United Nations S/2005/12
Security CouncilDistr.: General
10 January 2005
Original: English
Letter dated 7 January 2005 from the Secretary-General
addressed to the President of the Security Council
Pursuant to Security Council resolution 1483 (2003), I have the honour to
convey the attached letter from my representative on the International Advisory and
Monitoring Board for Iraq outlining the activities of the Board in 2004 (see annex).
I should be grateful if you would bring the present letter and its annex to the
attention of the members of the Security Council.
(Signed) Kofi A. Annan
05-20379 (E) 110105

S/2005/12
Annex
Letter dated 6 January 2005 from the representative of the
Secretary-General on the International Advisory and Monitoring
Board addressed to the Secretary-General
As your representative on the International Advisory and Monitoring Board
(IAMB) for Iraq, I am pleased to provide you with a recap of the actions of IAMB
during 2004.
My colleagues on IAMB and I have prepared a report which covers our
operations from the establishment of IAMB until the completion of the audits
covering the period during which the Coalition Provisional Authority was
responsible for the Development Fund for Iraq (DFI). The report was released on
14 December 2004 and, as is the case with all IAMB documentation, was placed on
the IAMB web site to make it available to the widest possible audience. A press
release was issued to announce the availability of the report. The report presents the
comments and conclusions of IAMB with respect to the audits of the oil export sales
and the DFI operations for the period up to the transition of authority to the Interim
Government of Iraq. I am enclosing a copy for your convenience.
IAMB met nine times in 2004. It approved the appointment of independent
public accountants to audit DFI and Iraq’s oil export sales. It ensured that the
external auditor conducted its work in accordance with international auditing
standards. IAMB received regular briefings on the progress of the audits.
The external auditor presented reports covering the period from inception to
31 December 2003 and covering the period from 1 January to 28 June 2004. IAMB
concluded that the audits were conducted in accordance with agreed terms of
reference and in accordance with appropriate standards.
The audit firm has concluded that all known oil proceeds, reported frozen
assets and transfers from the oil-for-food programme have been properly and
transparently accounted for in DFI. At the same time, on the basis of a review of the
audit reports, IAMB believes that controls were insufficient to provide reasonable
assurance (a) for the completeness of export sales of petroleum and petroleum
products and (b) whether all DFI disbursements were made for the purposes
intended. The priority findings of the audit reports include:
• Weaknesses in controls over oil extraction, including the absence of metering,
resulting in the audit firm qualifying its audit opinions of the DFI statements
of cash receipts and payments
• Control weaknesses in the administration of resources handled by the
Coalition Provisional Authority, including inadequate record-keeping and
accounting systems, and the uneven application of agreed-upon contracting
procedures
• Inadequate controls identified at Iraqi spending ministries, including the
absence of reconciliation procedures, insufficient payroll records, deviation
from tendering procedures and inadequate contract monitoring by the
Coalition Provisional Authority relating to payments on behalf of the Iraqi
ministries
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The audit reports have been submitted to the Iraqi Council of Ministers and the
Coalition Provisional Authority. The control weaknesses identified in the audit
reports all require attention and follow-up. As a matter of priority, the financial
reporting and control systems need to be improved in key Iraqi disbursing
ministries, including the State Oil Marketing Organization, and the regional
Governments to overcome the identified control weaknesses, and controls need to be
strengthened over oil extraction, as the principal source of income of Iraq.
These reports are available on the IAMB web site.
At the last meeting held in December, the Iraqi Government submitted to
IAMB the result of its review of tenders for the nomination and appointment of an
external auditor for DFI for the period 29 June to 31 December 2004. IAMB was
satisfied that the review and selection process had been carried out properly and
concurred with the recommendation of the Government for the appointment of
KPMG as external auditor. Fifteen auditors from the Board of Supreme Audit of
Iraq will be assigned to KPMG to assist in the audit and thereby facilitate transition
when IAMB ceases to exist and the Board of Supreme Audit assumes the functions
of IAMB.
The Board received six audit reports prepared by the United States Defense
Contract Audit Agency on sole-sourced contracts which it had previously sought.
IAMB agreed to the terms of reference for a special audit of sole-sourced
contracts using DFI funds proposed by the United States Government, to be
completed by an independent auditor. The audit, which will cover the period up to
the dissolution of the Coalition Provisional Authority, is expected to be completed
by April 2005 and is to be made public. The audit will (a) identify non-
competitively awarded contracts that used DFI funds, (b) summarize the findings of
audits of such contracts that have already been conducted by various United States
Government audit agencies and (c) if any non-competitively awarded contracts have
not been the subject of audit, perform audit procedures of such contracts.
(Signed) Jean-Pierre Halbwachs
Representative of the Secretary-General to the
International Advisory and Monitoring Board
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