB further noted that the mandate of the IAMB and the immunity of the DFI could be mutually exclusive. Consequently, it was noted that, should the Government of Iraq wish to request an extension of the DFI, the IAMB proposed that it could be under the general oversight of COFE.
Press Release
- The members agreed on a press release
Other Business
- The IAMB agreed on a rotating Chair whereby the host of the meeting shall chair it for that event.
- The IAMB agreed to tentatively schedule the next meeting for November 1–2, 2007.
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