VZCZCXRO6794
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #2812/01 2590932
ZNR UUUUU ZZH
P 160932Z SEP 09 ZDK
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 1480
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0891
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 KABUL 002812 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS AID/ASIA BUREAU 
DEPT PASS USDA FOR FAS MICHNER 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS TDA FOR STEIN AND GREENIP 
DEPT PASS OPIC 
CENTCOM FOR CSTC-A, USFOR-A 
 
OSD FOR SEDNEY 
TREASURY FOR MNUGENT, ABAUKOL, AWELLER, AND JCASAL 
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH 
 
E.O.12958: N/A 
TAGS: EFIN EAID PGOV EAGR BEXP AF
SUBJECT: Update: Strengthening Afghanistan's Ability to Audit Future 
Spending 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) Finance Minister Zakhilwal is pushing the Afghan Cabinet to 
re-instate Article 61, which gives the Ministry of Finance internal 
audit authority over line ministries, a matter of concern to 
international donors.  Afghan ministries' internal audit capacity 
generally remains weak and hinders Afghanistan's long-term 
development aims.  Over the past five years, the Ministry of Finance 
has strengthened its internal audit directorate through donor-funded 
technical assistance and is positioned to take a broader role moving 
forward.  Embassy Kabul is working with the World Bank to coordinate 
a plan-of-action to reinstate Article 61, including engaging Afghan 
government decision makers.  Once Article 61 is reinstated, the 
Ministry of Finance will likely provide technical assistance for 
internal audit (through its Civilian Technical Assistance Plan) to 
key line ministries (e.g., Ministry of Economy), with support from 
the World Bank and U.S. Treasury.  End Summary. 
 
------------------------------------ 
BACKGROUND AND CONTEXT OF ARTICLE 61 
------------------------------------ 
 
¶2.  (SBU) Article 61 of the Public Finance and Expenditure Law 
stipulates that the Ministry of Finance will audit the financial and 
accounting affairs of all central line ministries.  In 2007, the 
Central Audit Office (CAO) expressed concern that Article 61 
impinged on the CAO's authority as set out under the existing 
(communist era) legal framework.  Former Deputy Minister of Finance 
(and current Commerce Minister) Shahrani supported this view and 
encouraged President Karzai to suspend Article 61, which he did. 
Since then, we understand the CAO has retreated, realizing that 
control over internal audit activities does not fit into its 
independent monitoring role. 
 
¶3.  (SBU) The Ministry of Finance currently maintains nominal audit 
control by setting guidelines for finance officers in the line 
ministries and is still responsible for enforcement of the public 
financial management law through revenue collection, cash 
management, payments and financial reporting.  While some line 
ministries have a nascent internal audit function, such activities 
are limited and do not function at an acceptable standard. 
 
¶4.  (SBU) In contrast, however, significant development has taken 
place in the Ministry of Finance's Internal Audit Directorate over 
the past several years.  Assisted principally by a World Bank-funded 
project, Internal Audit has grown from 15 auditors to more than 120. 
 The number includes several embedded training staff who are audit 
and IT experts.  While the Internal Audit Unit appears to have a 
well-established sense of mission and a number of technical manuals 
and handbooks available for use, additional capacity building is 
necessary to ensure it is prepared to take on its government-wide 
mandate under Article 61. 
 
----------------------------------------- 
STRENGTHENING INTERNAL AUDIT WILL IMPROVE 
THE PREVENTION AND DETECTION OF FRAUD 
----------------------------------------- 
 
¶5.  (SBU) According to an official at the World Bank, one of the 
most significant problems with financial leakage occurs in 
procurement.  To address this concern, the Ministry of Finance is 
working to strengthen the procurement law and establish a 
government-wide, Cabinet-level Internal Audit Committee to 
investigate allegations of procurement fraud or leakage within line 
ministries.  The committee would be part of a broader approach to 
reduce corruption and increase financial transparency. 
 
¶6.  (SBU) The Finance Ministry will likely use money from the 
Civilian Technical Assistance Program to hire local and regional 
advisors to further develop its internal audit capacity.  Key donors 
in this area (World Bank and Treasury) will help establish a good 
 
KABUL 00002812  002 OF 002 
 
 
technical basis to move this forward.  For example, Treasury's 
Office of Technical Assistance is planning to place at least one 
Advisor in the Ministry of Finance's Internal Audit Unit to provide 
professional development and training, counseling and advice to 
GIRoA auditors. 
 
------------------------------- 
EFFORTS TO RE-INSTATE ARTICLE 61 
------------------------------- 
 
¶7. (SBU) Finance Minister Zakhilwal agreed to add Article 61 as a 
key benchmark of the World Bank administered Afghan Reconstruction 
Trust Fund (ARTF) incentive program.  As a result, the Government 
must reinstate Article 61 (along with meeting several other 
governance benchmarks) to qualify for ARTF discretionary funding. 
The World Bank wants reinstatement of Article 61 complete by 
November/December, although this may be delayed due to the still 
on-going elections process.  Minister Zakhilwal's staff have told 
Embassy officials reinstatement of Article 61 is under review at the 
Office of Administrative Affairs.  Following this review, the 
decision for reinstatement will go to the President for signature. 
 
 
¶8. (SBU) COMMENT:  Reinstating Article 61 would be an important step 
towards a more robust internal audit system throughout GIRoA and the 
Mission pushed hard to have Article 61 reinstatement added as a key 
benchmark in the ARTF incentive program.  International donors are 
concerned that while the Ministry of Finance provides internal audit 
for its expenditures which account for roughly 5% of total GIRoA 
expenditures, the remaining 95% are under weak or no internal audit 
systems.  The economic and financial policy working group, in 
particular Treasury elements, are coordinating a plan of action with 
the World Bank, including technical assistance, outreach to the 
Internal Audit Unit, and engaging GIRoA decision makers.  Once 
Article 61 is reinstated, we should consider ways for U.S. and other 
country internal auditors to partner with Afghan-led initiatives to 
promote information exchange and share best practices.  End Comment. 
 
 
EIKENBERRY