NO DANGER OF FINANCIAL FRAUDS IN NATO
David Woodward, Chairman of the International Board of Auditors of the Alliance, to the BANKER WeeklyMr. Woodward, the fall of the Berlin Wall has changed the world and set new challenges to NATO. Does that mean new challenges for the senior auditors of the Alliance as well?- You are right of course that these changes have had a very substantial effect on what NATO does and how it does it. And now the Alliance focuses very much on the war against terrorism. That is certainly a primary focus of NATO. But this is not the only thing that NATO is able to deliver. NATO, of course, is able to bring together different countries, bring together the military people of different countries and have them operate side by side, adopting same standards and able to communicate with each other, sharing equipment, and launch major operations in places like Afganistan and so on. So, it's able to do this over a long period and probably that would be very difficult to achieve without NATO existing as a body that has already brought together countries that are now in partnership with their militaries. You are right that the end of the Cold War has changed NATO but that doesn't mean to say that in anyway NATO's value has diminished. It has increased. Has it had an impact on us as auditors? Well, not on our financial audit. When NATO spends money, it spends money, and we check to see that this money has been spent in accordance with its financial statements. It hasn't changed. I think it does give us new opportunities in performance audit - that is looking how effective and efficient NATO is. We have that mandate. I think it does give us an opportunity to see that NATO has managed this change process in a good, efficient and effective way. We are doing that. Have you had cases in your practical activity when your operations have led to the detection of financial fraud?- Well, in one sense audits are there to detect fraud, but the detection of fraud is not the primary function of auditors. The management is primarily responsible for preventing and detecting fraud. It's a secondary element for auditors. If we see evidence of fraud we are required to investigate it and identify it and uncover it. But our primary objective is not to go searching for it. Only if it presents itself do we investigate further. NATO is a well-established organization, good-disciplined, wherein fraud is not a huge risk. Yes, there are minor frauds that take place, very minor frauds, in terms of claiming allowances and travel allowances and so on, pretty minor things which generally come to light in different ways, usually identified by management. And our function is to identify a big fraud if it happened. I can think of only one significant case of fraud that happened over recent years in NATO. It was not identified by auditors. It came to light in a different way. I would say, yes, fraud is of concern to auditors, it must be, but it's not our primary function and it's not a big risk element in NATO. Is there a tendency of increase in the budgetary expenditures of NATO? Does the International Board of Auditors have any relation to setting the quotas for contributions to be paid by the member countries, which reflect the economic and potential of each of them?- No, certainly, the quotas are not set by the Board of Auditors. We do not participate in setting the contributions made by member countries. In fact, NATO is not one organisation. There are 78 different bodies, independent bodies, bodies that are separate from each other. But although they are separate from each other, sometimes they are interrelated. Bulgaria or any other member country doesn't have to be a member of everyone of those 78 bodies. So, it can be a member of some, it can be a member of most, and each country's contribution will vary not only in accordance to its economic position, but also in accordance to the extent to which each country participates in these various NATO bodies. The Board of Auditors' role as far as contributions are concerned is simply to validate that the financial statements fairly reflect what Bulgaria or other member countries have paid in to NATO. We would check that the records are proper and they are fair and that's all. How much does a member of NATO's International Board of Auditors cost? Will it be an expensive exercise for Bulgaria to have its representative on the board?- I don't think it would be, because each country would determine for itself how much to pay its board member and to what extent it would provide additional support and allowances for its board member. If Bulgaria looks at the cost of senior diplomats based in Brussels - salary, allowances, it would be fair for Bulgaria to pay a board member what it pays to senior diplomats already based in Brussels. Are you inclined to divide the NATO member countries in two groups - one group including those that are more prompt in their financial affairs and others that are not so prompt?- This question would apply to the infrastructure audit that we carry out. When countries join NATO they have the ability to participate in the infrastructure programme and they can upgrade their military installations to meet NATO standards. The cost is shared among all of the member countries. Our job is to get into each of these member country and to confirm that proper records are being made and maintained. Are there differences between the member countries and the standards of accounting? Of course, there are. I'm sure you wouldn't want me to say who the good ones are and who the bad ones are, but there are differences. And there are additional challenges for us in some countries. If we go to the UK or the USA, or France, or Germany, we can understand the documentation because it is in languages that we are usually familiar with. When we go to countries, for example Greece or Turkey, or Bulgaria, as well, there is additional challenge for us to understand basic documentation, contracts, invoices, which in some cases will be only in the language of the country of origin. That doesn't mean to say those countries are bad or misbehaving simply because they are using their own language, but it does add a certain challenge to us as auditors.You have expressed concern that probably at times the auditing carried out by your auditors is superfluous. At the same time I would like to recall Prof. Valeri Dimitrov's joke that China has one million auditors. Do you believe that the quality of the audit depends on the number of the auditors only?- Certainly not. It's right to say that we have some concerns about the depth of our audits in some areas. Of course, we have tried to manage this and reduce any risk by focusing our resources onto the high-risk activities of NATO. And if we have to do less work then we do it in areas where we feel the risk is much lower. But do we need more resources? I don't want to have a million auditors. I'm only asking for three extra. So, I think there is work to be done there, but the quality of the audit depends on the quality of the auditors themselves, their training and discipline, the supervision that we are able to apply and so it's not at all a matter of numbers. Numbers are important but are not the only thing.