Chemical Weapons
Organization for the Prohibition of Chemical Weapons Needs Comprehensive Plan to Correct Budgeting Weaknesses Gao ID: GAO-03-5 October 24, 2002The Organization for the Prohibition of Chemical Weapons is responsible for implementing the Chemical Weapons Convention, which bans the use of chemical weapons and requires their elimination. The United States and other member states have raised concerns that a number of management weaknesses may prevent the organization from fulfilling its mandate. As requested, GAO assessed the accuracy of the organization's budget and the impact of budget shortfalls on program activities. GAO also reviewed efforts to improve the organization's budget planning.
Since its establishment in 1997, the ability of the Organization for the Prohibition of Chemical Weapons (OPCW) to carry out key inspection functions has been hindered by inaccurate budget projections and, more recently, budget deficits. The organization has consistently overestimated its income and underestimated its expenses. Its budgets have recorded as income nearly $1 million in unpaid assessments owed by 30 member states. The budgets have also overestimated reimbursement payments for inspections conducted in member states with chemical weapons-related facilities. As of June, 2002, these states owed the organization more than $2 million. Furthermore, the budgets for 2000 through 2002 underestimated personnel expenses. The organization's inaccurate income and spending estimates contributed to a $2.8 million deficit in 2000 and a potential deficit of $5.2 million in 2002. Weak budgeting practices and budget deficits have affected the organization's ability to perform inspection activities as mandated by the Chemical Weapons Convention. The organization had to reduce the number of inspections it conducted in 2001 and plans to reduce the number it conducts in 2002. Although the organization and the State Department have taken some steps to address the budget problems, the organization has not developed a comprehensive plan to overcome its inherent weaknesses. Unless the organization improves its planning, budget shortfalls will continue to affect its ability to conduct inspections.
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Director: Team: Phone:GAO-03-5, Chemical Weapons: Organization for the Prohibition of Chemical Weapons Needs Comprehensive Plan to Correct Budgeting Weaknesses
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Report to the Ranking Minority Member, Committee on Foreign Relations,
U.S. Senate:
October 2002:
Chemical Weapons:
Organization for the Prohibition of Chemical Weapons Needs
Comprehensive Plan to Correct Budgeting Weaknesses:
GAO-03-5:
Contents:
Letter:
Results in Brief:
Background:
Budgets Not Based on Accurate Income and Expense Projections:
Budget Shortfalls Resulted in Reduced Inspections and International
Cooperation Activities:
OPCW and State Department Have Taken Steps to Improve Budget Practices,
but Problems Remain:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Member States in Arrears of Contributions to Weapons
(as of August 31, 2002):
Appendix III: Comments from the Department of State:
GAO Comments:
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Table:
Table 1: Inspection Reimbursements Collected, 1997-2002 (as of June 18,
2002):
Figure:
Figure 1: Planned and Conducted OPCW Inspections, 1997-2002:
October 24, 2002:
The Honorable Jesse Helms
Ranking Minority Member
Committee on Foreign Relations
United States Senate:
The Chemical Weapons Convention, which entered into force in April
1997, bans the development, production, acquisition, and use of
chemical weapons by member states and requires the elimination of those
states‘ existing chemical weapons stocks. To implement these
provisions, the convention established the Organization for the
Prohibition of Chemical Weapons (OPCW). The organization‘s primary
functions are to verify the destruction of chemical weapons and their
production facilities, conduct chemical industry inspections, and
encourage international cooperation in the field of chemistry. A
Technical Secretariat, headed by a Director-General, carries out the
organization‘s daily operations. The organization‘s budget for calendar
year 2002 is about $54 million.[Footnote 1] The United States
contributes about 22 percent of the organization‘s assessed budget each
year. Recently, the United States and other member states have raised
concerns that the organization is not fulfilling its mandate because of
a number of management weaknesses. Such concerns prompted the removal
of the organization‘s Director-General in April 2002.
You initially requested that we conduct a comprehensive management
review of the organization to determine how it has implemented the
convention. We could not fulfill the original scope of your request,
however because officials at the Organization for the Prohibition of
Chemical Weapons and the State Department limited our access during our
visit to The Hague in May 2002. On the basis of the information that we
could obtain, and as agreed with your staff, we assessed (1) the
accuracy of the Secretariat‘s budgets, (2) the impact of budget
shortfalls on the organization‘s inspection and international
cooperation activities, and (3) the Secretariat‘s and State
Department‘s efforts to improve the organization‘s budget-planning
practices. In conducting our work, we analyzed the organization‘s
program and budget documents and audited financial statements. We also
reviewed financial regulations, annual reports, and reports prepared by
the organization‘s External Auditor, the Advisory Body on
Administrative and Financial Matters, and the Office of Internal
Oversight. In addition, we obtained information from State Department
officials and member states‘ representatives to the organization. (See
app. I for details of our scope and methodology.):
Results in Brief:
Since the creation of the Organization for the Prohibition of Chemical
Weapons in 1997, the Secretariat‘s budgets have not been based on
accurate projections of income and expenses. The organization‘s budgets
(like those of other international organizations) are based on the
presumption that all member states will pay their assessments in full,
and the budgets have therefore recorded as income nearly $1 million in
unpaid assessments owed by 30 member states as of August 2002. In
addition, the Secretariat has overestimated reimbursement income from
inspections conducted in countries possessing chemical weapons and has
not collected the inspection reimbursements in a timely manner. As of
June 2002, member states with chemical weapons-related facilities owed
the organization more than $2 million from inspections completed over
the past 2 years; the United States owed more than $1.4 million. In
addition, the budgets for 2000 through 2002 underestimated the
organization‘s personnel expenses. These collective problems
contributed to a budget deficit of more than $2.8 million in 2000 and a
potential budget deficit of more than $5.2 million in 2002, despite the
organization‘s plans to achieve a balanced budget during these years.
Since 1998, the organization‘s external auditor and financial advisory
body have recommended changes to the organization‘s budgeting process
to address these problems. However, the organization has yet to fully
implement their recommendations.
Weak budgeting practices and budget deficits have affected the
organization‘s ability to perform its primary inspection and
international cooperation activities. As a result of these problems,
the Secretariat completed 200 of the 293 inspections planned for 2001.
For 2002, the Secretariat plans to reduce the number of inspections to
compensate for the projected deficit. The Secretariat also reduced
funding for international cooperation and assistance activities and
imposed a hiring freeze to offset its budget shortfalls. According to
organization documents, the workload of the organization is expected to
grow as the number of operational chemical weapons destruction
facilities increases from 6 to 12 by 2006 and member states declare
more industry facilities. According to the Deputy Director-General, the
Secretariat may have to increase its budget by 50 percent to support
the growth in inspection activities, thus increasing budgetary
pressures and the probability that it will request increased funding
from member states.
Although the Secretariat and the State Department have taken some
preliminary steps to address budget problems, the Secretariat has yet
to develop a comprehensive plan that will remedy the organization‘s
budgeting weaknesses. The Secretariat is creating a more accurate and
timely invoicing process for inspection reimbursements. In developing
its internal spending plans to implement the budget, the Secretariat
has also begun to exclude the assessments of member states in arrears.
Furthermore, the newly appointed Director-General has stated his
commitment to address the organization‘s financial difficulties by
ensuring that adequate funding is available in the 2003 budget. The
State Department paid for a budget consultant to assist the
organization and is considering paying some inspection reimbursement
costs in advance. However, the organization has not developed a
comprehensive plan to help improve its projections of income and
expenses and has not implemented recommendations made by its external
auditor and financial advisory body to develop more accurate and
realistic budgets. In addition, the Deputy Director-General and
representatives of other member states stated that it is crucial for
the United States, as the top contributor to the organization, to
continue to play a leadership role in helping the organization address
its budget-planning weaknesses.
In this report, we are recommending that the Secretary of State work
with the representatives of other member states and the newly appointed
Director-General to develop a comprehensive plan to improve the
organization‘s budgeting process. In addition, we recommend that the
Secretary of State annually report to Congress on the extent to which
the organization is correcting its budgeting weaknesses and
implementing the budget-related recommendations made by the
organization‘s oversight bodies.
The State Department, in commenting on our draft report, generally
concurred with our findings that budgetary and financial problems have
plagued the OPCW. With regard to our recommendation calling for a
comprehensive plan to improve the organization‘s budgeting process, the
State Department agreed that no comprehensive plan exits. However, the
Department noted that the OPCW is taking some steps to address its
budget problems. The Department stated that it intends to monitor the
implementation of these steps and will pursue corrective action when
necessary. The Department disagreed with our recommendation that the
Secretary of State be required to report annually to Congress on how
the OPCW is correcting its budget weaknesses, asserting that such a
requirement would impose an administrative burden. We believe that such
a reporting requirement would help improve congressional oversight of
the OPCW and would not impose an undue burden on the State Department,
since it already provides various reports to Congress on international
organizations.
Background:
The Organization for the Prohibition of Chemical Weapons consists of
three entities: the Conference of the States Parties, the Executive
Council, and the Technical Secretariat. The Conference of the States
Parties currently comprises 147 representatives, one from each member
state, and oversees the implementation of the convention. The Executive
Council, consisting of 41 representatives from regionally distributed
member states, meets in sessions throughout the year to supervise the
Secretariat‘s activities. The Secretariat, headed by the Director-
General, manages the organization‘s daily operations, including
implementing the inspection measures of the convention and preparing
the organization‘s annual budgets and reports. About 60 percent of the
Secretariat‘s authorized staff level of 507 employees engages in the
inspection-related activities mandated under Articles IV, V, and VI of
the convention. Specifically, to verify compliance with Article IV, the
Secretariat inspects declared chemical weapons stocks and destruction
facilities. To verify compliance with Article V, it inspects and
monitors the destruction and conversion of chemical weapons production
facilities. Under Article VI of the convention, the Secretariat
inspects commercial production facilities. As of July 2002, the
organization had conducted 1,210 inspections at the 5,066 declared
chemical weapons sites and facilities that fall under the convention‘s
purview.
The Secretariat supports member states in their efforts to implement
the convention. It also encourages international cooperation and
assistance among the member states as mandated by Articles X and XI of
the convention. Under these provisions, the Secretariat is authorized
to coordinate the provision of assistance to member states that are the
victims of chemical attacks. The Secretariat also encourages economic
and technological developments in the field of chemistry by encouraging
trade and exchange of information among the member states.
The organization‘s budget for calendar year 2002 is about $54 million.
Funding for OPCW operations comes primarily from the 147 member states‘
annual contributions, which are based on the United Nations scale of
assessments. The other large source of funding is reimbursement
payments for inspections conducted under Articles IV and V of the
convention. As required by the convention, members states with chemical
weapons related-facilities must reimburse the organization for its
inspection costs related to the destruction of chemical weapons
(Article IV) and the destruction of chemical weapons production
facilities (Article V). The State Department reports annually to
Congress on U.S. contributions to international organizations,
including the OPCW.
In early 2002, the United States and other member states to the
convention raised concerns that the organization was not fulfilling its
mandate because of a number of management weaknesses. According to the
United States, such weaknesses included mismanagement by the
organization‘s then Director-General, as well as his advocacy of
inappropriate roles for the organization--such as attempting to
interfere with United Nations weapons inspections in Iraq. To address
these management concerns, the Conference of the States Parties voted
to remove the former Director-General in April 2002. In July 2002, the
Conference appointed a new Director-General.
Budgets Not Based on Accurate Income and Expense Projections:
In its budgets, the Secretariat has not accurately projected income and
expenses. The Secretariat has overestimated its income for two reasons.
First, the budgets include as income the assessed contributions of
member states that are in arrears, some of which have not paid their
contributions since before 1997. Second, the Secretariat has difficulty
predicting and collecting income from inspections conducted at chemical
weapons-related facilities. The budgets also include inaccurate expense
projections. OPCW‘s inaccurate income and expense estimates contributed
to a budget deficit in 2000, and a potential deficit for 2002, despite
plans to achieve balanced budgets in those years.
Budgets Based on Inaccurate Income Projections:
In developing its budget plans for the past 6 calendar years, the
Secretariat has overestimated the amount of income it would receive
from member states‘ assessed contributions and from reimbursable
expenses paid by member states for inspections at chemical weapons-
related facilities.
Income Projections Include Arrearages:
When preparing its annual budgets, the Secretariat overestimates the
income that it realistically expects to receive from member states‘
annual assessments. The Chemical Weapons Convention requires all member
states to pay their annual assessments or lose their voting
privileges.[Footnote 2] The Secretariat‘s annual budgets, however,
included as income the contributions due from 30 member states, even
though these members had not paid their annual assessments for at least
the 2 previous years. The cumulative total of arrearages over the past
several years amounted to almost $1 million as of August 2002. (See
app. II for more details.) This includes $781,883 from 16 member states
that had not paid any of their assessed or other contributions since
before the organization‘s inception in 1997.[Footnote 3] An OPCW
official stated that budgeting for arrearages presents a politically
sensitive problem for the organization because excluding member states‘
assessed contributions from the annual budgets would require approval
from the Conference of the States Parties.
In response to these budgeting problems, the organization‘s Advisory
Body on Administrative and Financial Matters[Footnote 4] and its
External Auditor[Footnote 5] recommended that the Secretariat improve
its budgeting practices by developing more accurate and realistic
budgets. For example, in 1998, the Advisory Body and the External
Auditor stated that the Secretariat‘s future budgets should be more
realistic and accurate and based on the experience gained in the
organization‘s first year of operation. In 2000, the External Auditor
recommended that income projections, which are used to establish
expenditure targets, should be more realistic and based on reasonable
and sound assumptions using past trends in the budget. The Secretariat
has yet to act on these recommendations.
Budgets Overestimate Inspection Reimbursements:
As shown in table 1, every year since 1997, the budgets have
overestimated the amount of money that the organization will invoice
and receive each year for inspections conducted at chemical weapons-
related facilities.
Table 1: Inspection Reimbursements Collected, 1997-2002 (as of June 18,
2002):
2001 dollars.
Estimated reimbursements; 1997--1998: $8,173,878; 1999: $6,588,251;
2000: $5,115,987; 2001: $3,580,163; 2002: $2,621,336;
Total: $26,079,615.
Invoiced reimbursements; 1997--1998: 5,898,727; 1999: 3,342,545;
2000: 3,313,850; 2001: 2,566,964; 2002: 425,913;
Total: $15,547,999.
Reimbursements collected (cumulative); 1997--1998:
229,545; 1999: 4,377,532; 2000: 8,860,499;
2001: 12,078,774; 2002: 13,488,961; Total: $13,488,961.
Note: Invoices are through February 2002.
Source: GAO analysis of OPCW data.
[End of table]
As indicated by OPCW documents, the Secretariat often receives its
reimbursements from those member states possessing chemical weapons-
related facilities late because these states usually do not pay the
OPCW during the year that they receive the inspection invoices.
Frequently, the organization does not receive payments until several
years after issuing the invoices. According to State Department
officials, the United States and Russia have not made payments, in many
cases, until several years after receiving OPCW invoices, because both
governments experienced difficulties in identifying a funding source
and obtaining appropriations. These officials added that both
governments are working to improve their reimbursement records during
2002. As of June 2002, those states possessing chemical weapons-related
facilities, including the United States, owed OPCW more than $2 million
in reimbursable inspection expenses from the previous 2 years. The
United States accounts for $1.4 million of the $2 million owed.
It is difficult, however, for the Secretariat to estimate the number of
inspections that will be conducted and therefore the amount of
inspection reimbursement payments that can be collected from those
states possessing chemical weapons-related facilities. According to
State Department and OPCW officials, the Secretariat relies on states‘
destruction plans to calculate the number of inspections the
organization may conduct during the year. Chemical weapons possessor
states cannot always accurately predict when their destruction
facilities will become operational and what problems may arise once
they do. Any change to the schedule of a destruction facility‘s
operations can affect the timing of OPCW inspections and thus affect
the organization‘s reimbursement estimates. In commenting on our draft
report, the State Department stated that possessor states‘ destruction
plans have collectively overstated destruction activity, and
consequently monitoring activity, by 30 percent or more.
While it may be difficult for the Secretariat to estimate income from
inspection reimbursements, the Secretariat does not issue the
reimbursement invoices in a timely manner, according to State
Department and OPCW officials. Recent OPCW analysis indicates, however,
that the organization is working to improve the timeliness of its
invoices. In addition, sometimes the invoices are inaccurate, causing
those states possessing chemical weapons-related facilities to withhold
payment until corrections are made.
The organization‘s External Auditor recommended in 2001 that the
Secretariat take concrete steps to pursue and recover outstanding
invoices and develop realistic estimates of its income from Articles IV
and V (reimbursable) inspections. In its April 2002 report, the
organization‘s Advisory Body also recommended that the Secretariat
avoid optimistic income forecasts regarding Articles IV and V
inspections, as well as expedite and improve its billing procedures.
Budgets Underestimate Personnel Costs:
As the result of a staff reclassification and upgrade undertaken in
1999 and mandatory United Nations salary increases, the Secretariat‘s
personnel costs increased, affecting the 2000, 2001, and 2002 budgets.
However, the budgets underestimated this increase. The Secretariat‘s
budget for 2002 underestimated staff cost increases by about 6 percent
($1.8 million) and may contribute to a potential budget deficit for
2002. The audited financial statement for 1999 and the Advisory Body‘s
January 2001 report stated that increases in personnel costs were
inevitable as a result of the staff reclassification and upgrade.
The OPCW‘s salary system further complicates the budget projections for
staff costs. OPCW uses the United Nations compensation system, which
budgets salaries and staff wages in U.S. dollars. The OPCW, however,
pays its staff in euros. According to State Department and OPCW
officials, the organization has had difficulty in covering the currency
risks associated with fluctuations in the dollar-to-euro exchange rate.
The organization can experience significant personnel cost increases,
depending upon the exchange rate; staff costs represent about 75
percent of OPCW‘s 2002 budget. Furthermore, OPCW and State Department
officials stated that it is difficult to manage staff costs given the
organization‘s current tenure policy, which does not clearly establish
a start date for OPCW employees. During the creation of the
organization, a 7 year tenure policy was established to reduce the
number of career employees in the organization. Currently, staff
members are hired on a 3 year contract that can be renewed yearly
thereafter. However, the Conference of the States Parties has yet to
agree on a date for the commencement of the tenure policy.
Organization Had Budget Deficit in 2000 and Anticipates Deficit for
2002:
In 2000, the organization experienced a budget deficit of more than
$2.8 million when expenditures exceeded the income for the year. In
2001, the Advisory Body reported that the Secretariat was aware of the
income shortfall of 2000 and should have managed the budget more
carefully to avoid a deficit. It also recommended that, to avoid a
recurrence of overspending, the Secretariat should maintain budgetary
discipline by matching expenditures to anticipated income in developing
the 2001 budget.
However, for 2002, the organization may again experience a budget
deficit. According to an OPCW briefing document,[Footnote 6] the
organization will experience a potential $5.2 million deficit because
of unrealistic income projections in the budget and underbudgeted
personnel expenditures.[Footnote 7]
Budget Shortfalls Resulted in Reduced Inspections and International
Cooperation Activities:
Because of its budget problems, the Secretariat has reduced inspections
and international cooperation and assistance efforts and has
implemented a hiring freeze. Unless the organization can obtain
additional funding, it will have to further reduce its inspections in
2002. The problem will intensify as the number of inspectable
facilities increases during the next few years.
Primary Functions Reduced to Offset Budget Deficits:
The Secretariat has curtailed its inspection activities in response to
its budget problems. As a result the Secretariat conducted only 200 of
the 293 inspections planned for 2001. The Secretariat plans to reduce
the number of inspections for 2002 to compensate for the potential
deficit of $5.2 million. As of June 2002, OPCW inspectors had conducted
only 90 of the 264 inspections planned for the year. Figure 1 depicts
the number of inspections planned and conducted from 1997 through June
2002.
Figure 1: Planned and Conducted OPCW Inspections, 1997-2002:
[See PDF for image]
Notes: For 1997, inspections were conducted beginning in June.
For 2002, the figure represents inspections conducted through June 24,
2002.
Source: GAO analysis of OPCW documents.
[End of figure]
Since 1997, most OPCW inspection activities have taken place at
chemical weapons-related facilities. The Secretariat receives
reimbursements from member states for inspections conducted under
Articles IV and V of the convention. However, the Secretariat is not
reimbursed for inspections carried out at commercial chemical
facilities under Article VI. According to OPCW documents, when funding
is limited, the Secretariat reduces the number of inspections at
commercial chemical facilities that it conducts during the year.
Because of its budget problems, OPCW conducted only 75, or 57 percent,
of the 132 chemical industry inspections planned for 2001. As of June
2002, the organization had conducted only 47, or 36 percent, of the 132
industry inspections planned for 2002. According to an OPCW document,
if additional funding becomes available, a maximum of 11 chemical
industry inspections per month can be conducted between the time
additional monies are received and the end of 2002.
At the same time, the Secretariat cut funding for international
cooperation and assistance efforts in 2001 by about one-third, from $3
million to $2 million, and has made further reductions in funding for
2002. The Secretariat also imposed a hiring freeze on OPCW personnel
for 2000 through 2002. According to the OPCW‘s latest budget proposal,
the Secretariat plans to leave 33 positions vacant for 2003. Of these
33 positions, 22 are related to inspection and verification activities.
Budget Problems Will Multiply:
According to OPCW officials, unless it receives additional funding, the
OPCW will not be able to completely fulfill its primary inspection
functions this year. As of June 2002, six member states have provided
about $397,000 in voluntary contributions to help offset the OPCW
budget deficit for 2002.[Footnote 8] According to a State Department
official, the United States, France, Germany, and the United Kingdom
are considering contributing additional funding to support the
organization.
The Secretariat‘s inspection resources will be further affected by
expected increases in the numbers of chemical weapons destruction
facilities and commercial chemical facilities requiring OPCW
inspections. Specifically, by 2006, the number of continuously
operating chemical weapons destruction facilities is expected to
increase from 6 to 12. An OPCW planning document also indicates that
additional member states may declare more industry facilities.[Footnote
9] According to the Deputy Director-General, preliminary OPCW estimates
indicate that the funding level needed to support inspection activities
may increase by 50 percent.
OPCW and State Department Have Taken Steps to Improve Budget Practices,
but Problems Remain:
The organization has taken some preliminary steps to address its
budgeting problems, but it lacks a comprehensive strategy to overcome
the inherent weaknesses in its budgeting process. Also, limited
oversight resources have affected the organization‘s efforts to improve
its budgeting process. The State Department has taken some steps to
assist the OPCW, but budgeting problems remain.
Secretariat Taking Steps, but Has No Plan to Address Budget Problems:
The Secretariat is taking some preliminary steps to improve its
budgeting practices. The new Director-General has stated his commitment
to ensure that the organization receives the financial resources needed
to implement its mandate and that these resources are used exclusively
for the objectives and missions outlined in the convention. According
to a State Department official, when developing its internal spending
plans to implement the budget, the Secretariat has begun to exclude the
assessments of member states in arrears. The OPCW is also reducing its
estimates of income derived from inspection activities, based on the
chemical weapons possessor states‘ destruction plans, by 30 percent, to
better reflect the historical level of activity. State Department
officials also indicated that the Secretariat is working to improve the
invoicing and payments process for Articles IV and V reimbursements by
providing more accurate bills on a more timely basis. Invoices sent out
during the last two months of the calendar year will be applied to the
following year‘s income projections. State Department officials added
that OPCW member states are considering changing the current financial
regulations to provide the Secretariat flexibility in using the
organization‘s Working Capital Fund to cover inspection-related
expenses.[Footnote 10] In commenting on our draft report, the State
Department also stated that the Secretariat has begun using actual
staff costs to develop more accurate budget forecasts of salary costs.
Although the Secretariat‘s efforts to collect income from member states
is a positive first step in addressing its budget difficulties, it has
not directed sufficient attention to improving projections of future
expenses. According to State and OPCW officials, the Secretariat does
not budget for currency fluctuations in calculating its staff expenses.
These officials also stated that current personnel regulations contain
a vague employee tenure policy, making it difficult to predict employee
turnover and reduce the number of employees. Accordingly, the
Secretariat‘s recent efforts do not reflect a comprehensive approach to
addressing its continuing budget problems.
OPCW‘s Office of Internal Oversight may play an important role in
helping reform the Secretariat‘s budget process. In March 2002, the
organization‘s Advisory Body questioned the role of the oversight
office, stating that the office may not be focusing on key internal
auditing, monitoring, evaluation, and investigation activities that
could detect budgeting problems. In providing its advice and consent to
the ratification of the Chemical Weapons Convention, the U.S. Senate
required the President to certify that the OPCW had established an
independent internal oversight office that would conduct audits,
inspections, and investigations relating to the programs and operations
of the OPCW.[Footnote 11] In December 1997, the President certified
that the office was in compliance with the Senate‘s requirement.
However, the OPCW‘s 2000 annual report states that only one auditor
within the oversight office was responsible for internal audit
activities. The 2002 Advisory Body report states that the oversight
office was devoting only one-third of its staff resources to conducting
audits, while the remaining two-thirds was focused on other functions,
such as the implementation of the organization‘s confidentiality regime
and the establishment of a quality assurance system.[Footnote 12] In
that same report, the Advisory Body reemphasized that the principal and
overriding functions of the oversight office should be internal audit,
monitoring, evaluation, and investigation. Given the current financial
and budgetary crisis, the Advisory Body recommended that the
Secretariat redefine the office‘s role to ensure a clear and sustained
focus on proper management of the budget.
State Department Taking Initiatives, but More Assistance Is Needed:
The State Department funded a budget consultant to assist the
Secretariat in reviewing its budget processes. However, it is difficult
to assess the consultant‘s impact in improving the budget processes of
the organization. According to the State Department, although it
reimbursed the Secretariat for the consultant‘s salary (including per
diem) of $170,000, the consultant was not required to provide the
Department with a statement of work or a written analysis of the
Secretariat‘s budgetary practices and efforts to improve its processes,
because he was considered an employee of the Technical Secretariat.
According to State Department officials, the United States is also
attempting to pay its Articles IV and V inspection reimbursements in a
timelier manner and is considering paying in advance the chemical
weapons-inspection costs that cover inspector salaries. To assist the
organization in meeting its 2002 budget, the State Department is
providing $2 million in supplemental funding to restore, to the extent
feasible, budgeted levels of inspection activity and to strengthen
management and planning functions, among other purposes. Funds will be
deposited in a trust fund and will remain available until expended by
the OPCW on activities agreed to by the United States.
OPCW‘s Deputy Director-General and representatives from member states
commented that the United States needs to continue in its leadership
role by providing financial, managerial, and political support to the
organization. According to these officials, the U.S. government‘s
recent efforts focused primarily on the removal of the former Director-
General. The officials added that the United States should now focus on
addressing the organization‘s budgetary and financial problems.
Conclusions:
The OPCW has consistently overestimated its income and underestimated
its expenses, and thus has planned more inspections than it is
financially able to conduct. Unless the Secretariat corrects its weak
estimating practices, the Secretariat may continue to plan more
inspections than it can undertake. The problem may grow worse in future
years as the number of new chemical weapon‘s destruction facilities
increases and additional states ratify the convention. The
organization‘s newly appointed Director-General has an opportunity to
correct these budgeting weaknesses and improve the organization‘s
finances.
Recommendations for Executive Action:
To improve the current budget problems of the Organization for the
Prohibition of Chemical Weapons, we recommend that the Secretary of
State work with the representatives of other member states and the new
Director-General to develop a comprehensive plan to improve the
organization‘s budgetary practices. The plan should outline specific
strategies to (1) improve the projection and collection of income, (2)
accurately project expenses, and (3) strengthen the role of the Office
of Internal Oversight in helping the organization improve its budgeting
process. Such a plan would be consistent with the budget
recommendations of the Secretariat‘s oversight bodies.
To ensure that Congress is informed about the status of efforts to
improve the OPCW‘s budgeting practices, we recommend that the Secretary
of State annually report to Congress on the extent to which the OPCW is
correcting its budgeting weaknesses and implementing the
recommendations made by the organization‘s oversight bodies.
Agency Comments and Our Evaluation:
We received written comments on a draft of this report from the State
Department that are reprinted in appendix III. We also received
technical comments from the State Department and have incorporated them
where appropriate. The State Department generally concurred with our
findings that budgetary and financial problems have plagued the OPCW,
and that unless corrected, these problems could have even more dramatic
effects in coming years. The Department, however, raised several issues
with the report. First, the Department asserted that our analysis of
OPCW budgetary and financial difficulties presented an incomplete
picture of the OPCW‘s budgeting practices. Second, the State Department
disputed our assertion that we had to limit the scope of our review
because of the access restrictions we encountered during our May 2002
visit to the OPCW in The Hague. Third, it stated that our report did
not fully reflect the changes that the OPCW has recently begun taking
to address its budget weaknesses. Finally, the Department disagreed
with our recommendation that the Secretary of State be required to
report annually to Congress on how the OPCW is correcting its budget
weaknesses, asserting that such a requirement would impose an
administrative burden.
In response to the State Department‘s comments on our draft report, we
added information on the reasons why the OPCW experienced budget
problems. Regarding our access to OPCW records and staff, although the
State Department provided us with some access to OPCW budget and
finance documents through the Department‘s offices in Washington, D.C.,
we were denied the opportunity to review related budget documentation
and meet with numerous OPCW officials during our visit to The Hague in
May 2002. Although we provided the State Department with an extensive
list of OPCW officials with whom we wanted to meet prior to our visit,
we were allowed to meet only with the Deputy Director-General and
selected representatives from the budget office and the inspection
equipment laboratory. We were not allowed to meet with representatives
from key OPCW offices, including the Special Projects Division, the
Office of Internal Oversight, the Office of the Legal Advisor, the
Administration Division, the Verification Division, the Inspection
Division, the International Cooperation and Assistance Division, and
the Advisory Body on Administrative and Financial Matters. Furthermore,
the State Department failed to notify us of any potential access
difficulties with the OPCW prior to our trip to The Hague, and did not
actively seek to provide us with access to these officials on our
arrival. Consequently, we had to limit the scope of our review to
budget-related issues. In response to the State Department‘s comments
about recent budgetary initiatives, we have updated the report to
reflect the most current initiatives being undertaken by the OPCW to
address its budgeting problems. Regarding our recommendation for an
annual reporting requirement, we do not believe that such a requirement
would impose an administrative burden on the Department, since it
already provides various reports to Congress on international
organizations. This reporting requirement is necessary to improve
congressional oversight of the OPCW.
We are providing copies of this report to other interested
congressional committees and to the Secretary of State. We will make
copies available to others on request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-8979 if you or your staff have any
questions concerning this report. Another GAO contact and staff
acknowledgments are listed in appendix IV.
Sincerely yours:
Signed by Joseph Christoff:
Joseph Christoff, Director
International Affairs and Trade:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
We could not conduct a comprehensive management review of the
organization as requested, because the Organization for the Prohibition
of Chemical Weapons (OPCW) and State Department officials limited our
access during our visit to The Hague in May 2002. As a result of our
lack of access to OPCW officials and limited access to OPCW documents,
we could not determine how the reduction in chemical weapons and
industry inspections has affected the implementation of the Chemical
Weapons Convention. In addition, we could not assess the organization‘s
personnel management, administrative, and internal audit functions.
Specifically, we were not permitted to meet with or obtain information
from OPCW officials from the following offices: the Special Projects
Division, the Office of Internal Oversight, the Office of the Legal
Advisor, the Administration Division, the Verification Division, the
Inspection Division, the International Cooperation and Assistance
Division, and the Advisory Body on Administrative and Financial
Matters. However, we met with OPCW‘s Deputy Director-General. We also
received a budget briefing from the Director of the Administrative
Division and the budget consultant being funded by the State
Department. In addition, we visited the inspection laboratory and
equipment store at Rijswijk, the Netherlands.
To determine the accuracy of the Secretariat‘s budgets, we compared
OPCW‘s program and budget documents for 1997-2003 with the data in the
audited financial statements for 1997-2001.[Footnote 13] To compare
budget and program data, figures were converted from Netherlands
guilders and euros to 2001 dollars, using appropriate exchange and
inflation rates. We also reviewed other OPCW documents, including the
organization‘s financial regulations and annual reports. We analyzed
reports prepared by the organization‘s External Auditor, the Advisory
Body on Administrative and Financial Matters, and the Office of
Internal Oversight. In addition, we obtained information from officials
in the State Department‘s Bureau of Arms Control and Office of
International Organization Affairs, as well as from member states‘
representatives to OPCW.[Footnote 14]
To determine the impact of budget shortfalls on the organization‘s
inspection and international cooperation activities, we analyzed the
data contained in the organization‘s program and budget documents and
in annual implementation reports for calendar years 1997-2001. To
confirm our understanding of the data obtained, we met with an official
from the State Department‘s Bureau of Arms Control. In addition, we
reviewed other OPCW documents and statements provided by the State
Department.
To assess OPCW and State Department efforts to improve the
organization‘s budget-planning practices, we met with State Department
officials in Washington, D.C., and The Hague. We also obtained
information from OPCW member states‘ representatives. We reviewed and
analyzed OPCW and State Department documents, including OPCW‘s draft
Medium-Term Plan for 2004-2006; speeches given by the Director-General
to the Executive Council and Conference of the States Parties; and
reports of the Advisory Board on Administrative and Financial Matters,
the External Auditor, and the Office of Internal Oversight.
We could not independently verify the accuracy of the budget and other
financial data obtained from OPCW and the State Department. Although we
met with, and obtained documents from, officials at the Departments of
Commerce and Defense, the information they provided was not relevant to
the reduced scope of our work.
We performed our work from January 2002 through October 2002 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Member States in Arrears of Contributions to the
Organization for the Prohibition of Chemical Weapons (as of August 31,
2002):
2001 dollars.
Member States: Armenia; Preparatory Commission contributions[A]:
$48,755;
Working Capital Fund contributions[B]: $2,227; Assessed contributions:
1997: $19,774; Assessed contributions: 1998: $25,805; Assessed
contributions: 1999: $4,861; Assessed contributions: 2000: $2,583;
Assessed contributions: 2001: $2,948; Total owed: $106,953.
Member States: Benin; Preparatory Commission contributions[A]: 2,022;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997:
0; Assessed contributions: 1998: 2,903; Assessed contributions: 1999:
884;
Assessed contributions: 2000: 861; Assessed contributions: 2001: 982;
Total
owed: $8,059.
Member States: Bolivia; Preparatory Commission contributions[A]: 0;
Working Capital Fund contributions[B]: 0; Assessed contributions: 1997:
0; Assessed contributions: 1998: 98; Assessed contributions: 1999:
3,093;
Assessed contributions: 2000: 3,013; Assessed contributions: 2001:
3,440;
Total owed: $9,644.
Member States: Burkina Faso; Preparatory Commission contributions[A]:
3,051; Working Capital Fund contributions[B]: 407; Assessed
contributions:
1997: 2,255; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 884; Assessed contributions: 2000: 861; Assessed contributions:
2001: 982; Total owed: $13,416.
Member States: Burundi; Preparatory Commission contributions[A]: 6049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997:
0; Assessed contributions: 1998: 1,244; Assessed contributions: 1999:
439;
Assessed contributions: 2000: 428; Assessed contributions: 2001: 492;
Total owed: $9,058.
Member States: El Salvador; Preparatory Commission contributions[A]:
6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997:
3,608; Assessed contributions: 1998: 4,976; Assessed contributions:
1999: 5,302; Assessed contributions: 2000: 5,166; Assessed
contributions: 2001: 5,898; Total owed: $31,405.
Member States: Equatorial Guinea; Preparatory Commission
contributions[A]: 6,049; Working Capital Fund contributions[B]:
407; Assessed contributions: 1997: ; 3,608; Assessed contributions:
1998: ; 4,976; Assessed contributions: 1999: ; 439; Assessed
contributions: 2000: ; 428; Assessed contributions: 2001: 492;
Total owed: ; $16,398.
Member States: Fiji; Preparatory Commission contributions[A]: 0;
Working Capital Fund contributions[B]: 0; Assessed contributions:
1997: 0; Assessed contributions: 1998: 3,129; Assessed contributions:
1999: 1,767; Assessed contributions: 2000: 1,722; Assessed
contributions: 2001: 1,966; Total owed: $8,585.
Member States: Gambia; Preparatory Commission contributions[A]: 0;
Working Capital Fund contributions[B]: 51; Assessed contributions:
1997: 0; Assessed contributions: 1998: 2,357; Assessed contributions:
1999: 439; Assessed contributions: 2000: 428; Assessed contributions:
2001: 492; Total owed: $3,767.
Member States: Georgia; Preparatory Commission contributions[A]:
95,747; Working Capital Fund contributions[B]: 4,900; Assessed
contributions: 1997: 43,502; Assessed contributions: 1998: 56,771;
Assessed contributions: 1999: 8,396; Assessed contributions: 2000:
3,013; Assessed contributions: 2001: 3,440; Total owed: $215,769.
Member States: Ghana; Preparatory Commission contributions[A]: 1,680;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 2,255; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 3,093; Assessed contributions: 2000: 3,013; Assessed
contributions:
2001: 3,440; Total owed: $18,864.
Member States: Guinea; Preparatory Commission contributions[A]: 6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 2,706; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 1,326; Assessed contributions: 2000: 1,291; Assessed
contributions: 2001: 1,474; Total owed: $18,229.
Member States: Guyana; Preparatory Commission contributions[A]: 4,357;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 1,353; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 439; Assessed contributions: 2000: 428; Assessed contributions:
2001: 492; Total owed: $12,452.
Member States: Laos; Preparatory Commission contributions[A]: 2,766;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 3,608; Assessed contributions: 1998: 4,976; Assessed
contributions: 1999: 439; Assessed contributions: 2000: 428;
Assessed contributions: 2001: 492; Total owed: $13,116.
Member States: Malawi; Preparatory Commission contributions[A]: 6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 0; Assessed contributions: 1998: 2,488; Assessed contributions:
1999: 884; Assessed contributions: 2000: 861; Assessed contributions:
2001: 982; Total owed: $11,671.
Member States: Maldives; Preparatory Commission contributions[A]: 0;
Working Capital Fund contributions[B]: 0; Assessed contributions: 1997:
3,392; Assessed contributions: 1998: 4,976; Assessed contributions:
1999: 439; Assessed contributions: 2000: 428; Assessed contributions:
2001: 492; Total owed: $9,727.
Member States: Mali; Preparatory Commission contributions[A]: 6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 3,608; Assessed contributions: 1998: 4,976; Assessed
contributions: 1999: 884; Assessed contributions: 2000: 861; Assessed
contributions: 2001: 982; Total owed: $17,766.
Member States: Mauritania; Preparatory Commission contributions[A]:
6,049; Working Capital Fund contributions[B]: 407; Assessed
contributions: 1997: 0; Assessed contributions: 1998: 4,147;
Assessed contributions: 1999: 439; Assessed contributions: 2000: 428;
Assessed contributions: 2001: 492; Total owed: $11,961.
Nicaragua; Preparatory Commission contributions[A]: 6,049; Working
Capital Fund contributions[B]: 41; Assessed contributions: 1997: 0;
Assessed contributions: 1998: 0; Assessed contributions: 1999: 37;
Assessed contributions: 2000: 428; Assessed contributions: 2001: 492;
Total owed: $7,047.
Member States: Niger; Preparatory Commission contributions[A]: 6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 3,608; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 884; Assessed contributions: 2000: 861; Assessed contributions:
2001: 982; Total owed: $17,766.
Papua New Guinea; Preparatory Commission contributions[A]: ; 0; Working
Capital Fund contributions[B]: ; 0; Assessed contributions: 1997: ; 0;
Assessed contributions: 1998: ; 2,376; Assessed contributions: 1999: ;
3,093; Assessed contributions: 2000: ; 3,013; Assessed contributions:
2001: ; 3,440; Total owed: ; $11,922.
Member States: Paraguay; Preparatory Commission contributions[A]: 0;
Working Capital Fund contributions[B]: 0; Assessed contributions:
1997: 3,159; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 6,186; Assessed contributions: 2000: 6,027; Assessed
contributions:
2001: 6,880; Total owed: $27,228.
Member States: Republic of Moldova; Preparatory Commission
contributions[A]: 68,237; Working Capital Fund contributions[B]:
3,564; Assessed contributions: 1997: ; 31,638; Assessed contributions:
1998: ; 41,288; Assessed contributions: 1999: ; 7,953; Assessed
contributions: 2000: ; 4,304; Assessed contributions: 2001: ; 4,914;
Total owed: ; $161,898.
Member States: Senegal; Preparatory Commission contributions[A]:
3,022;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997:
0; Assessed contributions: 1998: 2,073; Assessed contributions: 1999:
2,651; Assessed contributions: 2000: 2,583; Assessed contributions:
2001: 2,948; Total owed: $13,684.
Member States: Seychelles; Preparatory Commission contributions[A]:
6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997:
3,608; Assessed contributions: 1998: 4,976; Assessed contributions:
1999: 884; Assessed contributions: 2000: 861; Assessed contributions:
2001: 982; Total owed: $17,766.
Member States: Tajikistan; Preparatory Commission contributions[A]:
18,540;
Working Capital Fund contributions[B]: 891; Assessed contributions:
1997:
7,909; Assessed contributions: 1998: 10,322; Assessed contributions:
1999: 2,210; Assessed contributions: 2000: 1,722; Assessed
contributions: 2001: 1,966; Total owed: $43,560.
Member States: Togo; Preparatory Commission contributions[A]: 6,049;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997: 3,608; Assessed contributions: 1998: 4,976; Assessed
contributions:
1999: 439; Assessed contributions: 2000: 428; Assessed contributions:
2001: 492; Total owed: $16,398.
Member States: Trinidad and Tobago; Preparatory Commission
contributions[A]:
0; Working Capital Fund contributions[B]: ; 1,336; Assessed
contributions:
1997: ; 8,898; Assessed contributions: 1998: ; 15,483; Assessed
contributions: 1999: ; 7,512; Assessed contributions: 2000: ; 6,887;
Assessed contributions: 2001: ; 7,864; Total owed: ; $47,979.
Member States: Turkmenistan; Preparatory Commission contributions[A]:
22,377; Working Capital Fund contributions[B]: 1,336; Assessed
contributions: 1997: 11,864; Assessed contributions: 1998: 15,483;
Assessed contributions: 1999: 3,535; Assessed contributions: 2000:
2,583; Assessed contributions: 2001: 2,948; Total owed: $60,127.
Member States: Tanzania; Preparatory Commission contributions[A]:
4,892;
Working Capital Fund contributions[B]: 407; Assessed contributions:
1997:
0; Assessed contributions: 1998: 2,488; Assessed contributions: 1999:
1,326; Assessed contributions: 2000: 1,291; Assessed contributions:
2001: 1,474; Total owed: $11,878.
Total; Preparatory Commission contributions[A]: $341,986; Working
Capital Fund contributions[B]: $21,259; Assessed contributions: 1997:
$163,958; Assessed contributions: 1998: $253,143; Assessed
contributions: 1999: $71,155; Assessed contributions: 2000: $57,229;
Assessed contributions: 2001: $65,362; Total owed: $974,093.
Note: Numbers in columns may not sum to totals because of rounding.
[A] The Preparatory Commission for the Organization for the Prohibition
of Chemical Weapons preceded the OPCW and carried out the initial
implementation of the Chemical Weapons Convention. Under the
Preparatory Commission, member states were assessed contributions to
fund the commission‘s expenses.
THE WORKING CAPITAL FUND WAS DESIGNED TO MEET SHORT-TERM LIQUIDITY
PROBLEMS DURING A GIVENn financial period and is funded by the member
states in accordance with their scale of assessments.
Source: GAO analysis of OPCW data.
[End of table]
[End of section]
Appendix III: Comments from the Department of State:
United States Department of State Washington, D. C. 20520:
OCT 16 2002:
Dear Ms. Westin:
We appreciate the opportunity to review your draft report, ’CHEMICAL
WEAPONS: Organization for the Prohibition of Chemical Weapons Needs
Comprehensive Plan to Correct Budgeting:
Weaknesses,“ GAO-03-5, GAO Job Code 320100.
The Department‘s comments are enclosed for incorporation, along with
this letter, as an appendix to the GAO final report.
If you have any questions regarding this response, please contact
Christopher Park, Office of Chemical and Biological Weapons
Conventions, Bureau of Arms Control on (202) 647-7903.
Sincerely,
Christopher B. Burnham Assistant Secretary of Resource Management and
Chief Financial Officer:
Signed by Christopher B. Burnham:
Enclosure:
As stated.
cc: GAO/IAT - Mr. Christoff State/OIG - Mr. Berman State/AC - Mr.
Mikulak:
Ms. Susan S. Westin, Managing Director, International Affairs and
Trade, U.S. General Accounting Office.
Department of State Department Comments on GAO Draft Report:
CHEMICAL WEAPONS: Organization for the Prohibition of Chemical Weapons
(OPCW) Needs Comprehensive Plan to Correct Budgeting Weaknesses. (GAO
03-5, Job Code 320100):
The Department of State has reviewed the draft report of the General
Accounting Office (GAO) ’Organization for the Prohibition of Chemical
Weapons Needs Comprehensive Plan to Correct Budgeting Weaknesses,“ GAO
-03-5, concerning budgeting practices at the Organization for the
Prohibition of Chemical Weapons (OPCW). In general terms, we are in
full accord with GAO‘s observations: the OPCW has been plagued with
budgetary and financial problems relating to the accuracy of estimates
of both income and expenditure, as well as the timely receipt of
income; these problems resulted in a cash deficit for the year 2000,
and further deficits in 2001 and 2002 have only been averted through
dramatic cutbacks in inspections and international cooperation
activities; and unless corrected, these problems could have even more
dramatic effects in coming years.
In its details, however, the Department takes issue with several
aspects of GAO‘s report: first, we find the analysis of the OPCW‘s
budgetary and financial difficulties oversimplifies in significant
respects, and consequently presents an incomplete picture. Second, we
strongly dispute GAO‘s claim that ’access restrictions“ on the part of
both the Department and the OPCW Technical Secretariat forced GAO to
severely limit its scope of work. Third, GAO‘s observation that there
is no coherent plan to address these problems, while accurately
portraying the situation for the first part of 2002, does not reflect
the current situation. Finally, we disagree with GAO‘s recommendation
for an open-ended reporting requirement. Each of these points is
elaborated in greater depth below. Six pages of technical-level
comments were provided to GAO at the working level previously.
Observations on GAO‘s Analysis:
GAO has focused on two budgetary issues: ’the Organization has
consistently overestimated its income and underestimated its expenses.“
This is factually correct, but-even as elaborated in the body of the
report-a significant oversimplification.A more detailed analysis would
lead to the identification of at least 5 distinct issues:
*Estimating workload: Monitoring activities at chemical weapons
destruction facilities account for the majority of OPCW‘s inspection
workload. Historically, the Organization has been heavily dependent on
plans submitted by CW possessor states:
to project this workload. On average, these plans have collectively
overstated destruction activity, and consequently monitoring activity,
by 30 percent or more. Under the financing formula employed by OPCW,
this has significant implications for both income and expenditure. To
the extent that these workload estimates are incorrect, both income and
expenditure projections in the budget will be inaccurate-but, since the
bulk of the expenditure is fixed (inspector salaries) the net effect of
overestimating monitoring activity is a significant income deficit and
only a minor decrease in expenditure.
*Estimating expenditure: OPCW‘s approved budgets underestimated staff
costs in 2000, 2001, and 2002, as noted by GAO. We do not believe,
however, that GAO has correctly identified the reasons for this.
*Estimating Income: The workload issue noted above poses significant
problems in forecasting income due to the Organization. In addition,
the OPCW encounters the same difficulties found in other international
organizations in that some countries pay their dues late or not at all.
To the extent that payments are received within 24 months of the start
of the budget period, this is not a budgetary issue, since OPCW
financial regulations are crafted to permit application of this income
to the budget for which it was intended. Later payments DO pose
budgetary issues, and OPCW is faced with the same difficulty
encountered in other organizations: to disregard as income payments due
from some States Parties on the grounds that they will not pay is
unacceptable, since it has the effect of deliberately overassessing
other States Parties to make up for the difference. This problem was
exacerbated in the OPCW by legislative and regulatory difficulties in
the United States and Russia: neither country had authorization and
funding to pay their Article IV/V inspection bills from 1999 through
late CY 2001.
*Cash Flow: While payments up to 24 months after the start of the
budgetary period do not pose any budgetary issues, they can create
significant cash shortages, resulting in curtailment of activity. OPCW
has lacked adequate liquidity to deal with such cash shortages.
*Internal Control: In 2000, the OPCW Technical Secretariat spent
against budgeted income based on inflated estimates of CW destruction
activity. That is, it spent money that not only had not been collected,
but would never even be due to the Organization, incurring a
substantial deficit. While the workload uncertainties noted above make
this difficult to guard against, closer monitoring of this problematic
area would have permitted the TS to curtail activities during the
latter half of 2000, substantially reducing the deficit.
The Department believes that this more detailed breakout of the sources
of OPCW‘s financial and budgetary difficulties is essential to
formulating a credible response, since the various problems have
different solutions. We also believe that GAO‘s report should more
clearly emphasize that spending cuts of the sort experienced in 2001
and 2002 disproportionately affect industry inspections, without much
impact on CW inspections.
Access Restrictions:
GAO has stated that ’We could not fulfill the original scope ...
because officials at the Organization for the Prohibition of Chemical
Weapons and the State Department limited our access during our visit to
The Hague in May 2003.“ The Department does not agree with this
assessment. Department officials in Washington and the U.S. Delegation
in The Hague made every reasonable effort to accommodate GAO‘s
requests. ’Access restrictions“ by the State Department amounted to
declining to facilitate a small number of meetings with the former
Director-General, who had been voted out of office the preceding week
at U.S. initiative, and with a few delegations that voted in his
support.It:
was our assessment that such interviews would be counterproductive to
our ongoing efforts to manage the departure of former Director-General
Bustani, the return to some semblance of normalcy, and the search for a
new Director-General in a constructive, positive fashion. Numerous
other meetings were arranged, however.
’Access restrictions“ on the part of the OPCW Technical Secretariat
consisted of declining to permit GAO personnel to interview a lengthy
list of staff, and instead insisting that authoritative answers to any
questions be provided through the Acting Director-General and the
Director of Administration. Indeed, when specifically requested to do
so, GAO officials have been unable to identify specific questions GAO
has posed to which answers were not provided.
Lack of a ’Comprehensive Strategy“:
GAO is correct that there is no document that can be pointed to as
elucidating a comprehensive strategy to address the OPCW‘s budgeting
problems. However, in recent months a series of interrelated actions
have been taken. This mosaic, taken as a whole, responds in a
comprehensive way to the problems the OPCW has experienced. We note,
however, that most of these actions have taken place since GAO‘s May
visit to The Hague; based on developments at that time, GAO‘s portrayal
of an ad hoc, incomplete response is reasonable. Steps taken to date
are as follows:
Estimating workload: in the 2003 budget, adopted at the 7THConference
of the States Parties in October 2002, CW destruction plans were
discounted by 30 percent in calculating the number of inspection days
of work to be performed for income projection purposes, in line with
historical experience. A ’surge capacity‘ was maintained, however, so
that the OPCW has sufficient inspectors to manage a higher level of
monitoring activity if required.
*Estimating expenditure: With the help of a U.S.-funded budget expert,
the Technical Secretariat has moved from using average unit costs in
budgeting for staff to using actual payroll data, projected forward.
This ’actual costs“ basis, combined with substantially improved
contacts with the International Civil Service Commission (ICSC) in New
York, and a ’hands off‘ approach to staff cost estimates by the
Governing Bodies, should lead to much more accurate budget forecasts
for salary costs.
*Estimating Income: Based on historical experience, the 2003 budget
discounts Article IV/V income by 1/6TH as compared to the already
discounted activity level, effectively moving income relating to work
done in November and December of 2003 into the 2004 budget. This allows
for a delay of up to 60 days in invoicing, followed by further delay of
up to 12 months between invoicing and payment without any impact on
budgetary estimates of income.
*Cash Flow: The U.S.-funded budget expert worked with State Department
officials and TS budget and finance staff to develop a more streamlined
and effective process for submitting, documenting, and clarifying
inspection invoices over the internet, which has dramatically reduced
turnaround times, ensuring that the OPCW gets its money sooner. The
7THConference of the States Parties also took a decision liberalizing
the use of the Organization‘s Working Capital Fund to permit its use
late in the calendar year. Historically, OPCW has been cash-poor in
this period, but acutely limited in its capacity to tap the Working
Capital Fund late in the year.
Internal Control: The Technical Secretariat is moving to a system of
quarterly allotments for program offices, assuring tighter control over
spending than has hitherto been the case. The TS is also developing an
internal ’spending plan“ to reflect, e.g., the consequences of
nonpayment by countries already in arrears. Allotments will be based on
this reduced spending level, and revised upward or downward during the
course of the year in response to actual income collection.
The Department intends to monitor the implementation of the above
measures closely and pursue further corrective action as and when
warranted.
Reporting Requirements:
In the Highlights page of the draft report, GAO recommends that the
Secretary of State ’report annually to Congress the organization‘s
progress in correcting its budgeting weaknesses,“ which seems to link
to the reference on page 3 to the ’Department‘s annual report to
Congress on U.S. participation in international organizations.“ This is
presumably a reference to the annual report on U.S. participation in
the United Nations. This report does not address the OPCW, and we do
not believe it or any other existing congressionally mandated report
provides a good vehicle for reporting on OPCW budgeting practices .
More fundamentally, we are concerned by the proposal for yet another
open-ended annual reporting requirement, since such reporting
inevitably saps staff time and resources that could be employed in the
conduct of foreign affairs. We recognize the importance of keeping
interested parties in Congress informed of progress in improving
budgeting at the OPCW. We believe, however, that the best way to
achieve this would be to provide briefings to Congressional staff at
the convenience of any interested staff members.
[End of comments]
The following are GAO‘s comments on the Department of State‘s letter,
dated October 16, 2002.
GAO Comments:
1. We agree that monitoring activities at chemical weapons-destruction
facilities account for most of OPCW‘s workload, and that to project
this workload, the organization has depended on plans submitted by
chemical weapons-possessor states. Our report states that since 1997,
most OPCW inspection activities have taken place at chemical weapons
facilities. Our report also states that the Secretariat relies on
possessor states‘ destruction plans to calculate the number of
inspections the organization may conduct during the year. Chemical
weapons-possessor states cannot accurately predict when their
destruction facilities will become operational and what problems may
arise when they do. However, in response to the State Department‘s
comments, we have included additional information in the report to
clarify this point.
2. We identified the key reasons why OPCW underestimated staff costs
for calendar years 2000-2002, and included this information in the
report. For example, our report states that as the result of a staff
reclassification and upgrade undertaken in 1999 and mandatory United
Nations salary increases, the Secretariat‘s personnel costs increased,
affecting the 2000, 2001, and 2002 budgets.
3. We agree that the OPCW encounters the same difficulties as other
international organizations with regard to the late payment of annual
dues, and that the United States and Russia have experienced
difficulties in paying their Articles IV and V inspection bills. We
included this additional information in the report.
4. We agree that the OPCW has lacked adequate liquidity to deal with
its cash shortages, and this has resulted in a curtailment of
inspection activity. We have made no change to the report, however,
because this is its major theme. We reported that weak budgeting
practices and budget deficits have affected the organization‘s ability
to perform its primary inspection and international cooperation
activities, as outlined in the Chemical Weapons Convention.
5. As explained in our report, the OPCW spent against budgeted income
based on inflated estimates of inspection activity. This budget
shortfall resulted in reduced inspections and international cooperation
activities. We do not believe that a change in our report is needed.
6. Our report clearly states that since 1997, most OPCW inspection
activities have taken place at chemical weapons facilities. Because of
its budget problems, the OPCW conducted only 57 percent of the chemical
industry inspections planned for 2001. As of June 2002, it had
conducted only 36 percent of these inspections planned for 2002. We do
not believe that a change in our report is needed.
7. We disagree that the State Department made every reasonable effort
to accommodate our requests for information and access to OPCW staff.
We were not allowed to hold meetings with representatives from several
key OPCW offices. The State Department failed to notify us of any
impending scheduling difficulties prior to our trip to The Hague in May
2002. On our arrival, the Department made no effort to facilitate
meetings with the following offices: the Special Projects Division, the
Office of Internal Oversight, the Office of the Legal Advisor, the
Administration Division, the Verification Division, the Inspection
Division, the International Cooperation and Assistance Division, and
the Advisory Body on Administrative and Financial Matters.
8. This comment confirms that we were able to meet with only a few
select OPCW staff. It is unclear how the State Department concluded
that we were unable to identify specific questions to which answers
were not provided. Prior to our departure for The Hague in May 2002, we
provided State Department officials in Washington and at the U.S.
Delegation to the OPCW with five pages of detailed questions that we
planned to raise with OPCW officials. Many of these questions remain
unanswered. We also provided the State Department with a detailed set
of questions we planned to raise with representatives from other member
states.
9. We have updated our report to provide the most recent information on
OPCW initiatives currently under way. However, the State Department‘s
mosaic of measures does not represent an overall strategy or plan for
improving the organization‘s budgeting weaknesses. At best, it
represents only the first steps in addressing systemic weaknesses in
the OPCW‘s budgeting process.
10. We believe that our recommendation for an annual reporting
requirement to Congress is appropriate. Such reporting will help
establish a baseline for judging OPCW progress in achieving needed
reforms. In addition, this requirement will not impose an undue
administrative burden on the Department, since it already provides
various reports to Congress on international organizations, including
the OPCW.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Stephen Lord (202) 512-4379:
Acknowledgments:
In addition to the individual named above, Beth Hoffman León, Richard
K. Geiger, and Reid Lelong Lowe made key contributions to this report.
Bruce Kutnick, Christine Bonham, and Geoffrey Frank provided additional
assistance.
FOOTNOTES
[1] In order to compare budget figures over time, all dollar figures
used in this report are expressed in 2001 dollars. For more details on
our methodology see appendix I.
[2] Under Article VIII of the convention, ’a member of the Organization
which is in arrears in the payment of its financial contribution to the
Organization shall have no vote in the Organization if the amount of
its arrears equals or exceeds the amount of the contribution due from
it for the preceding two full years.“ However, the Conference of the
States Parties may allow a member to vote if it believes that the
failure to pay is beyond the member state‘s control.
[3] The Preparatory Commission for the Organization for the Prohibition
of Chemical Weapons preceded the creation of the OPCW in 1997 and
carried out the initial implementation of the Chemical Weapons
Convention. Under the Preparatory Commission, member states were
assessed contributions to fund the commission‘s expenses.
[4] Article 15, Regulation 15.1, of the OPCW‘s draft financial
regulations gives the Executive Council the authority to ’establish a
body to advise it on administrative and financial matters. This body
shall consist of experts of recognized standing from States Parties.“
The duties of the Advisory Body of Administrative and Financial Matters
include, among others, reporting on the OPCW‘s draft program and
budget, the audited financial statements, and the organization‘s
internal oversight reports.
[5] Article 13, Regulation 13.1, of the OPCW‘s financial regulations
requires the appointment of an External Auditor for the organization
who is also the Auditor-General (or an officer holding an equivalent
title) of a member state. The Conference of the States Parties can
appoint the auditor for 2 to 6 years. According to Regulation 13.3, the
External Auditor‘s duties include, among others, annual audits of the
OPCW‘s financial statements in accordance with the auditing standards
promulgated by the International Organization of Supreme Audit
Institutions.
[6] Director of Administration Management Board Briefing on the OPCW
2002 Programme and Budget Shortfall (The Hague, the Netherlands:
Organization for the Prohibition of Chemical Weapons, 2001).
[7] About $3.4 million of the potential deficit is attributable to
unrealistic expectations of income from Articles IV and V
reimbursements and unpaid assessed contributions. About $1.8 million
can be attributed to the mandatory staff reclassification and upgrades.
[8] As of June 2002, Japan, the Netherlands, Norway, Oman, Sweden, and
the United Kingdom had provided voluntary contributions to support
various OPCW activities.
[9] OPCW Executive Council, Medium-Term Plan 2004-2006 [draft] (The
Hague, the Netherlands: Organization for the Prohibition of Chemical
Weapons, 2002).
[10] The Working Capital Fund was designed to meet short-term liquidity
problems during a given financial period and is funded by the member
states in accordance with their scale of assessments. Current
regulations require that monies borrowed from the Working Capital Fund
be repaid by the end of the year.
[11] Condition 3 of Senate Resolution 75 of the 105th Congress (April
1997) imposes such a certification requirement.
[12] The Chemical Weapons Convention contains provisions to protect the
confidentiality of all information reported to the OPCW and to prevent
its unauthorized release. The confidentiality regime includes
procedures for granting access to confidential information, rigid
registration, archiving and handling procedures for confidential
documents, and the operation of a secure archive. It also involves
physical and administrative protections to prevent the loss or
unauthorized transfer or release of documents.
[13] Although we could not independently review the reliability of the
data provided in the audited financial statements, the OPCW‘s External
Auditor provided an unqualified opinion on the statements for each of
these years.
[14] During our visit to The Hague in May 2002, we were able to meet
with representatives from Australia, France, Germany, Japan, the
Russian Federation, and the United Kingdom. We also obtained written
responses to our questions from the South African representative.
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