The information requested is not held by the Ministry of Defence. However NATO has agreed to consider for public release all reports from the International Board of Auditors for NATO (IBAN) from financial year 2013 onwards. Given the importance of full transparency and public accountability, we continue to call for all reports to be published except where this would prejudice Alliance security.

The UK remains committed to improving NATO’s transparency, accountability and value for money to tax payers and will therefore continue to work closely with Allies and NATO on this issue.

The report was issued by the International Board of Auditors on 24 September 2012 and its key findings were:

that a high-risk cost-plus arrangement was established without the management and control mechanism necessary to police it;

that there was a failure to both validate charges raised by the contractor and to verify that invoices were in line with the contract conditions; and

that payments to the contractor were made which went beyond those mandated in the written contract.

As a strong proponent of accountable and effective governance, best practice in budgetary control and financial management in NATO, the UK is extremely concerned at the serious nature of the audit findings. NATO has established a formal Board of Inquiry to investigate further the reasons behind the failings in governance and control, and to recommend improvements to working practices and procedures to prevent a recurrence. The Board of Inquiry report is awaited and the UK will judge our next steps in the light of its findings. We expect those responsible to be held fully to account, and action taken to prevent similar problems arising in the future.

The International Board of Auditors of NATO (IBAN) published four performance reports in 2010; five reports in 2011; and three performance reports in 2012. The 2012 performance audits covered the implementation of NATO agency reform, the arrangements for managing the construction of the new Alliance-headquarters building, and the supply of fuels to NATO forces in Afghanistan, in each case the audit feedback has been used to drive improvements in decision making and management process. The UK regularly raises these issues directly with NATO staff and at the North Atlantic Council where we are strong proponents of accountable and effective governance, and best practice in budgetary control and financial management. Strong, independent, and effective external audit is a critical element of this.

Different NATO entities are auditing on different cycles. Typically, its field work within six to eight months of receiving financial statements although post-audit consultation means that final publication sometimes takes longer. Core entities (NATO HQ, Military Command Structure and certain agencies) are audited annually; the accounts of other NATO bodies (including those of multinational high readiness headquarters, and centres of excellence) are audited on a two-year cycle, in agreement with the participating nations.

In 2010, IBAN issued 29 financial audit reports which comprised 42 auditor's opinions on the accounts of NATO bodies and associated organisations. 32 of these accounts received unqualified audit opinions, including two accounts that were corrected and re-issued. The board issued nine qualified audit opinions and one disclaimer of audit opinion on the financial statements of eight entities.

In 2011, there were 33 financial audit reports which comprised 49 auditor's opinions. The board issued 14 qualified, adverse, or disclaimer of audit opinion on the financial statements of nine different entities.

In 2012, 36 financial audit reports were issued comprising 44 auditor's opinions of which 30 were unqualified opinions. The board issued 14 qualified, adverse or disclaimer of audit opinion on the financial statements of 11 different entities.

As part of a wider process of Alliance Reform, the NATO Secretary-General initialled a review aimed at strengthening NATO's external audit function and the resulting report was considered by the North Atlantic Council on 29 May. The UK has pushed for the highest possible standards of fiscal governance, and for a strong and effective audit arrangement in order to assure compliance. More specifically the UK has sought improved transparency through the automatic publication of NATO audit reports (unless there is a security reason not to do so) and improved accountability through the update of NATO's financial regulations to draw clear lines of responsibility. We have also sought improved financial reporting across the Alliance, including through the appointment of a head of financial reporting. The UK has also sought to improve IBAN's accountability and it has been agreed that IBAN will be peer-reviewed by national supreme audit institutions (SAI); a pilot study will be conducted to explore how IBAN might make the best possible use of the expertise that exists in SAIs.

We will place in the Library the relevant documentation as soon as possible.

The UK is a leading voice in the area of NATO reform. We have pressed for the need for an efficient and effective NATO that makes the best use of its resources. We want any NATO auditing authority to be effective in holding NATO to account, using best practice to help deliver value for money. However external audit is but one element of the wider governance process, and we continue to push for accountable and effective management at all levels within the alliance.

The International Board of Auditors of NATO is fully independent from the commands and agencies which it audits, and answers directly to the North Atlantic Council, which provides political leadership. IBAN undertakes its audits in accordance with the principles of the auditing standards of the International Organisation of Supreme Audit Institutions (INTOSAI), complemented, as and when required, by the International Standards on Auditing issued by the International Federation of Accountants (IFAC). The UK has consistently been a strong advocate of these fundamental auditing principles and we continue to see audit as an essential element in our drive to secure the proper and effective control of NATO common funds.

The review of the external audit function at NATO is being conducted as part of a comprehensive review of the overall organisation and structure of the alliance that is driven in part by the need to improve efficiency and effectiveness of NATO HQ. Options for strengthening the audit function at NATO are under consideration, including making greater use of national supreme audit institutions. The UK and other allies

have not made specific representations on the audit review, but we have been leading efforts to improve the effectiveness and efficiency of NATO. The review is expected to be complete by the end of the year.

In 2011, the International Board of Auditors of NATO issued 33 financial audit reports which comprised 49 auditor’s opinions on the accounts of NATO bodies and associated organisations. 35 of these accounts received unqualified audit opinions. The board issued 14 qualified, adverse, or disclaimer of audit opinions on the financial statements of nine different entities.

In 2010, the board issued 29 financial audit reports which comprised 42 auditor’s opinions on the accounts of NATO bodies and associated organisations. 32 of these accounts received unqualified audit opinions, including two accounts that were corrected and reissued. The board issued nine qualified audit opinions and one disclaimer of audit opinion on the financial statements of eight entities, of which, the majority related to compliance with International Public Sector Accounting Standards (IPSAS).

In 2009, the board issued 32 financial audit reports which comprised 51 auditor’s opinions on the accounts of NATO bodies and associated organisations. 46 of these accounts received unqualified audit opinions, including three accounts that were corrected and reissued. The board issued three qualified audit opinions and two disclaimer of audit opinions on the financial statements of four entities, of which, all related to compliance with IPSAS.

In 2008, the board issued 36 financial audit reports which comprised 46 auditor’s opinions on the accounts of NATO bodies and associated organisations. 40 of these accounts received unqualified audit opinions, including 10 accounts that were corrected and reissued to avoid qualification. The board issued six qualified audit opinions on the financial statements of six entities, of which, four related to compliance with IPSAS.

In 2007, the board issued 30 auditor’s opinions on the accounts of NATO bodies and associated organisations. It issued 18 unqualified opinions and 11 qualified opinions, of which, six related to IPSAS. It did not issue an audit opinion on the accounts of one NATO agency.

Qualified audit opinions are always a matter of concern, and we expect NATO commands and agencies to address the shortcomings as a matter of priority.

In 2011 the IBAN issued five performance audit or special reports. These were on Objective Based Budgeting in NATO (Evaluation Phase); Assessing the Implementation of International Public Sector Accounting Standards (IPSAS) within NATO and the Way Forward; the Reform of the Medium term Resource Plan Process; the status of the Implementation of the Internal Audit Function; and the Critical Success Factors for NATO Agencies Reform. While the UK has been pressing for greater transparency on audit reporting, it has not been possible to reach a consensus among Allies to publish these reports. The IBAN’s work has played an important part in the process of continuous improvement in NATO financial management.

The IBAN conducted several performance audits and studies in 2010. It completed the performance audits on the Implementation of Objective Based Budgeting in NATO (Descriptive Phase) and Real Life Support at Kandahar, Afghanistan. The Board also completed two special reports to the Council: these were on (1) the Second and Third Years of Implementation of IPSAS within NATO and (2) on Strengthening the Role of IBAN in Respect of Management Reviews and Cost Efficiency Assessments.

The Board undertook both performance audits and studies in 2009. It completed the performance audits on the Management of the NSIP and on the NATO Logistics for Deployed Operations. It also completed follow-up audits of the performance audit of the NATO Early Warning and control system and also on Allied Command Operations Financial Management. The Board finalised fieldwork for the performance audit of the Prevention of Corruption and Fraud in NATO.

The Board undertook both performance audits and ad hoc studies in 2008. It completed the performance audits on the Customer Funding at the NC3A and on the NATO Logistics for Deployed Operations and issued a special report to the Council on the implementation of IPSAS within NATO.

The Board undertook both performance audits and ad hoc studies in 2007. It finalised the Survey on Corporate Governance in the NATO agencies. It also carried out ad hoc studies to provide advice to the NATO Committees or to improve its own efficiency and working methods. Further details on the performance reports are available in the IBAN’s Annual Reports which can be found on the NATO website.

Most of the DFID's country offices are involved in helping to strengthen some aspect of public financial management. Larger projects include those in Afghanistan, Bangladesh, Ghana and Nigeria. In Rwanda and Sierra Leone we have projects specifically supporting the supreme audit institution. The countries which we are helping with revenue include Afghanistan, Bangladesh, Democratic Republic of Congo, various states in India, Mozambique, Nepal, Nigeria, Rwanda, Sierra Leone, Tanzania and Zambia.

As part of its evidence paper to the International Development Committee for its inquiry into Tax in Developing Countries, DFID prepared an analysis of tax related project spending over the period 2006-07 to 2010-11. A schedule listing projects which are still in progress will be placed in the Library. It shows for each the benefitting country, overall project goal, overall budget and percentage that relates to tax and the spend to date. Information on the contractors or other bodies involved in providing the assistance is also given. Some funding is, in whole or in part, financial aid, which is funding paid to the recipient government. The contractor information relates only to the non-financial aid element of the project. This means it concerns the main organisations contracted by DFID, rather than organisations which may be contracted by the recipient government.

It has not been possible to provide similar information for projects relating to public audit and other aspects of public financial management, as to do so would incur excessive staff time and therefore cost.