1 ASIAN INSTITUTE OF TECHNOLOGY SUMMARY REPORT OF THE AUDIT COMMITTEE MARCH, 2006

2 COVERAGE MANDATE OF THE AUDIT COMMITTEE FOCUS OF SUMMARY REPORT BACKGROUND/OBSERVATIONS PRESENT SITUATION NEXT STEPS/RECOMMENDATIONS SUMMARY

3 AUDIT COMMITTEE MANDATE THE AUDIT COMMITTEE HAS BEEN MANDATED TO: –REVIEW FINANCIAL REPORTS –REVIEW INTERNAL CONTROL –REVIEW COMPLIANCE WITH POLICIES TO PROTECT, PRESERVE AIT ASSETS AND USE THESE FOR ITS OBJECTIVES –RECOMMEND THE APPOINTMENT OF EXTERNAL AUDITORS

4 AC MANDATE – CONTD –ASSESS RESULTS OF AIT OPERATIONS AND REPORT TO THE EXCOM WITH RECOMMENDATIONS –REVIEW WORK PROGRAM OF INTERNAL AUDITOR –PREPARE AN SUMMARY OF ACTIVITIES FOR EXCOM –PERFORM OTHER TASKS ASSIGNED BY THE EXCOM

5 FOCUS OF SUMMARY REPORT STATE OF FINANCIAL AFFAIRS OF AIT COMMENTS ON OPERATIONAL ISSUES

6 BACKGROUND/OBSERVATIONS PRESENT AUDIT COMMITTEE CONSTITUTED IN JUNE, 2005 FIRST KEY TASK – REVIEW OF 2004 ACCOUNTS WHICH WAS DELAYED PENDING CLARIFICATION OF VARIOUS POINTS INCLUDING: –PRESENTATION OF ACCOUNTS –FUND ACCOUNTING AND REPORTING PRACTICES –REPORTING OF REVENUES AND EXPENSES

7 BACKGROUND – CONTD NEGATIVE CASH BALANCES SHOWN IN ACCOUNTS UNCLEARED AND LONG OUTSTANDING ACCOUNTS IN SOME FUNDS INDICATIONS OF POSSIBLE OVERSPENDING SHOWN IN OPEN PROJECTS FROM PREVIOUS YEARS SOME UNCLEAR PRACTICES ON RECORDING ASSETS INSUFFICIENT FINANCIAL INFORMATION FOR THE EXCOM DISCUSSED THESE POINTS WITH THE PRESIDENT, CFO AND CIA AND REPORTED TO THE EXCOM IN DECEMBER, 2005 THAT ACTIONS ARE NEEDED TO CLEAN UP ACCOUNTS WITH OBJECTIVE OF HAVING A CLEAR FINANCIAL PICTURE OF 12/31/05 ACCOUNTS.

8 BACKGROUND – CONTD AS PART OF ONGOING EFFORTS PRESIDENT ALSO FORMED TASK FORCES TO ADDRESS FINANCIAL AND OTHER ISSUES AND ENGAGED KPMG SWEDEN TO PERFORM A REVIEW AUDIT COMMITTEE CONTINUED DISCUSSION AND MONITORING THE FINALIZATION OF THE 2004 AUDIT. ALSO MONITORED THE CLEARING OF THE 12/31/05 ACCOUNTS

9 PRESENT SITUATION KEY QUESTIONS TO ANSWER: –DO OUR FINANCIAL REPORTS REFLECT THE TRUE STATE OF AFFAIRS OF THE INSTITUTE? –HOW CRITICAL IS OUR CASH POSITION? –WHAT ARE THE IMMEDIATE ACTIONS THAT WE SHOULD TAKE TO IMPROVE OUR CONTROLS AND PROCEDURES?

10 PRESENT – STATE OF AFFAIRS UNAUDITED FINANCIAL REPORT –REFLECTS CLEARING UP ACTIONS, INCLUDING MAJOR ADJUSTMENT FOR: WRITE OFF OF DISBURSEMENTS FROM AGENCY FUND (B66.6M) WRITE OFF OF UNCOLLECTIBLE RECEIVABLES (B4.5M) CLOSING OF LONG OUTSTANDING ACCOUNTS IN SOME FUNDS BASED ON CONTINUING REVIEW –OTHER POTENTIAL AREAS THAT MAY NEED ADJUSTMENTS: OUTSTANDING UNCOLLECTIBLE RECEIVABLES/ ADVANCES FOR PROJECTS UNACCOUNTED FIXED ASSETS/ RECONCILIATION WITH RECORDS ACCURACY OF BALANCES OF FUNDS HELD ON BEHALF OF DONORS/PROJECT SPONSORS ACCOUNTING FOR ALL OTHER INVENTORIES (SUPPLIES/ SPARE PARTS, ETC.)

11 PRESENT – STATE OF AFFAIRS OUR CASH POSITION 12/31/2005 INDICATES THERE IS VERY LITTLE FREE CASH AVAILABLE. HOWEVER WE HAVE FUNDS RECEIVED IN ADVANCE FROM DONORS AND SPONSORS THAT WILL BE EARNED AS AIT REVENUES ON A CONTINUING BASIS. WE NEED TO CLOSELY FOCUS ON EFFICIENT CASH MANAGEMENT.

12 PRESENT – ACTIONS NEEDED MAINTAIN SEPARATE FUND BANK ACCOUNTS – PARTICULARLY FUNDS HELD FOR OTHERS COLLECT AND KEEP RECEIVABLES AND ADVANCES TO A MINIMUM UNDERTAKE A PHYSICAL INVENTORY OF FIXED ASSETS AND RECONCILE WITH ASSET REGISTER UNDERTAKE REVIEW OF UNUSED SUPPLIES, SPARE PARTS AND OTHER ITEMS – REVIEW EFFECTIVENESS AND EFFICIENCY OF PROCUREMENT PROCEDURES

13 PRESENT – ACTIONS NEEDED ASSIGN SPECIFIC RESPONSIBILITY AND ACCOUNTABILITY FOR PROJECTS/ SPONSORED PROGRAMS ESTABLISH CLEAR RESPONSIBILITIES AND AUTHORITY FOR PAYMENTS FROM FUNDS TO AVOID UNAUTHORIZED TRANSACTIONS – HAVE A CONTROLLERSHIP FUNCTION REVIEW ACCOUNTING SYSTEM AND PROCEDURES AND REPORTING FORMATS

14 PRESENT – ACTIONS NEEDED REVIEW POSSIBILITY OF USING AVAILABLE AITCV FUNDS CLARIFY UNEP RELATIONSHIPS FOR PROPER RECOGNITION OF REVENUES AND COSTS URGE FASTER COMPLETION OF RESEARCH PROJECTS AND PROGRAMS ALL RESEARCH PROJECTS SHOULD CARRY AN OVERHEAD RECOVERY FACTOR TO COMPENSATE FOR THE USE OF AIT RESOURCES

15 PRESENT – ACTIONS NEEDED CONTINUE TO IMPROVE BUDGETING PROCESS AND STRICTLY MONITOR ACTUAL RESULTS WITH BUDGETS AND TARGETS ON A TIMELY BASIS. MAKE ADJUSTMENTS TO REFLECT CHANGING CONDITIONS AS NEEDED COORDINATE AND MAKE USE OF THE OBSERVATIONS/RECOMMENDATIONS OF KPMG CONSULTANT FOR APPROPRIATE IMPROVEMENTS IN AIT PROCESSES

16 OPERATIONAL MATTERS COMBINED REVENUE GENERATING ACTIVITIES – RESULT IN DEFICITS. DEFICITS MAY HAVE TO BE COVERED BY UNRESTRICTED CONTRIBUTIONS AND OTHER MEANS STRATEGIC DIRECTION SHOULD BE FINALIZED AND ALIGNED WITH BUDGETS ESTABLISHED WITH A VIEW TOWARDS LONG-TERM SUSTAINABILITY ORGANIZATION AND FINANCIAL REPORTING SHOULD BE ALIGNED FOR BETTER MONITORING OF PROGRESS AND ACCOUNTABILITY PRACTICE OF OVERHEAD RECOVERY SHOULD BE STRICTLY IMPLEMENTED TO RECOGNIZE THE USE OF AIT RESOURCES EFFICIENT AND FAST COMPLETION OF RESEARCH PROJECTS WOULD ENABLE AIT TO RECOGNIZE REVENUES FASTER

17 OPERATONAL MATTERS – CONTD AUXILIARY SERVICE ACTIVITY RESULTS SHOULD BE REVIEWED AND MONITORED CONSTANTLY REVIEW OF ALL COSTS SHOULD BE DONE TO IDENTIFY AREAS OF POTENTIAL SAVINGS POLICY ON DEPRECIATION SHOULD BE REVIEWED AS TO THE NEED TO AVOCATE FUNDS FOR REPLACEMENT OF FIXED ASSETS INTERNAL AUDIT PROGRAM AND CONCENTRATION SHOULD BE ON OPERATIONAL MATTERS AND FOLLOWING UP ON OUTSTANDING CLEARING UP MATTERS RECOGNITION OF RISKS INHERENT ON INSTITUTE ACTIVITIES – INCLUDING EXCHANGE RISKS, OPERATIONAL RISKS AND LIQUIDITY RISKS

18 SUMMARY THERE HAS BEEN SIGNIFICANT EFFORT AND PROGRESS ACHIEVED IN CLEANING UP THE 12/31/05 ACCOUNTS BUT THIS SHOULD BE CONTINUED AND MONITORED CLOSELY. EFFORTS TO FURTHER IMPROVE THE REPORTING OF RESULTS TO THE MANAGEMENT, EXCOM AND BOARD OF TRUSTEES SHOULD BE CONTINUED.

19 SUMMARY WITH THE COMING CHANGE IN KEY PERSONNEL IN FINANCE AND INTERNAL AUDIT, CLOSER SUPERVISION AND MONITORING IS NECESSARY. SUGGEST THE APPOINTMENT OF AN ADDITIONAL RESIDENT EXCOM AS A RESOURCE TO THE AUDIT COMMITTEE FOR URGENT CONSULTATION.

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