Audit Committee activity report for the year ended 20 December 2016

 INTRODUCTION

According to good governance practices, supreme council must have a number of specialized committees in place so as to ensure it performs its duties effectively. one of these committee is an audit committee. This committee is comprised of 3 non executive members appointed by supreme council.

The Audit Committee examined the DAB’s financial reporting process on behalf of the Board of Directors. The DAB’s management has the primary responsibility for the financial statements, for maintaining effective internal control over financial reporting, and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the audit Committee reviewed and discussed the audited financial statements, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements.

Audit Committee discharged its responsibilities in accordance with Audit Committee Charter in the year 1395 ( 2016) in areas of internal control effectiveness, sound and transparent financial reporting practices, independent internal audit function external auditor performance and compliance with applicable laws and regulations.

Internal audit work plan was reviewed and approved by Audit Committee, in order to ensure independence of internal audit Function Comptroller General remuneration increment was also decided by Audit Committee.

The Audit Committee met on four occasions over the course of 2016, all meetings were chaired byDr. Shah Mohammad Mehrabi.attendance of the meetings are part of this report. These meetings, and the main issues discussed at them, are described below:

Audit Committee membership during the year

Committee member

Position

 

Experience background

 

Year's First meeting members

 

 

Shah Muhammad Mehrabi

Chief of Audit Committee

 

PhD economics, professor and author of many articles

 

Mr. Yasin Osmani

Member of Audit Committee

 

Master in Public Administration

 

Abdul Ghani Ghawsai

Member of Audit Committee

 

PhD. Economics

 

 

 

 

 

 

 

 

 

Year's Last meeting members

 

 

Shah Muhammad Mehrabi

Chief of Audit Committee

 

PhD economics, professor and author of many articles

 

Mr. Yasin Osmani

Member of Audit Committee

 

Master in Public Administration

 

 

 

 

Ms. Katrine Fakiri

Member of Audit Committee

 

Vast experience in finance and business

 

 

 

 

Financial Reporting

Audit Committee was briefed by CFO about compliance with monthly preparation of Performa balance sheet in accordance with DAB Law.

Audit Committee was also briefed about preparation of interim financial statements which was recommended  by IMF and Audit Committee.

Audit Committee assigned CFO to prepare detailed plan of automating remaining four branches via implementation of Core Banking Solution.

Audit Committee discussed major accounting issues between management and external auditors and advised both parties to come up with a proper solution in compliance with IFRS.

Accounting and Finance department capacity building program was discussed with Audit Committee and CFO  was instructed to prepare a detailed plan on how to enhance capacity through training and professional courses in accounting.

Audit committee advised on significant changes in staff pension scheme which shifted from defined benefit plan to unfunded defined contribution plan during April 2016.

Justification of profit transfer as per DAB law to ministry of finance was also discussed with Audit Committee.

Internal Audit

The Audit Committee’s functions include “supervision of the internal audit service” and “awareness and knowledge of the financial reporting process, internal control systems and the risks within organization.

In order to oversee the sufficiency, suitability and efficient working of the internal control, the committee received regular information in 2016 from the Comptroller General office.

The annual internal audit plan and the degree to which it had been met: progress and conclusions on the internal audit work performed, which essentially comprises the tasks of auditing financial statements, reviews of critical projects and construction work, and reviews of special areas, among others.

The overall performance of the Comptroller General Office as of year ended 2016 is as follow:

·  Audit of 43 areas which formulates 62.4% of the overall plan were audited

·  Audit of 8 areas which formulates 11.6% of the overall plan were in progress

· Audit of 10 areas which formulates 14.5% of the overall plan were in  plan.

·  Audit of 5 areas which formulate 7.2% of the overall plan couldn’t be conducted due to insecurity

· Continuous follow up of DAB Supreme Council and DAB Executive Board resolutions which formulates 4.3% of the overall plan

The overall audit reports include 350 recommendations, where comptroller general office conducted follow up of 211 recommendations, and 134 recommendations were implemented as the result of follow up.

It is worth mentioning, that most of the audits which were in progress and plan are completed.  

IT technical Audit was not performed due to lack of relevant expertise and hence was discussed with management and decision was taken to outsource IT security assessment by a separate tender. At the same time External Auditor IT team was given a special assignment to conduct a thorough assessment, this was done through engagement letter signed between DAB and E&Y.

The percentage of implementation of issued recommendations was reviewed and appropriate instruction was given to CG office for improvement.

Due to challenging and unfavorable  security situation in some areas of Afghanistan where onsite audit was not feasible audit committee approved remote offsite assessment procedures which involved self assessment audit policy.

Audit Committee finalized Audit Committee charter and it was approved by Supreme Council on proceeding meeting.

Meeting with IMF Safeguards assessment mission.

Teleconference call with IMF discussed issues related to vacant position within audit Committee which was caused due to resignation from Audit Committee membership.

Audit Committee Chief had also discussed the External Auditors Communication process with Audit Committee and elaborated that how audit committee ensured external auditors independence.

During the last meeting of the year 2016 Audit Committee pointed out on importance of IMF safeguard assessments recommendations and urged CFO and CG to implement the recommendations on priority basis.

External Audit

External auditors are Ernst & Young Ford Rhodes Sidat Hyder chartered Accountants of Ernst & Young Global Limited was appointed as per DAB Law and external auditor selection policy for the tenure of 3 years. External Auditors were recommended by Audit Committee after reviewing their proposal which explicitly mentioned their relevant central bank experience for many years. Audit Committee was satisfied with proposed staff and fees arrangement with mentioned firm.

During the year Audit Committee had three meeting with External auditors and following issues were discussed thoroughly.

1)      Audit Committee discussed external audit work plan and reviewed their proposed timeline for the year ended 2015 financial statements audit.

2)      Audit Committee asked external auditors to conduct a thorough and detailed

3)       IT assessment of DAB IT controls. External auditors submitted the result of their assessment and recommendation at the last meeting.

4)      External auditors discussed their recommendations with Audit Committee where an audit Committee communicated them to management and advised them to make necessary arrangements to remove the control weaknesses in financial reporting.

5)      Management letter of the External Auditors was presented and discussed at the Audit Committee meeting and Comptroller General Office was instructed to make the necessary implementations of all the observations made by the external auditors and to include them in the follow up audit plans.