United Nations
Internal Oversight and Procurement Controls and Processes Need Strengthening Gao ID: GAO-06-701T April 27, 2006The United States has strongly advocated that the United Nations (UN) reform its management practices to mitigate various program and financial risks. The findings of the Independent Inquiry Committee into the Oil for Food Program have renewed concerns about UN oversight, and the 2005 UN World Summit proposed actions to improve the UN's Office of Internal Oversight Services (OIOS). Furthermore, over the past decade, as UN procurement more than tripled to $1.6 billion in response to expanding UN peacekeeping operations, experts have called on the UN to correct procurement process deficiencies. We examined (1) whether UN funding arrangements for OIOS ensure independent oversight; (2) the consistency of OIOS's practices with key auditing standards; and (3) the control environment and processes for procurement.
The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a range of weaknesses in existing management and oversight practices. In particular, current funding arrangements adversely affect OIOS's budgetary independence and compromise its ability to investigate high-risk areas. Also, weaknesses in the control environment and UN procurement processes leave UN funds vulnerable to fraud, waste, and abuse. UN funding arrangements constrain OIOS's ability to operate independently as mandated by the General Assembly and required by international auditing standards OIOS has adopted. First, while OIOS is funded by a regular budget and 12 other revenue streams, UN financial rules severely limit OIOS's ability to respond to changing circumstances and reallocate resources among revenue streams, locations, and operating divisions. Thus, OIOS cannot always direct resources to high-risk areas that may emerge after its budget is approved. Second, OIOS depends on the resources of the funds, programs, and other entities it audits. The managers of these programs can deny OIOS permission to perform work or not pay OIOS for services. UN entities could thus avoid OIOS audits or investigations, and high-risk areas can be and have been excluded from timely examination. OIOS has begun to implement key measures for effective oversight, but some of its practices fall short of the applicable international auditing standards it has adopted. OIOS develops an annual work plan, but the risk management framework on which the work plans are based is not fully implemented. Moreover, OIOS annual reports do not assess risk and control issues facing the UN organization, or the consequences if these are not addressed. OIOS officials report the office does not have adequate resources, but they also lack a mechanism to determine appropriate staffing levels. Furthermore, OIOS has no mandatory training curriculum for staff. UN funds are vulnerable to fraud, waste, abuse, and mismanagement because of weaknesses in the UN's control environment for procurement, as well as in key procurement processes. The UN lacks an effective organizational structure for managing procurement, has not demonstrated a commitment to improving its procurement workforce, and has not adopted specific ethics guidance. While the UN Department of Management is responsible for UN procurement, field procurement staff are supervised by the UN Department of Peacekeeping Operations, which lacks the expertise and capacity to manage field procurement. Also, the UN has not established procurement training requirements or a career path, and has yet to adopt new ethics guidance for procurement staff, despite long-standing General Assembly mandates. In addition, the UN has not established an independent process to consider vendor protests despite a 1994 recommendation by a high-level panel to do so as soon as possible. Further, the UN does not consistently implement its process for helping to ensure it conducts business with qualified vendors.
GAO-06-701T, United Nations: Internal Oversight and Procurement Controls and Processes Need Strengthening
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United States Government Accountability Office:
GAO:
Testimony:
Before the Committee on International Relations, House of
Representatives:
United Nations: Internal Oversight and Procurement Controls and
Processes Need Strengthening:
Statement of David M. Walker:
Comptroller General of the United States:
GAO-06-701T
GAO Highlights:
Highlights of GAO-06-701T, a testimony before the Committee on
International Relations, House of Representatives.
Why GAO Did This Study:
The United States has strongly advocated that the United Nations (UN)
reform its management practices to mitigate various program and
financial risks. The findings of the Independent Inquiry Committee into
the Oil for Food Program have renewed concerns about UN oversight, and
the 2005 UN World Summit proposed actions to improve the UN‘s Office of
Internal Oversight Services (OIOS). Furthermore, over the past decade,
as UN procurement more than tripled to $1.6 billion in response to
expanding UN peacekeeping operations, experts have called on the UN to
correct procurement process deficiencies.
We examined (1) whether UN funding arrangements for OIOS ensure
independent oversight; (2) the consistency of OIOS‘s practices with key
auditing standards; and (3) the control environment and processes for
procurement.
What GAO Found:
The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a
range of weaknesses in existing management and oversight practices. In
particular, current funding arrangements adversely affect OIOS‘s
budgetary independence and compromise its ability to investigate high-
risk areas. Also, weaknesses in the control environment and UN
procurement processes leave UN funds vulnerable to fraud, waste, and
abuse.
UN funding arrangements constrain OIOS‘s ability to operate
independently as mandated by the General Assembly and required by
international auditing standards OIOS has adopted. First, while OIOS is
funded by a regular budget and 12 other revenue streams, UN financial
rules severely limit OIOS‘s ability to respond to changing
circumstances and reallocate resources among revenue streams,
locations, and operating divisions. Thus, OIOS cannot always direct
resources to high-risk areas that may emerge after its budget is
approved. Second, OIOS depends on the resources of the funds, programs,
and other entities it audits. The managers of these programs can deny
OIOS permission to perform work or not pay OIOS for services. UN
entities could thus avoid OIOS audits or investigations, and high-risk
areas can be and have been excluded from timely examination.
OIOS has begun to implement key measures for effective oversight, but
some of its practices fall short of the applicable international
auditing standards it has adopted. OIOS develops an annual work plan,
but the risk management framework on which the work plans are based is
not fully implemented. Moreover, OIOS annual reports do not assess risk
and control issues facing the UN organization, or the consequences if
these are not addressed. OIOS officials report the office does not have
adequate resources, but they also lack a mechanism to determine
appropriate staffing levels. Furthermore, OIOS has no mandatory
training curriculum for staff.
UN funds are vulnerable to fraud, waste, abuse, and mismanagement
because of weaknesses in the UN‘s control environment for procurement,
as well as in key procurement processes. The UN lacks an effective
organizational structure for managing procurement, has not demonstrated
a commitment to improving its procurement workforce, and has not
adopted specific ethics guidance. While the UN Department of Management
is responsible for UN procurement, field procurement staff are
supervised by the UN Department of Peacekeeping Operations, which lacks
the expertise and capacity to manage field procurement. Also, the UN
has not established procurement training requirements or a career path,
and has yet to adopt new ethics guidance for procurement staff, despite
long-standing General Assembly mandates. In addition, the UN has not
established an independent process to consider vendor protests despite
a 1994 recommendation by a high-level panel to do so as soon as
possible. Further, the UN does not consistently implement its process
for helping to ensure it conducts business with qualified vendors.
What GAO Recommends:
GAO recommends that the Secretary of State and the Permanent
Representative of the United States to the UN work with member states
to support: (1) budgetary independence for OIOS; (2) measures for OIOS
to more closely adhere to international standards; and (3) improvements
to UN procurement internal controls and processes. State and OIOS
generally agreed with our overall findings and recommendations. The UN
did not provide us with written comments on procurement.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-701T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Thomas Melito at (202)
512-9601 or melitot@gao.gov.
[End of Section]
Chairman Hyde, Ranking Member Lantos, and Members of the Committee:
I appreciate the opportunity to be here today to discuss United Nations
(UN) reforms in the context of improving UN internal oversight and
strengthening internal controls and processes over its procurement
system. During my tenure as Comptroller General, we have identified the
21ST Century challenges that constitute many of the major concerns
facing the U.S. government, and which illustrate the need for
transformation to help ensure that our government functions in the most
economical, efficient, and effective manner possible. Likewise, the UN
faces a range of significant challenges in reforming its management
practices and mitigating various program and financial risks by fully
implementing internationally recognized standards and norms. As the
largest financial contributor to the UN, with assessed and voluntary
contributions totaling more than $1.6 billion in 2006,[Footnote 1] the
United States has strongly advocated for the reform of UN management
practices. Specifically, the United States strongly supported the 1994
creation of an internal oversight office to help ensure the efficient
and effective use of UN resources.
Concerns about the financial independence and sufficiency of resources
of the internal oversight unit at the UN have been long-standing.
Additionally, for more than a decade, experts have called on the UN to
correct serious deficiencies in its procurement process; however,
recent audits and investigations have uncovered evidence of corruption
and mismanagement in the UN's procurement activities. In 2005, the UN
purchased more than $1.6 billion in goods and services--primarily to
support a peacekeeping program that has more than quadrupled in size
since 1999, and which may increase further in the future. Thus, it is
vital that demonstrated deficiencies in procurement are addressed in a
timely and effective manner.
In 2005, UN member states approved an agenda to reform many of the UN's
management practices, in particular by helping to ensure ethical
conduct; strengthening internal oversight and accountability; reviewing
budgetary, financial, and human resources policies; and reviewing UN
mandates. Even though UN member states support management reforms,
there is considerable disagreement within the General Assembly over the
process and implementation of the reforms, which thus far has been slow
and uneven.
Because the UN is a multilateral institution, our oversight authority
does not directly extend to the UN, but instead extends through the
United States' membership in the organization. In recognition of this
factor, we do UN related work only in response to specific requests
from committees with jurisdiction over UN matters, including your own.
Congressional interest in this area has been high in recent years, and
many of our ongoing or recently completed requests are both bicameral
and bipartisan in nature.
My statement is based on two reports that we are releasing
today.[Footnote 2] I will focus on the need to strengthen the UN Office
of Internal Oversight Services (OIOS) in terms of its budgetary
independence and its full implementation of key components of effective
oversight. I will also focus on the need to address weaknesses in two
of the key elements of internal controls affecting UN procurement--
specifically those concerning the overall control environment and
several control activities,[Footnote 3] which are those procedures
intended to provide reasonable assurance that staff are complying with
management directives.
The work for these reports and this testimony was conducted in
accordance with generally accepted government auditing standards
between April 2005 and March 2006.
Summary:
The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a
range of weaknesses in existing management and oversight practices. In
particular, current funding arrangements adversely affect OIOS's
budgetary independence and compromise its ability to investigate high-
risk areas. Also, weaknesses in the control environment and UN
procurement processes leave UN funds vulnerable to fraud, waste, and
abuse.
UN funding arrangements constrain OIOS's ability to operate
independently as mandated by the General Assembly and required by the
international auditing standards that OIOS has adopted. According to
these standards, an institution's financial regulations should not
restrict an audit organization from fulfilling its mandate, and the
audit organization should have appropriate and sufficient resources to
achieve its mandate. First, while OIOS is funded by the UN's regular
budget and 12 other extrabudgetary revenue streams, UN financial
regulations and rules severely limit OIOS's ability to respond to
changing circumstances and reallocate resources among revenue streams,
locations, and operating divisions. As a result, OIOS cannot always
deploy the resources necessary to address high-risk areas that may
emerge after its budget is approved. Second, OIOS is dependent on UN
funds and programs (and other UN entities) for resources as
compensation for the services it provides. OIOS must obtain permission
to perform audits or investigations from the managers of funds and
programs, and negotiate the terms of work and payment for those
services with them. Moreover, the heads of these entities have the
right to deny funding for the oversight work OIOS proposes. By denying
OIOS funding, UN entities could avoid, and have avoided, OIOS audits;
high-risk areas could therefore be excluded from timely examination.
For example, the practice of allowing the heads of programs the right
to deny funding of internal audit activities prevented OIOS from
examining high-risk areas in the UN Oil for Food program, where
billions of dollars were subsequently found to have been misused.
Although OIOS has developed and begun to implement key components of
effective oversight, some of OIOS's audit practices fall short of
meeting the international auditing standards it has adopted.
Specifically, while OIOS develops an annual work plan, it has not fully
implemented a risk management framework to provide reasonable assurance
that its annual work plans are based on a systematic assessment of
risks. As a result, OIOS may not be allocating resources to areas in
the UN with the highest exposure to fraud, waste, and abuse. Moreover,
OIOS's annual reports do not provide an overall assessment of risk
exposures and control issues facing the UN organization as a whole, or
the consequences to the organization if the risks are not addressed. In
terms of resource management, OIOS officials report that the office
does not have adequate resources; however, they do not have a mechanism
in place to determine appropriate staffing levels and help justify
budget requests. Furthermore, OIOS has no mandatory training curriculum
for staff to develop and maintain their expertise. OIOS's shortcomings
in meeting key components of international auditing standards can serve
to undermine the office's effectiveness in carrying out its functions
as the UN's main internal oversight body. Effective oversight demands
reasonable budgetary independence, sufficient resources, and adherence
to professional auditing standards.
We found that UN procurement resources are unnecessarily vulnerable to
mismanagement, fraud, waste, and abuse because of weaknesses affecting
the control environment for UN procurement. First, the UN has not
established a single organizational entity or mechanism capable of
effectively and comprehensively managing procurement. Second, the UN
has not demonstrated a commitment to improving the professionalism of
its procurement staff in the form of training, a career development
path, or other key human capital practices critical to attracting,
developing, and retaining a qualified professional workforce. Third,
the UN has failed to adopt a full range of new ethics guidance for
procurement officials despite directives from the General Assembly in
1998 and 2005.
We also found weaknesses in key procurement processes that are intended
to provide reasonable assurance that management's procurement
directives are followed. We found that, although UN procurement has
increased sharply in recent years, the size of the UN's principal
contract-review committee and its support staff remained relatively
stable. Committee members stated that they do not have resources to
keep pace with the current workload. In addition, the UN has not
established an independent process to consider vendor protests despite
a 1994 recommendation by a high-level panel of international
procurement experts to do so as soon as possible. Also, the UN has not
updated its procurement manual since 2004 to reflect current UN
procurement policy. Further, the UN does not consistently implement its
process for helping to ensure that it is conducting business with
qualified vendors.
In our reports, we recommended that the Secretary of State and the
Permanent Representative of the United States to the UN work with
member states to:
* support budgetary independence for OIOS and support OIOS's efforts to
more closely adhere to international auditing standards; and:
* encourage the UN to establish clear lines of authority, enhance
training, adopt ethics guidance, address problems facing its principal
contract-review committee, establish an independent bid protest
mechanism, and implement other steps to improve UN procurement.
Background:
OIOS was created in 1994 to assist the Secretary-General in fulfilling
internal oversight responsibilities over UN resources and staff. The
stated mission of OIOS is "to provide internal oversight for the United
Nations that adds value to the organization through independent,
professional, and timely internal audit, monitoring, inspection,
evaluation, management consulting, and investigation activities and to
be an agent of change that promotes responsible administration of
resources, a culture of accountability and transparency, and improved
program performance." OIOS is headed by an Under Secretary-General who
is appointed by the Secretary-General--with the concurrence of the
General Assembly--for a 5-year fixed term with no possibility of
renewal.[Footnote 4] The Under Secretary-General may be removed by the
Secretary-General only for cause and with the General Assembly's
approval. OIOS's authority spans all UN activities under the Secretary-
General.[Footnote 5] To carry out its responsibilities, OIOS is
organized into four operating divisions: (1) Internal Audit Division I
(New York); (2) Internal Audit Division II (Geneva); (3) Monitoring,
Evaluation, and Consulting Division; and (4) Investigations Division.
OIOS derives its funding from (1) regular budget resources, which are
funds from assessed contributions from member states that cover normal,
recurrent activities such as the core functions of the UN
Secretariat;[Footnote 6] and (2) extrabudgetary resources, which come
from the budgets for UN peacekeeping missions financed through
assessments from member states, voluntary contributions from member
states for a variety of specific projects and activities, and budgets
for the voluntarily financed UN funds and programs.
Management of the UN's rapidly growing spending on procurement involves
several UN entities. The Department of Management controls the UN's
procurement authority, and its 70-person UN Procurement Service
develops UN procurement policies and procures items for UN
headquarters. While the Procurement Service procures certain items for
peacekeeping, about one-third of all UN procurement spending is managed
by about 270 staff at the Department of Peacekeeping Operations' 19
widely dispersed field missions. These missions may not award contracts
worth more than $200,000 without the approval of the Department of
Management (based on advice from the Headquarters Committee on
Contracts). UN procurement spending has more than tripled since 1997,
peaking at $1.6 billion in 2005. Major items procured include air
transportation services, freight forwarding and delivery services,
motor vehicles and transportation equipment, and chemical and petroleum
products. The sharp increase in UN procurement was due in part to a
five-fold increase in the number of military personnel in peacekeeping
missions.[Footnote 7] Peacekeeping expenditures have more than
quadrupled since 1999, from $840 million to about $3.8 billion in 2005.
Peacekeeping procurement accounted for 85 percent of all UN procurement
in 2004.
In September 2005, the UN World Summit issued an "outcome document,"
which addressed several management reform initiatives, including
reforms for: ensuring ethical conduct; strengthening internal oversight
and accountability; reviewing budgetary, financial, and human resources
policies; and reviewing mandates. While the outcome document was
endorsed by all UN member countries, there is considerable disagreement
within the General Assembly over the process and implementation of the
reforms. In December 2005, UN member states agreed to a $950 million
spending cap on the UN's biennium budget for 2006-2007, pending
progress on management reforms. These funds are likely to be spent by
the middle of 2006, at which time the General Assembly will review
progress on implementing reforms and decide whether to lift the cap and
allow for further spending.
Funding Arrangements Impede Independence of the UN Internal Auditors:
The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a
range of weaknesses in existing oversight practices. The General
Assembly mandate creating OIOS calls for it to be operationally
independent. In addition, international auditing standards note that an
internal oversight activity should have sufficient resources to
effectively achieve its mandate. In practice, however, OIOS's
independence is impaired by constraints that UN funding arrangements
impose.
UN Mandate and International Auditing Standards Require Independence:
In passing the resolution that established OIOS in August 1994, the
General Assembly stated that the office shall exercise operational
independence and that the Secretary-General, when preparing the budget
proposal for OIOS, should take into account the independence of the
office. The UN mandate for OIOS was followed by a Secretary-General's
bulletin in September 1994 stating that OIOS discharge its
responsibilities without any hindrance or need for prior clearance. In
addition, the Institute of Internal Auditors' (IIA) standards for the
professional practice of auditing,[Footnote 8] which OIOS and its
counterparts in other UN organizations formally adopted in 2002, state
that audit resources should be appropriate, sufficient, and effectively
deployed. These standards also state that an internal audit activity
should be free from interference and that internal auditors should
avoid conflicts of interest. International auditing standards also
state that financial regulations and the rules of an international
institution should not restrict an audit organization from fulfilling
its mandate.
Funding Arrangements Hinder OIOS's Flexibility to Respond to Changing
Circumstances and Reallocate Resources to Address High-Risk Areas:
In addition to funding from the UN regular budget, OIOS receives
extrabudgetary funding from 12 different revenue streams.[Footnote 9]
Although the UN's regular budget and extrabudgetary funding percentages
over the years have remained relatively stable, an increasing share of
OIOS's budget is comprised of extrabudgetary resources (see fig. 1).
OIOS's extrabudgetary funding has steadily increased over the past
decade, from 30 percent in fiscal biennium 1996-1997 to 63 percent in
fiscal biennium 2006-2007 (in nominal terms). The majority of OIOS's
staff (about 69 percent) is funded with extrabudgetary resources. The
growth in the office's budget is primarily due to extrabudgetary
resources for audits and investigations of peacekeeping operations,
including issues related to sexual exploitation and abuse.
Figure 1: Trends in UN and OIOS Regular Budget and Extrabudgetary
Resources, Fiscal Bienniums 1996-1997 to 2006-2007:
[See PDF for image]
[End of figure]
UN funding arrangements severely limit OIOS's flexibility to respond to
changing circumstances and reallocate its resources among its multiple
funding sources, OIOS locations worldwide, or among its operating
divisions--Internal Audit Divisions I and II; the Investigations
Division; and the Monitoring, Evaluation, and Consulting Division--to
address changing priorities. In addition, the movement of staff
positions[Footnote 10] or funds between regular and extrabudgetary
resources is not allowed. For example, one section in the Internal
Audit Division may have exhausted its regular budget travel funds,
while another section in the same division may have travel funds
available that are financed by extrabudgetary peacekeeping resources.
However, OIOS would breach UN financial regulations and rules if it
moved resources between the two budgets. According to OIOS officials,
for the last 5 years, OIOS has consistently found it necessary to
address very critical cases on an urgent basis. A recent example is the
investigations of sexual exploitation and abuse in the Republic of
Congo and other peacekeeping operations that identified serious cases
of misconduct and the need for increased prevention and detection of
such cases. However, the ability to redeploy resources quickly when
such situations arise has been impeded by restrictions on the use of
staff positions.
Reliance on Other Entities for Funding Could Infringe on OIOS's
Independence:
OIOS is dependent on UN funds and programs and other UN entities for
resources, access, and reimbursement for the services it provides.
These relationships present a conflict of interest because OIOS has
oversight authority over these entities, yet it must obtain their
permission to examine their operations and receive payment for its
services. OIOS negotiates the terms of work and payment for services
with the manager of the program it intends to examine, and heads of
these entities have the right to deny funding for oversight work
proposed by OIOS. By denying OIOS funding, UN entities could avoid OIOS
audits or investigations, and high-risk areas could potentially be
excluded from timely examination. For example, the practice of allowing
the heads of programs the right to deny funding to internal audit
activities prevented OIOS from examining high-risk areas in the UN Oil
for Food program, where billions of dollars were subsequently found to
have been misused. In some cases, the managers of UN funds and programs
have disputed the fees OIOS has charged after investigative services
were rendered. For example, 40 percent of the $2 million billed by OIOS
after it completed its work is currently in dispute, and since 2001,
less than half of the entities have paid OIOS in full for the
investigative services it has provided. According to OIOS officials,
the office has no authority to enforce payment for services rendered,
and there is no appeal process, no supporting administrative structure,
and no adverse impact on an agency that does not pay or pays only a
portion of the bill.
OIOS Has Not Fully Met Key Elements of International Auditing
Standards:
OIOS formally adopted the IIA international standards for the
professional practice of internal auditing in 2002. Since that time,
OIOS has begun to develop and implement the key components of effective
oversight. However, the office has yet to fully implement them.
Moreover, shortcomings in meeting key components of international
auditing standards can serve to undermine the office's effectiveness in
carrying out its functions as the UN's main internal oversight body.
Effective oversight demands reasonable adherence to professional
auditing standards.
OIOS Has Developed Annual Work Plans, but Has Not Fully Implemented a
Risk Management Framework:
[See PDF for image]
[End of figure]
OIOS has adopted a risk management framework[Footnote 11] to link the
office's annual work plans to risk-based priorities, but it has not
fully implemented this framework. OIOS began implementing a risk
management framework in 2001 to enable the office to prioritize the
allocation of resources to oversee those areas that have the greatest
exposure to fraud, waste, and abuse. OIOS's risk management framework
includes plans for organization-wide risk assessments to categorize and
prioritize risks facing the organization; it also includes client-level
risk assessments to identify and prioritize risk areas facing each
entity for which OIOS has oversight authority. Although OIOS's
framework includes plans to perform client-level risk assessments, as
of April 2006, out of 25 entities that comprise major elements of its
"oversight universe," only three risk assessments have been completed.
As a result, OIOS officials cannot currently provide reasonable
assurance that the entities they choose to examine are those that pose
the highest risk, nor that their audit coverage of a client focuses on
the areas of risk facing that client. OIOS officials told us they plan
to assign risk areas more consistently to audits proposed in their
annual work plan during the planning phase so that, by 2008, at least
50 percent of their work is based on a systematic risk assessment.
OIOS Not Reporting on Status of Overall Risk and Control Issues Facing
the UN:
Figure: IIA Standards for:
Managing the internal audit activity--planning.
* Establish risk-based plans to determine the priorities of the
internal audit activity, consistent with the organization's goals.
* Plan of engagements should be based on a risk assessment undertaken
at least annually.
[End of figure]
Figure: IIA Standard for:
Managing the internal audit activity--reporting to senior management:
Reporting should include significant risk exposure and control issues,
corporate governance issues, and other matters needed or requested by
senior management.
[End of Figure]
Although OIOS's annual reports contain references to risks facing OIOS
and the UN organization, the reports do not provide an overall
assessment of the status of these risks or the consequence to the
organization if the risks are not addressed. For instance, in February
2005, the Independent Inquiry Committee reported that many of the Oil
for Food program's deficiencies, identified through OIOS audits, were
not described in the OIOS annual reports submitted to the General
Assembly. A senior OIOS official told us that the office does not have
an annual report to assess risks and controls and that such an
assessment does not belong in OIOS's annual report in its current form,
which focuses largely on the activities of OIOS. The official agreed
that OIOS should communicate to senior management on areas where the
office has not been able to examine significant risk and control
issues, but that the General Assembly would have to determine the
appropriate vehicle for such a new reporting requirement.
OIOS Lacks a Mechanism to Determine Appropriate Resource Levels:
Figure: IIA Standard for:
Managing the internal audit activity--resource management:
Ensure that internal audit resources are appropriate, sufficient, and
effectively deployed to achieve the approved plan.
[End of figure]
While OIOS officials have stated that the office does not have adequate
resources, they do not have a mechanism in place to determine
appropriate staffing levels to help justify budget requests, except for
peacekeeping oversight services. For peacekeeping audit services, OIOS
does have a metric--endorsed by the General Assembly--that provides one
professional auditor for every $100 million in the annual peacekeeping
budget. Although OIOS has succeeded in justifying increases for
peacekeeping oversight services consistent with the large increase in
the peacekeeping budget since 1994, it has been difficult to support
staff increases in oversight areas that lack a comparable metric,
according to OIOS officials.
OIOS Offers Training Opportunities, but Does Not Require or
Systematically Track Continuing Professional Development:
Figure: IIA Standard for:
Proficiency--continuing professional development:
Internal auditors should enhance their knowledge, skills, and other
competencies through continuing professional development.
[End of figure]
OIOS staff have opportunities for training and other professional
development, but OIOS does not formally require or systematically track
staff training to provide reasonable assurance that all staff are
maintaining and acquiring professional skills. UN personnel records
show that OIOS staff took a total of more than 400 training courses
offered by the Office of Human Resources Management in 2005. Further,
an OIOS official said that, since 2004, OIOS has subscribed to IIA's
online training service that offers more than 100 courses applicable to
auditors.
Despite these professional development opportunities, OIOS does not
formally require staff training, nor does it systematically track
training to provide reasonable assurance that all staff are maintaining
and acquiring professional skills. OIOS policy manuals list no minimum
training requirement. OIOS officials said that, although they gather
some information on their use of training funds for their annual
training report to the UN Office of Human Resources Management, they do
not maintain an officewide database to systematically track all
training their staff has taken.
The Control Environment Over UN Procurement Is Weak:
UN funds are unnecessarily vulnerable to fraud, waste, abuse, and
mismanagement because of weaknesses in the UN's control environment for
procurement. Specifically, the UN lacks an effective organizational
structure for managing procurement, has not demonstrated a commitment
to improving its professional procurement workforce, and has failed to
adopt specific ethics guidance for procurement officials.
The UN Lacks an Effective Organizational Structure for Managing
Procurement:
The UN has not established a single organizational entity or mechanism
capable of comprehensively managing procurement. As a result, it is
unclear which department is accountable for addressing problems in the
UN's field procurement process. While the Department of Management is
ultimately responsible for all UN procurement, neither it nor the UN
Procurement Service has the organizational authority to supervise
peacekeeping field procurement staff to provide reasonable assurance
that they comply with UN regulations. Procurement field staff,
including the chief procurement officers, instead report to the
Peacekeeping Department at headquarters through each mission's chief
administrative officer. Although the Department of Management has
delegated authority for field procurement of goods and services to the
Peacekeeping Department, we found that the Peacekeeping Department
lacks the expertise, procedures, and capabilities needed to provide
reasonable assurance that its field procurement staff are complying
with UN regulations.
The UN Lacks a Plan to Improve its Professional Procurement Workforce:
The UN has not demonstrated a commitment to improving its professional
procurement staff in the form of training, a career development path,
and other key human capital practices critical to attracting,
developing, and retaining a qualified professional workforce. Due to
significant control weaknesses in the UN's procurement process, the UN
has relied disproportionately on the actions of its staff to safeguard
its resources. Given this reliance on staff and their substantial
fiduciary responsibilities, management's commitment to maintaining a
competent, ethical procurement workforce is a particularly critical
element of the UN's internal control environment.
Recent studies indicate that Procurement Service staff and peacekeeping
procurement staff lack knowledge of UN procurement policies. Moreover,
most procurement staff lack professional certifications attesting to
their procurement education, training, and experience. The UN has not
established requirements for headquarters and peacekeeping staff to
obtain continuous training, resulting in inconsistent levels of
training across the procurement workforce. More than half of the
procurement chiefs told us that they had received no procurement
training over the last year and that their training opportunities and
resources are inadequate. All of them said that their staff would
benefit from additional training. Furthermore, UN officials
acknowledged that the UN has not committed sufficient resources to a
comprehensive training and certification program for its procurement
staff. In addition, the UN has not established a career path for
professional advancement for procurement staff, which could encourage
staff to undertake progressive training and work experiences.
The UN Has Not Fully Established Ethics Guidance for Procurement
Personnel:
The UN has been considering the development of specific ethics guidance
for procurement officers for almost a decade, in response to General
Assembly directives dating back to 1998. While the Procurement Service
has drafted such guidance, the UN has made only limited progress
towards adopting it. Such guidance would include a declaration of
ethics responsibilities for procurement staff and a code of conduct for
vendors.
The UN Has Weaknesses in Key Procurement Processes:
We found weaknesses in key UN procurement processes or control
activities. These activities consist of processes that are intended to
provide reasonable assurance that management's directives are followed
and include reviews of high-dollar-value contracts, bid protest
procedures, and vendor rosters.
Headquarters Committee on Contracts Lacks Needed Resources:
The Chairman and members of the Headquarters Committee on Contracts
stated that the committee does not have the resources to keep up with
its expanding workload. The number of contracts reviewed by the
committee has increased by almost 60 percent since 2003.[Footnote 12]
The committee members stated that the committee's increasing workload
was the result of the growth of UN peacekeeping operations, the
complexity of many new contracts, and increased scrutiny of proposals
in response to recent UN procurement scandals. Concerns regarding the
committee's structure and workload have led OIOS to conclude that the
committee cannot properly review contract proposals. Without an
effective contract review process, the UN cannot provide reasonable
assurance that high-value contracts are undertaken in accordance with
UN rules and regulations. The committee has requested that its support
staff be increased from four to seven, and its chairman has stated that
raising the threshold for committee review would reduce its workload.
The UN Has Not Established an Independent Bid Protest Process:
The UN has not established an independent process to consider vendor
protests, despite the 1994 recommendation of a high-level panel of
international procurement experts that it do so as soon as possible. An
independent bid protest process is a widely endorsed control mechanism
that permits vendors to file complaints with an office or official who
is independent of the procurement process. Establishment of such a
process could provide reasonable assurance that vendors are treated
fairly when bidding and would also help alert senior UN management to
situations involving questions about UN compliance. In 1994, the UN
General Assembly recognized the advantages of an independent bid
protest process. Several nations, including the United States, provide
vendors with an independent process to handle complaints.[Footnote 13]
The UN Has Not Updated its Procurement Manual Since 2004:
The UN has not updated its procurement manual since January 2004 to
reflect current UN procurement policy. As a result, UN procurement
staff may not be aware of changes to UN procurement procedures that
have been adopted over the past 2 years. Also missing from the
procurement manual is a section regarding procurement for construction.
In June 2005, a UN consultant recommended that the UN develop separate
guidelines in the manual for the planning and execution of construction
projects. These guidelines could be useful in planning the UN's future
renovation of its headquarters building. A Procurement Service official
who helped revise the manual in 2004 stated that the Procurement
Service has been unable to allocate resources needed to update the
manual since that time.
UN Does Not Consistently Implement Its Process for Helping to Ensure
That It Conducts Business with Qualified Vendors:
The UN does not consistently implement its process for helping to
ensure that it is conducting business with qualified vendors. As a
result, the UN may be vulnerable to favoring certain vendors or dealing
with unqualified vendors. The UN has long had difficulties in
maintaining effective rosters of qualified vendors. In 1994, a high-
level group of international procurement experts concluded that the
UN's vendor roster was outdated, inaccurate, and inconsistent across
all locations. In 2003, an OIOS report found that the Procurement
Service's roster contained questionable vendors. In 2005, OIOS
concluded that the roster was not fully reliable for identifying
qualified vendors that could bid on contracts. While the Procurement
Service became a partner in an interagency procurement vendor roster in
2004 to address these concerns, OIOS has found that many vendors that
have applied through the interagency procurement vendor roster have not
submitted additional documents requested by the Procurement Service to
become accredited vendors. In addition, most Peacekeeping Department
field procurement officials with whom we spoke stated that they prefer
to use their own locally developed rosters instead of the interagency
vendor roster. Some field mission procurement staff also stated that
they were unable to comply with Procurement Service regulations for
their vendor rosters due to the lack of reliable vendor information in
underdeveloped countries. OIOS reported in 2006 that peacekeeping
operations were vulnerable to substantial abuse in procurement because
of inadequate or irregular registration of vendors, insufficient
control over vendor qualifications, and dependence on a limited number
of vendors.
Objectives, Scope, and Methodology:
To conduct our study of UN oversight, we reviewed relevant UN and OIOS
reports, manuals, and numerous program documents, as well as
international auditing standards such as those of the IIA and the
International Organization of Supreme Auditing Institutions (INTOSAI).
The IIA standards apply to internal audit activities--not to
investigations, monitoring, evaluation, and inspection activities.
However, we applied these standards OIOS-wide, as appropriate, in the
absence of international standards for non-audit oversight activities.
We met with senior Department of State (State) officials in Washington,
D.C., and senior officials with the U.S. Missions to the UN in New
York, Vienna, and Geneva. At these locations, we also met with the UN
Office of Internal Oversight Services management officials and staff;
representatives of Secretariat departments and offices, as well as the
UN funds, programs, and specialized agencies; and the UN external
auditors--the Board of Auditors (in New York) and the Joint Inspection
Unit (in Geneva). We reviewed relevant OIOS program documents, manuals,
and reports. To assess the reliability of OIOS's funding and staffing
data, we reviewed the office's budget documents and discussed the data
with relevant officials. We determined the data were sufficiently
reliable for the purposes of this testimony.
To assess internal controls in the UN procurement process, we used an
internal control framework that is widely accepted in the international
audit community and has been adopted by leading accountability
organizations.[Footnote 14] We assessed the UN's control environment
for procurement, as well as its control activities, risk assessment
process, procurement information processes, and monitoring systems. In
doing so, we reviewed documents and information prepared by OIOS, the
UN Board of Auditors, the UN Joint Inspection Unit, two consulting
firms, the UN Department of Management's Procurement Service, the UN
Department of Peacekeeping Operations, and State. We interviewed UN and
State officials and conducted structured interviews with the principal
procurement officers at each of 19 UN field missions.
Concluding Observations:
Although OIOS has a mandate establishing it as an independent oversight
entity--and OIOS does possess many characteristics consistent with
independence--the office does not have the budgetary independence it
requires to carry out its responsibilities effectively. In addition,
OIOS's shortcomings in meeting key components of international auditing
standards can serve to undermine the office's effectiveness in carrying
out its functions as the UN's main internal oversight body. Effective
oversight demands reasonable budgetary independence, sufficient
resources, and adherence to professional auditing standards. OIOS is
now at a critical point, particularly given the initiatives to
strengthen UN oversight launched as a result of the UN World Summit in
the fall of 2005. In moving forward, the degree to which the UN and
OIOS embrace international auditing standards and practices will
demonstrate their commitment to addressing the monumental management
and oversight tasks that lie ahead. Failure to address these long-
standing concerns would diminish the efficacy and impact of other
management reforms to strengthen oversight at the UN.
Long-standing weaknesses in the UN's internal controls over procurement
have left UN procurement funds highly vulnerable to fraud, waste,
abuse, and mismanagement. Many of these weaknesses have been known and
documented by outside experts and the UN's own auditors for more than a
decade. Sustained leadership at the UN will be needed to correct these
weaknesses and establish a procurement system capable of fully
supporting the UN's expanding needs.
Recommendations:
We recommend that the Secretary of State and the Permanent
Representative of the United States to the UN work with member states
to:
* support budgetary independence for OIOS, and support OIOS's efforts
to more closely adhere to international auditing standards; and:
* encourage the UN to establish clear lines of authority, enhance
training, adopt ethics guidance, address problems facing its principal
contract-review committee, establish an independent bid protest
mechanism, and implement other steps to improve UN procurement
priorities.
Agency Comments and Our Evaluation:
In commenting on the official draft of our report on UN internal
oversight, OIOS and State agreed with our overall conclusions and
recommendations. OIOS stated that observations made in our report were
consistent with OIOS's internal assessments and external peer reviews.
State fully agreed with GAO's finding that UN member states need to
ensure that OIOS has budgetary independence. However, State does not
believe that multiple funding sources have impeded OIOS's budgetary
flexibility. We found that current UN financial regulations and rules
are very restrictive, severely limiting OIOS's ability to respond to
changing circumstances and to reallocate funds to emerging or high
priority areas when they arise.
In commenting on the official draft of our report on UN Procurement,
the Department of State stated that it welcomed our report and endorsed
its recommendations. The UN did not provide us with written comments.
This concludes my testimony. I would be pleased to take your questions.
Contact and Acknowledgments:
Should you have any questions about this testimony, please contact
Director Thomas Melito, (202) 512-9601 or melitot@gao.gov. Other major
contributors to this testimony were Phyllis Anderson, Assistant
Director; Joy Labez, Pierre Toureille, Jeffrey Baldwin-Bott, Joseph
Carney, Kristy Kennedy, Clarette Kim, and Barbara Shields.
(320432):
FOOTNOTES
[1] This includes funding for the UN Secretariat, various funds and
programs, and peacekeeping operations.
[2] GAO, United Nations: Funding Arrangements Impede Independence of
Internal Auditors, GAO-06-575 (Washington, D.C.: April 25, 2006); GAO,
United Nations: Procurement Internal Controls Are Weak, GAO-06-577
(Washington, D.C.: April 25, 2006).
[3] To assess internal controls in the UN procurement process, we used
the Committee of Sponsoring Organizations of the Treadway Commission's
Internal Control--Integrated Framework (September 1992), a framework
that is widely accepted in the international audit community. The five
elements of internal controls are: the control environment, control
activities, risk assessment, information and communications, and
monitoring.
[4] The current Under Secretary-General for Internal Oversight Services
was appointed in July 2005.
[5] These include the UN Secretariat in New York, Geneva, Nairobi, and
Vienna; the five regional commissions for Africa, Asia and the Pacific,
West Asia, Europe, and Latin America and the Caribbean; peacekeeping
missions and humanitarian operations in various parts of the world; and
numerous UN funds and programs, such as the UN Environment Program, UN
Human Settlements Program (UN-HABITAT), and the Office of the UN High
Commissioner for Refugees. OIOS's authority does not extend to UN
specialized agencies such as the Food and Agriculture Organization,
International Labor Organization, or World Health Organization.
[6] The Secretariat carries out the day-to-day work of the UN
Organization such as administering peacekeeping operations, mediating
international disputes, surveying economic and social trends and
problems, and preparing studies on human rights and sustainable
development.
[7] The number of military peacekeepers increased from about 14,000 in
1999 to about 73,000 as of February 2006.
[8] IIA is recognized as the internal audit profession's leader in
certification, education, research, and technological guidance.
Developed and maintained by the IIA, The Code of Ethics and Standards
is mandatory guidance considered to be essential to the professional
practice of internal auditing. The International Standards for the
Professional Practice of Internal Auditing provides guidance for the
conduct of internal auditing at both the organizational and individual
auditor levels.
[9] The 12 funding sources are peacekeeping support account, funds and
programs reimbursement account, technical operations program support
costs, substantive trust funds program support costs, UN Joint Staff
Pension Fund, International Criminal Tribunal for the former
Yugoslavia, International Criminal Tribunal for Rwanda, Capital Master
Plan 2, Office for the Coordination of Humanitarian Affairs program
support costs, UN High Commissioner for Refugees, International Trade
Center, and UN Drug Control Program.
[10] Throughout this testimony, we use the term "staff position" to
refer to what the UN calls a "post." For budgeting purposes, the UN
defines a post as a budgetary entity at a specific level, in a specific
work unit, for a specific purpose.
[11] OIOS defines risk management as the systematic approach to
identifying, assessing, and acting on the probability that an event or
action may adversely affect the organization.
[12] In 2005, the committee reviewed 881 contracts valued at $3 billion
(including long-term contracts), while in 2003 it reviewed 558
contracts valued at about $2.3 billion.
[13] In the United States, vendors may protest to the involved
agencies, the U.S. Court of Federal Claims, or GAO. We receive more
than 1,100 such protests annually.
[14] GAO, Internal Control: Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999);
Committee of Sponsoring Organizations of the Treadway Commission,
Internal Control--Integrated Framework (Sept. 1992).
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