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Cablegate: Minister of Finance Welcomes U.S. Technical Assistance On

VZCZCXRO1645
PP RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #4091/01 3551004
ZNR UUUUU ZZH
P 211004Z DEC 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 4220
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0955
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS SECTION 01 OF 02 KABUL 004091

SENSITIVE
SIPDIS

DEPT FOR S/SRAP AND SCA/A
TREASURY FOR LMCDONALD, MNUGENT, JCASAL

E.O. 12958: N/A
TAGS: EFIN EAID PGOV PREL AF
SUBJECT: MINISTER OF FINANCE WELCOMES U.S. TECHNICAL ASSISTANCE ON
INTERNAL AUDIT

1. (SBU) Summary: On December 16, Coordinating Director for
Development and Economic Affairs (CDDEA) E. Anthony Wayne met with
Afghan Minister of Finance, Omar Zakhilwal, to discuss the internal
audit capability of the Ministry of Finance (MOF). CDDEA Wayne also
introduced Bob Cortesi, a visiting Treasury advisor assessing MOF's
needs for internal audit technical assistance. Due to the recent
reinstatement of Article 61 by the Ministry of Justice, MOF again
has authority to audit all line ministries in the Government of the
Islamic Republic of Afghanistan (GIRoA). (Note: We are seeking
confirmation that the MOJ letter can overturn the Presidential
decree that had revoked Article 61.) Minister Zakhilwal noted that
despite this authority, MOF's Internal Audit Department (IAD) does
not yet have the capacity to execute audits across ministries. He
noted that assistance to build this capacity was both welcome and
needed. End summary.

MINISTRY OF FINANCE'S CAPACITY FOR INTERNAL AUDIT REMAINS LIMITED

2. (SBU) Minister Zakhilwal stated that the reinstatement of Article
61 of the Public Finance and Expenditure Management Law has granted
MOF enormous authority and responsibility to conduct audits of all
ministries within GIRoA. Despite this authority, the Minister
indicated that he did not believe IAD has the capacity to
effectively execute this charge. Minister Zakhilwal also expressed
lack of confidence in the IAD and pointed out that, while he is
personally following several "serious cases" of corruption within
GIRoA, he is doing so without IAD involvement. Moreover, Zakhilwal
also pointed out that he does not "trust anyone beyond the Ministry"
to handle sensitive, corruption-related cases that come to his
attention.

3. (SBU) Minister Zakhilwal's goal is to make IAD a "lean, clean,
and capable" department. His short-term focus is to increase IAD's
ability to conduct audits within MOF. Then, once capacity has been
increased, IAD will begin to audit other ministries. Zakhilwal
noted this will require stronger leadership within IAD. Zakhilwal
said if he stayed on as Minister of Finance, he would replace the
Director General of the IAD and people in several other key
positions at MOF with more "effective leaders." (NB: President
Karzai announced Zakhilwal's reappointment as Finance Minister on
December 19.)

4. (SBU) Treasury Advisor Bob Cortesi outlined the initial results
of his assessment of the IAD. Overall, he was impressed with many
of the structures and procedures in place. He credited much of this
success to the World Bank's continuing provision of training,
development of manuals and procedures, and logistical support to
IAD. Mr. Cortesi noted future assistance by the Treasury's Office
of Technical Assistance is designed to build upon the strong
foundations established by the World Bank and other donor programs,
rather than duplicate efforts. He also noted that the World Bank is
"very supportive" of Treasury's proposal and views it as a positive
development in an important area of public financial management.
Mr. Cortesi recommended that the Minister of Finance consider having
Treasury provide the following technical assistance positions in
MOF:

- One resident advisor to assist in the design and implementation of
new audit responsibilities designated under Article 61. The advisor
would assist the Director General of IAD in developing staffing
plans, audit programs, techniques, training, and mentoring in the
area of financial audits. (Additional support in this area may
result in the deployment of an additional resident advisor(s) and/or
intermittent advisory assistance).

- One advisor to assist in developing and providing audit programs,
procedures, audit plans, training and mentoring on performing
Information Technology (IT) systems audits. (The government
currently has several IT systems and databases which support
government functions and can be subjected to audit, including AFMIS
(financial), ASYCUDA (Customs), and TIN (Tax).

- Mr. Cortesi also suggested placing advisors to help improve the
current audit resolution procedure. Minister Zakhilwal reacted
positively to the proposed positions and asked for greater support
in improving the Financial Investigative Unit (FIU), which conducts
IAD's investigations. Mr. Cortesi, who has more than 30 years of
investigative experience, said he would work on developing an
investigative training plan when he returns in mid-January.

MINISTER OF FINANCE SEEKS QUICK "BIG WINS" THROUGH INTERNAL AUDIT

5. (SBU) Minister Zakhilwal noted his main frustration with the
current Deputy General, Mohammad Dindar, was that he focused on
"trivial cases" rather than searching out big money cases.
Zakhilwal noted his respect for DG Dindar's attention on process but
emphasized the need for "big wins." The difference in focus is

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reflected in differing strategies for expanding MOF's internal audit
operations out to other ministries: DG Dindar's plan is to
initially focus on six ministries, building up capacity and
processes; Minister Zakhilwal however said he prefers a more
aggressive and targeted approach focused on investigating
"important" cases, where large sums of money are at stake,
regardless of ministry.

6. (SBU) Comment: We welcome Minister Zakhilwal's attention to
improving internal audit but remain concerned that he may be looking
for "big wins," at the expense of establishing greater long-term
technical capacity and sound procedures. Zakhilwal's audit bodies
must be able to walk before they can run. Technical advice provided
by the U.S. Treasury to MOF will emphasize the importance of
establishing high-quality internal audit practices and procedures to
prevent fraud and abuse. End comment.

RICCIARDONE

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