United Nations: Weaknesses in Internal Oversight and Procurement
Could Affect the Effective Implementation of the Planned
Renovation (20-JUN-06, GAO-06-877T).
The UN headquarters buildings are in need of renovation. The
Capital Master Plan is an opportunity for the organization to
renovate its headquarters buildings and ensure conformity with
current safety, fire, and security requirements. Estimated by the
UN to cost about $1.6 billion, the renovation will require a
substantial management effort by the UN--including the use of
effective internal oversight and procurement practices. Based on
recently issued work, GAO (1) examined the extent to which UN
funding arrangements for its Office of Internal Oversight
Services (OIOS) ensure independent oversight and the consistency
of OIOS's practices with key international auditing standards and
(2) assessed the UN's procurement processes according to key
standards for internal controls.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-877T
ACCNO: A55723
TITLE: United Nations: Weaknesses in Internal Oversight and
Procurement Could Affect the Effective Implementation of the
Planned Renovation
DATE: 06/20/2006
SUBJECT: Construction contracts
Contract oversight
Facility construction
Internal controls
International organizations
Procurement planning
Procurement practices
UN Capital Master Plan
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GAO-06-877T
* Summary
* Background
* Funding Arrangements Impede Independence of the UN Internal Auditors
* UN Mandate and International Auditing Standards Require
Independence
* Funding Arrangements Hinder OIOS's Ability to Respond to Changing
Circumstances and to Reallocate Resources to Address High-Risk
Areas
* Reliance on Other Entities for Funding Could Infringe on OIOS's
Independence
* GAO's Recommendation on OIOS 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
* GAO's Recommendation on OIOS Meeting Key Elements of
International Auditing Standards
* The Current UN Procurement Process Contains Numerous Weaknesses
* The UN Has Not Established an Independent Bid Protest Process
* The Headquarters Contract Review Committee's Workload Is
Increasing Faster Than Its Resources
* UN Does Not Consistently Implement Its Process for Helping to
Ensure That It Conducts Business with Qualified Vendors
* The UN Has Not Demonstrated a Commitment to Improving Its
Professional Procurement Workforce
* The UN Has Not Fully Established Ethics Guidance for Procurement
Personnel
* The UN Has Not Included Guidance on Construction Procurement in
its Procurement Manual
* GAO's Recommendation to Address Weaknesses in UN Procurement
* Objectives, Scope, and Methodology
* Concluding Observations
* Contact and Acknowledgments
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
Chairman Coburn, Ranking Member Carper, and Members of the Subcommittee:
I am pleased to be here today to discuss the United Nations' (UN) internal
oversight unit and procurement process in the context of the UN Capital
Master Plan (CMP). The planned renovation project represents a unique
endeavor on the part of the UN-the first comprehensive renovation of the
UN headquarters since the completion of its initial construction in 1952.
Currently estimated by the UN to cost about $1.6 billion, the renovation
will require a substantial management effort by the UN-including the use
of effective internal oversight and procurement practices.
Several scandals, including those involving the UN's Oil for Food Program
and procurement service, have spurred calls for UN management reform. In
our review of the Oil for Food Program,1 we found that management problems
allowed the former Iraqi regime to manipulate the program and circumvent
sanctions to obtain illicit payments ranging from $7.4 billion to $12.8
billion.2 The UN's Office of Internal Oversight Services (OIOS) audited
some aspects of the Oil for Food program and identified hundreds of
weaknesses and irregularities. However, OIOS lacked the resources and
independence needed to provide full and effective oversight of this large,
costly, and complex UN effort. In addition, experts have called on the UN
to correct serious weaknesses in its procurement process for more than a
decade, including the lack of an independent process for considering
vendor protests and ensuring selection of qualified venders. However,
recent audits and investigations have uncovered evidence of corruption and
mismanagement in the UN's procurement activities.
In 2005, UN member states approved an agenda to reform many of the UN's
management practices, in particular to strengthen internal oversight and
accountability; help ensure ethical conduct; and review budgetary,
financial, and human resources policies. 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 have been slow and uneven.
Completing the CMP will require the UN to implement effective internal
oversight and procurement practices. Accordingly, my statement is based on
two reports that we released on these topics in April 2006.3 First, I will
focus on the need to strengthen OIOS's budgetary independence and its full
implementation of key components for effective oversight. Second, I will
also focus on our assessment of the UN's procurement processes according
to key standards for internal controls.
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
Effective implementation of the CMP is vulnerable due to a range of
weaknesses in existing internal oversight and procurement practices. In
particular, current funding arrangements adversely affect OIOS's budgetary
independence and compromise its ability to investigate high-risk areas. In
addition, while the UN has yet to finalize a specific procurement strategy
for the renovation project, to the extent that it relies on current UN
processes, implementation of the planned renovation is vulnerable to the
procurement weaknesses that we have identified.
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 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. In some instances, high-risk
areas have been 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. In our April 2006 report concerning OIOS,4 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. Both the Department of State and OIOS
generally agreed with our findings and recommendation.
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. In reviewing the
CMP, OIOS reported in August 2005 that it obtained extrabudgetary funds
from the CMP for one auditor on a short-term basis, but that the level of
funding was not sufficient to provide the oversight coverage intended by
the General Assembly.5 In addition, OIOS does 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 could undermine its
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. In our April 2006 report on OIOS, we also recommended that the
Secretary of State and the Permanent Representative of the United States
to the UN work with member states to support OIOS's efforts to more
closely adhere to international auditing standards. Both the Department of
State and OIOS generally agreed with our findings and recommendation.
While the UN has yet to finalize its CMP procurement strategy, to the
extent that it relies on the current process, implementation of the
planned renovation is vulnerable to the procurement weaknesses that we
have identified. For example, it has not established an independent
process to consider vendor protests that could alert senior UN officials
of failures by procurement staff to comply with stated procedures. Also,
the Chairman of a key UN procurement contract review committee has stated
that his committee does not have the resources to keep up with its
expanding workload. In addition, the UN does not consistently implement
its process for helping to ensure that it is conducting business with
qualified vendors, has not demonstrated a commitment to improving its
professional procurement staff despite long-standing shortcomings, and has
yet to complete action on specific ethics guidance for procurement
officers. We also found that the UN has yet to incorporate guidance for
construction procurement into its procurement manual. In our April 2006
report on UN procurement,6 we recommended that the Secretary of State and
the Permanent Representative of the United States to the UN work with
member states to encourage the UN to establish an independent bid protest
mechanism, address problems facing its principle contract-review
committee, implement a process to help ensure that it conducts business
with qualified vendors, and to take other steps to improve UN procurement.
The Department of State welcomed our report and recommendations. However,
the UN did not provide us with written comments.
Background
The UN headquarters buildings are in need of renovation. The original UN
headquarters complex, located in New York City and constructed between
1949 and 1952, no longer conforms to current safety, fire and building
codes and does not meet UN technology or security requirements. Over the
last 50 years there have been no major renovations or upgrades to the
buildings or their systems. For example, the UN headquarters complex lacks
fire sprinklers, has a deteriorating window structure, and is vulnerable
to catastrophic electrical failures. In September 2005, the headquarters
complex was shut down and the staff sent home because a main breaker for
electrical power to the top floors of the Secretariat building failed,
causing it to fuse to the electrical panel. This failure could have
resulted in a major fire.
As host country, the United States financed construction of the original
complex by providing the UN with a no-interest loan. The rest of the
complex was built between 1960 and 1982 and funded through the UN's
regular budget or private donations. In December 2002, the General
Assembly endorsed the CMP to renovate the UN headquarters complex and
approved funds to further develop the conceptual designs and cost
estimate. In May 2003, we reported that the resulting renovation planning
was reasonable, but that additional management controls and oversight were
needed. Since our last report, the UN has completed design development of
the renovation. In April 2006, the UN appropriated $23.5 million to
finance the renovation's preconstruction phase and committed $77 million
to finance the construction of temporary conference space and
supplementary office space rental (swing space). However, the General
Assembly has not yet decided whether to approve implementation of the CMP.
In a February 2003 resolution, the General Assembly stressed the
importance of oversight in implementing the CMP and requested that all
relevant oversight bodies, such as OIOS, initiate immediate oversight
activities.7 In our 2003 report on the CMP,8 we noted that OIOS assigned
one staff member to begin researching the CMP on a part-time basis. OIOS
officials also stated that they had requested funding for OIOS to hire
contractors to help evaluate the CMP, project management plan, and
security upgrades. In July 2005, OIOS reported that it had two auditors
reviewing the CMP.9
OIOS's authority spans all UN activities under the Secretary-General. 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 Secretariat10
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. Our work on the Oil for Food program demonstrates the
weakness inherent in OIOS's reliance on extrabudgetary resources. OIOS
audited some aspects of the Oil for Food program and identified hundreds
of weaknesses and irregularities, but it lacked the resources and
independence needed to provide full and effective oversight of this large,
costly, and complex UN effort. As the program was implemented, the Oil for
Food program was further weakened by inadequate attention to internal
controls, including establishing clear responsibility and authority and
identifying and addressing program risks.
In addition to oversight, an effective procurement process is one of the
keys to success for any large scale construction project. For more than a
decade, experts have called on the UN to correct serious weaknesses in its
procurement process. In addition, the UN procurement process has been
under increasing stress in recent years as procurement spending has more
than tripled to keep pace with a rapidly growing peacekeeping program. The
UN Department of Management, through its 70-person UN Procurement Service,
is ultimately responsible for developing UN procurement policies.
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
conduct UN-related work only in response to specific requests from
committees with jurisdiction over UN matters. 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.
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 state 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. In our April 2006 report
concerning OIOS, 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. Both the Department of
State and OIOS generally agreed with our findings and recommendation.
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 should 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,11 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 Ability to Respond to Changing
Circumstances and to Reallocate Resources to Address High-Risk Areas
UN funding arrangements severely limit OIOS's ability to respond to
changing circumstances and reallocate its resources among its multiple
funding sources, OIOS locations worldwide, or 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 positions12 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.
Since 1996, an increasing share of OIOSis total budget is comprised of
extrabudgetary resources. OIOSis regular budget and extrabudgetary
resources increased in nominal terms from $21.6 million in fiscal biennium
1996-1997 to $85.3 million in fiscal biennium 2006-2007. Over that period,
OIOSis extrabudgetary funding increased in nominal terms, from about $6.5
million in fiscal biennium 1996-1997 to about $53.7 million in fiscal
biennium 2006-2007. The majority of OIOS's staff (about 69 percent) is
funded with extrabudgetary resources, which increased due to
extrabudgetary resources for audits and investigations of peacekeeping
operations, including issues related to sexual exploitation and abuse.
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.13
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. Moreover, in some cases,
fund and program managers have disputed fees charged by OIOS for
investigative services 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
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.
GAO's Recommendation on OIOS Independence
In our April 2006 report concerning OIOS, 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. In commenting on the official draft of that report, OIOS and the
Department of State (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 findings 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.
OIOS Has Not Fully Met Key Elements of International Auditing Standards
OIOS formally adopted the Institute for Internal Auditors' (IIA)
international standards for the professional practice of internal auditing
in 2002. Since then, 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 could 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. In our April 2006 report on OIOS, we also
recommended that the Secretary of State and the Permanent Representative
of the United States to the UN work with member states to support OIOS's
efforts to more closely adhere to international auditing standards.
OIOS Has Developed Annual Work Plans, but Has Not Fully Implemented a Risk
Management Framework
OIOS has adopted a risk management framework14 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 for
prioritizing the allocation of resources to 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 had 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. For the
CMP, OIOS reported that it had extrabudgetary funds from the CMP for one
auditor on a short-term basis, but that the level of funding was not
sufficient to provide the oversight coverage intended by the General
Assembly.15 To provide additional oversight coverage, OIOS
assigned an additional auditor exclusively to the CMP, using funds from
its regular budget.16
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.
Although OIOS provides these professional development opportunities, it
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 office wide database to systematically track all training
taken by their staff.
GAO's Recommendation on OIOS Meeting Key Elements of International
Auditing Standards
In our April 2006 report on OIOS, we also recommended that the Secretary
of State and the Permanent Representative of the United States to the UN
work with member states to support OIOS's efforts to more closely adhere
to international auditing standards. In commenting on the official draft
of that report, 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.
The Current UN Procurement Process Contains Numerous Weaknesses
While the UN has yet to finalize its CMP procurement strategy, to the
extent that it relies on current UN processes, implementation of the
planned renovation is vulnerable to the procurement weaknesses that we
have identified. We have identified problems affecting the UN's bid
protest process, headquarters contract review committee, vender rosters,
procurement workforce, ethics guidance for procurement personnel, and
procurement manual. In our April 2006 report on UN procurement, we
recommended that the Secretary of State and the Permanent Representative
of the United States to the UN work with member states to encourage the UN
to establish an independent bid protest mechanism, address problems facing
its principal contract-review committee, implement a process to help
ensure that it conducts business with qualified vendors, and to take other
steps to improve UN procurement.
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.17
Such a process would 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. 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. The General Assembly endorsed the principle of
independent bid protests in 1994 when it recommended for adoption by
member states a model procurement law drafted by the UN Commission on
International Trade Law.18 Several nations, including the United States,
provide vendors with an independent process to handle complaints.19
The UN's lack of an independent bid protest process limits the
transparency of its procurement process by not providing a means for a
vendor to protest the outcome of a contract decision to an independent
official or office. At present, the UN Procurement Service directs its
vendors to file protests to the Procurement Service chief and then to his
or her immediate supervisor. If handled through an independent process,
vendor complaints could alert senior UN officials and UN auditors to the
failure of UN procurement staff to comply with stated procedures. As a
result of recent findings of impropriety involving the Procurement
Service, the United Nations hired a consultant to evaluate the internal
controls of its procurement operations. One of the consultant's
conclusions was that the UN needs to establish an independent bid protest
process for suspected wrongdoing that would include an independent
third-party evaluation as well as arbitration, due process, and formal
resolution for all reports.
The Headquarters Contract Review Committee's Workload Is Increasing Faster
Than Its Resources
While UN procurement has increased sharply in recent years, the size of
the UN`s Headquarters Committee on Contracts and its support staff has
remained relatively stable. The committee's chairman and members told us
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 2003.20 The committee members stated
that the committee's increasing workload was the result in part of the
complexity of many new contracts and increased scrutiny of proposals in
response to recent UN procurement scandals.
The committee is charged with evaluating proposed contracts worth more
than $200,000 and advising the Department of Management as to whether the
contracts are in accordance with UN Financial Regulations and Rules and
other UN policies. However, concerns regarding the committee's structure
and workload have led UN auditors to conclude that the committee cannot
properly review contract proposals. It may thus recommend contracts for
approval that are inappropriate and have not met UN regulations. Earlier
this year, OIOS reiterated its 2001 recommendation that the UN reduce the
committee's caseload and restructure the committee "to allow competent
review of the cases."
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. OIOS later concluded that as of 2005 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.
The UN Has Not Demonstrated a Commitment to Improving Its Professional
Procurement Workforce
The UN has not demonstrated a commitment to improving its professional
procurement staff through training, establishment of 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.
Recent studies indicate that Procurement Service 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
procurement staff to obtain continuous training, resulting in inconsistent
levels of training across the procurement workforce. 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. Doing so 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 toward
adopting it. Such guidance would include a declaration of ethics
responsibilities for procurement staff and a code of conduct for vendors.
The UN Has Not Included Guidance on Construction Procurement in its
Procurement Manual
The UN has yet to include guidance for construction procurement into its
procurement manual. 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 and
executing CMP procurement. Moreover, the UN has not updated its
procurement manual since January 2004 to reflect current UN procurement
policy. As a result, procurement staff may not be aware of changes to
procurement procedures that the UN has adopted over the past 2 years. 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.
GAO's Recommendation to Address Weaknesses in UN Procurement
In our April 2006 report on UN procurement,21 we recommended that the
Secretary of State and the Permanent Representative of the United States
to the UN work with member states to encourage the UN to establish an
independent bid protest mechanism, address problems facing its principle
contract-review committee, implement a process to help ensure that it
conducts business with qualified vendors, and to take other steps to
improve UN procurement. In commenting on the official draft of this
report, the Department of State stated that it welcomed our report and
endorsed its recommendations. The UN did not provide us with written
comments.
Objectives, Scope, and Methodology
To conduct our study of UN oversight, we reviewed relevant UN and OIOS
reports, manuals, and program documents, as well as the international
auditing standards of the IIA and the International Organization of
Supreme Auditing Institutions. 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 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.22 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 Department of
Management's Procurement Service, the 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
If implemented, the CMP will be a large and unique endeavor for the UN.
Effective internal oversight and management of the procurement process
will be necessary for the successful completion of the project. However,
weaknesses in internal oversight and procurement could impact
implementation of the CMP. Recent UN scandals, particularly in the Oil for
Food program, demonstrate the need for significant reforms in these areas.
Although OIOS has a mandate establishing it as an independent oversight
entity and to conduct oversight of the CMP, 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 could 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 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.
While the UN has yet to finalize its CMP procurement strategy, to the
extent that it relies on the current process, we have identified numerous
weaknesses with the existing procurement process that could impact
implementation of the CMP. Long-standing weaknesses in the UN's
procurement office have left UN procurement funds highly vulnerable to
fraud, waste, and abuse. Many of these weaknesses have been identified 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.
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 me at
(202) 512-9601 or m [email protected]. Other major contributors to this
testimony were Phyllis Anderson and Maria Edelstein, Assistant Directors;
Joy Labez, Pierre Toureille, Valerie L. Nowak, Jeffrey Baldwin-Bott,
Michaela Brown, Joseph Carney, Debbie J. Chung, Kristy Kennedy, Clarette
Kim, J.J. Marzullo, and Barbara Shields.
(320445)
United States Government Accountability Office
GAO
Testimony
Before the Subcommittee on Federal Financial Management, Government
Information, and International Security
For Release on Delivery
Expected at 2:30 p.m. EDT Tuesday, June 20, 2006
UNITED NATIONS
Weaknesses in Internal Oversight and Procurement Could Affect the
Effective Implementation of the Planned Renovation
Statement of Thomas Melito, Director International Affairs and Trade
GAO-06-877T
www.gao.gov/cgi-bin/getrpt?GAO-06-877T.
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-06-877T, a testimony before the Subcommittee on Federal
Financial Management, Government Information, and International Security,
United States Senate
June2006
UNITED NATIONS
Weaknesses in Internal Oversight and Procurement Could Affect the
Effective Implementation of the Planned Renovation
The UN headquarters buildings are in need of renovation. The Capital
Master Plan is an opportunity for the organization to renovate its
headquarters buildings and ensure conformity with current safety, fire,
and security requirements. Estimated by the UN to cost about $1.6 billion,
the renovation will require a substantial management effort by the
UN-including the use of effective internal oversight and procurement
practices.
Based on recently issued work, GAO (1) examined the extent to which UN
funding arrangements for its Office of Internal Oversight Services (OIOS)
ensure independent oversight and the consistency of OIOS's practices with
key international auditing standards and (2) assessed the UN's procurement
processes according to key standards for internal controls.
What GAO Recommends
In prior reports, GAO recommended 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 processes. State and OIOS generally agreed
with GAO's overall findings and recommendations. The UN did not provide us
with written comments on procurement.
The effective implementation of the planned UN renovation is vulnerable
due to a range of weaknesses in existing internal oversight and
procurement practices. In particular, UN funding arrangements adversely
affect OIOS's budgetary independence and compromise OIOS's ability to
investigate high-risk areas. In addition, while the UN has yet to finalize
a specific procurement process for the UN Capital Master Plan, to the
extent that it relies on UN procurement processes, it remains vulnerable
to the numerous procurement weaknesses that GAO have previously
identified.
First, UN funding arrangements constrain OIOS's ability to operate
independently as mandated by the General Assembly and required by
international auditing standards. While OIOS is funded by a regular budget
and 12 other 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. 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. 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.
While the UN has yet to finalize its Capital Master Plan procurement
strategy, to the extent that it relies on the current process,
implementation of the Capital Master Plan remains vulnerable to numerous
procurement weaknesses. For example, the UN has not established an
independent process to consider vendor protests that could alert senior UN
officials of failures by procurement staff to comply with stated
procedures. Also, the chairman of the UN procurement contract review
committee has stated that his committee does not have the resources to
keep up with its expanding workload. In addition, the UN does not
consistently implement its process for helping to ensure that it is
conducting business with qualified vendors. GAO also found that the UN has
not demonstrated a commitment to improving its professional procurement
staff despite long-standing shortcomings and has yet to complete action on
specific ethics guidance for procurement officers.
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