External Audits Relating to All Export Sales of Iraqi Oil, Petroleum Products and Natural Gas and Operations of the Development Fund for Iraq (DFI)

Scope of work
External Audits Relating to All Export Sales of Iraqi Oil, Petroleum Products and Natural Gas and Operations of the Development Fund for Iraq (DFI)


I. Audit of the DFI's statement of cash Receipts and Payments


The auditor will perform an audit of the DFI in accordance with the International Standards on Auditing (ISA). The audit scope of work will cover the following:

1. Audit of the DFI statement of cash receipts and payments prepared by the Iraqi Government under the cash basis of accounting in accordance with International Public Sector Accounting Standard " Financial Reporting Under the Cash Basis of Accounting", for the year ending December 31, 2010 and determination as to whether the disbursements from DFI are duly authorized and received by the designated recipients.

　

2. The DFI audit will be conducted in accordance with International Standards on Auditing (ISA 800 related to the cash basis financial statements). The DFI audit for the year ending December 31, 2010 will include, but not be limited, review of inflows, investments and other assets, disbursements, liabilities, contingencies of the DFI, supporting the objective that DFI is used in a transparent manner in accordance with applicable control procedures.
　

3. The audit of the DFI will also cover the disbursements made by the U.S. Agencies from the DFI's funds on behalf of the Ministry of Finance for the year ending December 31, 2010. As part of this audit, the auditor will report on the internal controls over the disbursements made by the U.S. Agencies from DFI's funds for the year ending December 31, 2010 in both English and Arabic.
　

4. The Iraqi Government has decided that the role of U.S. Agencies should end by 31.12.2007. The auditor must provide a complete report on this decision's implementation. 　

5. The audit of the DFI will cover the funds that have been disbursed to all higher risk spending ministries and not less than six governorates from the DFI funds during the year ending December 31, 2010. This audit will cover the major expenditures financed from the DFI's main account; the extent of the audit of each ministry will be based on the auditor's professional judgment based on the overall materiality of the audit of the DFI's statement of cash receipts and payments.

　

6. Any weaknesses that come to the auditor's attention during the above audits and review will be reported in the management letter to Iraqi Government and IAMB at the same time.





DFI Audit Deliverables




• Audit reports and management letters for all areas (I-V) should be provided simultaneously to the IAMB, COFE and Government of Iraq on the DFI statement of cash receipts and payments for the year ending December 31, 2010 in both English and Arabic.



• Management letter on DFI internal controls for year ending December 31, 2010 in both English and Arabic.




• The DFI management letter will include a section about the internal controls over the disbursements made by the U.S. Agencies from DFI funds for the year ending December 31, 2010 in both English and Arabic and with due regard to point 4 above.




• Management letter on internal controls over the disbursements made by the spending ministries from the DFI's funds for the year ending December 31, 2010 in both English and Arabic. The management letter will include a special section relating to each of the spending ministries.



The DFI's audited financial statements will be issued by April 30, 2011.







II. Review the DFI Interim Financial Statement



The auditor will review the DFI's interim Statement of cash receipts and payments for the period from January 1, 2010 to June 30, 2010 in accordance with International Standard on Review Engagements 4210, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity".




In addition, to the interim review, the auditor will commence the DFI interim audit at the Ministry of Finance, Central Bank of Iraq and selected higher risk ministries for the purpose of presenting the results at the same time to the IAMB and the COFE at their first meeting after 30.06.2010.







Deliverables – Interim Report



• Review report on DFI interim statement of cash receipts and payments for the period from January 1, 2010 to June 30, 2010, including an interim statement on OPRA.







• Assessment report on progress in addressing earlier audit qualifications.




• Assessment report on progress in implementing the Ministry of Oil's comprehensive oil metering plan as at June 30.06.2010. The auditor should also provide observations on (i) the implementation and calibration of oil meters to date, and (ii) the further steps required to fully implement the plan on schedule through end 2011.




• Presentation to the IAMB and the COFE, which will include the results of the June 30 interim review. And assessment of progress in addressing earlier audit qualifications and implementing the oil metering plan.



The interim review and assessment reports will be issued by October 31, 2010.







III. Audit of Oil Export Sales



Audit of the statement of export sales of petroleum and petroleum products from Iraq made by the Oil Marketing Company (SOMO) in accordance with the International Standard on Auditing ISA 800 "The auditor's report on Special purpose audit engagements".




Deliverables:

- Audit report on the statement of Oil Export Sales for the year ending December 31, 2010 in both English and Arabic.







- Management letter in both English and Arabic on SOMO's internal control over export sales of petroleum and petroleum products and subsequent cash deposited in the DFI account.




- The SOMO management letter will include a section about the key internal controls over the bidding on, and awarding of, export sales contracts in both English and Arabic. In particular, the management letter will include:




• Material weakness related to the key internal controls that were designed by the Iraqi Government (IG) and Oil Marketing Company (SOMO), over the capture of oil revenue from the ground through to the subsequent export and deposit of cash in the DFI.




• Material weakness related to the key internal controls, designed by the IG and SOMO, over the bidding on, and awarding of, export sales contracts.



• Material weakness related to any difference between the SOMO list of export sales and SOMO's sales ledger and the amount deposited in the FRBNY.



• Material weakness that may be noted during the testing of the internal control procedures for the bidding on and awarding of contracts.



• Material weakness related to the auditor's review of the contracts and sales invoices to ensure that they were signed and approved by authorized person in accordance with SOMO's policies and procedures, and approved by the IG.




• Material weakness related to the matching of the quantities and prices as per invoice to the Sales Contracts, Bills of Lading, Certificates of Quantity and Quality, Ullage reports, Export Cargo Manifests and Master Receipts.



• Material weakness related to the recalculation of the Oil Sales Price (OSP), by reference to PLATTS publication and comparison with the price per the invoice.



• Reconciliation of quantities of oil and oil products produced/ purchased with the quantities utilized through export sales, internal consumption, re-injection or any other usages. 　




IV. Audit of the Oil Proceeds Receipts Account (OPRA)



Audit of the cash receipts from export sales of petroleum made by the Oil Marketing Company (SOMO) and deposited in the Oil Proceeds Receipt Account in accordance with the International Standards on Auditing ISA 800 "The auditor's report on special purpose audit engagement".




Deliverables:




- Audit report on the statement of proceeds of oil export sales for the year ending December 31, 2010 in both English and Arabic.




- Management letter in both English and Arabic on SOMO's internal control over the proceeds from export sales of petroleum, petroleum products and natural gas and the transfers to the OPRA account pursuant to the allocation requirements of UNSCR 1483 paragraphs 20 and 21.



In particular, the management letter will include:

• Any material differences related to matching the FRBNY statements of transactions for the period from January 1, 2010 to December 31, 2010 of export sales of petroleum, petroleum products and natural gas, as
recorded by the Iraqi State Oil Marketing Organization, to the amount deposited in the OPRA account.




• Any material difference that may be noted based on the auditor's recalculation of the amounts to be transferred from the OPRA account, pursuant to the allocation requirements of UNSCR 1483 paragraphs 20 and 21, and based on matching these payments to the cash deposited in the DFI and the cash transferred to the UN Compensation Fund.




• Any material differences in the United Nations confirmation regarding the amounts transferred from the OPRA account to the UN Compensation Fund during the year ending December 31, 2010.




7. Follow up on Matters Arising from Previous Year's Audit Reports


The auditor will deliver a separate report on actions or otherwise on matters which arose in the earlier audit reports with emphasis on the more important issues raised, such as oil metering, internal control assessment and contracting procedures.




http://www.cofe-iq.net/announcement/...work2-2010.pdf





Re: Review for the Development Fund for Iraq

This letter confirms (The auditor’s) understanding of our engagement to report upon our review of the Statements of Cash Receipts and Payments and the Oil Proceed Receipt account (hereinafter referred to as the " interim financial statements") of the Development Fund for Iraq (hereinafter referred to as the "DFI") for the period from 1 January 2010 to 30 June 2010 which is prepared in accordance with International Public Sector Accounting Standards "Financial Reporting Under the Cash Basis of Accounting" as issued by IFAC Public Sector Committee Standards (hereinafter referred to as "IPSAS").

Objectives and limitations of services
Review Standards
We will conduct our review in accordance with the International Standard on Review Engagements 2410 ("ISRE 2410"), "Review of Interim Financial Information performed by the Independent Auditor of the Entity". ISRE 2410 require that we plan and perform the review to reach to a conclusion that nothing has come to our attention that causes us to believe that the accompanying interim financial statements prepared in accordance with IPSAS do not give a true and fair view. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

A review does not contemplate obtaining an understanding of internal control or assessing control risk, tests of accounting records and responses to inquiries by obtaining corroborating evidential matter, and certain other procedures ordinarily performed during an audit. Thus, a review does not provide assurance that we will become aware of all significant matters that would be disclosed in an audit. Our engagement cannot be relied upon to disclose errors, fraud or illegal acts that may exist.

However, we will inform the appropriate level of management of any material errors that come to our attention and any fraud or illegal acts that come to our attention, unless they are clearly inconsequential. During review of the interim financial statements, we will not perform an audit of such financial statements, the objective of which is the expression of an opinion regarding the interim financial statements taken as a whole, and accordingly, we will not express such an opinion on them. Further, it should be understood that management is responsible for the representations contained in the interim financial statements including the notes thereto. We will request written representations from management concerning assertions made in connection with the review of the interim financial statements.




Our report will be addressed to the Government of Iraq (hereinafter referred to as the "GoI"), Committee of Financial Experts (hereinafter referred to as the "COFE") and the International Advisory and Monitoring Board (hereinafter referred to as "IAMB"). Circumstances may arise in which it is necessary for us to modify our report or withdraw from the engagement.


The GoI agrees that (The auditor), its partners, directors and employees shall not be liable to the GoI for any actions, damages, claims, liabilities, costs, expenses or losses in any way arising out of or relating to the services performed hereunder for an aggregate amount in excess of the fees paid by the GoI or the DFI to (The auditor) under this engagement. In no event shall (The auditor), its partners, directors, or employees be liable for consequential, special, indirect, incidental, punitive or exemplary damages, costs, expenses, or losses (including, without limitation, lost profits and opportunity costs) unless if result of negligent conduct. In furtherance and not in limitation of the foregoing, (The auditor) will not be liable in respect of any decisions made by the GoI, COFE and IAMB or any other parties as a result of the performance by (The auditor)of its services hereunder. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise.

By approving this engagement, you agree to release (The auditor) and its personnel from any claims, liabilities, costs and expenses relating to our services under this letter, except to the extent determined to have resulted from the intentional, gross negligent or deliberate misconduct of (The auditor) personnel. In the event that (The auditor) is required pursuant to subpoena or other legal process to produce its documents relating to engagements for the DFI in judicial or administrative proceedings to which (The auditor) is not a party, the GoI or the DFI shall reimburse (The auditor) at standard billing rates for its professional time and expenses, including reasonable legal fees, incurred in responding to such requests.


Management responsibilities
The GoI is responsible for the fair presentation of the interim financial statements and all representations contained therein, in accordance with Financial Reporting under the Cash Basis of Accounting as issued by IFAC Public Sector Committee Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. The GoI is also responsible for preventing and detecting fraud, for adopting sound accounting policies and for establishing and maintaining effective internal controls and procedures for financial reporting to maintain the reliability of the financial statements and to provide reasonable assurance against the possibility of misstatements that are material to the financial statements. The GoI is also responsible for informing us of all reportable conditions, of which it has knowledge, in the design or operation of such controls. The GoI is also responsible for identifying and ensuring that the DFI complies with the United Nations Security Council Resolutions 1483, 1546, 1637, 1859 and 1905 and laws, regulations, contracts and grants applicable to its activities, and for informing us of any known material violations of such laws and regulations.

The GoI agrees that all records, documentation and information we request in connection with our review will be made available to us, that all material information will be disclosed to us and that we will have the full cooperation of GoI personnel. As required by ISRE 2410, we will make specific inquiries of the GoI about the representations embodied in the interim financial statements. Responses to our inquiries, written representations and the results of review tests comprise the evidential matter we will rely upon in forming a review opinion on the interim financial statements.

The GoI is responsible for adjusting the interim financial statements to correct material misstatements and for affirming to us in the representation letter that the effects of any unrecorded misstatements aggregated by us during the current engagement and pertaining to the period under review are immaterial, both individually and in the aggregate, to the interim financial statements being reported upon taken as a whole. Because of the importance of the GoI’s representations to the effective performance of our services, the GoI agrees to release (The auditor)and its personnel from a ny claims, liabilities, costs and expenses relating to our services under this letter attributable to any misrepresentations in the representation letter referred to above and to indemnify (The auditor) and its personnel against any claims or legal actions resulting.



We may be requested to assist the GoI in drafting the interim financial statements and notes. In that respect, you confirm that the GoI will:




• Designate a qualified GoI individual to be responsible and accountable for overseeing the drafting of the interim financial statements;




•
Establish and monitor the performance of this engagement to ensure that it meets the GoI’s objectives;




•
Make any decisions that involve GoI functions related to the engagement and accept full responsibility for such decisions; and




•
Evaluate the adequacy of the interim financial statements and notes.




Work paper access by the GoI, IAMB and others

The work papers for this engagement are the property of (The auditor). Pursuant to the GoI, COFE or IAMB’s request, we may be required to make certain work papers available to the GoI, COFE or IAMB. Access to the requested work papers will be provided under supervision of (The auditor) personnel.

Other matters
This letter shall serve as the GoI’s authorization for the use of e-mail and other electronic methods to transmit and receive information, including confidential information, between (The auditor) and the GoI, between (The auditor) and the IAMB, and between (The auditor) and outside specialists or other entities engaged by either (The auditor), COFE the IAMB or the GoI. The GoI, COFE and the IAMB acknowledge that e-mail travels over the public Internet, which is not a secure means of communication and, thus, confidentiality of the transmitted information could be compromised through no fault of (The auditor).

Further, the GoI hereby grants, and shall request COFE and the IAMB to grant, to (The auditor)a limited, revocable, non-exclusive, non-transferable, paid up and royalty-free license, without right of sublicense, to use all names, logos, trademarks and service marks of the GoI and the IAMB for presentations or reports to the GoI, the DFI, COFE and the IAMB, and for marketing our services.

We understand that COFE and the IAMB wishes to publish a copy of the DFI 's reviewed interim financial statements, with our review report thereon, on COFE and the IAMB websites. While our report is published on COFE and the IAMB websites, the security and controls over the website, to maintain the integrity of our report, are the responsibility of COFE and the IAMB. In the event that we believe that use of our review report on COFE and the IAMB website is misleading, we reserve the right to require the report to be presented in a manner that is not misleading or withdraw permission for the report to be used electronically.




Provided no major unforeseen issues are encountered, we expect to be able to perform our review and deliver our draft reports for the period from 1 January to 30 June 2010 by 30 November 2010, or 90 days after the points noted in Appendix B are satisfied and based on the assumption that we will receive all information we need from the Iraqi Government including a complete interim statements of cash receipt and payment and Oil Proceed Receipt Account by 1 August 2010.


If the security situation in Baghdad does not allow our team to perform our work in accordance with the timetable, then we reserve the right to reschedule or cancel any of the visits after informing the contracting parties without penalty to (The auditor). The fees due to (The auditor)would then be limited to the work performed until such time (The auditor)withdraws its team from Iraq.

Responsibility for this engagement has been assigned by (The auditor) to, Partner, and other suitably qualified staff.


Professional fees for services
Please refer to Appendix A – Fees and Payment Schedule.

Contracting parties
Dispute resolution
Any dispute or claim arising out of or relating to the engagement letter between the parties, the services provided there under, or any other services provided by or on behalf of (The auditor)to the GoI, COFE and the IAMB shall be regulated exclusively by the provision of the Commercial Code and other valid legislation of the Iraqi Law. The Courts of Iraq shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning this engagement and any matters arising from it. Each party irrevocably waives any right it may have to object to an action being brought in those Courts, to claim that the action has been brought in an inconvenient forum, or to claim that those Courts do not have jurisdiction.

Termination

Our engagement may be terminated with immediate effect by either party by notice in writing to regular correspondence address of the other party marked for the appropriate partner or contact. In the event of termination, fees and expenses incurred to the date of termination are payable to (The auditor).



Key staff


(The auditor) should provide the names of key staff that will be performing the engagement. COFE should be informed of any subsequent changes.



Force Majeure




Neither we nor you should be liable in any way for failure, or delay in performing our respective obligations under this engagement if the failure or delay is due to causes outside the reasonable control of the party which has failed to perform.



******************




This engagement letter sets out the entire agreement and understanding between us in connection with our services. Any modification or variation to this letter must be in writing and signed by an authorized representative of each party. This engagement letter supersedes all previous arrangements and understandings between the parties with respect to the subject of this letter, which shall cease to have any further force or effect.


If the arrangements and terms outlined above are in accordance with your requirements and are acceptable to you, please sign the four original copies of this letter in the space provided below and return one of the copies to us.

In accordance with your instructions, we will forward signed copies of this letter to all members of COFE and the IAMB.

We shall be pleased to discuss this letter with you at any time.
We appreciate the opportunity to continue providing professional services to the Government of Iraq, COFE and the IAMB, and we renew our commitment to provide you with quality services in an efficient and timely manner.

Yours sincerely,

I have read and understood the terms and conditions of this letter and appendices and I agree to accept them for and on behalf of the Government of Iraq, by whom I am duly authorized






http://www.cofe-iq.net/announcement/review2-2010.pdf