Development Fund of Iraq and the successor account The Common observations for the current year Ministries and entities not liked to ministries financed y the Fund December 31, 2016 1 KPMG القواسمي وشركاه تلفون: -7090 565 6 966+ عمان- اﻷردن فاكس: -8598 568 6 966+ To the government of Iraq Development find of Iraq and successor account (CBI 2) The republic of Iraq No. 2017-01-159 Date : October 27, 2017 Dear Sirs We are pleased to submit to you our Management Letter containing our observations and recommendations concern ing the internal contr ol structure and other matters resulting from our audit of the Development Fund for Iraq and Successor Account (DFI) for the year ended 31 December 2016. Our audit uncovered certain conditions that, alt hough not considered by us to be mat erial weaknesses, are matters for which corr ective act ion should be considered. In planning and performing our audit of the financial statements of the Developme nt Fund for Iraq and Successor Account ( " DFI" ), we considered internal control relevant to the preparation of the financ ial statements in order to design audit procedures that are appropriate in the circumstances. but not for the purpose of expressing an opinion on the effectiveness of internal control. According ly our audit may not have identified all weaknesses within your systems. The observations and recommendations as listed in this report may not be a comprehensive record of all weaknesses that may exist . This report is intended solely for the infor mation and use of the COFE and the Government of Iraq and is not intended to be and should not be used by anyone other than these specified par ties. Because others may seek to use it for differen t purposes, this report should not be quoted. referred to or shown to any other parties (except the addressee's professional advisers acting in that capacity provided that they accept that we assume no responsibility or liability whatsoever to them in respect of the contents) unless so requi red by court order or a regulatory authority, without our prior consent in writing. We assume no responsibility whatsoever in respect of or arising out of or in connection with the contents of this presentation to parties other than the addressees. If others choose to rely in any way on the con tents of this presentation they do so entirely at their own risk. We have discussed the content of our report. including our recommendations, with the members of your staff directly involved and where relevant we have incorporated their comments. Page No. Observation No Risk 4 Salary Disbursement Mechanism 1 High Non-numbered documents of journal entries, receivables and 5 vouchers 2 High The salaries of some employees are handed over to other 3 6 employees without authorization High Weaknesses in the functions of the Oversight and Internal 4 7 Audit Department Medium 8 Disbursing of Instruments 5 Medium 9 System of Preparing Salaries and Wages 6 Medium 10 Key symbols 3 Topic 1- Salary Disbursement Mechanism Degree of Risk High Note During our visit to the Ministries, Offices and Governorates, we noticed that through the المﻻحظةthey are working on paying the salaries in cash to employees Salaries Distribution Committee. The distribution of salaries in cash increases the risk of loss of cash. Recommendation We recommend establishing bank accounts for all employees in order to avoid the above risks and control the cash management process. Management The Department will adopt new Key cards to facilitate the payroll process. Response Concerned Ministry of Agriculture, Ministry of Petroleum, Ministry of Defense, Ministry of Health, Ministries, Ministry of Planning, Ministry of Labor and Social Affairs, Ministry of Culture, Ministry of Offices and Education, Ministry of Migration and Displacement, Ministry of Transportation, Ministry of Governorates Justice, Ministry of Electricity, Ministry of Youth and Sports, Ministry of Communications, Ministry of Construction, Housing, Municipalities and Public Works, Ministry of Water Resources, Ministry of Interior, Office of Religious Endowments for Christians and Other Religions, Shiite Endowment Office, Independent High Electoral Commission, Karbala Governorate, Basra Governorate, Maysan Governorate, Babil Governorate, Wasit Governorate, Dhi Qar Governorate. 4 Topic 2. Non-numbered documents of journal entries, Degree of Risk High receivables and vouchers and our audit of aالمﻻحظة,Note During our visit to the Ministries, Offices and Governorates sample of the documents of journal entries, receivables and vouchers, we noticed that they are numbered manually. Recommendation Although alternative control methods are in use, we recommend serial numbers that are pre-printed on the documents of journal entries, receivables and vouchers, in order to control them. Management The Management does not perform this procedure. Response Concerned Ministry of Agriculture, Oil Marketing Organization, Ministry of Petroleum, Ministry of Ministries, Labour and Social Affairs, Ministry of Culture, Ministry of Education, Ministry of Offices and Governorates Migration and Displacement, Ministry of Transportation, Ministry of Justice, Ministry of Commerce, Office of Religious Endowments for Christians and Other Religions, Basrah Governorate, Maysan Province, Dhi Qar Governorate. 5 Topic 3. The salaries of some employees are handed Degree of Risk High over to other employees without authorization Note During our audit of the accounts of the Ministries, Offices and Governorates, we noticed that some employees receive the salaries of other employees using written authorization and authenticated المﻻحظةwithout the presence of an official letter certified by the notary public by both parties. Moreover, others receive the salaries of other employees without authorizations. This may lead to the delivery of cash to non-beneficiaries and the absence of disclosure of the presence of employees absent from work or not true staffs. Recommendation We recommend the need to increase the control procedures in relation to the distribution of salaries and prevent any employee from receiving the salaries of other persons without an official letter notarized by the notary public. Management In reference to staff receiving salaries without authorization, this is due to emergency Response circumstances as a result of the absence of the staff member on the day of delivery of salaries. As for staff receiving by means of written authorization, this is resulting from the absence of the staff either by maternity leave, travel assignment and other conditions. Concerned Ministry of Planning, Ministry of Labour and Social Affairs, Ministry of Culture, Ministry Ministries, of Education, Ministry of Migration and Displacement, Ministry of Transportation, Offices and Ministry of Justice, Ministry of Commerce, Ministry of Youth and Sports, Ministry of Governorates Communications, Ministry of Construction, Housing, Municipalities and Public Works, Ministry of Water Resources, Ministry of Interior, Independent High Electoral Commission, Maysan Governorate, Babil Governorate, Dhi Qar Governorate. 6 Topic 4. Weaknesses in the functions of the Oversight Degree of Risk Moderate and Internal Audit Department Note During our visit to the Ministries, Offices and Governorates, we noticed that the Oversight and Internal Audit Department does not issue Standard Quarterly Reports or an Annual Consolidated Report with observations on the work procedures of the Ministries, Governorates and Offices. Furthermore, there is no comprehensive written and specific guide to the regulatory policies. In addition, the Oversight and Internal Audit Department does not audit all .during the fiscal year المﻻحظةsubordinate departments and limit itself to taking samples from these departments Recommendation We recommend that the role of the Oversight and Internal Audit Department should be more active as it is an important element in the governance and risk management system. The internal control system and procedures must be designed and implemented to respond to specific risks and thus supporting the achievement of the objectives, as well as defining the tasks and responsibilities of all departments with the objective of increasing cooperation between these departments. Moreover, we recommend that the Oversight and Internal Audit Department to audit all the subsidiaries departments during the fiscal year due to its great importance in controlling and administrating the disbursements processes, which in turn helps to achieve the objectives. Focusing on the skills and abilities of those involved in the governance system leads to enhancing the ability to carry out the internal control responsibilities. Furthermore, linking the objectives of the internal control to the objectives of the tasks of each individual and completing them according to the responsibilities related to each of them shall lead to the achievement of internal control objectives. Management According to the Department's response, the work is limited to responding to any query or question asked by other Response departments and entities, as well as conducting sudden inventory processes of a number of departments to ensure compliance with the policies. Concerned Ministry of Agriculture, Ministry of Health, Ministry of Labour and Social Affairs, Ministry of Culture, Ministry of Ministries, Education, Ministry of Migration and Displacement, Ministry of Transportation, Ministry of Justice, Ministry of Youth Offices and and Sports, Ministry of Communications,