World Bank Group:

Important Steps Taken on Internal Control but Additional Assessments Should Be Made

GAO-03-366: Published: Jun 16, 2003. Publicly Released: Jun 16, 2003.

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The Congress passed Public Law 106-429 because it was concerned about the sufficiency of external audits of the financial operations of the World Bank Group, a set of multilateral development banks. This law provides that GAO report on the sufficiency of such audits of each Bank Group entity. GAO addressed (1) the extent that the external auditor was providing assurance on internal control over financial reporting, operations, and compliance with key provisions of bank charters and policies in conjunction with financial statement audits and (2) the role the Bank Group's audit committee plays in providing oversight of external financial statement audits and internal control.

The Bank Group has taken important steps in strengthening its assessment and reporting on internal control, including (1) implementing a structured internal control framework, (2) conducting the internal control assessments necessary to provide its external auditor with an assertion about the effectiveness of the Bank Group's internal control over external financial reporting, and (3) contracting with its external auditor to provide an opinion, in conjunction with the financial statement audit, on whether management's assertion on internal control over external financial reporting is fairly stated. However, Bank Group management does not include an assertion on internal control over operations and compliance matters, and it has not asked the external auditor to give an opinion on those internal controls. During our review, we were told that the Bank Group does not yet have plans to conduct a comprehensive assessment of those controls. The Bank Group's external financial statement audits do not, and are not intended to, provide specific assurance about the internal control over the Bank Group's operations and whether the funds are spent for their intended purposes. Given the inherent risks in the banks' activities, additional assurance on these other categories of internal control--operations and compliance--would provide an added level of assurance to the Bank Group and its member countries that funds were used for their intended purposes. The Bank Group has established an audit committee that provides oversight of external financial statement audits and internal control. A major function of the committee is to nominate an external auditor and determine the scope of the auditor's work and the reports to be submitted by the auditor. The audit committee also has the external auditor give an opinion, in conjunction with the financial statement audit, on management's assertion on the Bank Group's internal control over external financial reporting. The audit committee has the authority to expand the external audits to include the auditor giving opinions on internal control over operations and compliance matters. Alternatively, the audit committee is also well-positioned to assign to an internal party or provide an external party the task of providing a thorough assessment of such controls.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Treasury's Under Secretary for International Affairs informed the USED 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: The Secretary of the Treasury should instruct the U.S. Executive Director of the Bank Group to take the lead in working with the other executive directors in developing a policy requiring the Bank Group entities to enhance the audit function and reporting of their financial operations. This would entail conducting a comprehensive evaluation of internal controls over operations and compliance to determine whether such controls are in place and are functioning properly to prevent misuse of funds and to ensure compliance with key provisions of bank charters and policies.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: Treasury's Under Secretary for International Affairs informed the USED on 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: The Secretary of the Treasury should instruct the U.S. Executive Director of the Bank Group to take the lead in working with the other executive directors in developing a policy requiring the Bank Group entities to enhance the audit function and reporting of their financial operations. This would entail reporting annually to the board of executive directors through the audit committee on the progress made. This evaluation could be carried out in any of several ways, including through the internal audit function; by the external auditor, in conjunction with the financial statement audit; by another entity within the Bank Group; or by an external party, such as a consultant.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: Treasury's Under Secretary for International Affairs informed the USED 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 and making reports describing the scope and findings of such audits available to the public.

    Recommendation: The Secretary of the Treasury should instruct the U.S. Executive Director of the Bank Group to take the lead in working with the other executive directors in developing a policy requiring the Bank Group entities to enhance the audit function and reporting of their financial operations. These Bank Group entities should also provide the results of the assessment to member countries annually.

    Agency Affected: Department of the Treasury

 

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