Follow-up to the recommendations of the Board of Auditors on the accounts for previous years

Transcription

1 Executive Committee of the High Commissioner s Programme Standing Committee 53rd meeting Distr. : Restricted 23 February 2012 English Original : English and French Follow-up to the recommendations of the Board of Auditors on the accounts for previous years Contents Chapter Paragraphs I. Introduction II. Update on follow-up action III. Progress against the main risk areas identified during the audit of UNHCR s 2010 accounts A. Preparation of financial statements B. Financial management C. International Public Sector Accounting Standards (IPSAS) D. Performance reporting and results-based management E. Risk management F. Management of implementing partners G. Protracted refugee situations IV. Conclusion Page Summary This paper provides an update on progress made by UNHCR in respect of action taken in response to the recommendations of the Board of Auditors relating to seven areas identified as high risk.

2 I. Introduction 1. In its report on UNHCR s accounts for the year 2010 (A/66/5/Add.5), the United Nations Board of Auditors issued an unmodified opinion. While the Board had identified some concerns, as developed hereafter, it acknowledged the progress made by UNHCR in addressing the weaknesses in its assets register, and expressed satisfaction that the negative equity of UNHCR was not indicative of any underlying financial instability. The Board identified seven high-risk areas relating to: (1) the preparation of financial statements; (2) financial management; (3) progress toward International Public Sector Accounting Standards (IPSAS) implementation; (4) performance reporting and progress toward resultsbased management; (5) risk management; (6) management of implementing partners; and (7) protracted refugee situations. 2. The detailed matrices on the progress achieved in implementing all outstanding recommendations for 2008 and 2009 audits, as well as on measures taken to address the recommendations for the 2010 audit, will be made available on UNHCR s website ( II. Update on follow-up action 3. The following is an update on the status of the implementation of the recommendations issued by the Board of Auditors for 2008 (two outstanding recommendations); for 2009 (20 outstanding recommendations); and for 2010 (33 recommendations): (a) The Board s report for 2008 contained 19 recommendations of which 13 related to four identified high-risk areas related to Implementing Partner (IP) audit certification, asset management and post-retirement benefit liabilities. Out of the 19 recommendations, nine have been now closed, eight were reiterated in the report of the Board on UNHCR s 2009 accounts, and measures are being taken to address the remaining two. The eight reiterated recommendations concern: IP audit certification; the timely justification of installments paid to IPs; the management and valuation of non-expendable and expendable property (inventories); and after service health insurance (ASHI). The remaining two recommendations for which action is being taken relate to the clean-up of UNHCR s database for non-expendable property, and the management of bank accounts. (b) The Board s report for 2009 contained 24 recommendations, 7 of which can be grouped under three main risk areas, i.e. IP audit certification; management of expendable and non-expendable property; and funding of end-of-service and postretirement liabilities. Four of the 24 recommendations have been closed. The remaining recommendations relate to areas such as: the preparation for the implementation of the International Public Sector Accounting Standards (IPSAS); the cancellation of unliquidated obligations; the timely completion of bank reconciliations; the continuation of efforts to reduce the number of staff in-between assignments; the adherence to year-end closing instructions; and agreements held with IPs. For 2008 and 2009, in total, there are 22 outstanding audit recommendations which UNHCR is making significant efforts to address, as reflected and detailed in the matrices available on the UNHCR website. (c) The Board s report for 2010 contained 33 recommendations, all of which have been accepted by UNHCR, and are being implemented in line with the measures outlined by UNHCR to the Standing Committee at its fifty-second meeting in September During the final audit, which will take place from 12 March to 5 April 2012, the 2

3 EC/62/SC/CRP.5 Board intends to carry out, in consultation with UNHCR, a comprehensive review of the Office s progress in implementing the audit recommendations made for the 2008, 2009 and 2010 accounts, and to close those recommendations considered implemented. In this context, UNHCR will request the Board to review a number of recommendations from previous audits which were duplicated (e.g. in respect of asset management) in order to streamline, as appropriate, the number of recommendations. III. Progress against the main risk areas identified during the audit of UNHCR s 2010 accounts A. Preparation of financial statements 4. In its 2010 report, the Board recommended that UNHCR establish an effective process for the preparation of its year-end financial statements, including a detailed management review. 5. UNHCR, in response to this recommendation, has established a detailed year-end account closure process which has been updated to take into account the forthcoming IPSAS requirements and lessons learned from the audit of the 2010 accounts carried out by the Board. This encompasses: the cleansing of accounting records; data reconciliation; the preparation of schedules, and the management review of financial statements. During the 2011 interim financial audit, the Board reviewed the interim financial statements presented by UNHCR for the nine months up to 30 September 2011, and found them to be of good quality and subject to management review prior to submission to the Board. The Board considered that this hard close process has been of benefit to UNHCR as it enabled the checking of accounting data and the cleansing of the ledger towards the end of the year. B. Financial management 6. The Board recommended that UNHCR examine and address the reasons for deficiencies in country office financial management and reporting capacity, and to rationalize its banking arrangements, close any unnecessary bank accounts, and improve bank reconciliation procedures. 7. UNHCR acknowledges the weaknesses identified by the Board in financial management. The Division of Financial and Administrative Management (DFAM) has initiated a review to identify weaknesses and potential gaps in financial management both in the Field and at Headquarters. As part of this process, the structures of all field offices were reviewed in order to analyse their capacity to discharge their financial responsibilities. The analysis included reviewing financial data and criteria, such as the number of finance and project control staff, as well as the level of expenditure and project control capacity, particularly for the operations relying heavily on IP arrangements. Relevant reports from the Board, the Office of Internal Oversight Services (OIOS) and the Inspector General s Office (IGO) were also taken into account, in order to identify high-risk operations. The analysis led to the identification of operations that required additional resources in financial and project control areas. Based on this analysis, DFAM has developed a strategy to strengthen financial management capacity in the Field that combines the creation of new positions and capacity building in financial management, oversight and project control. Also, a number of areas have been identified where the financial capacity within DFAM should be strengthened in order to effectively support field operations. These areas include: improving communications on financial policies and procedures; ensuring that finance staff 3

4 have the necessary skills through revised job descriptions; ensuring improved and more targeted recruitment and training. 8. In the area of bank reconciliation, UNHCR continues to focus on bank reconciliation as an important internal control tool, with the aim of improving the quality of the reconciliations by reducing the number of open reconciling items. The bank accounts held at Headquarters are fully and routinely reconciled on a monthly basis. In addition, the Financial Control Section (FCS) in DFAM is now using monthly aging reports for bank reconciling items, as well as a monthly analytical tool to further improve the review of bank reconciliations. A substantial number of high-value old reconciling items were resolved at the end of The UNHCR Headquarters Assets Management Board (HAMB) reviewed and made recommendations to the Controller and the High Commissioner in respect of items that warranted write-off and action was taken accordingly. At the recommendation of the Board, UNHCR will conduct regular checks on a sample of field bank reconciliations as part of internal control. 9. With reference to the rationalization of banking arrangements, a periodic quarterly review of all bank accounts has been performed and inactive bank accounts were closed during In addition, UNHCR has put in place a comprehensive centralized payment approach whereby 60 per cent of UNHCR s overall payments made in EUR, USD, CHF, JPY and GBP denominations are released, replenished and funded from Headquarters. For the 20 per cent of payments that are in African and Asian currencies, the centralization has been completed for African countries representing major implementation currencies such as Kenya, Uganda and the United Republic of Tanzania. The remaining centralization for Asian targeted countries is ongoing for Indonesia, Pakistan and the Philippines. For various reasons, including restrictions in foreign exchange, central banks controls, and nonconvertible currencies, the centralization is not feasible for a residual payment volume representing approximate 20 per cent of total payments. C. International Public Sector Accounting Standards (IPSAS) 10. In its 2010 report, the Board expressed concerns that UNHCR would not be able to finalize the new policies and procedures, communicate them to staff and establish them as working practices in time to successfully implement IPSAS in In the same report, the Board recommended that UNHCR strengthen its preparation for IPSAS implementation by: (a) engaging early with the Board on the revision of UNHCR Financial Rules, (b) producing a dry-run set of IPSAS-compliant financial statements; (c) cleansing its accounting records and establishing a clear plan for the creation of opening balances; and (d) implementing an organization-wide change management programme to drive delivery of the envisaged benefits of the IPSAS project. 11. While the Office will prepare its 2011 financial statements under the United Nations System Accounting Standards (UNSAS), it is on track to implement IPSAS in Since July 2011, regular consultations have taken place with the Board on IPSAS accounting policies and related issues, as well as on the proposed pro-forma for IPSAS financial statements. Part of these consultations focused on the required revision of UNHCR s financial rules in order to align them within the IPSAS context. The revised Financial rules for voluntary funds administered by the High Commissioner for Refugees (A/AC.96/503/Rev.10) were approved by the Executive Committee at its sixty-second session, and entered into effect on 1 January Bearing in mind that UNHCR s financial rules must be consistent with the Financial Regulations of the United Nations, the General Assembly authorized UNHCR to apply mutatis mutandis the Financial Regulations of the United Nations to its voluntary funds accounting process and financial reporting, for the sole purpose of its timely implementation of IPSAS (A/C.5/66/L.19). 4

5 EC/62/SC/CRP UNHCR has developed a plan for this transition that includes a comprehensive review of the accounts, their reconciliation between ledgers and sub-ledgers, as well as the closure of any open items. The services of external accountants have been secured to complement the existing capacity at UNHCR, in order to ensure that 2012 opening balances are reconciled. The Office plans to carry out an end-to-end trial close (dry run) of IPSAScompliant procedures and financial statements for the period up to 31May 2012, followed by a trial close for the period ended 30 September This schedule has been discussed and agreed with the Board. 13. On enhancing the organization-wide change management programme for IPSAS, a change-management strategy was developed during the preparatory stages for IPSAS introduction. Organizational units that are particularly impacted by the change to IPSAS have been identified following a detailed fit/gap analysis. Since 2011, these organizational units have received specific communications (e.g. policies, procedures, user guides, IPSAS glossaries) on requirements for implementing IPSAS. During the second half of 2011, workshops on IPSAS policies and corresponding changes at organizational level were conducted for all five regional Bureaux and relevant Divisions at Headquarters. Starting in March 2012, a series of training events will focus on procedures and benefits of IPSAS at operational level, targeting concerned staff in the Field. D. Performance reporting and result-based management 14. The Board of Auditors had suggested that UNHCR reports should combine financial and performance data to enable management to make effective judgments as to the cost effectiveness of projects and activities, and to strengthen accountability. 15. To increase the value of the planning software Focus, which provides the framework for performance management at the country level and helps the Office to run operations more cost-effectively, UNHCR is in the process of simplifying the planning process, and improving data quality and reporting. UNHCR is continuing to upgrade and improve analytical business reports in Global Focus. This will enable comparisons between country operations and populations of concern. The reports will reflect impact or changes in conditions, as well as achievement of results in relation to plans. Both anticipated and actual impact and performance will be related to planned and actual costs, so as to allow efficiency and cost effectiveness to be assessed, providing both support for resource allocation decisions and a means of tracking accountability. 16. A consulting company has assisted UNHCR with a review of the business and functional requirements for the further development of Global Focus. Based on this work, a software company is now developing new analytical dashboards and data reports by 31 March 2012 which will support global, regional and country-level analysis. After careful examination of the review process and the utility of the new dashboards and report functionality, a second phase of development of Global Focus will be initiated covering the remaining business areas. The full development is expected to be completed by the end of E. Risk management 17. The Board has recommended that the Office establish a simple organization-wide risk management approach, without imposing onerous burdens on country operations. UNHCR participated in high-level discussions on Enterprise Risk Management (ERM) at the United Nations inter-agency level in June In August 2011, a senior staff member was tasked to lead UNHCR s initiative to develop a proposal for the implementation of a 5

6 corporate risk-management framework. To gain an understanding of the extent and benefits of ERM implementation and lessons learned, interviews were carried out in November 2011 and January 2012 with public and private sector organizations, including other United Nations agencies. A concept paper has been drafted, summarizing key issues covered by the interviews,; lessons learned by other organizations in developing and implementing ERM policy and methods; recommendations of the Joint Inspection Unit (JIU) and the Board of Auditors; and brief descriptions of the main ERM methodologies. Based on this research, proposals for implementation of an ERM strategy on corporate risk management will be submitted to the High Commissioner and senior management by the end of February 2012 for decision. F. Management of implementing partners 18. In its 2010 report, the Board recommended that UNHCR require its country operations to document their justification for partner selection and formally assess the market for alternative partners. The Board considers the selection process for implementing partners as one of the key risks for UNHCR. 19. As part of a comprehensive review of the management of Implementing Partners (IPs) initiated in 2010, action has been taken to improve the selection process of IPs. In the detailed planning and budgeting instructions for 2011 (and reiterated in the instructions on detailed planning and budgeting for 2012), all field operations were asked to create IP selection committees from multi-functional teams, improve selection criteria; keep full documentation of the selection process and decisions. In addition, the comprehensive review of IP Management and its Framework was completed in The findings and conclusions of this review support the Board s observations that a one-size-fit-all approach does not fully address the complexity of working with partners of varying capacity in challenging operating environments. In response to the recommendations, UNHCR decided to adopt a differentiated risk-based framework and has allocated resources for developing policies, procedures and tools. A two-year plan of work, put in place in November 2011, is being pursued in a phased manner to improve the overall management and accountability of IPs, while the new framework is introduced. 20. In August 2011, UNHCR established an IP Management Service within DFAM, to centralize the coordination of issues related to IP management, policies, methods and accountability. One of its main responsibilities is to lead the development/enhancement of IP management including the adoption of a risk-based approach. G. Protracted refugee situations 21. The Board also recommended that UNHCR establish a single senior point of ownership for protracted refugee situations, to address progress in all situations and to hold country operations accountable. 22. The High Commissioner s Initiative on Protracted Refugee Situations, launched in 2008, did not have a single senior point of ownership, but was run rather as a series of projects managed by the five country operations that were targeted. UNHCR recognized that the approach was fragmented, as highlighted by the Board, and undertook discussions to assess how to implement the recommendation. As a result, the Assistant High Commissioner-Protection has been designated as the coordinator of an inter-departmental working group on protracted refugee situations, with support from the Assistant High Commissioner-Operations. 6

7 EC/62/SC/CRP.5 IV. Conclusion 23. UNHCR appreciates the valuable contributions and guidance provided by the Board of Auditors in identifying the main risk areas to which the Office is exposed, and in providing advice, notably on IPSAS during this important transition time. UNHCR reiterates its commitment to address the recommendations made by the Board and to pursue its efforts to improve procedures, systems, internal control mechanisms and accountability, in order to mitigate the risks identified. 7