Implementing Partners Compliance with Audit Certification

EC/48/SC/CRP.41

IMPLEMENTING PARTNERS COMPLIANCE WITH AUDIT CERTIFICATION

I. INTRODUCTION

1. In accordance with the decision taken by UNHCR's Executive Committee at its forty-eighth session (Report of the Forty-eighth Session of the Executive Committee of the High Commissioner's Programme, A/AC.96/895, para. 23 (h)), this conference room paper provides an update and reviews the progress made by UNHCR in ensuring a satisfactory response to the recommendations made by the Board of Auditors relating to the submission of audit certificates by UNHCR's implementing partners.

II. BACKGROUND

2. The United Nations Board of Auditors in its 1996 and 1997 reports to the General Assembly on the accounts of the voluntary funds administered by UNHCR (A/AC.96/869 and A/AC.96/885) recommended that the accounts of UNHCR's implementing partners should be regularly audited by an independent audit authority and that UNHCR should obtain audit certificates provided by them to verify the correctness and propriety of expenditures incurred by the implementing partners. UNHCR's initial response to this recommendation was set out in conference room paper EC/46/SC/CRP.45, presented to the fourth meeting of the Standing Committee (September-October 1996). This conference room paper was also presented to the Office of Internal Oversight Services (OIOS), the Board of External Auditors and the Advisory Committee on Administrative and Budgetary Questions (ACABQ) for their comments. The responses of the OIOS and the Board of External Auditors to UNHCR's proposal on audit certification were also presented to the Standing Committee (EC/46/SC/CRP.45/Add.1). The comments of the ACABQ were set out in their report on the Overview of UNHCR Activities 1995-1997 (A/AC.96/865/Add.4, paragraphs 29-32). In view of these responses and comments by member delegations of the Executive Committee (A/AC.96/874, paras. 48-51), UNHCR revised its policy on the audit certification of implementing partners. The revised policy proposal was set out in conference room paper EC/47/SC/CRP.48, presented to the ninth meeting of the Standing Committee (September-October 1997), which received the support of the Executive Committee and of the Board of Auditors.

III. FOLLOW UP ACTIONS

3. The original proposal (see EC/46/SC/CRP.45) made by UNHCR was to make the submission of audit certificates a mandatory requirement for all its implementing partners, irrespective of which category they fell under. This arrangement was reviewed and in line with the revised policy (see EC/47/SC/CRP.48) proposal, approved and endorsed by the Executive Committee. UNHCR is now implementing, as of 1 May 1998, a differentiated audit certification approach towards the various categories of implementing partners. The main features of this approach are summarized below:

(a) United Nations and related agencies, from which no additional audit certification is sought, other than their annual audited financial statements, as these are audited by the same or comparable authority that audits UNHCR's accounts;

(b) Governmental partners, for whom an audit certificate, issued by the appropriate government audit authority, is now required within three months of the final date of the liquidation of commitments;

(c) International non-governmental organizations (NGOs), for which a copy of their consolidated audited financial statements, wherein UNHCR funding is clearly identified, is required within six months of the end of the organization's fiscal year;

(d) National NGOs, for which audit certificates are required within six months of the final date of the liquidation of commitments for all sub-agreements, or series thereof, valued at over $ 100,000 in any given year. This does not preclude that, for all agreements valued less than $ 100,000, UNHCR reserves the right to request an audit of the organization's accounts.

4. In addition to the above, UNHCR has intensified its efforts to consolidate the establishment of a comprehensive NGO database which will be operational by end-1998 and will include financial information about NGOs, in particular their ability to comply with UNHCR's reporting and audit requirements. To this effect, a questionnaire has been sent to all NGOs requesting that information on a number of the issues relevant to those discussed in this paper be provided (their financial rules and procedures, yearly independent audit certification and training activities). The database will also contain information on evaluations and compliance with submission of reports by NGOs. Parts of the database will be confidential. While this database will serve a broader purpose and will be of use to both UNHCR and NGOs, it will, nevertheless, help UNHCR to respond to oversight and audit demands for greater accountability and transparency in its implementing arrangements. An implementing partner's ability to comply with the audit certification requirement will be a pre-requisite for its selection to implement UNHCR funded projects.

5. It is a well known fact that availability of audit certificates does not provide a foolproof guaranty against mismanagement and misappropriation of funds, and that the issuance of such certificates can only take place within a reasonable time after the closure of the projects. Therefore, within the context of the UNHCR decentralization training courses carried out during 1997 and early 1998, and as part of the efforts to reinforce financial control mechanisms, UNHCR field staff dealing with implementing partners have been issued instructions and guidelines to follow when they carry out the review of implementing partner reports. Another initiative that UNHCR is exploring in order to more closely monitor expenditures incurred by implementing partners is to make the release of additional funds conditional upon the review of accounting documents demonstrating that expenses have actually been incurred.

6. While the Board of Auditors has again suggested that UNHCR should explore possibilities to reduce the time frame for submission of audit certificates by its partners, UNHCR feels that it is unreasonable to request that implementing partner audit certificates be submitted in time for the Board to review them when carrying out the UNHCR audit for a past year. Audit certificates serve a dual purpose; firstly, they have a preventive role to play in forcing implementing partners to pay due attention to financial recording and reporting; secondly, they make it easier for UNHCR's auditors to prioritize and focus their own examinations. The relatively small number of audit certificates for 1996 projects available at this point in time admittedly hampers the achievement of the second objective. However, it should not limit the scope of the UNHCR certification exercise, because the accounts of UNHCR's implementing partners are accessible for examination by UNHCR's external and internal auditors at all times.

7. The table below provides information on audit certificates received for 1996 projects. As in most cases, the reports for 1997 projects are only due at the end of September 1998, six months after the final date for liquidation of obligations. Information is not available yet on the submission of 1997 audit certificates.

NUMBER AND VALUE OF PROJECTS IMPLEMENTED THROUGH PARTNERS AS AT THE END OF 1996

8. UNHCR has been able to obtain reasonable assurances of propriety of expenditures for some 41 per cent of projects implemented by NGOs and only 3.8 per cent for projects implemented by government implementing partners. Those NGOs that have not submitted reports will be advised that continued association with UNHCR will be dependant on their compliance with UNHCR's financial reporting requirements.

9. The difference in compliance between the two major categories, namely government implementing partners and NGOs, can be explained by the fact that, in the case of government implementing partners, UNHCR relies on the capacity of the corresponding national audit authority to provide the required audit certificate for the respective government department implementing a UNHCR project. Experience has shown, however, that audit certificates for projects implemented by government agencies are often difficult to obtain and UNHCR has very little leverage to insist that that they be submitted in time. UNHCR would like to remind the Executive Committee that many of its members have failed to provide the required certificates for 1996 projects and would like to take this opportunity to re-emphasize the importance in submitting audit certificates for projects implemented by them. UNHCR will continue to regularly monitor implementation, with the assistance of the Audit Management Control Division (AMCD) missions to the programme areas.

10. Regarding 1997 projects, as previously mentioned the deadline for submission of audit certificates has not yet elapsed and UNHCR is in the process of receiving them. The results will be reported to a subsequent meeting of the Standing Committee.