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ASSEMBLY - 36TH SESSION

ADMINISTRATIVE COMMISSION

Agenda Item 57: Review of expenditures, approval of accounts and examination of AuditReports for the financial years 2004, 2005 and 2006

FINANCIAL STATEMENTS AND REPORTS OF THE EXTERNAL

AUDITOR FOR THE FINANCIAL YEAR 2006

(Presented by the Council of ICAO)

EXECUTIVE SUMMARY

This paper presents the Financial Statements of the Organization for the financial year 2006, theAuditors Report, which contains the audit opinion on the financial statements and the Report of theExternal Auditor to the Assembly, which contains a long-form audit report on the audit of theOrganization, as well as the Secretary Generals Response to the Report of the External Auditor, ascontained in Document 9890.

The status of implementation of recommendations issued by the External Auditor in her report on the2005 accounts and reports of prior years accounts is included in Appendix A.

Draft Resolutions for the consideration of the Assembly are in Appendix B.

Action: The Council recommends that the Assembly:

a) note the Auditors Report and the Report of the External Auditor to the Assembly relating to the

2006 accounts and the Response of the Secretary General to the Report of the External Auditor

contained in Document 9890, and the report on the status of implementation of the External

Auditors prior years recommendations (Appendix A);b) approve the audited accounts of the Organization for the financial year 2006 contained in

Document9890 including the accounts with respect to the UNDP activities (Schedule C.1 in theFinancial Statements) executed by the Organization.

Strategic

Objectives:

This working paper relates to Supporting Implementation Strategy 1 and does not relate

to any Strategic Objective.Financialimplications:

Not applicable.

References: Chapter VIII, Article 49(f) of the ConventionDoc 9848,Assembly Resolutions in Force (as of 8 October 2004)Doc 7515/12, The ICAO Financial Regulations

International Civil Aviation Organization

WORKING PAPER

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1. INTRODUCTION

1.1 This working paper presents the financial reports on the year 2006. The audited financialstatements of the Organization, two audit reports, the Auditors Report, which contains the audit opinion

on the financial statements, the Report of the External Auditor to the Assembly, which contains the

long-form audit report, and the Secretary Generals response to the Report of the External Auditor in

Document 9890.

1.2 The format and presentation of the financial statements for the year ended31December 2006 have not been significantly changed compared to 2005. However, further changes are

anticipated in the forthcoming years as the Organization moves to simplify the reporting and to keep pace

with the implementation of the International Public Sector Accounting Standards adopted by the

United Nations.

1.3 The status of implementation of recommendations issued by the External Auditor in herlong-form report on the 2005 accounts and reports of prior years accounts, has been presented and

considered by the Council during its 181st Session, in accordance with C-DEC 174/11 and is presented to

the Assembly in Appendix A.

2. REPORTS OF THE EXTERNAL AUDITOR

2.1 The External Auditor has provided two audit reports. The Auditors Report contains an

audit opinion on the financial statements of the Organization, without reservation, that the financial

statements of the Organization for 2006 presented fairly, in all material respects, the financial position of

the Organization as at 31 December 2006 and the results of its operations, and that the transactions of the

Organization that came to her notice during her audit of the financial statements had, in all significantrespects, been in accordance with the Organizations Financial Regulations and legislative authority.

As required by the Financial Regulations, the External Auditor reported that, in her opinion, the

accounting principles have been applied on a basis consistent with that of the preceding year.

2.2 The External Auditor has also reported in the Report of the External Auditor to theAssembly the results of the examination of selected activities of the Organization and made

recommendations for the consideration of the Organization; and the Secretary Generals Response to the

Report of the External Auditor and the proposed action on the recommendations are presented in

Document 9890.

3. REVIEW BY THE COUNCIL

3.1 On 15 June 2007, the Council reviewed the Financial Statements of the Organization for

the financial year 2006, the audit reports thereon and the Secretary Generals Response to the Report of

the External Auditor (Document 9890). The Council also reviewed and considered the report of the

Secretary General on the status of the prior years recommendations of the External Auditor

(AppendixA). After careful consideration of the Financial Statements and the Auditors Report, theReport of the External Auditor to the Assembly and the Secretary Generals Response to the Report of the

External Auditor, the Council agreed to transmit the document and to recommend action to the Assembly

as reflected in the Draft Resolutions in Appendix B.

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Appendix A

APPENDIX A

STATUS REPORT OF THE EXTERNAL AUDITORS

RECOMMENDATIONS ON THE 2005 AND PRIOR FINANCIAL YEARS

1. INTRODUCTION

The Council, at the 11th meeting of its 174th Session, inter alia:

a) agreed to examine annually, each May/June Session, the status and schedule of

implementation of recommendations by the External Auditor in previous reports.This examination would be a separate exercise from the customary presentationof and reaction to the External Auditors report concerning the year just ended;and

b) established a general rule that the External Auditors recommendations, whereaccepted, be implemented within a year of the publication of the report, unlessthe Secretary General makes a proposal for an extension that is agreed by theCouncil.

2. STATUS OF RECOMMENDATIONS

2.1 This status report provides a listing of the recommendations made by the External

Auditor in 2005 and prior years as of 31 March 2007. For each outstanding audit recommendation, the

information presented includes the year of the audit report in which the recommendation was made, the

paragraph number of that report, a description of the recommendation made by the External Auditor, an

unaudited commentary on progress made in implementing the recommendation, its current status and its

expected completion date.

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2. RECOMMENDATIONS OF THE EXTERNAL AUDITOR REPORTED IN 1998

2.1 Cash Management

No. Audit Report Year,Paragraph Number and

Recommendation

Implementation Progress/Comments

2.1.1 1998 - Paragraph 89The accounting system be modernized in

order to facilitate timely action, including

payment on due dates.

Action to modernize the accounting system is underway. Payments wil

be better controlled in a new system. In the meantime, all invoice

payable are carefully monitored to ensure timely payments.


3.1 Universal Safety Oversight Audit Programme (USOAP)


Recommendation


3.1.1 1999 - Paragraph 47Resource issues at Headquarters and

Regional Offices should be resolved in

order to meet the necessary commitment of

resources in safety oversight audit

activities.

Resource requirements for the Universal Safety Oversight Audi

Programme (USOAP) are being addressed through the long-term

secondment of officials from States.

All long term seconded officers have now joined the SOA section. Thi

matter is now closed.

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4.1 Human Resource Management


Recommendation


4.1.1 2000 - Paragraph 64Ensure that adequate funding is provided to

improve management and recruitment

practices.

On the issue of management training and recruitment practices se

replies to paras. 7.3.3, 7.3.4 and 7.3.5 below. Managemen

competencies have been identified and part of training funds may b

allocated to improve management and recruitment practices. In

addition, the Secretary General had appointed a Performanc

Management Committee with the aim of developing a new Performanc

and Competency Enhancement (PACE) System which has been

introduced for the calendar year 2007 and is now online.

4.2 Information Technology


Recommendation


4.2.1 2000 - Paragraph 81ICAO has attempted to renew its financial

system but has made little progress, despite

the acknowledged urgency of the need. The

Organization will need funding, project

leadership, and competencies in

implementing modern information systems.

The project team has been formed, super users and subject matte

experts and business owners have been designated. Participation

agreements have been drafted to ensure that adequate resources are

available for the project and will be revised as necessary during the

course of the project.

Agresso Business World, a tier 2 solution, was purchased in order t

limit the costs and implementation complexity for ICAO.

4.2.2 2000 - Paragraph 82

A change management strategy is necessaryto mobilize and sustain the efforts to change

to a new, modern system.

This recommendation will be implemented as the system is acquired

developed and installed.

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5.1 Regional Offices with Special Reference to the South American Office (Lima)


Recommendation


5.1.1 2001 - Paragraph 72Regional offices should report the results,

the resource costs, and the variances from

plans for all major activities such as air

navigation planning and implementation, air

transport planning, and management

improvement initiatives. This would apply

both to internal reporting to Headquarters

throughout the year and in the Annual

Report to the Assembly.

In relation to reporting of the results, the resource costs and th

variance from plans for all the major activities of the regions, thi

recommendation has been implemented as part of the Performanc

Management section of the Business Plan. The results of this wor

have been applied subsequently to the Regional Offices. High leve

indicators and KPIs have been formulated, by which the performanc

of the Organization can be assessed against its Strategic Objectives. I

is scheduled to present the progress achieved in the implementation o

current Business Plan for 2005-2006-2007 using the key performanc

indicators to the Council during its 182nd session to be held in

November /December 2007. Furthermore, the operational plans of th

Regional Offices for the next triennium 2008-2009-2010 will have it

own lower level performance indicators, which will allow to assess th

results, the resource costs, and the variances from plans for all majo

activities such as air navigation planning and implementation, ai

transport planning, and management improvement initiatives.

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6.1 Regional Offices with Special Reference to the Western and Central African Office (Dakar)


Recommendation


6.1.1 2003 - Paragraph 126ICAO Headquarters should provide guidance

before each regional planning group meeting

about how to deal with the implications of

incompatible systems and standards between

States and groups of States, and should

organize meetings with all regions from time

to time to address global problems.

The coordination with Air Navigation Bureau (ANB) sections is a

integral part of preparation for the Planning and Implementatio

Regional Group (PIRG). The ANB has identified officers at bo

Headquarters and Regional Offices to lead the various air navigatio

related critical tasks under Objectives A and D.

6.1.2 2003 - Paragraph 133ICAO should develop a chain of planned

outputs and results linked to its objectives to

provide a better base for accountability.

The introduction of the Business Plan and Performance Managemen

reporting has improved the effectiveness of ICAOs work. The Busine

plans for the next triennium 2008-2009-2010 has been formulated o

the basis of Results and linked to the programmes in the operation

plans of ANB and Regional offices. The draft Business Plan for 200

2009-2010 is available on ICAONET.6.1.3 2003 - Paragraph 133

ICAO should collect statistics and carry out

evaluations to identify the actual results of its

work.

The External Auditors recommendations had been introduced throug

the Business Plan in June 2005. It is scheduled to present the progre

achieved in the implementation of current Business Plan for 2005-200

2007 using the key performance indicators to the Council during i

182nd session to be held in November /December 2007.6.1.4 2003 - Paragraph 133

Results should be reported in the Regional

Office monthly reports and in the Annual

Report to the Assembly.

As part of the Business Plan, it is intended to monitor performance

Regional Offices through ANIP, which is under development for th

next triennium 2008-2009-2010. The major activities specific to th

region are reflected in the Annual Report of the Council to th

Assembly.

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No. Audit Report Year,

Paragraph Number and

Recommendation


acquisition is made.

7.3.2 2003 - Paragraph 82

In the absence of a commitment to long-term,

sustainable funding, ICAO should givegreater weight to those system solutions that

best meet the immediate needs of key

stakeholders and minimize known post-

implementation related costs.

Agresso Business World, a tier 2 solution, was purchased in order

limit the costs and implementation complexity for ICAO.

7.3.3 2003 - Paragraph 82

ICAO should seek to ensure that the

necessary skills and human resources will

exist within the Organization to support the

new system prior to implementation.

The project team has been formed, super users and subject matt

experts and business owners have been designated. Participatio

agreements have been drafted to ensure that adequate resources a

available for the project and will be revised as necessary during th

course of the project.


8.1 Attest Audit Results



Recommendation


8.1.1 2004 Paragraph 10 c)

Value of non-expendable items still not

disclosed in 2004 financial statements.

We had taken note of the External Auditors comments in 8.1.1. Actio

has already been taken and the procedures are in place to ensu

accuracy of the database and it is hoped that the NEP values will b

included in the notes to the financial statements which will be audite

by the External Auditors for the year ended 31 December 2006.

8.1.2 2004 Paragraph 10 d)

Income recognition for sales of publications

does not comply with United Nations SystemAccounting Standards (UNSAS).

In order to fully comply with UNSAS for sales of publications on a

accrual basis, a recognition of the inventory of publications held for sa

as an asset on the balance sheet would also need to be recognized. Thcost of producing publications is currently recorded as expenditure

the Regular Programme and recognizing the publications inventory

an asset on the balance sheet will be implemented as part of th

adoption of International Public Sector Accounting Standards (IPSA

in 2008.

8.1.3 2004 Paragraphs 11 and 12 The 2005 financial statements were simplified and the notes we

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Recommendation


ICT developed a draft service level agreement for the Finance Branch.

ICT delivered completed SLAs for every Bureau. The Office of the S

and President and C/ICT have already signed the SLA.

The second phase, was scheduled to be completed in 2006, involved:

1. Security and safety of data

By year end, the recruitment process for this position was complet

and a security officer was hired in January. The new Informatio

Security Officer started his duties with ICAO at the beginning o

April 2007.

The Security Officer will develop a plan and timetable for addressin

the concerns raised in our 2005 report.

c. Furthermore, ICAO should make a better

use of its ICT committee to establish a

common understanding of what standards

the Organization should be applying and

how to comply with them. The ICT

committee should discuss and approve all

practices ICAO decides to apply in the near

future. The changes should also go to the

Secretary General for final approval. This

would establish an accountability structure

and reinforce the Organizations governance

structure.

Any new IT development will be processed as follows:

a. A business case will be prepared by the Bureau in coordination wi

ICT.

b. The business case will be submitted to the ICT/MC

A new procedure is being worked on, including user guidelines.

d. Finally, ICAO would profit from

reviewing various UN Secretariat

publications on the use of information

technology. Over the years, the UN

Secretariat has published good practiceguidelines and administrative instructions

that ICAO should apply.

ICT reviews and recommends adoption of UN Secretariat and industr

best practices on a regular basis.

9.1.2 2005-Paragraph 18

We recommend that the Secretariat submit a

study report to the Finance Committee on the

human resources factors (for example, new

In 2006 and 2007, reports on the modernization of the financial system

have been presented to the Council and the Finance Committee. The

reports provide information on progress, the project team, project scop

cost and funding. Details of implementation plan, major risks an

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Recommendation


competencies required, training needs,

expected workload, and employees buy-in).

The Organization should also consult the

people involved and establish a detailedaction plan that identifies the major risks

related to the implementation of these

changes and the steps that will address the

risks. Furthermore, ICAO should allocate

appropriate resources to ensure that the new

accounting standards and the financial

system are implemented as seamlessly as

possible.

resource requirements are also provided.

9.1.3 2005-Paragraph 96

The Secretariat should ensure that the

business case it is building includes a

detailed description of the project phases and

costs, including the following:

a The choice of the appropriate

information system development framework

and standards that are to be used throughout

the project.

b. The accountability and reporting

structure for the project.

c. The decision-making process and key

milestones for each project phase.

d. Criteria for evaluating potential

candidates for outsourcing, if that is still an

option, and the structure proposed for

managing and controlling the selectedcandidates activities.

a) A Business Case for the integrated resources information syste

was completed in May 2006. The consultancy firm that helped t

develop the business case supplied the methodology. The AIM

methodology, supplied by Agresso, is being used for th

implementation of the Agresso Business World solution.

b) The reporting and accountability structure for the project w

completed in the Pre-Planning phase and approved by the sponso

group on 28 June 2006. The list of individuals assigned as sup

user, subject matter expert and business owners was completed

February 2007, prior to commencement of implementation of IRIS

c) The decision making process was developed during the Pre-Plannin

phase. A project plan with key milestones was prepared befo

contract signature and revised after the high-level business analys

in March 2007.

d) There is no plan to outsource support for the ERP as it is n

technically complex.

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Recommendation


consistency in methods of performance

appraisals within their bureaus.

2. Revise the performance appraisal report

form.

a. Require specific details on employees

contributions, linked with the Business Plan

and ICAOs Strategic Objectives.

b. Redesign and redefine the rating scale.

Require a clear explanation for performance

ratings above or below the norm.

c. Refine definitions of core competencies

to specify the level of behaviour expected for

each level in the organization, and identify

behaviours that meet and that exceed

expectations.

d. Change the performance appraisal cycle

from the employees anniversary date to one

date for all, coinciding with the fiscal year

when the Business Plan is updated and

reviewed. This was a main feature of the

proposed Performance and Competence

Enhancement (PACE) Report drafted by the

Performance Management Committee.

The old PAR system has now been replaced by the online syste

Performance and Competency Enhancement (PACE) Report.

The PACE Report comprises four phases: Performance Plannin

Performance Measurement, Competency Measurement and Overa

Performance and Competency Measurement and has three ratin

system: EE=Exceeded Expectations, ME=Met Expectations, NE= D

not meet Expectations.

At the beginning of the year, the immediate supervisor will invite th

staff member to discuss and establish jointly the key tasks, expecte

output and results, which the performance of the staff member is to b

measured at the end of the year. Therefore the cycle has been change

from anniversary to a fiscal year.

In February 2007, nine training sessions on completing the Part

(Performing Planning) of the PACE were conducted to all sta

members including the Regional Offices.

At this moment, we have 76% of the total staff members that ha

completed the PACE Report, which is a good response to the ne

challenges that the Organization is facing.

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Recommendation


3. Focus on probationary and term

renewals. It is critical that this period be

managed well. If performance is not

acceptable the employee must be informedand given a chance to improve, but if little or

no improvement is shown, the employees

contract should be terminated.

Successful completion of probationary period as well of renewal

contracts is based upon the supervisors written recommendations

this effect.

4. Continue to work on developing

competency profiles to support both sound

human resources planning and behaviour-

based assessment of competencies in the

performance appraisal process.

Work in this area continues to be developed as the PACE Report

implemented.

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A-17 A36-WP/43Appendix A

10. SUMMARY

Summary of Recommendations from External Auditorfor the period 1998 to 2005Status as of 31 March 2007

RecommendationsSubject Ref. Total Number

CompletedNumber

in

Progress

1998

Cash Management 2.1 10 9 1

Total 10 9 (90%)* 1

1999

Universal Safety Oversight Audit Programme (completed 2005) 3.1 8 8 -

Total 8 8 (100%)* -

2000

Human Resource Management 4.1 4 3 1Information Technology 4.2 6 4 2

Total 10 7 (70%)* 3

2001

Regional Offices with Special Reference to Lima (completed 2005) 5.1 2 2 -

Total 2 2 (100%)* -

2002

Regional Offices with Special Reference to Bangkok and Paris 5.2 5 4 1

Total 5 4 (80%)* 1

2003Regional Offices with Special Reference to Dakar 6.1 5 4 1

Office for Programmes Evaluation, Audit, and Management Review 7.1 10 10 -

Follow-up on 2000 Report: Human Resource Management 7.2 6 3 3

Follow-up on 2000 Report: Modernization of Financial Information

Systems7.3 3 3 -

Total 24 20 (83%)* 4

2004

Attest Audit Results 8.1 4 2 2

Follow-up on 2002 Report on Management of TC Projects 8.2 6 5 1

Total 10 8 (80%)* 2

2005

Follow-up on 2000 Report: Modernization of Financial Information

Systems

9.1 4 2 2

Follow-up on 2005 Report: Performance Appraisal Report Process 9.2 4 2 2

Total 8 4 (50%)* 4

*Represents percentage completed of total recommendations

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Appendix B

APPENDIX B

DRAFT RESOLUTIONS

Resolution 57/1

Approval of the accounts of the Organization for the financial year 2006 and examination of the

Audit Reports thereon

Whereas the accounts of the Organization for the financial year 2006, the Auditors Report and

the Report of the External Auditor to the Assembly thereon, submitted by the Auditor General of Canada

- a member of the Panel of External Auditors of the United Nations and Specialized Agencies - as the

External Auditor of ICAO, have been submitted to the Assembly after being circulated to Contracting

States;

Whereas the Council has examined the audit reports and submitted them to the Assembly for its

review; and

Whereas in accordance with Chapter VIII, Article 49 (f) of the Convention, expenditures have

been reviewed;

The Assembly:

1. Notes the Auditors Report and the Report of the External Auditor on the audited accounts forthe financial year 2006 with related Response of the Secretary General to the Report of the

External Auditor, and the report on the status of the implementation of the External Auditorsrecommendations for prior years;

2. Urges the Secretary General to take the necessary action, as deemed appropriate, on therecommendations made by the External Auditor and report these actions to the Council on a

regular basis; and

3. Approves the audited accounts for the financial year 2006.

Resolution 57/2

Approval of those accounts with respect to the United Nations Development Programme activitiesadministered by ICAO as Executing Agency for the financial year 2006 and examination of the

Audit Reports on the financial statements of the Organization which also cover the United Nations

Development Programme accounts.

Whereas those accounts showing the status of funds allocated to ICAO by the Administrator of

the United Nations Development Programme and administered by ICAO as Executing Agency for the

financial year 2006 as well as the Audit Reports on the financial statements of the Organization, which

also cover the United Nations Development Programme accounts submitted by the Auditor General of

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Canada, a member of the Panel of External Auditors of the United Nations and Specialized Agencies, as

the External Auditor of ICAO, have been submitted to the Assembly after being circulated to Contracting

States;

Whereas the Council has examined the Audit Reports and submitted them to the Assembly for its

review and for submission to the Administrator of the United Nations Development Programme; and

Whereas the Financial Regulations and Rules of the United Nations Development Programme

provide that Organizations of the United Nations system entrusted with the execution or implementation

of UNDP Programme activities shall transmit, to the Administrator for submission to the Executive Board,

accounts showing the status of funds allocated to them by the Administrator and that such accounts shall

bear audit certificates from the External Auditors of the Organizations and shall be accompanied by their

reports.

The Assembly:

1. Notes the Auditors Report and the Report of the External Auditor on the financial statements

of the Organization, which also cover those accounts relating to the United NationsDevelopment Programme administered by ICAO as Executing Agency, for the financial year

2006;

2. Approves those accounts with respect to the United Nations Development Programme

administered by ICAO as Executing Agency for the financial year 2006; and

3. Directs that the financial statements of the Organization, which also include accounts of the

United Nations Development Programme administered by ICAO, and the Audit Reports be

transmitted to the Administrator of the United Nations Development Programme for

submission to the Executive Board.

END

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