Report on the Selection of New External Auditors June 2011

Report on the Selection of New External Auditors – June 2011

TOThe Director General

The Members of the Executive Committee of ICARDA

FROMChair of the Selection Committee for the selection of new external auditors.

SUBJCommittee report on the Selection of New External Auditors from 2011 onwards.

DATE20 June 2011

On behalf of the Selection Committee, it is my pleasure to submit the report on the selection of the New External Auditors of ICARDA from 2011 onwards. This report has also a separate attachment entitled “update on the selection of New External Auditors” which was a handout for the Audit Committee during its teleconference meeting of 3 may 2011.

Background

Price Waterhouse Coopers have been ICARDA’s external auditors from 2006 to 2010, a total of 5 years. The years 2006 and 2007 were handled by PwC Cyprus, while 2008, 2009 and 2010 were handled by PwC Manila. According to CGIAR guidelines, external auditors can serve the same Center for a period ranging from 5 to 7 years.

In early March 2011, after consultation with the Chair of the Audit Committee and the Chair of the Board, the ICARDA Executive Committee approved an action plan for the appointment of New External Auditors from 2011 onwards.

The matter was on the agenda for discussion during BOT 49 which was scheduled from 7 to 14 May 2011. Due to some difficulties in Syria, the Board meeting was postponed.There was however a teleconference of the Audit Committee of the Board on May 3rd 2011 to address a reduced agenda, including the selection of ICARDA’s next external auditors.The Chair of the Audit Committee reported to the Executive and Finance Committee of the Board, which took place in Montpellier (France) on May 5th 2011.

The document that was discussed in the teleconference (May 3rd) is attached. It covers:

• The formation of a Selection Committee
• A list of 9 companies invited to bid.
• A detailed timed action plan.
• A description of the Institutional objective in selecting the next auditors.
• A sample request for proposal for external auditors.

Meetings of the Audit Committee (AC) and Executive and Finance Committee (EFC) of the Board.

Extract of the minutes of the teleconference meeting of Audit Committee of 3 May 2011

The AC and members of management agreed to proceed as follows:

• Follow the pre-established timetable, even if it is with one or two weeks delays.
• Chase some outstanding bids.
• Finalize the shortlisting process, invite the short-listed firms by May 26.
• Presentation by shortlisted firms during the week of June 12 to 17.
• Report to the ICARDA Executive Committee by the week of 19-24 June.
• Submit report and recommendation to Audit Committee Chair by June 30.
• Appointment of new auditors by July 30.

The AC was generally in agreement with this approach as well as the selection criteria identified. The AC also stressed that they considered the knowledge and understanding of the CGIAR as an essential criterion. Finally the AC requested that the current auditors not be excluded until the process was finalized.

Extract of the minutes of the meeting of EFC of 5 May 2011 (Montpellier)

• EFC agreed that recruitment should proceed as planned. It endorsed the AC recommendation that the Center should rule out applications that have no experience of the CGIAR.

Shortlisting and invitation of qualified audit company

Out of the nine audit offices invited, only three responded.

• Fees include out of pocket expenses (US$ 20,000) but exclude special audit of selected projects.
• No CGIAR audit experience.

• Fees include out of pocket expenses but exclude special audit of selected projects.
• No CGIAR audit experience.

• Fees exclude out of pocket expenses and special audit of selected projects.
• Incumbent auditors of IWMI.

The Selection Committee met on 16 May 2011 and decided to invite only Ernst Young Colombo, taking into consideration the clear statement from the AC and EFC that: “knowledge and understanding of the CGIAR and “Direct Experience" with the system should be an essential Criterion in short listing the candidates to avoid undesirable consequences.”

The Selection Committee also noted that the AC agreed with the proposal that, to be on the safe side, the current auditors will not to be excluded until the process is finalized.

Visit of Ernst & Young - Colombo - and general assessment.

Two members of the company visited Aleppo for two days on 5 and 6 June 2011: Mr. Aasiri Gunasekera (partner) and Mr. Rasika Fernando Nawalage (manager). During their visit they met with the Director General, the members of the EC, the Internal Auditor, Director of HR, Director of Finance and senior Finance staff (treasury, budget and accounting), the Manager of ITU and the full selection Committee.

Their interactions and presentations were assessed on the basis of pre-established criteria.

• Overall Capabilities of Firm
• The personnel size and qualifications of the firm in the host country
• The firm’s clientele
• The firm’s proven and demonstrated experience in auditing international non-profit organizations in the host country;
• The firm’s audit methodology, approach and use of information technology (IT) tools
• Professional Team Assigned
• CGIAR Experience
• Understanding of the Assignment
• Knowledge of Arabic
• Costs

These criteria were not weighted nor rated as there were no other outside competitors.

In general the Selection Committee considered that the Ernst & Young Colombo submission was “good”, without being impressive. It is considered that E&Ypass the mark for all the criteria listed, except the knowledge of Arabic. Their major advantage is the very low price they quoted. The company is considered appointable.

Discussion.

After assessing the candidate company, the Selection Committee met again, and came to some important conclusions:

1. There was a general feeling that the process had been rushed. At the end of the process we had only one option to look at. The Committee considered this insufficient and potentially dangerous, considering that this is a major procurement of professional services. The appointed external auditors should serve ICARDA for about 5 years.
2. The process had taken place during a period of political unrest in Syria, which may have been a major reason for such little interest from potentially competent and qualified auditing firms.
3. There was a general feeling of confidence and comfort in favor of the existing external auditors (PwC) in terms of their overall competence and understanding of the CGIAR.
4. There was also an apprehension about changing ICARDA’s external auditors at a time of major change in the CGIAR system, its funding and reporting requirements.

Conclusion and recommendation

In view of the above, the Selection Committee submits the following recommendations:

1. That the services of Price Waterhouse Coopers Manila be retained for one further year (2011) but that it be made clear that this will be the last year of PwC external audit.
2. That PwC be asked to rotate their “partner” in the 2011 audit. This will produce a new look on ICARDA’s year and closing and financial statements.
3. That a new tender process be started early enough in 2012 to identify the next external auditors for the year 2012 onwards.
4. That Ernst & Young Colombo beautomatically shortlisted for the next tender.
5. That the tender process be discussed in the next Audit Committee in October 2011.

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