-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-701T
TITLE: United Nations: Internal Oversight and Procurement
Controls and Processes Need Strengthening
DATE: 04/27/2006
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GAO-06-701T
* Summary
* Background
* Funding Arrangements Impede Independence of the UN Internal Auditors
* UN Mandate and International Auditing Standards Require
Independence
* Funding Arrangements Hinder OIOS's Flexibility to Respond to
Changing Circumstances and Reallocate Resources to Address
High-Risk Areas
* Reliance on Other Entities for Funding Could Infringe on OIOS's
Independence
* OIOS Has Not Fully Met Key Elements of International Auditing
Standards
* OIOS Has Developed Annual Work Plans, but Has Not Fully
Implemented a Risk Management Framework
* OIOS Not Reporting on Status of Overall Risk and Control Issues
Facing the UN
* OIOS Lacks a Mechanism to Determine Appropriate Resource Levels
* OIOS Offers Training Opportunities, but Does Not Require or
Systematically Track Continuing Professional Development
* The Control Environment Over UN Procurement Is Weak
* The UN Lacks an Effective Organizational Structure for Managing
Procurement
* The UN Lacks a Plan to Improve its Professional Procurement
Workforce
* The UN Has Not Fully Established Ethics Guidance for Procurement
Personnel
* The UN Has Weaknesses in Key Procurement Processes
* Headquarters Committee on Contracts Lacks Needed Resources
* The UN Has Not Established an Independent Bid Protest Process
* The UN Has Not Updated its Procurement Manual Since 2004
* UN Does Not Consistently Implement Its Process for Helping to
Ensure That It Conducts Business with Qualified Vendors
* Objectives, Scope, and Methodology
* Concluding Observations
* Recommendations
* Agency Comments and Our Evaluation
* Contact and Acknowledgments
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
* cover.pdf
* Order by Mail or Phone
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 2006,1 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.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,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:
o support budgetary independence for OIOS and support OIOS's efforts to
more closely adhere to international auditing standards; and
o 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.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.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;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.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,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.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
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 positions10 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
OIOS has adopted a risk management framework11 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
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
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
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 2003.12 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.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.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:
o support budgetary independence for OIOS, and support OIOS's efforts to
more closely adhere to international auditing standards; and
o 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 [email protected]. 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)
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
[email protected].
Highlights of GAO-06-701T , a testimony before the Committee on
International Relations, House of Representatives
April 2006
UNITED NATIONS
Internal Oversight and Procurement Controls and Processes Need
Strengthening
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 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.
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.
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Testimony
Before the Committee on International Relations, House of Representatives
United States Government Accountability Office
GAO
For Release on Delivery Expected at 1:00 p.m. EDT
Thursday, April 27, 2006
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
*** End of document. ***