ANNEX VSupplementary provisions
ANNEX V FUNCTIONS OF THE INDEPENDENT AUDIT: TERMS OF REFERENCE 1. INTRODUCTION These terms of reference (ToR) describe the framework for checking the systems of legality assurance established for the Voluntary Partnership Agreement (VPA) between the Government of Liberia and the Union. The ToR describe the functions of the independent audit (IA) of the Legality Assurance System (LAS), which provides assurance that timber harvested, processed and exported or sold on the domestic market complies with the legality definition, verifies that it complies with the chain of custody requirements and verifies that the licensing authority has issued FLEGT licenses only to consignments that are produced in accordance with the LAS requirements. The ToR therefore set out a detailed list of tasks and a protocol for gathering information and reporting; they also establish a list of primary sources of information and describe the qualifications required of the independent auditor. 2. OBJECTIVES The objectives of the IA include: (a) assess the efficiency and effectiveness of the LAS; and (b) improve the credibility of the LAS established under the VPA. 3. TASKS The overall task of the independent auditor is to monitor implementation of the systems established to verify legal compliance with all aspects of the LAS. The key issues to check will include compliance with the legal requirements established in the legality definition, the chain of custody and verification by the Liberia Verification Department (LVD) and the Liberia Licensing Department (LLD), all described in Annexes II and IV respectively. The method to be used must be evidence-based and include documentary checks and field or on-site visits. Specific tasks of the independent auditor will be to: (a) check that systems are functioning effectively and that timber harvested, processed and traded complies with the requirements of these systems. This includes legal requirements for pre-contract timber rights allocation, contract allocation, pre-felling requirements, felling, processing and deliveries; (b) verify that the chain of custody system, a key component of the LAS, is effective and functioning appropriately, confirming that requirements are fulfilled from pre-harvesting operations to export or sale on the domestic market; (c) assess the performance and effectiveness of the LVD and associated Government agencies involved in the verification process to ensure compliance with the LAS requirements; (d) assess the system established to ensure that the LLD issues FLEGT licenses only to consignments which are produced or exported in full compliance with the LAS; (e) assess the process for determining the validity of licenses in order to ensure that the license verification system is efficient and does not unduly delay or burden the license-holder; (f) assess how reported infractions are addressed or not addressed by the relevant authorities; (g) evaluate the effectiveness of any measures taken to correct those weaknesses; (h) identify gaps and weaknesses in the overall LAS, i.e. the functioning of the chain of custody, legality verification and licensing components of the LAS, and the level of impact on the credibility of the LAS; (i) report its findings and recommendations to the Joint Implementation Committee (JIC), that is required to publish these audit reports regularly. 4. METHODOLOGY: METHODS FOR GATHERING AND ASSESSING INFORMATION AND REPORTING The independent auditor is required to demonstrate professionalism and integrity in the discharge of its responsibilities. The independent auditor shall prepare a manual of procedures outlining methods for gathering information, assessing evidence and reporting. The manual proposed by the independent auditor will be reviewed and agreed by the JIC. The independent auditor shall use the procedures established in the IA Manual to conduct audits, field visits and investigations, to seek feedback from stakeholders and to document and report its findings to the JIC for subsequent publication. 4.1. Work schedule (a) In the first year of operation of the FLEGT licensing scheme, the independent auditor shall conduct two audits. The first audit shall aim to establish that all the requirements of the LAS are in place and ready to be put into full operation. The second audit, and all other future audits, shall assess or evaluate the performance of the LAS. (b) In subsequent years the independent auditor shall conduct at least annual audits of the LAS. (c) The independent auditor may also conduct impromptu audits and spot checks as necessary. 4.2. Scope of work (a) The activities of the independent auditor shall cover all aspects of the LAS, including compliance with the legality definition, the chain of custody system, verification and licensing, and any certification scheme that the Government has approved as providing evidence of compliance with the LAS. (b) The independent auditor shall audit the relevant activities of all institutions, including State agencies, responsible for different aspects of Liberia’s LAS. (c) The independent auditor shall check systems implemented by EU competent authorities to verify FLEGT licenses issued by Liberia. 4.3. Evidence gathering The IA Manual of Procedures shall describe procedures and practices for gathering evidence which will include field checks, investigations, interviews, documentation and how the independent auditor will respond to complaints. 4.4. Assessment During the course of investigations, the independent auditor will ensure that evidence is assessed in accordance with ISO 19011 or an equivalent standard. 4.5. Audit systems In documenting audit evidence, diagnosing failures and infractions in any part of the LAS and following up corrective action taken, the independent auditor shall: (a) keep appropriate records of audit evidence detailing performance, compliance, non-performance and non-compliance; (b) record and assess a sample, selected on the basis of risk assessment, of detected non-performance or non-compliance with the different aspects of the LAS, including licensing requirements, and the action taken to address the non-performance or non-compliance; (c) record observed system-related weaknesses, gaps and areas requiring improvement in the LAS and ensure that each is appropriately distinguished from the others; (d) record and assess the effectiveness of all corrective measures implemented by the parties concerned, including the Forestry Development Authority (FDA), other State authorities and private bodies responsible for other aspects of the LAS. 5. REPORTS AND DISSEMINATION 5.1. The independent auditor shall adhere to a structure and protocol for preparing its reports as agreed with the JIC. The independent auditor shall: (a) report on activities in line with the work schedule agreed with the JIC; (b) prepare its report in accordance with internationally accepted auditing principles and as specified in its agreement with the JIC; (c) present all reports to the JIC, which shall comment on them; (d) prepare final reports which reflect the JIC’s comments. 5.2. Reports validated by the JIC will become public documents. 6. SOURCES OF INFORMATION Primary sources of information shall include document reviews, field visits and consultations/meetings with relevant stakeholders who are identified in the legality definition of the legality verification matrix (cf. Annex II). The Government of Liberia and the Union will ensure that the independent auditor has access to all necessary information, including documents and databases that it deems relevant, especially those that are needed to assess the efficacy of systems established to verify compliance with the LAS. This shall include access to information produced and/or held by branches and agencies of the public authorities as well as private bodies recruited by those public authorities. The independent auditor shall also have full access to all forest management areas prior to, during and after forest operations. This will include access to logging sites and other areas where forest resources are being extracted or processed and to points of export. This broad access is designed to enable the independent auditor to uncover weaknesses wherever they exist in the LAS. Specifically, the independent auditor shall have access to the following Government agencies, other bodies appointed or recruited by the Government to perform functions related to any part of the LAS and other parties who may be able to provide relevant information about the functioning of the LAS. 6.1. Government of Liberia and bodies appointed by the Government (a) Departments of the FDA that are involved in different aspects of commercial logging. This shall include departments involved in pre-allocation processes, including validation of proposed concession areas, pre-qualification of logging and other companies interested in the commercial forestry sector and announcing, receiving and opening bids. (b) Departments of the FDA involved in law enforcement in the commercial sector. (c) Departments of the FDA and other relevant institutions involved in implementing the legality assurance system and related law enforcement activities. (d) Other Government agencies and appointed citizens involved in the bid evaluation processes, including the Bid Evaluation Panel, the Due Diligence Committee and the Inter-Ministerial Committee on Concessions (IMCC). (e) The Legislative Committees on Forestry, the House of Representatives and the Senate with respect to their roles in the process of ratifying forest resource licenses. (f) The Environmental Protection Agency (EPA) of Liberia. (g) Government ministries responsible for exports of forest products, including the Ministry of Finance, the Ministry of Commerce and the National Port Authority and their internal departments directly responsible for various aspects of the process. (h) The service-provider contracted to operate the legality assurance system. 6.2. Civil society and communities (a) Local, national, regional and international civil society organizations involved in monitoring forestry activities in Liberia. (b) Communities and individuals involved in monitoring forestry activities. (c) Community Forestry Management Bodies and Community Forestry Development Committees involved in various aspects of the commercial forestry sector. 6.3. Other sources (a) Forestry companies, including outcomes of private certification processes. (b) Academic institutions. (c) Local authorities. (d) Local communities and populations. (e) Sustainable forest management (SFM) certification bodies. (f) Complainants. (g) Competent authorities. (h) Stakeholders and parties that register a complaint or request an impromptu audit of certain aspects of the LAS. (i) Any other source that the independent auditor considers relevant. 7. QUALIFICATIONS REQUIRED The independent auditor must possess integrity and have a track record of conducting similar audits, be objective and have the capacity to conduct systematic analysis. The independent auditor must be independent from Liberian operators and Liberian institutions that have a commercial or regulatory role in the forestry sector and be credible. It is the responsibility of the independent auditor to ensure that its personnel declare any potential conflict of interests and, where these exist, to state what measures it will take to mitigate such conflicts. In addition to this requirement, the independent auditor shall meet the following other requirements: (a) having a documented internal quality management system that meets the requirements of ISO 17021 ( 1 ) or equivalent standards and conduct audits in accordance with procedures that meet ISO 19011 ( 2 ) or equivalent standards; (b) having experience in audits of management systems; (c) having in place a mechanism for transparently handling complaints or grievances; (d) having a range of competencies including audit, preferably in forest management, and sufficient expertise and experience in performing similar functions in other parts of the world, preferably in Africa; (e) being able to demonstrate that its teams include experts with sufficient experience in Liberia and/or elsewhere in West Africa. The involvement of experts from the sub-region is to be encouraged alongside international experts; (f) having a thorough understanding of the commercial forestry sector, preferably in Africa; (g) having personnel with expertise in various fields of forestry, including forest management, processing, traceability and chain of custody systems, and international trade in timber and timber products. The independent auditor may consider a partnership or joint venture with a Liberian organization. 8. SELECTION PROCESS AND INSTITUTIONAL ARRANGEMENTS The independent auditor will be recruited by competitive bidding (open to national and international entities). Bid evaluation will be transparent and all stakeholders will be informed of the criteria that will be applied. Due diligence conducted on the competing entities and the bid evaluation report will be made public. 9. OTHER REQUIREMENTS This section covers additional responsibilities of the independent auditor that are not addressed in other parts of these terms of reference. 9.1. Accessibility The independent auditor is expected to have a contact point in Liberia to make it accessible to the private sector, Government and civil society organisations. 9.2. Capacity-building and sustainability The independent auditor shall also: (a) engage with civil society, the private sector and Government agencies in ways that enable Liberians to acquire a fair understanding of the independent auditor’s work, for example from occasional workshops and briefing sessions; (b) recruit qualified Liberians and build their individual capacity in how to conduct IAs of the LAS. ( 1 ) ISO/IEC 17021:2006. Conformity assessment - Requirements for bodies providing audit and certification of management systems. ( 2 ) ISO 19011:2002. Guidelines for quality and/or environmental management systems auditing.