Minutes of the meeting held at the Arab Fund Offices in Kuwait on 17 and 18 March 2004

Minutes of the meeting held at the Arab Fund Offices in Kuwait on 17 and 18 March 2004. World Bank: Mr. Fayezul Choudhury, Vice-President and Controller Observer's Representative: Mr. Faik Ali Abdul-Rasool, Deputy Minister, Ministry of Planning and Development Cooperation (representing Dr. Mehdi Hafedh, Minister of Planning and Development Cooperation and Chairman of the Iraqi Strategic Review board for the Reconstruction of Iraq) The Arab Fund for Economic and Social Development: Mr. Hassab El Rasoul El Obeid, Legal Advisor, Arab Fund for Economic and Social Development Mr. Shehab Bayoumi, Financial Advisor. Legal Advisor, Arab Fund for Economic and Social Development Mr. Chris Hemus, Deputy Chief, Finance Department Mr. Bisrat Aklilu, Executive Coordinator, Iraq Trust Fund Mr. Charles McDonough, Director, Accounting Department Iraq Board of Supreme Audit Mr. Ihsan Ghanim Dr. Ala'a Alani The meeting was opened by the Chair Executive Session The members undertook a preliminary review of the information provided by the Coalition Provisional Authority regarding the selection process for the external auditor. Briefing by the CPA As part of its responsibility for monitoring the financial reporting and internal control systems established by the CPA, the IAMB received from the CPA further briefing on the issues covered by the CPA at the IAMB previous meeting. The issues related to metering of crude oil, barter transactions, the use of non-competitive bidding procedures and the preparation of DFI financial statements in line with appropriate international standards on financial reporting. Metering The IAMB was informed that crude oil extraction is currently not metered. This precludes a reconciliation of all crude oil extracted with its eventual utilization and represents an internal control weakness which needs to be addressed urgently. The IAMB was informed of the steps taken by the CPA to mitigate the consequences of such weakness and to curtail smuggling. The IAMB welcomed these interim steps and recommended the expeditious installation of metering equipment in accordance with standard oil industry practices. The IAMB was also informed that oil products were being metered at depots and service stations. Bartering The IAMB was informed that the bartering of residual fuel oil for light products had been discontinued. There is however bartering of residual fuel and crude oil for electricity and other products with neighbouring countries. The IAMB was concerned that such barter transactions are not reflected in the DFI as required by UN SCR 1483 (2003). The CPA indicated that it is investigating possible ways to ensure that the equivalent proceeds from such transactions are placed into the DFI and the IAMB looks forward to an early resolution of this issue. Sole Source Contracts Upon inquiry, the IAMB was informed that some contracts using DFI funds were awarded to Halliburton without competitive bidding. The CPA indicated that as a general rule, effective January 2004 contracts were no longer awarded without competitive bidding. The IAMB acknowledged that special circumstances may have warranted sole-sourced contracts and welcomed steps taken by the CPA to limit future such contracts to exceptional circumstances. At the same time the IAMB decided to consider further steps, such as the conduct of a special audit of some of the sole-sourced contracts. The IAMB decided that it will continue to monitor closely these issues, and will direct the DFI external auditor to pay special attention, as appropriate. The IAMB also expressed its thanks to the representatives of the CPA for the useful briefings provided The IAMB reiterated its view that the financial statements of the DFI need to be prepared in line with the appropriate international standards on financial reporting. The IAMB, following discussion with the CPA, believes such information is available to the CPA. In addition, it was agreed that the DFI's weekly statements issued by the CPA would be linked to the IAMB website to ensure wider availability, Since the nomination and appointment by the CPA Administrator of the DFI external auditor is subject to approval by the IAMB, the CPA briefed the IAMB on the evaluation process of the solicitations received from external audit firms. Based on the information obtained by the IAMB, which was not available to the CPA's selection committee at the time the evaluations were made, the IAMB concluded that one candidate nominee firm did not meet the criteria. The IAMB sought supplemental information from the CPA regarding the other nominee firm. Following receipt of such information after the meeting, the IAMB on March 24, 2004 approved the CPA's nomination for the external auditor noting the international competency and international composition of the audit team including the commitment by the firm to include in its team internationally experienced and specialized audit partners. Observers Deputy Minister Faik Ali Abdul-Rasool, representing the Observer, Minister Mehdi Hafedh, requested that persons representing the Iraqi Governing Council be given the right to vote. The IAMB stated that it welcomed the presence of Iraqi nationals at its meeting and that it looked forward to attendance by Iraqi nationals at future meetings. However, the IAMB indicated that acceding to this specific request would require amendments to the IAMB's Terms of Reference. Further, such Iraqi participation raises a number of complex legal issues, including under UN SCR 1483 (2003). In light of these constraints, the IAMB strongly encouraged the presence of Iraqi nationals at its future meetings, stating that such participation would allow them to communicate their views to the IAMB and that the IAMB, for its part, would give the fullest consideration to these views. Post June 2004 The IAMB began a review of ways in which the functions of the IAMB could be transferred to an Iraqi entity at a suitable time, in view of the envisaged handover of power to an interim Iraqi administration on June 30, 2004. In this context, the IAMB welcomed the opportunity to exchange views with representatives of the Iraq Board of Supreme Audit and expressed its thanks to the representatives of the Board of Supreme Audit for providing the IAMB with information on the Board of Supreme Audit's operations in Iraq. The IAMB also decided that it would further examine ways to involve the Board of Supreme Audit more actively in the IAMB's work The members agreed to issue a press release highlighting the results of this meeting and to post this press release on the IAMB website. The minutes for the 12 th –13 th February meeting of the IAMB were adopted and posted on the website. The venue and date of the next meeting would be determined at a later date, and will be announced on the website. The meeting was adjourned on Thursday 18 March 2004.