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FINANCIAL AUDITS OF MULTILATERAL CREDIT AGENCIES LOANS WITH PARTICULAR REFERENCE TO THE WORLD BANK AND

THE INTER-AMERICAN DEVELOPMENT BANK

Speaker: Dr. César Arias

Auditor General of the Republic of Argentina

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CREATION OF THE WORLD BANK AND THE INTER-AMERICAN DEVELOPMENT BANK

• WORLD BANK: BRETTON WOODS CONFERENCE, 1944

FORMED BY THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION

• INTER-AMERICAN DEVELOPMENT BANK, 1959

FORMED BY THE INTER-AMERICAN INVESTMENT CORPORATION AND THE MULTILATERAL INVESTMENT FUND

• OBJETIVES: PROMOTING THE DEVELOPMENT OF REGIONAL ECONOMIES

PROVIDING LOW INTEREST LOANS, GRANTS AND FINANCIAL AID

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PROGRAMS APPROVED FOR ARGENTINA

Purpose Total Incidence

over total

Social 12 20.00%

Environment 9 15.00%

Infraestructure 9 15.00%

Trade Strengthening 8 13.33%

State Reform / Institutional Strengthening 7 11.67%

Financial Reform 5 8.33%

Education 5 8.33%

Health 4 6.67%

Technological Modernization 1 1.67%

Grand Total 60 100.00%

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AUDIT GUIDELINES

– Should comply with International Audit Standards and those issued by organizations such as INTOSAIExceeds the parameters of a financial audit since it also requires:

A more detailed review of the eligibility of the expenses reported to the Bank.

An opinion on the agency’s compliance with the terms of the loan agreement and with the applicable laws and regulations

A report on the project’s internal controls, and, as may be the case, disclosure of the current situation of the findings and recommendations made by previous audits.

Include a summary of the audit procedures that were completed

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An Audit Report on Multilateral Credit Organizations’ projects includes:

• Reports on financial statements. • Report on disbursement requests.• Report on degrees of compliance with

contractual clauses.• Report on internal control (memorandum).• Statement of auditing procedures.• Certifications of disbursement requests (ex-post

analysis).

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OBSERVATIONS USUALLY DETECTED IN THE REPORTS

8,3%0,0%

11,7%63,3%11,7%21,7%23,3%0,0%1,7%1,7%

16,7%6,7%

10,0%6,7%

41,7%11,7%28,3%30,0%13,3%13,3%8,3%

16,7%10,0%10,0%5,0%

55,0%

Irregularities in reports

Contracting proceduresBreach of contracts and arrearsWorks and Certif. Monitoring

Goods & equip. 4,7%Payments

Finding detailPercentage over

total casesIncidence of the FindingCategories

Procurement procedures

Irregularities on inventory

Consultants

Payments

28,1%

TrainingPayments

0,8%

Selection or Contracting proceduresBreach of contractIrregularities in reports

Selection or Contracting procedures

Inappropriate use of fundsFunds Management 11,3%

Travel Control

Registration

Administrative Accounting Procedures

Bank reconciliation

Works

Payments

9,4%

Internal Control

Program ExecutionUnder-execution

16,4%

Advance reportNon compliance with operational guidelinesIrregularities regarding beneficiaries

29,3%Failure in Accounting System

Failure to comply with Tax Authority RulesPayment procedures

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COMMITMENT FEES

• These are fees paid on the non-disbursed loan amounts

• In case of implementation delays, the disbursements are delayed and the fees to be paid are considerably increased

• The responsibility for under-execution falls on the borrowing countries, although the design of the Programs is developed and imposed by the Lender

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AVERAGE RATE OF ARGENTINE PUBLIC DEBT INSTRUMENTS

GOVERNMENT SECURITIES – TREASURY BILLS Domestic currency Bonds with inflation adjustment Domestic currency Bonds w/o inflation adjustment US Dollar denominated BODEN US Dollar denominated Securities Euro denominated Bonds Yen denominated Bonds GUARANTEED LOANS INTERNATIONAL AGENCIES GOVERNMENT AGENCIES COMMERCIALBANKS AND OTHER CREDITORS GUARANTEED DEBT - BOGAR

3,31% 5,05% 5,16% 4,49% 3,42% 1,18% 4,32% 5,86% 4,73% 2,95% 2,00%

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EXAMPLES IN ARGENTINAIDB LOAN ENVIRONMENTAL MANAGEMENT “ MATANZA-

RIACHUELO BASIN”

• LOAN AMOUNT: Originally USD 250,000,000. Reduced to USD 100,000,000.

• Under-execution of the Program resources, with the consequent financial cost and inefficiency this implies. Only flood control and ship removal works were carried out.

• Program budget amount USD 100,000,000 from IDB and USD 91,633,742.47 of Local Counterpart.

• AMOUNT DISBURSED AS AT 12/31/2005: IDB USD 9,988,371.68 AND USD 75,926,519.94 Local Counterpart.

• As at 12/31/2001 the Bank had disbursed USD 7,077,360 and on said amount, as evidenced by the accounting information, as at that date financial charges for USD 8,964,712 had accrued (126.6% of the disbursed amount).

• AMOUNT EXECUTED AS AT 12/31/2005: IDB USD 9,751,591 and Local Counterpart USD 75,908,136 of which 40 % is pending recognition by the IDB.

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NATIONAL PUBLIC SECTOR DEBT

Balance as at December 31, 2006, in US millions

TOTAL 136.725.405 100%

GOVERNMENT SECURITIES 80.398.468 59%

- Domestic currency 31.564.726 23%

- Foreign currency 48.833.742 36%

LOANS 56.326.937 41%

INTERNATIONAL AGENCIES 15.154.949 11%

- IBRD 6.283.099 5%

- IDB 8.703.828 6%

- FONPLATA 64.277 0%

- IADF 6.150 0%

- CAF 97.595 0%

BALANCE 41.171.988 30%

"HOLD OUTs"    

- Total 26.076.250

- W/o outstanding interests 19.118.691  

TOTAL with "HOLD OUTs" in debt swap 155.844.096  

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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

TOTAL PUBLIC DEBT 71.112 81.820 88.711 99.046 103.718 114.134 123.366 129.750 144.222 152.974 178.768 191.296 129.227 136.725

GOVERNMENT SECURITIES AND TREASURY BILLS 48.401 57.109 59.048 69.393 74.801 82.363 91.555 98.895 83.051 83.477 87.004 82.016 64.089 80.398

LOANS AND ADVANCES 22.711 24.711 29.663 29.653 28.917 31.771 31.811 30.855 61.143 58.032 63.874 63.950 61.013 50.950

INTERNATIONAL AGENCIES 10.944 11.627 14.862 16.257 16.795 19.167 20.311 21.757 32.357 31.376 32.115 30.601 25.260 15.155

ARREARS PENDING RESTRUCTURING 0 0 0 0 0 0 0 0 28 11.465 27.890 45.330 4.125 5.377

"HOLD OUTs" 0 0 0 0 0 0 0 0 0 0 0 0 23.556 26.076

TOTAL with "HOLD OUTs" in debt swap 71.112 81.820 88.711 99.046 103.718 114.134 123.366 129.750 144.222 152.974 178.768 191.296 152.783 162.801

Source: Secretary of Finance

NATIONAL PUBLIC SECTOR DEBTBalance as at December 31, in US millions