Regional Multilateral Development Banks:

External Audit Reporting Could Be Expanded

GAO-02-27: Published: Dec 14, 2001. Publicly Released: Dec 14, 2001.

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Multilateral Development Banks (MDBs) provide financial support to promote social and economic progress in developing countries and the countries of central and eastern Europe and the former Soviet Union. Under the Foreign Operations, Export Financing, and Related Programs Appropriations Act of 2001, the United States is providing $1.3 billion to support the MDBs, with $460 million going to the regional development banks and $840 million going to the World Bank Group. All of the MDBs GAO reviewed have received unqualified or "clean" opinions on their external audits. However, none of the MDBs GAO reviewed are required to report on their internal controls over financial reporting, lending operations, or compliance with their governing charters or policies. In addition, the regional MDBs' external financial statement audits are not intended to, and do not, provide assurances about internal controls over the MDBs' lending operations and whether funds are spent as intended. Most of the regional MDBs that GAO reviewed have developed anti-corruption strategies that recognize the importance of strong internal control systems. Each of the regional MDBs GAO studied has established internal audit functions as part of their controls.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Treasury's Under Secretary for International Affairs informed the USEDs in March 2004, of the United States policy goal set in P.L. 108-199, which includes establishing a plan and schedule for conducting regular, independent audits of management controls.

    Recommendation: To (1) provide additional accountability, transparency, and assurance over the regional MDB groups' lending operations and (2) ensure that project funds are spent as intended, the Secretary of the Treasury should instruct the U.S. Executive Directors of the four regional MDB groups included in this report to take the lead in working with the other Executive Directors to develop a policy requiring these MDBs and their audit committees to adopt a phased approach to enhance the current external audits of their financial operations, by engaging the external auditors to report on the MDBs' internal control over financial reporting in conjunction with their financial statement audits or in a separate engagement.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: Treasury's Under Secretary for International Affairs informed the USEDs in March 2004, of the United States policy goal set in P.L. 108-199, which includes establishing a plan and schedule for conducting regular, independent audits of management controls.

    Recommendation: To (1) provide additional accountability, transparency, and assurance over the regional MDB groups' lending operations and (2) ensure that project funds are spent as intended, the Secretary of the Treasury should instruct the U.S. Executive Directors of the four regional MDB groups included in this report to take the lead in working with the other Executive Directors to develop a policy requiring these MDBs and their audit committees to adopt a phased approach to enhance the current external audits of their financial operations, by developing a plan, and reporting annually on the progress, to engage the external auditors to report on the MDBs' internal control over lending operations and internal control over compliance with key provisions of bank charters and policies.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: Treasury's Under Secretary for International Affairs informed the USEDs of the United States policy goal set in P.L. 108-199, which includes establishing a plan and schedule for conducting regular, independent audits of management controls.

    Recommendation: To (1) provide additional accountability, transparency, and assurance over the regional MDB groups' lending operations and (2) ensure that project funds are spent as intended, the Secretary of the Treasury should instruct the U.S. Executive Directors of the four regional MDB groups included in this report to take the lead in working with the other Executive Directors to develop a policy requiring these MDBs and their audit committees to adopt a phased approach to enhance the current external audits of their financial operations, by providing the results of the external auditors' reports and management's progress reports to the MDBs and their member countries annually.

    Agency Affected: Department of the Treasury

 

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