March 2005 E FINANCE COMMITTEE Hundred-and-ninth Session Rome, 9 13 May 2005 Structure of the FAO and WFP Internal Audit Committees 1. At its Hundred-and-eighth Session held on 27 September 1 October 2004, the Finance Committee requested information on the Structure of the FAO and WFP Internal Audit Committees, including their terms of reference (discussed under Working Methods of the Committee). 2. In line with the above request, the attached annex has been prepared to identify the salient features of the respective committees and provide details on their structure, composition, and main functions. It should be noted that issuance of the Terms of Reference of the WFP Committee (as presented) is awaiting final approval from the Executive Director. 3. The establishment of the FAO Audit Committee is fully consistent with the best management practices observed in public and private sector domains and fulfils an important and valuable oversight function. The impetus for the creation of this Committee was provided following a recommendation by the External Auditor and a commitment made by the Director- General to the 100th session of the Finance Committee in September 2002. The main aim of the Audit Committee is to enhance organizational governance and improve the framework of systems and controls. In addition, the Committee provides an active forum for discussion of key issues, acts as an advisory body to the Director-General and Inspector General, enhances transparency, and promotes in-house understanding of audit issues. Since its establishment in April 2003, the Director-General has provided his full support to the Committee to enable it to fulfill its mandate and role. 4. Within the context of the UN system, FAO is well ahead of most of the other UN agencies in creating such a Committee, ensuring that it functions efficiently and effectively, and accomplishes its intended role and mandate without impediments. The FAO Audit Committee is based on the model adopted by UNESCO. 5. The Committee meets regularly and deals with a range of issues relating to governance and controls. Since its establishment, the Committee has proved to work well and provide For reasons of economy, this document is produced in a limited number of copies. Delegates and observers are kindly requested to bring it to the meetings and to refrain from asking for additional copies, unless strictly indispensable. Most FAO meeting documents are available on Internet at www.fao.org W0000
2 effective and beneficial guidance. The Committee provides an annual report to the Director- General, who, in turn, shares it with the Finance Committee. 6. The main highlights of the annex, comparing information on the FAO and WFP Audit Committees, are as follows: Both committees report to their respective Director-General/Executive Director. The thrust of the terms of reference and reporting lines of the two committees are reasonably similar. There are some differences in the composition of the two committees and the duration of members appointments.
3 REVIEW OF AUDIT/OVERSIGHT COMMITTEES ANNEX I Establishment of Committee (i.e. advisory committee to Head of Organization) WFP The WFP (the Programme) has established an Audit Committee to assist the Executive Director in fulfilling his responsibilities for financial reporting, use of resources, the Programme s internal control arrangements, risk management process, and other audit related matters. The Audit Committee primarily advises the Executive Director on these matters and its purpose is not to substitute for the advisory functions provided to the Executive Board by the United Nations Advisory Committee for Administrative and Budgetary Questions (ACABQ) or the FAO Finance Committee. To facilitate transparency and relative independence of the Audit Committee from day-to-day management, the majority of the Audit Committee members shall be external to the Programme. They should possess competence in the relevant aspects of the Programme (including finance, management and audit). An external member will chair the Audit Committee. FAO The Committee operates as an advisory panel to the Director-General and to the Office of the Inspector General (AUD). Its aim is to assist the Organization in gaining house-wide acceptance of the importance and value of the internal audit, inspection and investigation functions and provide the Director-General with assurance that these functions are operating effectively and efficiently. Terms of Reference The Audit Committee shall: Advise the Executive Director on all issues arising from its activities under these Terms of Reference Review and advise the Executive Director on policies significantly impacting accounting and financial reporting issues, use of resources and the effectiveness of the Programme s internal controls, the internal audit function, operational procedures and risk management Review and advise the Executive Director on the Programme s financial statements and reports Promote the understanding and effectiveness of the audit function within the Programme, and provide a forum to discuss internal control and risk management issues, The Audit Committee shall: Appraise the adequacy and effectiveness of the internal audit services and its strategies, priorities and workplans and suggest potential audit areas to address the Organization s risks Review progress in the implementation of AUD s action plans which have been agreed upon Take note of the reports of the External Auditor and monitor timely follow-up of his/her recommendations Ensure the independent role of the Office of the Inspector General (AUD) Review and provide advice on the biennial work plans of AUD in the areas of audit and inspection Review significant risks facing the Organization
4 operational procedures and matters raised by internal and external audits Provide comments on the work plans of the internal and external audit functions for consideration in their ongoing review Consider all relevant reports by the internal and external auditors, including reports on the Programme s financial statements and management letter. The Programme is responsible for the fair presentation of financial statements including adequate disclosure Consider the risk and control implications of reports from OEDI in terms of its mandate and refer audit issues to the investigations unit as appropriate, with regard to due process and privacy considerations Monitor the implementation of the internal and external audit recommendations Review and advise the Executive Director on the Programme s arrangements for its employees and external parties to raise concerns, in confidence, about allegations of wrongdoing in the management and conduct of operations Prepare an annual report on its activities for the Executive Director and for transmission for information purposes to the Board Make appropriate recommendations to the Executive Director Assess the effectiveness and adequacy of internal audit coverage with due regard to external audit coverage, to ensure that emphasis is placed on high-risk areas Review the reports of AUD and the External Auditor (except for reports specifically requested by donors), assess the implications of their findings on existing policies, systems and procedures and actively oversee and monitor the timely implementation of the audit recommendations Satisfy itself that AUD adheres to the international internal auditing standards adopted by the heads of audit of the United Nations, the Specialized Agencies as well as by the World Bank and other entities within the UN system Review investigation findings of presumptive or actual mismanagement, irregularities and fraud, and monitor follow-up responsibilities Review the AUD annual activity report to the Director-General subsequently provided to the Finance Committee Review the performance and effectiveness of AUD, ensuring consistency with approved plans and the Charter of the Office of the Inspector General Satisfy itself that the resources available for AUD are sufficient to meet the Organization s needs Provide advice to the Director-General and the Inspector General as it deems appropriate Composition One Chairperson, two external members, two internal members (in a personal capacity) and a Secretary (not a member of the Committee). The Committee consists of seven members: five internal and two external, as follows: Chairperson Deputy Director-General Three internal members: Assistant Director-General, AF Legal Counsel or a representative (senior officer) designated by him/her A second Assistant Director-General or his/her alternate (a third Assistant Director-General, appointed by the Director-General on a rotational basis Comment [W1]: Secretary is not a member of the committee.
5 Two external members: Senior Audit professional Senior Audit and Investigation professional Secretary (ex-officio) Inspector General, AUD Member Selection (Internal & External) Duration of Members' Mandate Members designated in personal capacity by Executive Director. Terms of office will be two years renewable once, with the renewal period phased so as to provide continuity of oversight. All members are appointed by the Director-General. External members are selected on the basis of their qualifications as senior audit and investigation professionals. The Assistant Director-General, AF and the Legal Counsel are permanent members. The second Assistant Director-General and his/her alternate (a third Assistant Director-General nominated by the Director-General) hold a term of two years, extendible at the discretion of the Director-General, to be replaced on a rotational basis. The external members serve for a two-year period, which may be renewed at the discretion of the Director-General for one or more years. Reporting Lines and Authority Number of Meetings The Audit Committee shall prepare a report on its work for the previous year for presentation to the Executive Director during the first calendar quarter. It will include recommendations with respect to changes to its mandate. The Audit Committee will also prepare a report for the annual session of the Executive Board in May each year. The Chairman shall present these reports. The Chairman will interact regularly with the Executive Director on the results of Audit Committee deliberations as well as on forthcoming issues relevant to its business. The Audit Committee shall normally meet at least four times a year. The Chairman, any Member and the External Auditor may request additional meetings. The Committee reports to the Director-General. The Director-General will provide a copy of the Committee s annual report to the Finance Committee. The Audit Committee will have the authority to: obtain all necessary information and consult directly with the Inspector General and his/her staff access all reports and working papers produced by AUD seek any information it requires from any staff member and require all staff members to cooperate with any request made by the Committee obtain independent professional advice and secure the attendance of outside persons with relevant experience and expertise if considered necessary. At the discretion of the Chairperson, the External Auditor may be invited to attend meetings of the Audit Committee At the discretion of the Chairperson, the Committee will meet three to four times each year. Additional meetings may be called by the Chairperson if deemed appropriate. The Inspector General has the right to request the Chairperson to convene a meeting if necessary.
6 Procedure Rules The Executive Director shall appoint the five members of the Audit Committee; three members will be external to the Programme and two members will be employees. An alternate cannot represent members. Any three members (of whom two will be external members) shall constitute a quorum. The presence of all seven members, or the alternate ADG and the representative of the Legal Counsel, as applicable, is expected at each meeting. At the discretion of the Chairperson, when necessary, meetings can take place with at least five members, one of whom will be external. The Secretary to the meeting (Inspector General) will have no voting rights.