Building Internal Audit Capacity In Yemen Hisham Waly Sr. Financial Management Specialist MNA Region, World Bank March 2008

2 The Bank & Donors support to Yemen PFM Progress in Yemen IA Situation in Yemen IA Challenges in Yemen The way forward Overview

3 The Bank & Donors Support to Yemen (1/2) There have been several PFM related diagnostic reviews in the past few years by the World Bank, the IMF and other donors (e.g., CFAA, PEM, ROSC-AA and PEFA). These have led to a broad degree of consensus between the donors and the GOY about the need for reform and the main priority areas. The Cabinet approved the PFM Reform Strategy in 2005 and established a Ministerial committee with the responsibility for overseeing PFM reform while endorsing the components of general budget reform – preparation, execution and information systems; enhancing control and financial accountability; reforming the system of bids and procurement; and, improving competence and skills.

4 The Bank & Donors support to Yemen (2/2) A PFM Reform Action Plan has been formulated on the basis of above Strategy. The activities under this Plan have been prioritized and sequenced in order to provide the best use of limited donor resources. A Partnership Agreement was signed in 2006 between the GOY and donors, represented by the World Bank, UNDP, EC, the Royal Netherlands Embassy, DFID, the US Embassy, the German Embassy, GTZ and Denmark, to implement the PFM Reform Strategy. The World Bank is supporting the government in implementing the PFM Reform Strategy and Action Plan in coordination with donors through the Public Service Modernization Project initiated in 1998 and a TA launched in 2007.

5 PFM Progress in Yemen A number of PFM reforms that have recently been implemented: The reform of taxation with the implementation of the self assessment basis for major and medium sized tax payers; The reform to customs processing The enactment important laws: Finance Law, Anti-Corruption Law, Tender Law and the Local Authorities Law; The adoption of the GFS/COFOG budget classification standard The introduction of a biometric identification system.; The testing and piloting of GFMIS in four ministries, namely the Ministries of Finance, Education, Health and Public Works. Prepare Manual for Accounting prepared for achieving international standards in accounting; Internal Audit Manual and its implementation plan approved by the government.

6 IA Challenges & Situation in Yemen 2004Legislative framework unclear, 2008New Law (draft) and IA Manual 2004Overwhelming turf battles 2008Bitter compromises yet enough to move forward 2004Confusion between IA from one side and IC, External Audit and Inspection, 2008Less confusion 2004IA = Documentary Audits 2008IIA Standards accepted 2004Staff lack training and guidance, 2008Capacity Building programs implemented 2004Donors’ Intervention, 2008Full coordination and better targeting 2004High perception of Corruption, 2008High perception of Corruption

7 Next Steps Continue the close coordination with donors (new Bank TA) New IA Law enacted (acceptable draft reviewed) Introduce the risk based auditing (building on Bank success stories) Provide capacity building initiatives (Training Manual completion and GFMIS Training) Work with universities to better cover IA (CFAA & ROSC-AA started the dialogue) Thank You