Preparatory Commission for the PC-XIV/4
Organisation for the Prohibition 2 July 1996
of Chemical Weapons Original: ENGLISH
Fourteenth
Session (Corrigendum 1 inserted)(22 - 26 July 1996)
AUDITED FINANCIAL STATEMENTS OF THE PREPARATORY COMMISSION FOR THE ORGANISATION FOR THE PROHIBITION OF CHEMICAL WEAPONS AND THE PROVIDENT FUND FOR THE PREPARATORY COMMISSION FOR THE ORGANISATION FOR THE PROHIBITION OF CHEMICAL WEAPONS FOR THE YEAR ENDED 31 DECEMBER 1995
TOGETHER WITH
RELATED COMMENTS BY
THE FINANCE GROUP AND THE EXECUTIVE SECRETARY
TABLE OF CONTENTS
Part I
Page
- Report of the External Auditor on the Financial 6
Statements of the Preparatory Commission for the
Organisation for the Prohibition of Chemical Weapons for
the Year Ended 31 December 1995
- Financial Statements of the Preparatory Commission for 55
the Organisation for the Prohibition of Chemical Weapons
for the Year Ended 31 December 1995
Part II
- Report of the External Auditor on the Financial 100
Statements of the Provident Fund of the Preparatory
Commission for the Organisation for the Prohibition of
Chemical Weapons for the Year Ended 31 December 1995
- Financial Statements of the Provident Fund of the 102
Preparatory Commission for the Organisation for the
Prohibition of Chemical Weapons for the Year Ended 31
December 1995
Part III
- Letter dated 24 May 1996 from the Acting Chairman of the 108
Finance Group to the Chairman of Working Group A
- Comments by the Finance Group on the 1995 audited 109
financial Statements of the Preparatory Commission and
the Provident Fund of the Preparatory Commission
(relevant excerpts from the Report of the Tenth Meeting
of the Finance Group (PC-XIV/A/WP.4), paragraphs and
subparagraphs 6 and 7, 12.1 and 12.3(a))
- Response by the Executive Secretary to the Report of the 114
External Auditor on the 1995 financial statements of the
Preparatory Commission and the Provident Fund of the
Preparatory Commission and on the related comments of the
Finance Group
Part I
REPORT OF THE EXTERNAL AUDITOR ON THE FINANCIAL STATEMENTS
OF THE PREPARATORY COMMISSION FOR THE ORGANISATION FOR THE PROHIBITION OF CHEMICAL WEAPONS FOR THE YEAR ENDED 31 DECEMBER 1995
FINANCIAL STATEMENTS OF THE PREPARATORY COMMISSION FOR THE ORGANISATION FOR THE PROHIBITION OF CHEMICAL WEAPONS FOR THE YEAR ENDED 31 DECEMBER 1995
REPORT OF THE EXTERNAL AUDITOR
on the
FINANCIAL STATEMENTS
of the
PREPARATORY COMMISSION FOR THE
ORGANISATION FOR THE PROHIBITION
OF CHEMICAL WEAPONS
FOR THE YEAR ENDED 31 DECEMBER 1995
H.E. Mr. Sallehuddin bin Abdullah
Chairman
Preparatory Commission for the
Organisation for the Prohibition
of Chemical Weapons
Laan van Meerdervoort 51
2517 AE THE HAGUE
14 May 1996
Excellency
I have the honour to submit the Financial Statements of the Preparatory Commission for the Organisation for the Prohibition of Chemical Weapons for the year ended 31 December 1995, together with my opinion and Report thereon, in accordance with Article 12.10 of the Financial regulations of the Commission.
Yours faithfully,
[Signed]
Syed Khalid Mahmud
Auditor-General of Pakistan
OPINION OF THE EXTERNAL AUDITOR
ON THE FINANCIAL STATEMENTS OF THE
PREPARATORY COMMISSION FOR THE ORGANISATION FOR THE PROHIBITION OF CHEMICAL WEAPONS
FOR THE YEAR ENDED 31 DECEMBER 1995
To: The Preparatory Commission for the Organisation for the Prohibition of Chemical Weapons
I have examined the appended Financial Statements, comprising Statements I to XIX and the supporting notes, of the Preparatory Commission for the Organisation for the Prohibition of Chemical Weapons for the year ended 31 December 1995, in accordance with INTOSAI Auditing Standards as adopted by the Panel of External Auditors of the United Nations. My examination included a general review of the accounting procedures and such tests of the accounting records and other supporting evidence as I considered necessary in the circumstances.
As a result of my examination, I am of the opinion that the Financial Statements present fairly the financial position as on 31 December 1995; the Statements were prepared in accordance with the Commission's stated accounting policies; and the transactions were in accordance with the Financial Regulations and legislative authority.
[Signed]
Syed Khalid Mahmud
Auditor-General of Pakistan
External Auditor
Dated: 14 May 1996
REPORT OF THE EXTERNAL AUDITOR
on the
FINANCIAL STATEMENTS
of the
PREPARATORY COMMISSION FOR THE
ORGANISATION FOR THE PROHIBITION
OF CHEMICAL WEAPONS
FOR THE YEAR ENDED 31 DECEMBER 1995
INTRODUCTION
1. Scope of Audit
1.1 I have audited the financial statements of the Preparatory Commission for the Organisation for the Prohibition of Chemical Weapons for the year ended 31 December 1995 in accordance with Article 12 of the Financial Regulations and the Additional Terms of Reference Governing Audit (Appendix to the Financial Regulations). Audit of the financial statements has been conducted in conformity with the INTOSAI Auditing Standards as adopted by the Panel of External Auditors of the United Nations, the Specialised Agencies and the International Atomic Energy Agency.
1.2 The audit included a general review of the accounting and financial management procedures and of the accounting records to form an opinion on the financial statements.
1.3 I have expressed a separate audit opinion on the financial statements which shows the status of the Commission's Provident Fund for the year ended 31 December 1995.
2. Reporting
2.1 During the course of audit such explanations, as were considered necessary under the circumstances, were sought on matters arising from examination of internal controls, accounting records and financial statements. The management were also kept apprised of the initial observations. Subsequently a management letter was issued to the Executive Secretary keeping in view replies to the observations and further comments where required in respect of the desired action.Observations on those matters arising from audit which I considered should be brought to the attention of the Commission in accordance with Article 12.9 of the Financial Regulations of the Commission are set out in this report. Other matters not included here have been separately intimated to the Executive Secretary in the management letter.
3. Audit Objectives
3.1 The objectives of the audit were mainly to form an opinion as to whether the expenditure recorded in 1995 had been incurred for the purposes approved by the Commission and was recorded in accordance with the Commission's Financial Regulations. It was also designed to discover if the Financial Statements presented fairly the financial position of the Commission as on 31 December 1995.
3.2 The audit examination of the Financial Statements was carried out through the direct substantive testing approach in which substantive testing was conducted on a statistical sample of transactions from the major areas of accounts.
3.3 The audit exercise included mainly the following:
- an assessment of internal controls to ensure that they were in place;
- detailed substantive testing on a sample of transactions taking place during January to December 1995;
- a general examination of unliquidated obligations carried forward to 1996;
- an analytical review of the selected areas of accounts;
- a review of the management response and compliance to recommendations of previous audits; and
- a review of the financial statements with reference to the policy adopted in preparing these.
4. Overall Results
4.1. The examination revealed no weaknesses or errors considered material to the accuracy, completeness and validity of the financial statements as a whole. Accordingly, I have placed an unqualified opinion on the Commission's financial statements for the year ended 31 December 1995.
4.2 The report is divided in two sections. A summary of the main findings and recommendations is given in Section I and the detailed findings are in Section II. Compliance report in respect of the previous audits is contained in Annexure G.
5. Acknowledgement
5.1 I am thankful to the Executive Secretary and members of the staff of the Provisional Technical Secretariat (PTS) for their cooperation during the audit assignment.
SECTION I
SUMMARY OF FINDINGS AND RECOMMENDATIONS
1. APPROPRIATIONS AND EXPENDITURE
Out of an available appropriation of Dfl. 27,251,000 in Part I of the budget, the PTS disbursed Dfl. 21,433,912 by the close of the financial year. Against a provision of Dfl. 7,590,500 in a special account authorised by the Commission over and above the annual budget, for purchasing Inspection and Laboratory Equipment, disbursements amounting to Dfl. 1,465,263 were recorded.
1.1 Conditions regarding transmission of draft budget as laid down in Financial Regulations 3.2 and 3.3 were fulfilled, as both the draft budget for 1995, and the corresponding estimates for 1996 were transmitted by the PTS to the Member States for consideration in the Eighth Session of the Commission held during September 1994. Financial Regulations 4.2, 4.3, 4.4 and 6.1(b) have been provisionally suspended for creating 3 additional special accounts outside the annual budget. These special accounts have been created for funding in 1996 the remaining part of the inspection and laboratory equipment and fit-up of the OPCW laboratory. One of these special accounts has been fuelled to the extent of Dfl. 386,819 by an unliquidated balance of an obligation pertaining to 1994. The amount was not available for further appropriation. It would appear thus, that besides placing on hold operation of certain financial regulations, the accounting policy, inasmuch as accruals are concerned in terms of Note 2(d) of the Notes to the Financial Statements, would also need to be suspended for transferring the unliquidated obligation of 1994 to a special account for 1996.
1.2 The state of disbursement against appropriations suggests the need for realistic budgetary proposals so that targets are achievable in future.
2. BUDGETARY TRANSFERS
2.1 During the year, 20 intra-programme and 4 inter-programme transfers of funds ranging between 20 to 191% of the respective allocation by object were made. In terms of Financial Regulation 4.5, transfers between programmes required prior permission of the Commission. One inter-programme transfer of funds effected before close of the year without prior approval was out of order. Commission may thus, need to suspend operation of Financial Regulation 4.5 in according the transfer its ex post facto sanction.
2.2 Twelve intra-programme transfers were reported in February 1996, i.e. after the year in which they were effected had lapsed. It is felt that, albeit, the PTS need only report intra-programme transfers to the Commission after effecting them, the objective of the sequence would be lost if such transfers are reported to the Commission after close of the financial year in which they were afforded.
2.3 Recommendation of the Finance Group for limiting the extent of transfers in order to obviate distortions in the basic outline of the programmed budget is supported.
3. UNLIQUIDATED OBLIGATIONS - GENERAL FUND
3.1 In case of the General Fund, appropriations amounting to Dfl. 1,679,173
have been classified as Unliquidated Obligations of 1995. A test check of these
obligations showed that some of these could not be classified as such under the
Rules. In some cases the obligations pertained to salary of short-term staff in
respect of their claims expected during 1996. In others, the obligations were
recorded in 1996 and violated Financial Regulation 4.2 which stipulates that
"appropriations shall be available for obligation during the financial
year to which they relate in accordance with the Appropriations Resolution". In
still others, obligations were recorded only on the basis of supply orders and
the requirement of Financial Rule 4.1.01 read with Finance Group's elaboration
in subparagraph 3.11 of their Report of the Seventh Meeting
(PC-XI/6) was
not met, that is to say that supplies in full or even partially were not
completed before the close of the financial year.
3.2 In case of the special account created for the Procurement of Inspection and Laboratory Equipment, obligations amounting to Dfl. 3,799,256 were classified as unliquidated at the close of the year on the basis of orders alone.
3.3 In respect of cases where audit pointed out invalidity of obligations since these were recorded on the basis of orders alone, the management advised that they have expressed their reservations about compliance of Finance Group's elaboration of Financial Rule 4.1.01. These reservations were noted by the Commission which the Secretariat feel was an implicit endorsement of their position. It may be pointed out that the Finance Group's elaboration of Rule 4.1.01 has also been noted by the Commission. In view of the equivocal position which obtains at this point, it is suggested that Financial Rule 4.1.01 be modified/amended appropriately to abide to a conclusive ruling in the matter. The status of unliquidated obligations based on orders alone may be determined in consequence thereof.
4. CONTRIBUTIONS FROM MEMBER STATES
4.1 Against an amount of Dfl. 26,951,000 assessed as contributions from Member States, Dfl. 24,984,881, i.e. 92.7% of the assessed amount, were collected. Cumulative position of collections as on 31 December 1995 was 96.9% for 1993, 94.4% for 1994 and 92.7% for 1995.
4.2 In terms of the number of Member States contributing, over 50% did not pay at all for the year 1995.
5. CAPITAL ADVANCE
The statement of assets and liabilities of the Capital Advance indicates that the principal amount of the Advance during 1995 remained Dfl. 1,000,000. This was in accordance with Article 6.2 of the Financial Regulations. During 1995 the Capital Advance was not used for bridge financing of expenditure.
6. INVESTMENTS
6.1 The last External Audit Report expressed chiefly the need for issue of an "Administrative Directive on Investment Policy and Procedures" and adequate information on investments in the financial statements. The two requirements have been complied with.
6.2 Current audit has observed realised losses of Dfl. 292,471 in consequence of conversion of dollar accounts to Dutch guilders. This is significant, specially in view of the fact that the dollar accounts had already been maintained for quite some time and the need for payment in dollars at a future date remained a possibility. In such situations, the need for financial analysis and professional advice cannot be over emphasised. Also the need for frequent management review of investments is underscored.
6.3 Administrative Directive No. ADM/FIN-7 dated 5 September 1995 on Investment Policies and Procedures issued in accordance with Financial Regulation 9.1 and Rule 9.1.01 and 9.1.02 stipulates that the Executive Secretary has delegated his authority for short-term investments to the Head of Budget and Finance Branch to undertake day to day control of investments.
6.4 On the suggestion of current External Audit, the Mnanagement has agreed to appoint an advisory committee for well considered and professional guidance in respect of investments. Corresponding changes in the Administrative Directive may be made to conform with the proposed changes.
7. INTERNAL AUDIT
An Internal Auditor had been placed in position during 1995. He had issued a number of reports reviewing the payments and procedures in the light of the UN and the PTS rules and practices. In order, thus, to improve efficiency of Internal Audit, it was suggested that an Administrative Directive envisaging a structured procedure in dealing with the Audit Reports up until their conclusive disposal be issued. The Management has agreed to put in place the procedure as suggested.
8. OPERATION OF GENERAL SERVICE (GS) POSTS
8.1 Six posts in the General Service (GS) category were allowed to be transferred by the Commission from Part II of the budget to Part I raising the total number of posts in the GS category to 58. However, the PTS were restricted from utilising the additional six posts in the first half of the year. It was observed that during January 1995 to June 1995 one post in External Relations Division, one in Legal Division and one/two in the Administration Division were operated during different times in excess of the authorised number.
8.2 It is suggested that approval of the Commission to operate the posts in excess of authorization may be obtained to regularise the disbursement of pay and allowances of the incumbents.
9. SHORT-TERM APPOINTMENTS
9.1 Staff Rules require that short-term appointments be made for three months only. However, short-term staff were recruited for periods ranging from 3.5 months to 14 months by splitting up their contracts in segments of 3 months each. Each segment followed the other without a break. Again, in case of appointments made under 300 series of the UN Staff Rules, the stipulated restriction of six months (under these Rules) was not adhered to. Some of such appointments continued for over one year and were effected by drawing six months contracts in succession without break.
9.2 Thirty five out of forty short-term appointments made during the year were approved at the Director's level. A formal arrangement determining appointing power for different categories of staff, however, could not be discovered.
9.3 As suggested by current Audit the Management has agreed to issue an Administrative Directive envisaging the delegation of authority to recruit at different levels as well as the terms and conditions of appointment in line with Staff Rule 4.5.01. Short-term appointments made for periods beyond those stipulated by Rules would need to be reported to the Commission for their consideration and approval as exceptions.
10. HOME LEAVE
In terms of Staff Rules, home leave and paid travel thereof is a compensatory entitlement to offset cost of visiting home country on leave. PTS has issued "Guidelines" on the subject allowing encashment of 75% of the entitlement without requiring travel time. Application of the "Guidelines" was made in a number of cases. Firstly, the guidelines in question had no applicative authority as they had not been formally issued in a directive. Secondly, these instructions militated against Staff Rule 5.2.01 (i) and therefore payments made in this respect were not regular. It is suggested that the requisite administrative directive may be cast keeping in view the letter and spirit of the Rules and payments made on the basis of the "Guidelines" recovered.
11. LOSS ON ACCOUNT OF ABORTED CONTRACT FOR A SOFTWARE SYSTEM
11.1 In order to cater for the customised software requirements of the PTS, M/S Automatiseringsburo Quality and Results b.v., a local software developing firm, were contracted in April 1994 to install the desired software for financial reporting, human resource management and payroll by September 1994 for an amount of Dfl. 174,380. The suppliers came highly recommended and their proposal was considered cost effective. An initial delay of eight months had already been logged by mid 1995. Apprehension about delay in the execution was expressed in the external audit report for the year 1994. The delay continued, until finally in December 1995 the contract was terminated without regard to causes. As a result of the aborted venture, the PTS sustained a direct loss of Dfl. 122,066, paid to the supplier in six instalments. This amount represented 70% of the contract cost and was payable in terms of the schedule of payments on acceptance of detailed designs of various systems by the user.
11.2 The Management responded that "the Commission was briefed on several occasions on the history of the administrative software project and the termination of the contract and they also feel that as no payment was made during 1995, this issue has little relevance to the 1995 Budget". In opinion of Audit, as the loss of Dfl. 122,066 was actualised in December 1995 when the contract was aborted, the matter was to be reported for the accounts of 1995.
12. OVERPAYMENT/OMISSIONS IN VARIOUS AREAS OF PERSONNEL CLAIMS
12.1 The last audit report had commented on internal controls with respect to personnel claims and had pointed out the lack of systematised checks and balances. However, there were no material lapses. In the current audit this area was scrutinised again with a view to watching the progress as well as assisting in the development of procedures, as the organisation is still in its early stages of existence. The current review thus conducted, showed some deviations from Rules in payment of claims. In certain cases, overpayments came about as result of interpretations of provisions beyond the spirit of Rules, in others, overpayments resulted due to the issue of internal directives which were, strictly speaking, not subservient to Rules.
12.2 Noticeable areas of deviations in payment of personnel claims related to salary increments, education grant, assignment grant, dependency allowance and rental subsidy. While these were not considered material in extent, for forming any negative opinion on the accounts of the PTS, there was a need to obtain post-haste, the much awaited computer software for effecting improvement in financial controls. Furthermore, some of the Administrative Directives required review to bring them in conformity with provisions of the Rules, and where these did not exist at all, there was a need to process them with dispatch. Management has agreed to effect recovery in most cases and compliance will be watched by the next Audit.
13. RELOCATION POLICY FOR LOCALLY RECRUITED STAFF
While scrutinising various Administrative Directives, it was noticed that in case of 2 such directives issued in regard to the relocation policy for locally recruited staff, allowances beyond those envisaged under Rules were allowed. Significantly, an additional category of staff was introduced, in that, local recruits who resided beyond 50 kms from The Hague at the time of their recruitment became entitled to the same travel and removal benefits as the internationally recruited staff. Additionally, a locally recruited staff member was to be considered internationally recruited for the purpose of the allowance with effect from the date his post changed category and was authorised by the Executive Secretary to be filled in internationally. Benefits under the directives were observed to have been allowed retroactively in some cases. It is considered advisable that the directives be reviewed with the object of ensuring conformity of their provisions with Rules. Management agreed with the recommendation.
14. PURCHASE SYSTEM OF THE PTS
14.1 The purchase system of the PTS was reviewed in the current audit as required by the Commission.
14.2 The procedure prescribed in Article 10.5 of Financial Regulations, the related Financial Rules and Administrative Directive was seen to have been complied with generally, in the cases reviewed by audit. However, in some cases purchases were made on the basis of a single bid against the established policy. In some others, certain sole suppliers were treated as such without advice of the Contract Committee in terms of Financial Rule 10.5.02(a).
14.3 As a result of an exercise conducted by the PTS for market testing of prices, M/S Paagman, the main sole supplier to the PTS reduced his mark-up on the supply of photocopying paper. This implies that in general, application of a fixed mark-up of 20.5% on cost of the sole supplier for determining price of his supplies does not appear feasible, specially so, when purchases are being made in a market economy. The price advantage of the free market competition is lost in using fixed prices. As suggested by current Audit, Management has agreed to prepare market price profile for high value items to ensure that market rates are charged.
15. FINANCIAL STATEMENTS
Comments were presented to the management on format, presentation and content of Financial Statements 1995 (General Fund) with a view to suggesting alterations for conforming to the recommendations of the CCAQ (FB) Working Party on Financial Statements as contained in the report of its third meeting in Geneva from 26 to 28 June 1995 (document ACC/1995/FB/R.31 of 24 July 1995) referred to in Note 3 of the Financial Statements.The PTS agreed with all these suggestions and made necessary changes except one regarding "Unliquidated Obligations". (See Paragraph 15.2).
SECTION II
DETAILED FINDINGS AND RECOMMENDATIONS
1. APPROPRIATIONS AND EXPENDITURE
1.1 The draft budget for the year 1995, based on a proposed programme of work for 1995 was transmitted by the PTS to the Member States for consideration at the Eighth Session of the Commission held during 26 to 30 September 1994. The draft budget was accompanied by the corresponding preliminary estimates for the budget for the financial year 1996. The conditions regarding transmission of draft budget as laid down in Financial Regulations 3.2 and 3.3 were thus fulfilled.
1.2 On 29 September 1994, the Commission approved the 1995 Budget for the PTS for an amount of Dfl. 56,816,300 and authorised the Executive Secretary to:
(i) incur expenditure for Part I of the Budget in an amount not exceeding
Dfl. 27,251,000;
(ii) incur expenditure for Part II of the Budget in an amount not exceeding
Dfl. 29,565,300.
1.3 Disbursements against the appropriations for Part I of the budget
aggregated to
Dfl. 21,433,912. Over 21% of the original/adjusted
appropriation of Dfl. 27,251,000 thus remained undisbursed. The undisbursed
amount includes Dfl. 1,679,173 as funds reserved for unliquidated obligations.
(Audit observations on unliquidated obligations are in paragraphs 3).
1.4 Part II of the Budget was not operated during the year.
1.5 In addition to the appropriations for 1995, the Executive Secretary had also at his disposal an allocation of Dfl. 7,590,500, transferred from the 1994 Budget to a Special Account for purchasing Inspection and Laboratory Equipment. A disbursement of Dfl. 459 was made out of this Special Account during 1994 and interest income of Dfl. 47,606 was earned on the un-utilised funds in the Account. A balance of Dfl. 7,637,647 (Dfl. 7,590,500+47,606-459) was thus available in this Account as on 1 January 1995. Disbursements aggregating to Dfl. 1,465,263 were made out of the Account during 1995, leaving a balance of Dfl. 6,172,384, which increased to Dfl. 6,483,371 by interest income of Dfl. 310,987 realised on the undisbursed balance in 1995.
1.6 The Special Account was closed in compliance with the Commission's decision with effect from 31 December 1995 and the unspent balance of Dfl. 6,483,371 was transferred to a new Special Account for the same purpose of "Procurement of Inspection and Laboratory Equipment".
1.7 Net disbursements out of the special appropriation of Dfl. 7,590,500 during the two years i.e. 1994 and 1995 thus aggregated to Dfl. 1,107,129 and constituted less than 15% of the allocation. However, an amount of Dfl. 3,799,256 was obligated against purchase orders issued before 31 December 1995. (Further comments on this aspect are in paragraph 4).
1.8 As per Notes 19, 26 and 29(a) of the "Notes to the Financial Statements for 1995", three additional special accounts have been created outside the annual budget. In doing so, the operation of Financial Regulations 4.2, 4.3,4.4 and 6.1(b) has been provisionally suspended. The accounts have been created for funding of "Management Systems Requirements", "Fit-up of OPCW Laboratory and Equipment Store" and "Procurement of Inspection and Laboratory Equipment". The special accounts have been created by transfer of funds from unobligated balances available at the close of 1995 and also by transfer of the unliquidated balance of an obligation of 1994. The later, amounting to Dfl. 386,819, in fact did not relate to any unobligated savings of the year 1995 and in terms of the accrual accounting policy, followed by the PTS (note 2(d) of the Notes to the Financial Statements) was not, strictly speaking, available for transfer to another account.
1.9 The state of disbursement against appropriations underlined the need for realistic budgetary proposals so that targets are achievable in future.
2. BUDGETARY TRANSFERS
2.1 Twenty intra-programme and four inter-programme transfers were made in the budget appropriations approved for the financial year 1995 as detailed in Annex A.
2.2 Transfers between programmes require prior authorization by the Commission after examination by the Finance Group in terms of Financial Regulation 4.5. Intra-programme transfers are required to be reported to the Commission through the Finance Group.
2.3 The requirement of Financial Regulation 4.5 was not complied with inasmuch as one inter-programme transfer which did not have prior approval of the Commission and was reported in February 1996 (FG Paper No.3 of 6 February 1996) i.e. more than a month after the expiry of the financial year.
In respect of intra-programme transfers reporting to the Commission should be ensured within the financial year in which these have been effected by the PTS.
2.4 The magnitude of transfers in as many as 17 cases ranged between 20% to 191% of the respective appropriations by object of expenditure. The Finance Group vide paragraph 5.1 and 11.2(a) of their Report of the Fifth Meeting (PC-X/A/WP.2) suggested that transfers in a given programme in terms of Financial Regulation 4.5 be limited either to 10% of the amount appropriated for that programme or Dfl. 200,000, whichever is the lower. The Finance Group recommended that this clarification be made applicable to transfers made within programmes for the Commission's 1995 Budget and beyond. This recommendation did not, however, find favour with the Expert Group on Programme of Work and Budget which decided to refer it back to the Finance Group for further elaboration (paragraph 2.8, PC-X/A/WP.4).
2.5 Notwithstanding the position stated in paragraph 2.4 above, Audit shares the concern of the Finance Group that the cumulative effect of transfers over the course of a financial period should not distort the basic outline of the approved programme of work and budget.
Management's Response
2.6 The Management responded that in their opinion cumulative effect of transfers over the course of the financial year did not distort the basic outline of the approved programme of work and budget. The Management further assured that in future all necessary efforts would be made to improve the situation in this area and all transfers would be reported within the financial year in which they have been effected.
Audit Comments
2.7 Compliance will be watched by the next audit team.
3. UNLIQUIDATED OBLIGATIONS - GENERAL FUND
3.1 Appropriations aggregating to Dfl. 27,251,000 were approved in the General Fund for the year 1995. Of these, appropriations of Dfl. 1,679,173 have been classified as "unliquidated obligations" at the end of the year vide Statement IV (page 62) of the Financial Statements for the financial year 1995.
3.2 A review of the obligations categorised as "unliquidated" revealed that some of them did not constitute a valid claim against the 1995 Budget and the related appropriations could not be carried forward for utilisation in the next financial year 1996, as per details in the following paragraphs.
3.2.1 Short-term Appointments - Dfl. 240,416.51
A number of persons were employed on short-term basis during November and December 1995 for periods extending up to six months. Their salaries for the period January 1996 onwards aggregating to Dfl. 240,416.51 (Details in Annex B) were classified as "unliquidated obligations".
This was not regular as the employees' claim to salaries arises when they have actually put in the service for which they are employed, which event, in the present case, would occur in 1996. Management was of the view that since services of the short-term staff had commenced, their full liability should be met from 1995 Budget. It is feared that this rather broad interpretation, if adopted, could be extended in due course to other types of employment, which is not feasible.
3.2.2 Obligations recorded in 1996 - Dfl. 61,907.03
Some of the obligations were actually recorded in January and February 1996, (details in Annex B) i.e. after the expiry of the financial year 1995 and could not therefore, be set against appropriations for 1995 in terms of Financial Regulation 4.2 which stipulates that "appropriations shall be available for obligation during the financial year to which they relate in accordance with the Appropriations Resolution".
One of the obligations was recorded despite the fact that the staff member had been reportedly "informed and reminded" but had not claimed. Management's view that the claims pertained to 1995 and thus the main criterion had been met is not sustainable as the condition for recording the obligations in the year to which these pertain was also required to be met.
3.2.3 Obligations for goods/services not delivered - Dfl. 155,135.02
Certain obligations were recorded mostly in December 1995 for purchase of goods/services. (Details in Annex B). Apart from the fact that one was recorded in January 1996 which was not covered under Financial Regulation 4.2, all these obligations were recorded on the basis of orders alone and the delivery of goods/services had not been even partly made to the PTS by the end of the year. In fact, in certain cases, the PTS knew beforehand that the orders would not be complied with by 31 December 1995. In one case, the PTS itself indicated that the ordered service would be received in the third week of January 1996 and that in another case the order was issued by the PTS accepting the supplier's condition to supply the ordered goods by April 1996.
These obligations could not therefore be treated as "unliquidated" against
1995 appropriations in terms of Financial Rule 4.1.01 read with the Finance
Group's observations contained in paragraph 3.11 of their Report of the Seventh
Meeting
(PC-XI/6). However, audit comments at paragraph 4.4 and 4.5 are
referred to also as the subject of sub-paragraph 3.2.3 is the same as that of
paragraph 4.
3.3 The position brought out in subparagraphs 3.2.1 to 3.2.3 above represents the result of a sample survey carried out by Audit. While the obligations mentioned above need to be excluded from the ambit of "unliquidated obligations" for 1995, the position of the remaining may need to be realistically reviewed for necessary corrective action, in the light of the examples pointed out above.
Management's Response
3.4 The Management took note of audit conclusions on operations in the area of unliquidated obligations and that in some cases this device was not used appropriately. The Management also assured that in future only the obligations relating to the financial year would be classified as unliquidated obligations.
Audit Comments
3.5 Compliance will be watched by the next audit team.
4. UNLIQUIDATED OBLIGATIONS - SPECIAL ACCOUNT FOR THE PROCUREMENT OF INSPECTION AND LABORATORY EQUIPMENT - DFL. 3,799,256
4.1 A new "Special Account" for Dfl. 7,390,263 was created in 1995 for funding in 1996 the "Procurement of Inspection and Laboratory Equipment" with the Commission's approval vide paragraph 7.2(b)(i) of their Report of the Twelfth Session (PC-XII/17). This "Account" comprised:
Dfl.
(i) "unobligated funds in the previous "Special 6,483,371
Account" created for the same purpose of
"procurement of inspection and laboratory
equipment" in 1994 (paragraph 6.11(b) of
PC-VIII/18).
(ii) transfer from General Fund of the 906,892
allocation of Dfl. 1,600,000 made in Part I
of 1995 Budget for procurement of
inspection equipment vide paragraph 3.4.4
of PC-VIII/A/WP.7 less running costs of
Dfl. 693,108 (Dfl. 1,600,000 - 693,108)
4.2 Out of the total allocation of Dfl. 7,390,263 as above, a sum of Dfl. 3,799,256 was classified as "unliquidated obligations" as on 31 December 1995 reducing the balance available in the "Account" to Dfl. 3,591,007, vide Statement IX of the Financial Statements for 1995.
4.3 A review of the related documents revealed that all obligations aggregating to the stated sum of Dfl. 3,799,256 recorded by 31 December 1995 were based on "orders" alone as was also stated in Note 33 of the Financial Statements for 1995 and even partial delivery of the ordered equipment had not been made to the PTS by 31 December 1995.
4.4 This was not in line with the intent of Financial Rule 4.1.01 as elaborated in paragraph 3.11 of the Finance Group's Report of the Seventh Meeting (PC-XI/6). The criteria for an unliquidated obligation to be valid at the year-end was that "delivery in part or in full of goods and services had been achieved by 31 December".
4.5 The management had expressed its inability to the Commission to agree to the Finance Group's elaboration quoted above in regard to the meaning of Financial Rule 4.1.01. The management was of the opinion that the fact that the Commission had noted their position was an implicit endorsement of their view. As per record, the Commission had noted both the Finance Group's recommendations and Executive Secretary's reservations about them.
Management's Response
4.6 The Management stated that if these obligations were not classified as "unliquidated", they would have been carried over to special accounts. So, in principle, these irregularities had no impact in terms of overall financial results. Regarding interpretation of Financial Rule 4.1.01, the Management opined that the fact that the Commission had noted their disagreement with the restrictive interpretation of the Rule constituted implicit endorsement of their position.
Audit Comments
4.7 Audit feels that a conclusive ruling on the question of "delivery in part or in full" being a pre-requisite for classifying an obligation as "unliquidated" is needed as an equivocal position obtains at this point.
5. CONTRIBUTIONS FROM THE MEMBER STATES
5.1 The Commission in its Eighth Plenary Session held during 26 to 30 September 1994 decided that the appropriations for 1995 be financed from contributions by all Member States in accordance with the revised scales of assessment for 1995 as contained in Annex 1 of their Report (PC-VIII/18).
5.2 Financial Regulation 5.2 requires that contributions of all Member States be assessed after taking into account adjustments for:
(a) supplementary appropriations for which contributions have not previously been assessed on Member States;
(b) estimated Miscellaneous Income of the financial year in respect of which the assessment of contributions is being made;
(c) contributions resulting from the assessment of new Member States under the provision of Regulation 5.8.
5.3 Miscellaneous income amounting to Dfl. 300,000 estimated for Part I Budget of 1995 was taken into account in assessing the contributions of Member States. Miscellaneous income for the year, mainly comprising interest on investment of surplus cash, however, actually amounted to Dfl. 782,562.
5.4 The following table gives the status of contributions of the Member States for the years 1993, 1994 and 1995 as on 31 December 1995:
1993 1994 1995
US$ Dfl. Dfl.
Assessed Contributions - Member 8,840,535 34,425,500 26,951,000
States - Adjustments - New Member 1) 4,435 - 10,472 - 3,685
States 2) 10,610
3)
Total 4) 8,855,580 34,435,972 26,954,685
Collections - Due Contributions - 8,584,755 32,497,155 24,984,881
Excess Receipts 5) - 1,677 736,404
6)
Total 7) 8,584,755 32,498,832 25,721,285
Assessed Contributions in Arrears 8) 270,825 1,938,817 1,969,804
(4-5)
Percentage Collection of Due 9) 96.9% 94.4% 92.7%
Contributions (5/4)
5.5 Sums of Dfl. 1,677 for 1994 and Dfl. 736,404 for 1995 were received in excess of assessed contributions and remained to be adjusted/refunded as on 31 December 1995.
5.6 Arrears of contributions to the extent of US$ 85,762 for 1993 and Dfl. 1,289,991 for 1994 were realised by 31 December 1995.
5.7 In numerical terms, contributions by Member States including the New Members, during the years 1993, 1994 and 1995 are compared as under:
1993 1994 1995
No. % No. % No. %
Member States which -
- Paid their contributions fully 89 57.8% 81 51.3% 62 38.8%
- Paid their contributions 4 2.6% 12 7.6% 15 9.4%
partially
- Did not pay at all 61 39.6% 65 41.1% 83 51.8%
Total 154 100% 158 100% 160 100%
5.8 More than 50% of the Member States assessed for 1995 had not paid at all by 31 December 1995.
5.9 The cash surplus for the financial year 1994 amounting to Dfl. 4,223,027 would have become due for appropriation among the Member States in January 1996 in the manner prescribed in Financial Regulations 6.1(b) but on a request from the PTS, the Finance Group in their Sixth Meeting held during 24-28 July 1995 reviewed the interpretation of Financial Regulations 4.3, 4.4 and 6.1(b) and recommended vide paragraph 5.2 of their Report (PC-XI/A/WP.3) that the cash surplus for the year ended 31 December 1994 should be credited to the contributions accounts of Member States for assessments due in financial year 1997. The Finance Group's recommendation was approved by the Commission vide paragraph 6.2(c) of their Report of the Eleventh Session (PC-XI/17). Cash surplus for the financial year 1994 shall now, therefore, be credited to the contributions accounts of the Member States for the assessments due in the financial year 1997.
Management's Response
5.10 The Management stated that the "situation is misrepresented by the table in paragraph 5.4 as the figures for 1993 and 1994 are not given by the end of these years but by the end of 1995" and that the table "ignores the fact that the collection percentage for previous years increased even during 1995 as a result of the Secretariat's action. These figures as at the end of each respective year were as follows: 1993 - 90.65%, 1994 - 91.4% and 1995 - 92.7%. This collection rate demonstrates constant improvement".
Audit Comments
5.11 There is no misrepresentation as it has been clearly stated in paragraph 5.4 that the table gives "the status of contributions of the Member States for the years 1993, 1994 and 1995 as on 31 December 1995".
6. CAPITAL ADVANCE
The statement of assets and liabilities of the Capital Advance indicates that the principal amount of the Advance during 1995 remained Dfl. 1,000,000. This was in accordance with Article 6.2 of the Financial Regulations. During 1995 the Capital Advance was not used for bridge financing of expenditure.
7. INVESTMENTS
7.1 Administrative Directive No. ADM/FIN-7 dated 5 September 1995 on Investment Policies and Procedures issued in accordance with Financial Regulation 9.1 and Rules 9.1.01 and 9.1.02 lays down that the Executive Secretary has delegated his authority for short-term investment of moneys not needed for immediate requirements to the Head of Budget and Finance Branch who undertakes day-to-day management and control of investments.
7.2 The size and maturity of time deposits is determined on the basis of average requirement of PTS to cover monthly expenditure which is Dfl. 1.8 to 2 million. Spot quotations are obtained from three different banks and funds are invested with the bank offering the highest rate of interest. Information regarding credit ratings of banks is obtained from the Financial Times Credit Ratings International, Chase Manhattan Bank's weekly Global Market Analysis and monthly Currency Strategy and Economic Outlook.
7.3 Paragraph 13 of the Administrative Directive states that all investments must be closely monitored by the Head, Budget and Finance Branch in order to foresee and appropriately react to risks which may have a negative effect on the value of unmatured investments. The Summary Statement of Bank Deposits as on 31 December 1995 shows that there was a realised exchange loss of Dfl. 292,471 on time deposits of General Fund during the year which comes to 42.5% of the total return of Dfl. 687,779 on investments. The losses were realised as a result of converting US Dollars to Dutch Guilders. It appears from the record that the decision to convert the dollar investments in one go, was propelled by unrealised exchange losses of the previous year as a result of the depreciating dollar. On the one hand, this decision was rooted in the policy of the Secretariat to hold such investments, normally in Dutch Guilders, (paragraph 5 of Administrative Directive on Investment Policies and Procedures). Whereas, on the other, the possibility of purchases and expenses in the US and the parts of the world where dollar is the hard currency remained distinct and consequently the need to maintain a dollar account could not be scored out. The primary principle in the Administrative Directive on Investment stipulates preservation of the Commission's purchasing power in its assets (paragraph 5). Investment in other currencies has not been totally barred. It has been allowed, but limited to convertible currencies which are required for disbursement within the next six months. Management could have taken a conscious decision to convert to guilders earlier. However, they did not, and grounds for inaction do not appear on record. The dollar account had been operated since quite a while, and total conversion required a well considered strategy to avoid/ minimise realised exchange losses. The need for financial analysis and professional advice is accordingly indicated to ward off such situations.
7.4 The management may like to consider appointment of an Investment Advisory Committee at the PTS to ensure maximum gains and minimum losses from the investments. Needless to add that such a committee would be best served if at least one member has the professional qualifications to evaluate the situation prevailing in the money market from time to time.
7.5 Note 9 of Financial Statements for 1995 contains break down of interest bearing bank deposits in compliance with the recommendation contained in paragraph 5.2(e) of the External Audit Report for 1994.
Management's Response
7.6 The Management stated that "a certain amount of the Commission funds was kept in U.S. dollars in deposit accounts, despite the fact that the accounts of the Commission were in Dutch Guilders and all the books of these accounts were maintained in Guilders, on the assumption that this would be used for purchase of inspection equipment. Unfortunately, this fact and the resulting unrealised exchange losses were not fully disclosed in the Financial Statements. As a matter of fact this situation was not disclosed in the External Audit Report for 1994".
The Management also informed that an Advisory Committee, comprising the Deputy Executive Secretary, the Director of Administration and the Head, Budget and Finance Branch is being appointed. The Committee will have the right to seek professional financial advice.
Audit Comments
7.7 Note 5 (b) of the Financial Statements of the Commission for the year ended 31 December 1994 clearly mentioned unrealised losses on exchange in the amount of Dfl. 584,795. The External Audit Report for 1994 also brought out this fact in Paragraph 1.6 Section II. The remark that "this situation was not disclosed in the External Audit Report for 1994" cannot therefore, regrettably, be agreed to.
Management's decision to appoint an Advisory Committee on Investments is welcomed. It is suggested that Administrative Directive No. ADM/FIN-7 may also be appropriately amended.
8. INTERNAL AUDIT
8.1 The post of an internal auditor was funded for in 1995, and an Internal Auditor was hired during the year. A number of reports were issued by the Auditor during 1995. These Reports reviewed various areas of accounts as well as financial rules and procedures. They incorporated a developmental aspect of procedures through a study of the UN Common System, its rules and regulations as well as those of other organisations in the UN System, in comparison to procedures and practice adopted at the PTS.
8.2 An administrative directive envisaging a structured procedure within a given time frame for dealing with the Internal Audit Reports and their conclusive disposal after approval of the Executive Secretary, in respect of actions taken or otherwise is suggested to ensure optimum utilisation of the Internal Audit system:
Management's Response
8.3 The Management stated that the administrative directive to establish an appropriate framework and procedures to deal with Internal Auditor's reports was under review and would be implemented soon.
9. OPERATION OF GENERAL SERVICE (GS) POSTS
9.1 A total of sixty-six (66) posts in Professional and higher categories and fifty-two (52) in General Service (GS) categories were approved in Part I Budget for the financial year 1995 (Table 1.11, PC-VIII/A/WP.7, Annex, page 125). Six GS posts were, however, later allowed to be brought forward from Part II of the 1995 Budget to Part I of the 1995 Budget, raising their number from 52 to 58. But this was done on the condition that the Executive Secretary will fill the six posts during the second half of 1995 when deemed appropriate (paragraph 4.3 of PC-XI/A/WP.5 read with paragraph 6.2(i) of PC-XI/17).
9.2 In view of the position at 9.1, only 52 GS posts were available for operation during the first half of the financial year, January to June 1995. The number of GS posts actually operated during that period, however, exceeded the approved limit. (Details in Annex C).
9.3 Operation of one excessive post in External Relations Division during January-June 1995, one post in Legal Division during April and May 1995, two posts during January 1995 and one post during May and June 1995 in Administration Division constituted a deviation from the budget approved by the Commission and may be reported to the Commission for their approval.
Management's Response
9.4 The Management stated that as the (excessive) "posts were operated temporarily, reporting them to the Commission at this stage for their approval does not seem practical".
Audit Comments
9.5 Audit would like to refer to recommendation of the Finance Group contained in Para 6.1(j) (ii) of their report of the Seventh Meeting (PC-XI/6), requiring the Executive Secretary to seek the prior concurrence of the Commission before employing fixed term staff over and above the approved staffing table. The recommendation was noted, among others, by the Commission vide Para 5.1 of their Report of the Twelfth Session (PC-XII/17). The excessive operation of posts needs to be reported to the Commission for their approval.
10. SHORT-TERM APPOINTMENTS
10.1 Non-issue of Administrative Directive
Staff Rule 4.5.01 stipulates that a short-term appointment may be granted where the total period of service is not expected to exceed three months. The Rule further provides that such short-term appointments shall be granted on the terms and conditions determined by the Executive Secretary in an Administrative Directive and based on the Staff Regulations and Rules.
No Administrative Directive to regulate short-term appointments has so far been issued.
10.2 Appointments during 1995
As many as 40 persons were engaged on a short-term basis during 1995 for varying periods of time. On enquiry, Audit was given to understand that the Executive Secretary had verbally delegated authority to the Directors of the Divisions to approve appointments up to P-4 levels. Thirty-five (35) of the forty (40) appointments made in 1995 were approved at Directors' levels. It is suggested that the authority for recruitment to various levels may be laid down in specific terms in an Administrative Directive.
10.3 Short-term appointments for periods exceeding three months
Some of the short-term appointments were made for periods exceeding three months, which contravened the provisions of Staff Rule 4.5.01. (Instances in Annex D).
10.4 Appointments under 300 series
Certain appointments were made under 300 series of the UN Staff Rules. Such appointments could be made only for a maximum of six months, which limit was exceeded. (Instances in Annex D).
10.5 Management were of the view that the appointments pointed out beyond 3 and 6 months were considered separate contracts in each 3 and 6 month-segment. It would appear thus that the spirit of Rule was being over-come by splitting longer terms of appointments in segments of 3 and 6 months.
10.6 It is suggested that the deviations from rules and instructions in case of appointments illustrated in Annex D be reported to the Commission for their approval and in future no deviations without prior approval of the Commission be made in respect of such appointments.
Management's Response
10.7 The Management stated that an Administrative Directive to regulate short term appointments was under preparation and a Directive on specific terms of delegating the authority for recruitment would also be prepared. However, the Management did not agree with "the interpretation of Staff Rule 4.5.01 (a) (ii) as meaning that a short term appointment cannot be renewed keeping in mind the similar formulation used in Staff Rule 4.5.01 (b) (ii) which is not interpreted as preventing a renewal of a fixed term appointment".
Audit Comments
10.8 It is clarified that interpretation of Staff Rule 4.5.01 (a) (ii) has not been made specifically as the Management response suggests. It is the full text of Staff Rule 4.5.01 that points out the distinction between short term and fixed term appointments. It may be pertinent to point out that under Staff Rule 4.5.01 (b) (i), a fixed term appointment may be granted for a period or periods not exceeding the life time of the Commission. As opposed to that, Staff Rule 4.5.01 (a) (i) permits short term appointments "where the total period of service is not expected to exceed three months". It may also be added that U.N. Staff Rule 301.1 (a) (i) under which some of the short term appointments were made limits such appointments for "a period not exceeding six consecutive months". The position taken by the Management may, therefore, be reconsidered.
11. HOME LEAVE
11.1 Staff Rule 5.2.01 provides, inter alia, that staff members regarded as international recruits under Rule 4.1.04, who are serving outside their home country shall be entitled, including their eligible family members, once in every two years of qualifying service to visit their home country at the Commission's expense, for the purpose of spending in that country a substantial period of annual leave. Such a staff member is entitled under the rule to claim in respect of authorised travel on home leave, travel time and expenses for himself/herself and eligible family members for the outward and return journeys between the official duty station and the place of home leave.
11.2 The rule also provides that leave taken for this purpose shall be under the terms and conditions determined by the Executive Secretary in an Administrative Directive.
11.3 The requisite Administrative Directive has not yet been issued. A "Draft Administrative Directive" containing certain "Guidelines" was however, issued by the Executive Secretary on 15 August 1995 (circulated vide Administration Division Memorandum Ref. No. 555/95 dated 15 August 1995).
11.4 The "Guidelines" contained, among others, a provision to the effect that the staff members granted home leave may choose "the cash equivalent of 75% of full tourist airfare with no travel time to be used at the staff member's discretion".
11.5 A number of staff members chose the aforementioned option and were paid 75% of their home leave entitlement. Instances were quoted in the Management Letter issued separately.
11.6 It may be mentioned that clause (i) of Staff Rule 5.2.01 stipulates that a staff member travelling on home leave shall be required to spend a substantial period of leave in his/her home country and that the Executive Secretary may require a staff member on his/her return from home leave, to furnish satisfactory evidence that this requirement has been duly met.
11.7 The "Guidelines" thus constituted a significant departure from the provisions of the Staff Rules both in letter and spirit. The payments made thereunder, without the prior approval of the Commission, were therefore not in order.
11.8 The opinion of the Management that the "home leave cases were considered in line with Staff Rule 5.2.01 (iii)(b) where the need to cut down bureaucracy and limit the pressing desire for additional labour compelled Management to adopt the practice" is not feasible. It is requested that the payments made in deviation of Rules be recovered. Alternatively Staff Rules may be amended to allow encashment of the facility.
Management's Response
11.9 In the final response, the Management stated that in all cases mentioned by Audit, applicants spent their home leave in their home countries.
Audit Comments
11.10 There was no evidence on record to show that the staff members had actually travelled. Moreover, the cases were mentioned only to illustrate the fact that a number of staff members had chosen to avail the option of drawing 75% of their full entitlement of basic travel fare in term of the "Guidelines" mentioned in paragraph 10.3 above. Since the option so provided to the staff members was a new measure not covered under the existing provisions of Staff Rule 5.2.01, the payments made in consequence thereof without amending the Rule itself were not in order. Relaxation (through the guidelines) of the element of compliance built into the rules by design thus requires review.
12. LOSS ON ACCOUNT OF ABORTED CONTRACT FOR A SOFTWARE SYSTEM
12.1 The PTS contracted M/S Automatiseringsburo Quality and Results b.v. (Q&R) in April 1994 for developing software for financial reporting, human resource management and payroll system. The Company was to design and install the system by 28 September 1994. In terms of the "Proposal" (paragraph 2.4.1) the work was to be completed in 1280 hours. It should be pointed out that the company was selected after extensive scrutiny. Q&R was not only highly recommended but also offered a good bargain to the PTS. The IS Branch concluded that for the following reasons the Q&R proposal was the most attractive:
(a) reasonable price performance ratio;
(b) the software modules of Q&R could serve as an intermediate solution even if other software packages eventually prove superior;
(c) the product of Q&R is entirely written in W4GL; and
(d) the source code of the software modules were to be provided free.
The local Ministry of Foreign Affairs who were a client of Q&R also recommended the company for the professional quality and competence of their software development professionals.
12.2 Initially the project was delayed by some eight months. The company indicated an additional requirement of 2600 hours, of which they accepted responsibility for only 710 hours, the balance was supposed to be the result of lack of co-ordination within the PTS, and was not considered a liability of the company.
12.3 As per "Agreement", cost of work referenced to in its Annex 1 was Dfl. 174,380 excluding VAT. The audit report for 1994 pointed out that a sum of Dfl. 122,066 i.e. 70% of the contract price had already been paid and yet the contract had not been executed.
12.4 It is understood that all intended improvements in financial management were a function of the successful completion of the project. The accounts of the PTS were also to be converted on to the Q&R system.
12.5 In their response to query of the current audit team, the PTS advised that the Q&R software contract was cancelled some time ago as the software company did not produce the desired results. Since the autumn of 1995, the Information Systems Branch had embarked on the evaluation of the integrated software to include budget, accounts payable, accounts receivable, general budget, procurement, inventory, payroll, travel accounting, staff recruitment, staff administration and decision analysis. Final evaluation was targeted for March/April 1996.
12.6 A perusal of the correspondence leading to termination of the contract revealed that up until October 1995, the Information Systems Branch still felt that Q&R would be able to fix various problems and deliver a corrected version of the financial modules by 1 December 1995. Subsequently, however, in a Memo dated 20 November 1995, addressed to the Director, Administration Division, Mrs. Chantal Quincy-Jones, head of the IS Branch, enumerated a number of problems with the Q&R system, including ones related to basic design. For instance, it lacked integration of multi-currency throughout the financial system. The Memo also indicated that the software developing company would like to get out of the contract.
12.7 Finally by mutual agreement on 19 December 1995, the contract was terminated without regard to causes.
12.8 The episode raises a variety of questions. Some in the nature of legal issues rooted in responsibility of both contracting parties, but mostly in terms of financial propriety enshrined in the rules governing official business in the PTS. As mentioned earlier 70% of the contract cost had already been paid to the company. In terms of clause 5.1 of the "Agreement" 6 out of 9 instalments in the schedule of payments had been discharged. Up to instalment No.5 payments represented conclusion/acceptance of detailed designs of various systems. After such impressive progress, both in physical and financial terms of the contract, everything appears to have gone in reverse.
12.9 The aborted contract entailed significant direct losses i.e. Dfl. 122,066 not to mention cost to the PTS in terms of lost efficiency for lack of the system.
Management's Response
12.10 The Management responded that "the Commission was briefed on several occasions on the history of the administrative software project and the termination of the contract. The Secretariat had prepared a paper on this which should be presented soon to the appropriate Expert Group. As far as no payment was made during 1995, this issue has little relevance to the 1995 Budget".
Audit Comments
12.11 Although payments were made out of 1994 Budget, the software project remained alive during 1995 and loss was actualised only in December 1995 when the project was aborted. Hence the need for reporting the matter in the Audit Report for 1995. However, as the Commission is seized of the situation, it is only suggested that the much awaited software now requires to be expedited as all improvements in operations as well as financial control depend chiefly on the availability of this software.
13. OVERPAYMENTS/OMISSIONS IN VARIOUS AREAS OF PERSONNEL CLAIMS
13.1 As the Organisation is still in its initial developing stage, it was found expedient to conduct a general review of payments beyond the statistically selected sample also with the purpose of assisting in the development of procedures being applied in the area of payroll. During this review, some specific omissions and resultant overpayments were observed. The omissions were communicated to the management through Memos issued during the course of audit. A statement of these omissions has been made in the following paragraphs to illustrate the types of deviations from rules. These are by no means exhaustive over the whole population of transactions. An exercise may be indicated on part of the management to scrutinise similar transactions and make good, where required, the overpayments. For improvement of efficiency in this area, the establishment of computerised forms and a customised software to deal with payments of all kinds is much needed. For a number of reasons this has not been forthcoming. The software contract on which so much was dependant for efficiency of the internal controls has been dealt with in detail in paragraph 11 of this Report.
13.2 Salary Increments
13.2.1 The PTS management intimated in paragraph 11 of the statement of "Implementation of audit observations arising from the audit of the 1994 Financial Statements of the Commission" that annual increments are now being allowed from the date of contract extension whether these dates are at the beginning of the month or not. However, cases have come to notice during examination of the payroll for 1995 where the annual increments were released on the first of the month during which the employees were to complete one year's service. Thus infringement of Staff Rule 3.1.04 pointed out in paragraph 7.4.2 of External Audit Report for 1994 was still continuing. The Rule stipulates that the normal qualifying period for in-grade movement between consecutive steps is one year and one year is completed on the actual date of joining rather than on the first of the month.
13.2.2 The management is requested to ensure recovery of the excess amount paid in all cases in which increment was allowed on the first of the month instead of the actual date of completion of one year.
13.3 Education Grant
13.3.1 Education grant payable to employees of the PTS is governed under Regulation 3.2 of Staff Regulations and Rule 3.2.01 of Staff Rules. As per examination of selected claims for the grant with reference to UN instructions and the rules ibid., the following instances of excessive/over payment were observed.
13.3.2 Education grant is not payable for attendance at Kindergarten or nursery at the pre-primary level vide UN Admin. Instruction ST/AI/181 and Amendment 1 thereto. The rule stipulates that the age of 6 years shall be considered pre-primary period in cases in which it is difficult to determine whether education is primary or pre-primary. Staff Regulations and Rules of the PTS as well contain no provision permitting such payments.
Payment of education grant/advances of education grant made in case of children of age less than six years was, therefore, not in order.
13.3.3 PTS Staff Rule 3.2.01(d) stipulates that the education grant will not normally be payable beyond the school year in which the child reaches the age of 21 years. It was observed that payment of education grant/advances of education grant was allowed in certain cases in contravention of the aforementioned rule provision.
13.3.4 Management responded, in one case that since the course was from February to November and as the student turned 21 on 4 February 1995, the grant was admissible. There are essentially two issues involved in the case. Firstly, term start and term end dates were not specifically provided like in other cases. These should be obtained. Secondly, the child was paid for vocational training i.e. flying and the grant cuts across Rule 3.2.01 subparagraph c(v) of Staff Rules.
13.3.5 The erroneous payments aggregating to Dfl. 17,306.50 (Annex E) made in cases of the nature mentioned in sub-paragraphs 12.3.2-12.3.4 need to be recovered.
13.3.6 Most of the cases mentioned in Paras 12.3.2 - 12.3.4 were also pointed out by the Internal Auditor in one of his reports. However, the required recovery of overpayments had not been made. Suggestions to formalise a procedure for disposal of Internal Audit Reports and thus make the controls efficient have been made to the PTS in the Management Letter issued separately.
13.4 Dependency Allowance
Staff Rule 3.4.02(e) stipulates that "a secondary dependent shall be the father, mother, brother or sister of whose financial support the staff member provides one half or more ...". However, it was observed during scrutiny of payroll that a staff member was getting secondary dependency allowance for her mother-in-law since June 1995. As the Staff Rules do not have any provision for payment of secondary dependency allowance to any other member of the family except father, mother, brother or sister, the payment was irregular and recovery was indicated. Furthermore, application of the above interpretation of the Rule in similar cases would not be in order. This point has also been raised by the Internal Auditor in one of his reports. However, no recovery was evidenced from the record.
13.5 Rental Subsidy
The threshold percentage for calculation of rental subsidy was raised in November, 1995 for married personnel from 18 percent to 21 percent of net pay plus post adjustment. However, it was noticed in the case of a staff member that the rental subsidy was not recalculated until December 1995 and she was still being paid at the earlier rates. It is requested that such cases be reviewed and the subsidy recalculated in terms of the new threshold. Recovery pointed out by Audit has been started in instalments as reported by the Management.
13.6 Travel Allowance
A staff member was given a short-term appointment as "Systems and Network
Admin. Officer" in P-2 category (non-local) in Administration Division for the
period 1 August to 31 December 1995. In view of the short-term and
non-international nature of his appointment, he was not entitled to travel
expenses for his family members vide Rule 7.1.02 of the Staff Rules. Travel
expenses amounting to
Dfl. 1,347.50 were, however, paid to him for his wife
and daughter. The payment was approved as an exception to the Rules.
13.7 Assignment Grant
13.7.1 Staff Rule 7.1.13 stipulates that a staff member who travels at the Commission's expense to The Hague for an assignment of at least one year's duration shall be paid an assignment grant and the amount of this grant shall be equivalent to:
(i) thirty days of subsistence allowance at the daily rate applicable, and
(ii) thirty days of subsistence allowance at half such daily rate in respect of each family member for whom travel expenses have been paid by the Commission.
13.7.2 It was observed in some cases of payment of assignment grant that the recipients were locally available as they were already in the employment of the PTS on short term basis when they got recruited against fixed term contracts. There was no evidence on record regarding relocation costs. Certain cases were also pointed out by the Internal Auditor in a report on the subject.
Management Response
13.8 The Management responded that corrective action in most of the cases was under way except in the case mentioned in Paragraph 13.6 as travel expenses of the wife and daughter of a short term staff member were "authorised on an individual basis as an exception".
Audit Comments
13.9 Compliance of corrective action will be watched by the next audit team.
The authority to relax Rules lies with the Commission and therefore the matter regarding payment of travel allowance as an exception should be reported to them for consideration.
14. RELOCATION POLICY FOR LOCALLY RECRUITED STAFF
14.1 Staff Rule 4.1.03 provides that "the conditions under which staff members shall be regarded as local recruits for the purpose of (Staff) Rules shall be determined by the Executive Secretary in an Administrative Directive and that "a staff member regarded as having been locally recruited shall not be eligible for the allowances or benefits indicated under Rule 4.1.04" i.e. the benefits associated with international recruitment.
14.2 Administrative Directive ADM/PER-4 and ADM/PER-7 on 11.04.95 and on 14.08.95 respectively have been issued whereby locally recruited staff members have been allowed relocation allowances. Some of the features of the policy laid vide the aforementioned Directives were that:
(a) a locally recruited staff member, on a fixed-term appointment of at least one year and having a permanent address at 50 kms or more from The Hague shall be entitled to the same travel and removal benefits as internationally recruited staff members;
(b) a locally recruited staff member to serve in a post classified in the General Service category will change status to internationally recruited from the date on which the staff member is assigned to "a post within the General Service category which requires specific skills and which is authorised by the Executive Secretary to be filled by international recruitment";
(c) staff members in the Professional category are internationally recruited.
14.3 The aforementioned provisions of the Administrative Directives do not appear to be in line with Staff Rule 4.1.03 which stipulates that a staff member regarded as having been locally recruited shall not be eligible for the allowances or benefits indicated under Rule 4.1.04 for international recruits.
14.4 Administrative Directives ADM/PER-4 and ADM/PER-7 were applied
retroactively and a number of staff members were allowed benefits thereunder.
(Instances in
Annex F).
14.5 Administrative Directives ADM/PER-4 and ADM/PER-7 constituted a significant departure from Staff Rules 4.1.03 and 4.1.04. Besides, these were retroactively applied to staff members who had already come on board before their issuance.
14.6 Management responded that language in Administrative Directive ADM/PER-4 needs to be brought in line with the intent as two categories of local recruits are concerned. On the score of retroactive application they were of the view that the cases pointed out by Audit were exceptional and that the remaining are being dealt with prospectively.
14.7 Unless the position of Rules 4.1.03 and 4.1.04 is radically changed, it will be difficult to read in two categories of local recruits. It is felt that the policy directives need to be brought in line with the Rules and their application made strictly prospective. In general retroactive application of directives may only be made when prior clearance of the Commission for the specific purpose has been obtained.
15. PURCHASE SYSTEM OF THE PTS
15.1 Introduction
15.1.1 The Commission invited the External Auditor to keep the PTS procurement system under review and to report further on this subject in his audit of the 1995 financial statements (Ref: paragraph 5 of PC-XII/17 and subparagraph 6.1(o) of PC-XI/6).
15.1.2 Audit findings in this respect are presented below.
15.2 Inspection Equipment
15.2.1 Bulk of the purchases made during the year comprised Inspection Equipment for which budget appropriation was provided through a Special Account of Dfl. 7,590,500 (Ref: subparagraph 6.11 of PC-VIII/18). Disbursements made and obligations recorded thereagainst aggregated to Dfl. 5,264,519 (Dfl. 1,465,263 + 3,799,256).
15.2.2 The procedure prescribed in Article 10.5 of Financial Regulations, the related Financial Rules and Administrative Directive ADM/FIN-13 was seen to have been observed in the cases reviewed in audit.
15.3 Information Systems Branch
15.3.1 In a number of cases, purchase orders were placed without obtaining competitive proposals. For instance:
MOD No. Description Amount Dfl.
1. 3002 Silver Contract Hardware, Software 17,758.92
maintenance
2. 3003 Software maintenance 10,062.00
3. 3004 SQL windows 6,468.00
4. 3005 Workgroup Server 5,880.00
5. 3006 Powerbuilder Enterprise 12,689.00
6. 3007,3013,3031 Surfnet Agreement 40,239.00
7. 3009 GB Internal Expansion 8,295.93
8. 3014 Consultancy for Unix Server 42,000.00
15.3.2 Management conceded that purchases against MODs 3003, 3004 and 3005 were based on single quotations. The other purchases were reported to have been made from the sole suppliers for the related items.
15.3.3 Financial Rule 10.5.02(a) requires that all contracts "involving a sole supplier irrespective of the amount involved" should be concluded on advice of the Contract Committee.
15.3.4 The aforementioned cases were neither referred to the Contract Committee nor were competitive proposals obtained. Conditions prescribed in Financial Regulations and Rules were not thus strictly adhered to in these cases.
15.4 Sole Supplier
15.4.1 Furniture and equipment, office supplies and photocopy paper at an aggregated cost of about Dfl. 330,000 were purchased from the sole supplier, Paagman, in terms of the Agreement signed between the OPCW Foundation and Paagman, on a cost plus 20.5% basis.
15.4.2 Audit Report 1994 suggested:
(i) Independent audit of the books of the sole supplier to ensure that profit margin was held within 20.5%.
(ii) Regular market testing of items purchased from the sole supplier.
15.4.3 Subsequent negotiations with Paagman have reportedly led to an arrangement whereby Paagman's External Auditors, after audit of his books for 1995, shall report how far Paagman had complied with their obligation. Meanwhile market testing was conducted by PTS on a random basis. It primarily targeted at items of high expenditure. In the case of photocopy paper, such market- testing had reportedly resulted in Paagman agreeing to supply it at a mark-up of 8.5%, instead of the fixed margin of 20.5%. For future, the PTS proposes that while routinely plus 20.5% rate may apply, the high value items (e.g. paper) shall remain subject to market rates.
15.4.4 In view of the position obtaining at this point, it appears that the propriety interests of PTS may be served better if the sole supplier were paid market rate for purchases. Market price profile for the items procured from time to time may be utilised for reference to judge the prices of the sole supplier.
16. FORMAT, PRESENTATION AND CONTENT OF FINANCIAL STATEMENTS 1995 - GENERAL FUND
16.1 Comments were presented to the management on format, presentation and content of Financial Statements 1995 (General Fund) with a view to suggesting alterations for conforming to the recommendations of the CCAQ (FB) Working Party on Financial Statements as contained in the report of its third meeting in Geneva from 26 to 28 June 1995 (document ACC/1995/FB/R.31 of 24 July 1995) referred to in Note 3 of the Financial Statements.
16.2 The PTS agreed with all these suggestions and made necessary changes except one. The point relates to Note 2(k) in regard to Accounting Policy on "Unliquidated Obligations". The Note, as it appears in the Financial Statements 1995, is a reproduction of Note 2(k) of Financial Statements 1994, which was objected to by the Finance Group on the ground that it gave an interpretation of "unliquidated obligations" which was not consistent with Financial Rule 4.1.01 (subparagraph 3.12 of PC-XI/6). The PTS did not agree as in their view the text of the Note is in line with Financial Rule 4.1.01 and paragraph 35 of document ACC/1995/FB/R.31, and they had submitted their reservations to the Commission earlier on the subject. The position of External Audit in this regard may be seen at paras 3.2.3, 4.4 and 4.5.
17. COMPLIANCE OF THE EXTERNAL AUDITOR'S REPORT - 1994 ACCOUNTS
A formal report containing Management's response to the External Auditor's observations on 1994 accounts was provided to us on March 26 1996. We have reviewed the responses as per the document attached at Annex G. No comments have been recorded on the responses acceptable to Audit.
18. COMPLIANCE OF THE EXTERNAL AUDITOR'S REPORT - 1993 ACCOUNTS
18.1 The Executive Secretary in his "Report on the Findings of his Examination of the External Auditor's Observations on his Audit of the 1993 Accounts of the Commission", submitted to the Commission through Finance Group (Finance Group Paper No.2 of 3 February 1995), had indicated inter alia that:
(a) action will be taken to recover the overpayment of DSA in three cases;
(b) the Administration Division had been instructed to attempt to recover the overpayment in the course of a WAE contract.
The Finance Group agreed with this line of action vide paragraph 7.6 of their
Report of the Fifth Meeting and advised that prompt recovery action be taken
(PC- X/A/WP.2). The Commission, vide paragraph 6.7 of their Report of the
Tenth Session (PC-X/23) requested the Executive Secretary to implement the
Finance Group's recommendations.
Management Response
18.2 The Management stated that "the Secretariat has undertaken action to recover the overpayment of DSA in the three cases and the overpayment in the case of the WAE contract but has so far not succeeded to recover any of these".
Audit Comments
18.3 Recovery action needs to be expedited.
Annex A
(Para 2.1, Section II)
BUDGETARY TRANSFERS
Programme 1: Office of the Executive Secretary
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Salaries 1,169,800 (61,500) (49,900) 1,058,400 (5.26%) (4.26%) (9.52%)
Common Staff 663,000 (20,000) (24,300) 618,700 (3.02%) (3.66%) (6.68%)
Costs
Consultants 85,800 81,500 - 167,300 94.99% - 94.99%
Programme 2: Verification Division
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Salaries 3,149,400 (65,000) 33,700 3,118,100 (2.06%) 1.07% (0.99%)
Common Staff 1,505,200 65,000 81,400 1,651,600 4.32% 5.41% 9.73%
Costs
Official Travel 265,000 - (15,000) 250,000 - 5.66% 5.66%
Programme 3: Technical Cooperation & Assistance Division
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Official Travel 25,000 15,000 - 40,000 60.0% - 60.0%
Programme 4: External Relations Division
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Salaries 976,700 (10,000) (25,800) 940,900 (1.02%) (2.65%) (3.67%)
Common Staff 520,600 409,500 (4.42%) (21.34%)
Costs (23,000) (88,100) (16.92%)
Consultants 28,800 20,100 - 48,900 69.79% - 69.79%
Grants-Seminars 150,000 12,900 - 162,900 8.60% - 8.60%
Programme 5: Legal Division
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Salaries 705,700 (10,000) - 695,700 (1.42%) - (1.42%)
Common Staff 358,800 (10,000) 73,000 421,800 (2.79%) 20.35% 17.56%
Costs
Official Travel 25,000 - 15,000 40,000 - 60.0% 60.0%
Temp. Assistance Nil 20,000 - 20,000 100% - 100%
Programme 6: Administration Division
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Salaries 5,002,500 (421,000) - 4,581,500 (8.42%) - (8.42%)
Common Staff - (8.47%) - (8.47%)
Costs 2,301,600 (195,000) 2,106,600
Contractual 1,333,400 (92,000) - 1,241,400 (6.90%) - (6.90%)
Services
Medical Costs 115,500 (64,000) - 51,500 (55.41%) - (55.41%)
Official Travel 95,000 - (15,000) 80,000 - (15.79%) (15.79%)
Overtime 46,500 - (20,000) 26,500 - (43.01%) (43.01%)
General 450,000 290,000 - 740,000 - (64.44%)
Operating (64.44%)
Expense
Temporary Nil 482,000 - 482,000 100% - 100%
Assist.
Programme 7: Common Services not Distributed to Programmes
Transfers Budget Percentage Transfers
Main object of Approved Intra Inter after Intra Inter Total
Expenditure Budget Program Program Transfers Program Program
(1) (2) (3) (4) (5) (6) (7) (8)
Contractual
Services
- Security 353,500 (40,000) - 313,500 (11.32%) - (11.32%)
- External 150,000 (60,000) - 90,000 (40.00%) - (40.00%)
Audit
- Training 35,000 (11,000) - 24,000 (31.43%) - (31.43%)
Furniture & 100,000 131,000 - 231,000 131.00% - 131.00%
Equipment
Gen. Op.
Expenses
- Communications 420,000 (37,000) - 383,000 (8.81%) - (8.81%)
- Miscellaneous 152,500 291,000 - 443,500 190.82% - 190.82%
- Rental and 305,900 - 205,900 -
Maintenance * (100,000 (32.69%) (32.69%)
Office equipment )
- Rental and 180,300 - 172,300 - (4.44%)
Maintenance * (8,000) (4.44%)
Premises
- Rental and 35,000 - 28,000 -
Maintenance * (7,000) (20.00%) (20.00%)
Transport
Equip
- Supplies & 399,900 - 271,900 - (32.01%)
Materials (128,000 (32.01%)
)
Hospitality 20,000 (3,000) - 17,000 (15.00%) - (15.00%)
Overtime 130,000 25,000 20,000 175,000 19.23% 15.38% 34.61%
General 414,300 - 361,300 - (12.79%)
Temporary (53,000) (12.79%)
Assistance
Annex
B
(Para 2.1, Section II)
UNLIQUIDATED OBLIGATIONS
Short-term Appointments
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
Date Employee Period Salary Due
No Obligat Amount Recorded of paid up salary
ion Dfl. contract to Dec. for Jan
Referen 95 Dfl. '96
ce onwards
Dfl.
1. 0072 11,300 09.11.95 . GS 3/I 20.11.95 6,264.94 5,035.06
to
09.02.96
2. 0079 20,000 01.12.95 GS 4/I 18.12.95 2,323.75 17,676.25
to
30.04.96
3. 0085 33,294 15.12.95 GS 4/I 23.12.95 1,280.39 32,013.61
to
22.06.96
4. 3025 12,300 30.11.95 GS 3/I 18.12.95 2,053.00 10,247.00
to 7.4.96
5. 3024 65,000 20.11.95 P2/1 11.12.95
6. 3032 66,745 22.12.95 P 2/I to 23,045.41 175,444.59
7. 3032 66,745 22.12.95 P 2/I 10.06.96
Total 275,384 34,967.49 240,416.51
Obligations recorded in 1996
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
No. Obligation Date Particulars Amount Dfl.
Reference Recorded
1. 0088 10.01.96 Overtime 15,478.87
2. 0090 23.01.96 Rental Subsidy 4,500.00
3. 0091 23.01.96 Settlement Payment - 23,692.00
4. 0093 29.02.96 Provident Fund - 3,250.00
5. 0094 29.02.96 Assignment Grant - 11,500.00
6. 0095 29.02.96 Repatriation Grant - 3,486.16
Total 61,907.03
Obligations for goods/services not delivered
Obligatio Date Particulars Amount
No. n Recorded Dfl.
Reference
1. 1050 25.10.95 Security Equipment 20,926.25
2. 1068 22.12.95 Security Equipment 31,103.75
3. 1069 22.12.95 Office Furniture 5,223.06
4. 1075 03.01.96 Supplies and Materials 1,290.56
5. 3026 15.12.95 Computer Equipment 45,320.00
6. 3027 15.12.95 Computer Equipment 11,984.00
7. 3028 15.12.95 Computer Equipment 8,491.00
8. 3029 15.12.95 CD Chemlist 11,300.00
9. 3030 19.12.95 Identification of chemical 12,075.00
substances for PTS Handbook
10. 1070 22.12.95 Mobile phones and hand free 7,421.40
installation
Total 155,135.02
Annex C
(Para 9.2, Section II)
GS Posts Operated - January to June 1995
No. of posts operated
Programme/Division No. of Jan 95 Feb 95 Mar 95 Apr 95 May 95 June
posts 95
approved
Office of the ES 2 2 2 2 2 2 2
Verification Division 6 6 6 6 6 6 6
TCA Division 2 1 1 1 1 1 1
External Relations 3 4 4 4 4 4 4
Division
Legal Division 3 3 3 3 4 4 3
Administration 36 38 36 36 36 37 37
Division
TOTAL 52 54 52 52 53 54 53
Annex D
(Para 10.3-10.4, Section II)
SHORT-TERM APPOINTMENTS
Short-term Appointments for periods exceeding three months
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
No. Name Currency of Total Period
short-term
appointments
1. 01.05.95 to 30.06.95 5 months
01.07.95 to 30.09.95
2. 05.10.95 to 10.12.95 8 months and 6 days
11.12.95 to 11.06.96
3. 01.01.95 to 29.06.95 6 months
4. 01.01.95 to 31.05.95 7 months
01.06.95 to 31.07.95
5. 17.10.94 to 17.12.94
18.12. 94 to One year and 2 months
14.04.95
15.04.95 to 17.12.95
6. 25.09.95 to 10.12.95 8 Months and 16 days
11.12.95 to 11.06.96
7. 18.12.95 to 30.04.96 7 months and 13 days
01.05.96 to 31.07.96
8. 01.08.95 to 10.12.95 10 months and 11 days
11.12.95 to 11.06.96
9. 15.09.95 to 31.12.95 31/2 months
Appointments under 300 Series
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
No. Name Currency of short-term appointments Total Period
1. 01.01.95 to 30.06.95 One year
01.07.95 to 31.12.95
2. 01.08.95 to 31.12.95 One year
in continuation of item 4 in the
preceding table
3. 01.05.95 to 30.09.95
01.10.95 to 22.12.95 One year
01.01.96 to 30.04.96
4. 30.06.95 to 30.09.95 9 months
in continuation of item 3 in the
preceding table
Annex E
(Para 13.3, Section II)
PAYMENT OF EDUCATION GRANT FOR CHILDREN LESS THAN SIX YEARS
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
Name Child's Term of Age at Amount Payment/
No. Child's date of Education start of in Dfl. Adjustment
Name birth term Reference
1. 06.06.92 05.09.95 31/4 yrs 1,338.35 PV
- No.2685
30.06.96 of
24.10.95
2. 05.06.92 1995-1996 33/4 yrs 4,167.69 PV No.
3083 of
11.95
TOTAL 5,506.04
PAYMENT OF EDUCATION GRANT FOR CHILDREN MORE THAN 21 YEARS
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
No. Name Child's Term of Age at Amount Payment/
Child's date of Education start of in Dfl. Adjustment
Name birth term Reference
1. 19.05.72 01.09.94 231/4 yrs 2,763.75 PV No. 159
- of 21.01.96
08.06.95
2. 19.05.72 01.09.95 241/4 yrs 2,831.66 PV No.
- 3205 of
08.06.96 29.11.95
3. 01.05.74 01.09.95 211/4 yrs 2,831.67 PV No.
- 3205 of
08.06.96 29.11.95
4. 04.02.74 Feb-Nov 21 yrs 3,373.38 PV No. 634
1995 of 03.96
TOTAL 11.800.46
Annex F
(Para 14.4, Section II)
RETROACTIVE PAYMENTS UNDER THE RELOCATION POLICY
(Names of individual employees are not disclosed in this table, but may be made available to Member States upon request.)
1. One staff member was given a fixed-term appointment as "Bilingual Typist (Spanish/English) at GS 3/IV for the period 24.01.94 to 23.01.95. At the time of her recruitment, she was living in The Netherlands and her request for "international recruit" status was reviewed in depth and rejected vide Ref. No. 527/94 dated 12.10.94.
She was offered an extension of her contract for one year from 23.01.95 to 23.01.96 at GS 4/III on 21.11.94. She accepted this offer on 09.12.94.
She was informed vide Ref.No. 538 dated 02.10.95 that following the issuance of ADM/PER-7 on 22.08.95, it has been established that her "post requires specific skills" and that at the time of her appointment" the post would otherwise have been open for international recruitment".
Her entitlements were accordingly revised retroactively and she was paid DSA portion of assignment grant amounting to Dfl. 11,820 (Dfl. 394 x 30) vide PV. No. 2462 dated 05.10.95.
2. One staff member was initially given a short-term appointment against a GS post at GS 5/I for the period 04.03.95 to 03.05.95. He was later offered a fixed-term appointment at GS 5/I for one year from 01.04.95 to 31.03.96 vide Ref. No. 1787/95 dated 27.03.95, which he accepted and signed on 31.03.95.
The fixed-term contract given to him vide letter dated 27.03.95 was cancelled and superseded by another fixed-term contract offered to him vide Ref No. 608/95 dated 12.10.95 to appoint him at GS 4/IV for a period for one year effective 30.10.95. His "Entry on Duty Date" was, however, allowed to remain unchanged. The offer stipulated that his selection was made for a post which called for local recruitment. He accepted this offer and signed the contract on 13.10.95.
Earlier, he was informed vide Ref No.328/95 dated 13.06.95 that subject to satisfactory evidence that his permanent residence at the time of recruitment was more than 50 kms from The Hague, the relocation policy for locally recruited staff ill be applicable to him retroactively.
He was paid DSA portion of assignment grant amounting to Dfl. 11,820 (Dfl. 394 x 30) vide PV No. 1495 dated 23.06.95 for his fixed-term appointment in terms of ADM/PER-4.
3. One staff member was given a fixed-term appointment as Procurement
Officer at
P-3/I for one year from 27.06.94 to 26.06.95. His contract was
later extended for one year up to 26.06.96.
He was informed vide Ref.No. 604 dated 10.11.95 that following the issuance of ADM/PER-7 on 22.08.95, it had been established that all posts in the professional and higher categories were open for international recruitment. He was, therefore, entitled to the associated travel entitlements, including DSA portion of assignment grant.
DSA portion of assignment grant amounting to Dfl. 11,820 (Dfl. 394 x 30) was paid to him vide PV No. 2966 dated 16.11.95.
4. One staff member was given a fixed-term appointment as Information System Officer at P-3/I for one year from 17.10.94 to 16.10.95. He was a national of the Netherlands and was recruited on local basis.
He was informed vide Ref.No. 587 dated 04.10.95 that following the issuance of ADM/PER-7 on 22.08.95 it had been established that all posts in the professional and higher categories were open for international recruitment. His travel and other related entitlements were revised retroactively.
He was paid DSA portion of the assignment grant amounting to Dfl. 11,820 (Dfl. 394 x 30) vide PV No. 2562 dated 12.10.95.
Annex G
(Para 17, Section II)
EXTERNAL AUDITOR'S REPORT ON 1994 ACCOUNTS
COMPLIANCE REVIEW
1. APPROPRIATION AND EXPENDITURE (Section I, paragraph 1)
"Approval of the Commission to the transfer of funds for covering the expenditure on loss on exchange was required for regularisation of the expenditure. Transfers approved by the Executive Secretary within the programmes are also to be placed before the Commission for information."
Management's response
Approval of the Commission was obtained (Ref: paragraph 6.3, PC-XI/17)
2. CONTRIBUTIONS FROM MEMBER STATES (Section II, paragraph 2.9)
"The position of the collection of contributions from Member States in 1994 was relatively satisfactory in money terms. The position of collection in terms of the number of countries not paying their dues was not satisfactory and needed to be looked in to."
Management's response
Reminder letters were sent out in July 1995 to all Member States who had not or only partially paid their 1993 and 1994 assessed contributions. As a result, the number of Member States who did not pay at all reduced from 68 to 52 States regarding 1993 contributions and from 89 to 64 states regarding 1994 contributions. The overall collection rate has further improved from 95.98% to 97% for 1993 contributions and from 90.63% to 94.4% for 1994 contributions. Regarding 1995 contributions, the collection rate up to January 1996 is 92.7%.
Audit comments
The position of collection in terms of number of Member States not paying their dues continued to be unsatisfactory. The number of countries making no payments at all against their assessed contributions from 1993 to 1995 ranged from 61 to 83. More than half of the assessed Member States had not paid their contributions for 1995.
3. CAPITAL ADVANCE (Section II, paragraphs 3.2 and 3.5)
"The amount of Capital Advance has been fixed as Dfl. 1,000,000, vide Article 6.2 of the Financial Regulations. Any enhancement in the said amount will require an amendment in the Financial Regulations. Miscellaneous income received during the year should be concurrently reviewed and transferred to the relevant bank account."
Management's response
The amount of Capital Advance was adjusted in 1995 to the fixed level of
Dfl. 1,000,000. Miscellaneous income was also reviewed concurrently and
transferred to the relevant bank account.
4. UNLIQUIDATED OBLIGATIONS (Section I, paragraph 3; Section II, paragraph 4.2)
"Contractual obligations should not be created in an informal manner."
Management's response
Procurement obligations are now made on the basis of purchase orders or contracts.
Audit comments
The principle of delivery, full or in part, as a pre-requisite to recording of an obligation was not being observed. Audit findings in this area have been incorporated in Audit Report on 1995 Accounts.
5. INVESTMENTS (Section I, paragraph 5; Section II, paragraph 5.2)
"Reasons for not investing cash surplus should be invariably recorded and details of investments be provided in the financial statements in the form of a table."
Management's response
In all cases, where cash surplus is not invested the reasons for this are recorded in writing. Normally the reason would be that the cash is needed for operational requirements. A note giving a bank-wise breakdown of investments in the interest bearing deposits has been included in 1995 financial statements.
6. INCORRECT CLASSIFICATION OF EXPENDITURE (Section I, paragraph 6; Section II, paragraph 6.1 - 6.4)
"Employment of fixed-term staff should be strictly regulated according to the approved manning table and prior concurrence of the Commission should be obtained before employing fixed-term staff over and above the manning table."
Management's response
Salaries and common staff costs are now correctly classified Employment of fixed-term staff is strictly regulated according to the approved manning table.
Audit comments
The number of posts operated in the General Services category during a part of the year 1995 exceeded the approved number. Audit findings in this respect are included in Audit Report on 1995 Accounts.
7. PERSONNEL CLAIMS PROCESSING (Section II, paragraph 7.2)
"For better internal controls, the responsibility of processing personnel claims should rest with the concerned branches and the Budget and Finance Branch should only be responsible for their final scrutiny."
Management's response
Action has been taken to better define the responsibilities of the General Service Branch, Personnel Branch and Budget and Finance Branch with regard to the processing of personnel claims. The Personnel Branch has now started to process personnel claims for correctness of entitlement in accordance with Staff Regulations and Rules. The Travel Section is exercising tighter administrative and financial controls in handling the travel business. Personnel contracts requiring travel are now received and checked against Travel Authorizations before tickets are issued. Travel Authorizations and travel claims are now calculated by the Travel Section and paid by Budget and Finance Branch which is responsible for the final scrutiny.
8. BUDGET AND FINANCE Q&R SOFTWARE SYSTEM (Section II, paragraph 7.3)
"Implementation of the Q&R System was badly delayed. It could not therefore be reviewed to ascertain if it provided necessary internal controls. But it was noticed that the System did not provide for an important area of the transactions i.e. travelling of staff."
Management's response
The Q&R software contract was cancelled some time ago, as the computer software company did not produce the desired results. Since autumn 1995, the Information Systems Branch has embarked in the evaluation of an integrated software, to include Budget, accounts payable, accounts receivable, general budget, procurement, inventory, payroll, travel accounting, staff recruitment, staff administration, and decision analysis - this software will include extensive audit trails. Final evaluation is targeted for March - April 1996.
Audit comments
The expenditure incurred on the unsuccessful implementation of the Q&R System had been rendered infructuous. Audit findings on this issue are included in 1995 Audit Report.
9. STAFF PAYMENTS (Section II, paragraph 7.4.2)
"Increments were allowed to employees in infringement of Staff Rule 3.1.04."
Management response
"Annual increments are now allowed with effect from the date of contract extension whether these dates are at the beginning of the month or not."
Audit comments
Sample audit for 1995 revealed that the erroneous practice had continued to persist.
10. OVERTIME PAYMENTS (Section II, paragraph 7.4.4)
"The provision relating to overtime payment was not clearly drawn in case of short-term contracts."
Management response
"Conditions for overtime payments are now clearly defined for all the categories of staff members concerned."
11. PROCESSING OF TRAVEL CLAIMS ON SHORT-TERM CONTRACTS (Section II, paragraph 8.5)
"A copy of all contracts regulating travel claims should invariably be provided to the Travel section, claims should be prepared by the Travel section and, before authorization by the Head General Services Branch, should be checked for entitlement and correctness of rates. The Travel section should ensure that the payment made by Budget & Finance Branch was according to their authorization. For Plenary sessions and other regular occasions, standard forms should be adopted, and travel claims in such cases also be prepared by the Travel section. The Budget and Finance should check appropriations before passing the vouchers for payment, and the proposed Q&R system should include a package for the travel claims so that the need for excessive paper work is reduced and effective controls are exercised at various stages."
Management's response
The General Services Branch now receives copies of personnel contracts for which travel has been approved. Tickets are not issued until a check of the Travel Authorization is made against the contract. A directive on travel is in the process of preparation. Travel claims for plenary sessions are still being calculated by Budget and Finance Branch and not by the Travel Section. It is intended that those claims be calculated by the Travel Section in future. The integrated software systems which are currently under evaluation, include a module on travel accounting.
12. TRAVEL ADVANCES (Section II, paragraph 9.5)
"All travel advances shall be initially booked against Travel Advances to keep a watch on subsequent adjustments."
Management's response
Travel advances paid to contract employees, mainly translators and interpreters are now debited to an interim travel advance account and are charged to expenditure at the time of settlement of the final claim.
13. CARRYING OF HARD CASH (Section II, paragraph 9.5)
"Arrangement may be made for minimising the carrying of hard cash for meeting the contingency expenses of seminars, etc.".
Management's response
Appropriate arrangements have now been made with ABN AMRO Bank to minimise the carrying of hard cash to seminar stations.
14. MARKET PROFILE OF PURCHASES (Section III, paragraph 7.8)
"The PTS needs to develop a mechanism under which market profile of all major supplies is developed and updated regularly and that the sale price of the sole s