Chemical Weapons: Organization for the Prohibition of Chemical Weapons Needs Comprehensive Plan to Correct Budgeting Weaknesses
Published: 2002-10-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Organization for the Prohibition of Chemical Weapons is responsible for implementing the Chemical Weapons Convention, which bans the use of chemical weapons and requires their elimination. The United States and other member states have raised concerns that a number of management weaknesses may prevent the organization from fulfilling its mandate. As requested, GAO assessed the accuracy of the organization's budget and the impact of budget shortfalls on program activities. GAO also reviewed efforts to improve the organization's budget planning.
section_title: What GAO Found
paragraphs: Since its establishment in 1997, the ability of the Organization for the Prohibition of Chemical Weapons (OPCW) to carry out key inspection functions has been hindered by inaccurate budget projections and, more recently, budget deficits. The organization has consistently overestimated its income and underestimated its expenses. Its budgets have recorded as income nearly $1 million in unpaid assessments owed by 30 member states. The budgets have also overestimated reimbursement payments for inspections conducted in member states with chemical weapons-related facilities. As of June, 2002, these states owed the organization more than $2 million. Furthermore, the budgets for 2000 through 2002 underestimated personnel expenses. The organization's inaccurate income and spending estimates contributed to a $2.8 million deficit in 2000 and a potential deficit of $5.2 million in 2002. Weak budgeting practices and budget deficits have affected the organization's ability to perform inspection activities as mandated by the Chemical Weapons Convention. The organization had to reduce the number of inspections it conducted in 2001 and plans to reduce the number it conducts in 2002. Although the organization and the State Department have taken some steps to address the budget problems, the organization has not developed a comprehensive plan to overcome its inherent weaknesses. Unless the organization improves its planning, budget shortfalls will continue to affect its ability to conduct inspections.

section_title: Letter
paragraphs: The Chemical Weapons Convention, which entered into force in April 1997,  bans the development, production, acquisition, and use of chemical  weapons by member states and requires the elimination of those states’  existing chemical weapons stocks. To implement these provisions, the  convention established the Organization for the Prohibition of Chemical  Weapons (OPCW). The organization’s primary functions are to verify the  destruction of chemical weapons and their production facilities, conduct  chemical industry inspections, and encourage international cooperation in  the field of chemistry. A Technical Secretariat, headed by a Director- General, carries out the organization’s daily operations. The organization’s  budget for calendar year 2002 is about $54 million. The United States  contributes about 22 percent of the organization’s assessed budget each  year. Recently, the United States and other member states have raised  concerns that the organization is not fulfilling its mandate because of a  number of management weaknesses. Such concerns prompted the removal  of the organization’s Director-General in April 2002.
You initially requested that we conduct a comprehensive management  review of the organization to determine how it has implemented the  convention. We could not fulfill the original scope of your request, however  because officials at the Organization for the Prohibition of Chemical  Weapons and the State Department limited our access during our visit to  The Hague in May 2002. On the basis of the information that we could  obtain, and as agreed with your staff, we assessed (1) the accuracy of the  Secretariat’s budgets, (2) the impact of budget shortfalls on the  organization’s inspection and international cooperation activities, and (3)  the Secretariat’s and State Department’s efforts to improve the  organization’s budget-planning practices. In conducting our work, we  analyzed the organization’s program and budget documents and audited  financial statements. We also reviewed financial regulations, annual  reports, and reports prepared by the organization’s External Auditor, the  Advisory Body on Administrative and Financial Matters, and the Office of  Internal Oversight. In addition, we obtained information from State  Department officials and member states’ representatives to the  organization. (See app. I for details of our scope and methodology.)
subsections: section_title: Background
paragraphs: The Organization for the Prohibition of Chemical Weapons consists of  three entities: the Conference of the States Parties, the Executive Council,  and the Technical Secretariat. The Conference of the States Parties  currently comprises 147 representatives, one from each member state, and  oversees the implementation of the convention. The Executive Council,  consisting of 41 representatives from regionally distributed member states,  meets in sessions throughout the year to supervise the Secretariat’s  activities. The Secretariat, headed by the Director-General, manages the  organization’s daily operations, including implementing the inspection  measures of the convention and preparing the organization’s annual  budgets and reports. About 60 percent of the Secretariat’s authorized staff  level of 507 employees engages in the inspection-related activities  mandated under Articles IV, V, and VI of the convention. Specifically, to  verify compliance with Article IV, the Secretariat inspects declared  chemical weapons stocks and destruction facilities. To verify compliance  with Article V, it inspects and monitors the destruction and conversion of  chemical weapons production facilities. Under Article VI of the convention,  the Secretariat inspects commercial production facilities. As of July 2002,  the organization had conducted 1,210 inspections at the 5,066 declared  chemical weapons sites and facilities that fall under the convention’s  purview.
The Secretariat supports member states in their efforts to implement the  convention. It also encourages international cooperation and assistance  among the member states as mandated by Articles X and XI of the  convention. Under these provisions, the Secretariat is authorized to  coordinate the provision of assistance to member states that are the  victims of chemical attacks. The Secretariat also encourages economic and  technological developments in the field of chemistry by encouraging trade  and exchange of information among the member states.
The organization’s budget for calendar year 2002 is about $54 million.  Funding for OPCW operations comes primarily from the 147 member  states’ annual contributions, which are based on the United Nations scale  of assessments. The other large source of funding is reimbursement  payments for inspections conducted under Articles IV and V of the  convention. As required by the convention, members states with chemical  weapons related–facilities must reimburse the organization for its  inspection costs related to the destruction of chemical weapons (Article  IV) and the destruction of chemical weapons production facilities (Article  V). The State Department reports annually to Congress on U.S.  contributions to international organizations, including the OPCW.
In early 2002, the United States and other member states to the convention  raised concerns that the organization was not fulfilling its mandate because  of a number of management weaknesses. According to the United States,  such weaknesses included mismanagement by the organization’s then  Director-General, as well as his advocacy of inappropriate roles for the  organization—such as attempting to interfere with United Nations  weapons inspections in Iraq. To address these management concerns, the  Conference of the States Parties voted to remove the former Director- General in April 2002. In July 2002, the Conference appointed a new  Director-General.
section_title: Budgets Not Based on Accurate Income and Expense Projections
paragraphs: In its budgets, the Secretariat has not accurately projected income and  expenses. The Secretariat has overestimated its income for two reasons.  First, the budgets include as income the assessed contributions of member  states that are in arrears, some of which have not paid their contributions  since before 1997. Second, the Secretariat has difficulty predicting and  collecting income from inspections conducted at chemical weapons–  related facilities. The budgets also include inaccurate expense projections.  OPCW’s inaccurate income and expense estimates contributed to a budget  deficit in 2000, and a potential deficit for 2002, despite plans to achieve  balanced budgets in those years.
subsections: section_title: Budgets Based on Inaccurate Income Projections
paragraphs: In developing its budget plans for the past 6 calendar years, the Secretariat  has overestimated the amount of income it would receive from member  states’ assessed contributions and from reimbursable expenses paid by  member states for inspections at chemical weapons–related facilities.
subsections: section_title: Income Projections Include Arrearages
paragraphs: When preparing its annual budgets, the Secretariat overestimates the  income that it realistically expects to receive from member states’ annual  assessments. The Chemical Weapons Convention requires all member  states to pay their annual assessments or lose their voting privileges. The  Secretariat’s annual budgets, however, included as income the  contributions due from 30 member states, even though these members had  not paid their annual assessments for at least the 2 previous years. The  cumulative total of arrearages over the past several years amounted to  almost $1 million as of August 2002. (See app. II for more details.) This  includes $781,883 from 16 member states that had not paid any of their  assessed or other contributions since before the organization’s inception in  1997. An OPCW official stated that budgeting for arrearages presents a  politically sensitive problem for the organization because excluding  member states’ assessed contributions from the annual budgets would  require approval from the Conference of the States Parties.
In response to these budgeting problems, the organization’s Advisory Body  on Administrative and Financial Matters and its External Auditor  recommended that the Secretariat improve its budgeting practices by  developing more accurate and realistic budgets. For example, in 1998, the  Advisory Body and the External Auditor stated that the Secretariat’s future  budgets should be more realistic and accurate and based on the experience  gained in the organization’s first year of operation. In 2000, the External  Auditor recommended that income projections, which are used to establish  expenditure targets, should be more realistic and based on reasonable and  sound assumptions using past trends in the budget. The Secretariat has yet  to act on these recommendations.
section_title: Budgets Overestimate Inspection Reimbursements
paragraphs: As shown in table 1, every year since 1997, the budgets have overestimated  the amount of money that the organization will invoice and receive each  year for inspections conducted at chemical weapons–related facilities.
As indicated by OPCW documents, the Secretariat often receives its  reimbursements from those member states possessing chemical weapons– related facilities late because these states usually do not pay the OPCW  during the year that they receive the inspection invoices. Frequently, the  organization does not receive payments until several years after issuing the  invoices. According to State Department officials, the United States and  Russia have not made payments, in many cases, until several years after  receiving OPCW invoices, because both governments experienced  difficulties in identifying a funding source and obtaining appropriations.  These officials added that both governments are working to improve their  reimbursement records during 2002. As of June 2002, those states  possessing chemical weapons–related facilities, including the United  States, owed OPCW more than $2 million in reimbursable inspection  expenses from the previous 2 years. The United States accounts for $1.4  million of the $2 million owed.
It is difficult, however, for the Secretariat to estimate the number of  inspections that will be conducted and therefore the amount of inspection  reimbursement payments that can be collected from those states  possessing chemical weapons–related facilities. According to State  Department and OPCW officials, the Secretariat relies on states’  destruction plans to calculate the number of inspections the organization  may conduct during the year. Chemical weapons possessor states cannot  always accurately predict when their destruction facilities will become  operational and what problems may arise once they do. Any change to the  schedule of a destruction facility’s operations can affect the timing of  OPCW inspections and thus affect the organization’s reimbursement  estimates. In commenting on our draft report, the State Department stated  that possessor states’ destruction plans have collectively overstated  destruction activity, and consequently monitoring activity, by 30 percent or  more.
While it may be difficult for the Secretariat to estimate income from  inspection reimbursements, the Secretariat does not issue the  reimbursement invoices in a timely manner, according to State Department  and OPCW officials. Recent OPCW analysis indicates, however, that the  organization is working to improve the timeliness of its invoices. In  addition, sometimes the invoices are inaccurate, causing those states  possessing chemical weapons–related facilities to withhold payment until  corrections are made.
The organization’s External Auditor recommended in 2001 that the  Secretariat take concrete steps to pursue and recover outstanding invoices  and develop realistic estimates of its income from Articles IV and V  (reimbursable) inspections. In its April 2002 report, the organization’s  Advisory Body also recommended that the Secretariat avoid optimistic  income forecasts regarding Articles IV and V inspections, as well as  expedite and improve its billing procedures.
section_title: Budgets Underestimate Personnel Costs
paragraphs: As the result of a staff reclassification and upgrade undertaken in 1999 and  mandatory United Nations salary increases, the Secretariat’s personnel  costs increased, affecting the 2000, 2001, and 2002 budgets. However, the  budgets underestimated this increase. The Secretariat’s budget for 2002  underestimated staff cost increases by about 6 percent ($1.8 million) and  may contribute to a potential budget deficit for 2002. The audited financial  statement for 1999 and the Advisory Body’s January 2001 report stated that  increases in personnel costs were inevitable as a result of the staff  reclassification and upgrade.
The OPCW’s salary system further complicates the budget projections for  staff costs. OPCW uses the United Nations compensation system, which  budgets salaries and staff wages in U.S. dollars. The OPCW, however, pays  its staff in euros. According to State Department and OPCW officials, the  organization has had difficulty in covering the currency risks associated  with fluctuations in the dollar-to-euro exchange rate. The organization can  experience significant personnel cost increases, depending upon the  exchange rate; staff costs represent about 75 percent of OPCW’s 2002  budget. Furthermore, OPCW and State Department officials stated that it is  difficult to manage staff costs given the organization’s current tenure  policy, which does not clearly establish a start date for OPCW employees.  During the creation of the organization, a 7 year tenure policy was  established to reduce the number of career employees in the organization.  Currently, staff members are hired on a 3 year contract that can be renewed  yearly thereafter. However, the Conference of the States Parties has yet to  agree on a date for the commencement of the tenure policy.
section_title: Organization Had Budget Deficit in 2000 and Anticipates Deficit for 2002
paragraphs: In 2000, the organization experienced a budget deficit of more than $2.8  million when expenditures exceeded the income for the year. In 2001, the  Advisory Body reported that the Secretariat was aware of the income  shortfall of 2000 and should have managed the budget more carefully to  avoid a deficit. It also recommended that, to avoid a recurrence of  overspending, the Secretariat should maintain budgetary discipline by  matching expenditures to anticipated income in developing the 2001  budget.
However, for 2002, the organization may again experience a budget deficit.  According to an OPCW briefing document, the organization will  experience a potential $5.2 million deficit because of unrealistic income  projections in the budget and underbudgeted personnel expenditures.
section_title: Budget Shortfalls Resulted in Reduced Inspections and International Cooperation Activities
paragraphs: Because of its budget problems, the Secretariat has reduced inspections  and international cooperation and assistance efforts and has implemented  a hiring freeze. Unless the organization can obtain additional funding, it will  have to further reduce its inspections in 2002. The problem will intensify as  the number of inspectable facilities increases during the next few years.
subsections: section_title: Primary Functions Reduced to Offset Budget Deficits
paragraphs: The Secretariat has curtailed its inspection activities in response to its  budget problems. As a result the Secretariat conducted only 200 of the 293  inspections planned for 2001. The Secretariat plans to reduce the number  of inspections for 2002 to compensate for the potential deficit of $5.2  million. As of June 2002, OPCW inspectors had conducted only 90 of the  264 inspections planned for the year. Figure 1 depicts the number of  inspections planned and conducted from 1997 through June 2002.
Since 1997, most OPCW inspection activities have taken place at chemical  weapons–related facilities. The Secretariat receives reimbursements from  member states for inspections conducted under Articles IV and V of the  convention. However, the Secretariat is not reimbursed for inspections  carried out at commercial chemical facilities under Article VI. According to  OPCW documents, when funding is limited, the Secretariat reduces the  number of inspections at commercial chemical facilities that it conducts  during the year.
Because of its budget problems, OPCW conducted only 75, or 57 percent, of  the 132 chemical industry inspections planned for 2001. As of June 2002,  the organization had conducted only 47, or 36 percent, of the 132 industry  inspections planned for 2002. According to an OPCW document, if  additional funding becomes available, a maximum of 11 chemical industry  inspections per month can be conducted between the time additional  monies are received and the end of 2002.
At the same time, the Secretariat cut funding for international cooperation  and assistance efforts in 2001 by about one-third, from $3 million to $2  million, and has made further reductions in funding for 2002. The  Secretariat also imposed a hiring freeze on OPCW personnel for 2000  through 2002. According to the OPCW’s latest budget proposal, the  Secretariat plans to leave 33 positions vacant for 2003. Of these 33  positions, 22 are related to inspection and verification activities.
section_title: Budget Problems Will Multiply
paragraphs: According to OPCW officials, unless it receives additional funding, the  OPCW will not be able to completely fulfill its primary inspection functions  this year. As of June 2002, six member states have provided about $397,000  in voluntary contributions to help offset the OPCW budget deficit for 2002.  According to a State Department official, the United States, France,  Germany, and the United Kingdom are considering contributing additional  funding to support the organization.
The Secretariat’s inspection resources will be further affected by expected  increases in the numbers of chemical weapons destruction facilities and  commercial chemical facilities requiring OPCW inspections. Specifically,  by 2006, the number of continuously operating chemical weapons  destruction facilities is expected to increase from 6 to 12. An OPCW  planning document also indicates that additional member states may  declare more industry facilities. According to the Deputy Director-General,  preliminary OPCW estimates indicate that the funding level needed to  support inspection activities may increase by 50 percent.
section_title: OPCW and State Department Have Taken Steps to Improve Budget Practices, but Problems Remain
paragraphs: The organization has taken some preliminary steps to address its budgeting  problems, but it lacks a comprehensive strategy to overcome the inherent  weaknesses in its budgeting process. Also, limited oversight resources have  affected the organization’s efforts to improve its budgeting process. The  State Department has taken some steps to assist the OPCW, but budgeting  problems remain.
subsections: section_title: Secretariat Taking Steps, but Has No Plan to Address Budget Problems
paragraphs: The Secretariat is taking some preliminary steps to improve its budgeting  practices. The new Director-General has stated his commitment to ensure  that the organization receives the financial resources needed to implement  its mandate and that these resources are used exclusively for the objectives  and missions outlined in the convention. According to a State Department  official, when developing its internal spending plans to implement the  budget, the Secretariat has begun to exclude the assessments of member  states in arrears. The OPCW is also reducing its estimates of income  derived from inspection activities, based on the chemical weapons  possessor states’ destruction plans, by 30 percent, to better reflect the  historical level of activity. State Department officials also indicated that the  Secretariat is working to improve the invoicing and payments process for  Articles IV and V reimbursements by providing more accurate bills on a  more timely basis. Invoices sent out during the last two months of the  calendar year will be applied to the following year’s income projections.  State Department officials added that OPCW member states are  considering changing the current financial regulations to provide the  Secretariat flexibility in using the organization’s Working Capital Fund to  cover inspection-related expenses. In commenting on our draft report, the  State Department also stated that the Secretariat has begun using actual  staff costs to develop more accurate budget forecasts of salary costs.
Although the Secretariat’s efforts to collect income from member states is a  positive first step in addressing its budget difficulties, it has not directed  sufficient attention to improving projections of future expenses. According  to State and OPCW officials, the Secretariat does not budget for currency  fluctuations in calculating its staff expenses. These officials also stated that  current personnel regulations contain a vague employee tenure policy,  making it difficult to predict employee turnover and reduce the number of  employees. Accordingly, the Secretariat’s recent efforts do not reflect a  comprehensive approach to addressing its continuing budget problems.
OPCW’s Office of Internal Oversight may play an important role in helping  reform the Secretariat’s budget process. In March 2002, the organization’s  Advisory Body questioned the role of the oversight office, stating that the  office may not be focusing on key internal auditing, monitoring, evaluation,  and investigation activities that could detect budgeting problems. In  providing its advice and consent to the ratification of the Chemical  Weapons Convention, the U.S. Senate required the President to certify that  the OPCW had established an independent internal oversight office that  would conduct audits, inspections, and investigations relating to the  programs and operations of the OPCW. In December 1997, the President  certified that the office was in compliance with the Senate’s requirement.  However, the OPCW’s 2000 annual report states that only one auditor  within the oversight office was responsible for internal audit activities. The  2002 Advisory Body report states that the oversight office was devoting  only one-third of its staff resources to conducting audits, while the  remaining two-thirds was focused on other functions, such as the  implementation of the organization’s confidentiality regime and the  establishment of a quality assurance system. In that same report, the  Advisory Body reemphasized that the principal and overriding functions of  the oversight office should be internal audit, monitoring, evaluation, and  investigation. Given the current financial and budgetary crisis, the Advisory  Body recommended that the Secretariat redefine the office’s role to ensure  a clear and sustained focus on proper management of the budget.
section_title: State Department Taking Initiatives, but More Assistance Is Needed
paragraphs: The State Department funded a budget consultant to assist the Secretariat  in reviewing its budget processes. However, it is difficult to assess the  consultant’s impact in improving the budget processes of the organization.  According to the State Department, although it reimbursed the Secretariat  for the consultant’s salary (including per diem) of $170,000, the consultant  was not required to provide the Department with a statement of work or a  written analysis of the Secretariat’s budgetary practices and efforts to  improve its processes, because he was considered an employee of the  Technical Secretariat.
According to State Department officials, the United States is also  attempting to pay its Articles IV and V inspection reimbursements in a  timelier manner and is considering paying in advance the chemical  weapons–inspection costs that cover inspector salaries. To assist the  organization in meeting its 2002 budget, the State Department is providing  $2 million in supplemental funding to restore, to the extent feasible,  budgeted levels of inspection activity and to strengthen management and  planning functions, among other purposes. Funds will be deposited in a  trust fund and will remain available until expended by the OPCW on  activities agreed to by the United States.
OPCW’s Deputy Director-General and representatives from member states  commented that the United States needs to continue in its leadership role  by providing financial, managerial, and political support to the  organization. According to these officials, the U.S. government’s recent  efforts focused primarily on the removal of the former Director-General.  The officials added that the United States should now focus on addressing  the organization’s budgetary and financial problems.
section_title: Conclusions
paragraphs: The OPCW has consistently overestimated its income and underestimated  its expenses, and thus has planned more inspections than it is financially  able to conduct. Unless the Secretariat corrects its weak estimating  practices, the Secretariat may continue to plan more inspections than it can  undertake. The problem may grow worse in future years as the number of  new chemical weapon’s destruction facilities increases and additional  states ratify the convention. The organization’s newly appointed Director- General has an opportunity to correct these budgeting weaknesses and  improve the organization’s finances.
section_title: Recommendations for Executive Action
paragraphs: To improve the current budget problems of the Organization for the  Prohibition of Chemical Weapons, we recommend that the Secretary of  State work with the representatives of other member states and the new  Director-General to develop a comprehensive plan to improve the  organization’s budgetary practices. The plan should outline specific  strategies to (1) improve the projection and collection of income, (2)  accurately project expenses, and (3) strengthen the role of the Office of  Internal Oversight in helping the organization improve its budgeting  process. Such a plan would be consistent with the budget  recommendations of the Secretariat’s oversight bodies.
To ensure that Congress is informed about the status of efforts to improve  the OPCW’s budgeting practices, we recommend that the Secretary of State  annually report to Congress on the extent to which the OPCW is correcting  its budgeting weaknesses and implementing the recommendations made by  the organization’s oversight bodies.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from the State  Department that are reprinted in appendix III. We also received technical  comments from the State Department and have incorporated them where  appropriate. The State Department generally concurred with our findings  that budgetary and financial problems have plagued the OPCW, and that  unless corrected, these problems could have even more dramatic effects in  coming years. The Department, however, raised several issues with the  report. First, the Department asserted that our analysis of OPCW budgetary  and financial difficulties presented an incomplete picture of the OPCW’s  budgeting practices. Second, the State Department disputed our assertion  that we had to limit the scope of our review because of the access  restrictions we encountered during our May 2002 visit to the OPCW in The  Hague. Third, it stated that our report did not fully reflect the changes that  the OPCW has recently begun taking to address its budget weaknesses.  Finally, the Department disagreed with our recommendation that the  Secretary of State be required to report annually to Congress on how the  OPCW is correcting its budget weaknesses, asserting that such a  requirement would impose an administrative burden.
In response to the State Department’s comments on our draft report, we  added information on the reasons why the OPCW experienced budget  problems. Regarding our access to OPCW records and staff, although the  State Department provided us with some access to OPCW budget and  finance documents through the Department’s offices in Washington, D.C.,  we were denied the opportunity to review related budget documentation  and meet with numerous OPCW officials during our visit to The Hague in  May 2002. Although we provided the State Department with an extensive  list of OPCW officials with whom we wanted to meet prior to our visit, we  were allowed to meet only with the Deputy Director-General and selected  representatives from the budget office and the inspection equipment  laboratory. We were not allowed to meet with representatives from key  OPCW offices, including the Special Projects Division, the Office of  Internal Oversight, the Office of the Legal Advisor, the Administration  Division, the Verification Division, the Inspection Division, the  International Cooperation and Assistance Division, and the Advisory Body  on Administrative and Financial Matters. Furthermore, the State  Department failed to notify us of any potential access difficulties with the  OPCW prior to our trip to The Hague, and did not actively seek to provide  us with access to these officials on our arrival. Consequently, we had to  limit the scope of our review to budget-related issues. In response to the  State Department’s comments about recent budgetary initiatives, we have  updated the report to reflect the most current initiatives being undertaken  by the OPCW to address its budgeting problems. Regarding our  recommendation for an annual reporting requirement, we do not believe  that such a requirement would impose an administrative burden on the  Department, since it already provides various reports to Congress on  international organizations. This reporting requirement is necessary to  improve congressional oversight of the OPCW.
We are providing copies of this report to other interested congressional  committees and to the Secretary of State. We will make copies available to  others on request. In addition, the report will be available at no charge on  the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-8979 if you or your staff have any questions  concerning this report. Another GAO contact and staff acknowledgments  are listed in appendix IV.
section_title: Scope and Methodology
paragraphs: We could not conduct a comprehensive management review of the  organization as requested, because the Organization for the Prohibition of  Chemical Weapons (OPCW) and State Department officials limited our  access during our visit to The Hague in May 2002. As a result of our lack of  access to OPCW officials and limited access to OPCW documents, we  could not determine how the reduction in chemical weapons and industry  inspections has affected the implementation of the Chemical Weapons  Convention. In addition, we could not assess the organization’s personnel  management, administrative, and internal audit functions. Specifically, we  were not permitted to meet with or obtain information from OPCW officials  from the following offices: the Special Projects Division, the Office of  Internal Oversight, the Office of the Legal Advisor, the Administration  Division, the Verification Division, the Inspection Division, the  International Cooperation and Assistance Division, and the Advisory Body  on Administrative and Financial Matters. However, we met with OPCW’s  Deputy Director-General. We also received a budget briefing from the  Director of the Administrative Division and the budget consultant being  funded by the State Department. In addition, we visited the inspection  laboratory and equipment store at Rijswijk, the Netherlands.
To determine the accuracy of the Secretariat’s budgets, we compared  OPCW’s program and budget documents for 1997–2003 with the data in the  audited financial statements for 1997–2001. To compare budget and  program data, figures were converted from Netherlands guilders and euros  to 2001 dollars, using appropriate exchange and inflation rates. We also  reviewed other OPCW documents, including the organization’s financial  regulations and annual reports. We analyzed reports prepared by the  organization’s External Auditor, the Advisory Body on Administrative and  Financial Matters, and the Office of Internal Oversight. In addition, we  obtained information from officials in the State Department’s Bureau of  Arms Control and Office of International Organization Affairs, as well as  from member states’ representatives to OPCW.
To determine the impact of budget shortfalls on the organization’s  inspection and international cooperation activities, we analyzed the data  contained in the organization’s program and budget documents and in  annual implementation reports for calendar years 1997–2001. To confirm  our understanding of the data obtained, we met with an official from the  State Department’s Bureau of Arms Control. In addition, we reviewed other  OPCW documents and statements provided by the State Department.
To assess OPCW and State Department efforts to improve the  organization’s budget-planning practices, we met with State Department  officials in Washington, D.C., and The Hague. We also obtained information  from OPCW member states’ representatives. We reviewed and analyzed  OPCW and State Department documents, including OPCW’s draft Medium- Term Plan for 2004–2006; speeches given by the Director-General to the  Executive Council and Conference of the States Parties; and reports of the  Advisory Board on Administrative and Financial Matters, the External  Auditor, and the Office of Internal Oversight.
We could not independently verify the accuracy of the budget and other  financial data obtained from OPCW and the State Department. Although we  met with, and obtained documents from, officials at the Departments of  Commerce and Defense, the information they provided was not relevant to  the reduced scope of our work.
We performed our work from January 2002 through October 2002 in  accordance with generally accepted government auditing standards.
section_title: Member States in Arrears of Contributions to the Organization for the Prohibition of Chemical Weapons (as of August 31, 2002)
paragraphs: $60,127 $163,958 $253,143 $71,155 The Preparatory Commission for the Organization for the Prohibition of Chemical Weapons preceded  the OPCW and carried out the initial implementation of the Chemical Weapons Convention. Under the  Preparatory Commission, member states were assessed contributions to fund the commission’s  expenses.
section_title: Comments from the Department of State
paragraphs: The following are GAO’s comments on the Department of State’s letter,  dated October 16, 2002.
subsections: section_title: GAO Comments
paragraphs: 1. We agree that monitoring activities at chemical weapons–destruction  facilities account for most of OPCW’s workload, and that to project this  workload, the organization has depended on plans submitted by  chemical weapons–possessor states. Our report states that since 1997,  most OPCW inspection activities have taken place at chemical weapons  facilities. Our report also states that the Secretariat relies on possessor  states’ destruction plans to calculate the number of inspections the  organization may conduct during the year. Chemical weapons–  possessor states cannot accurately predict when their destruction  facilities will become operational and what problems may arise when  they do. However, in response to the State Department’s comments, we  have included additional information in the report to clarify this point.  2. We identified the key reasons why OPCW underestimated staff costs  for calendar years 2000–2002, and included this information in the  report.   For example, our report states that as the result of a staff  reclassification and upgrade undertaken in 1999 and mandatory United  Nations salary increases, the Secretariat’s personnel costs increased,  affecting the 2000, 2001, and 2002 budgets.  3. We agree that the OPCW encounters the same difficulties as other  international organizations with regard to the late payment of annual  dues, and that the United States and Russia have experienced  difficulties in paying their Articles IV and V inspection bills. We  included this additional information in the report.  4. We agree that the OPCW has lacked adequate liquidity to deal with its  cash shortages, and this has resulted in a curtailment of inspection  activity. We have made no change to the report, however, because this  is its major theme. We reported that weak budgeting practices and  budget deficits have affected the organization’s ability to perform its  primary inspection and international cooperation activities, as outlined  in the Chemical Weapons Convention. 5. As explained in our report, the OPCW spent against budgeted income  based on inflated estimates of inspection activity. This budget shortfall  resulted in reduced inspections and international cooperation  activities. We do not believe that a change in our report is needed. 6. Our report clearly states that since 1997, most OPCW inspection  activities have taken place at chemical weapons facilities. Because of  its budget problems, the OPCW conducted only 57 percent of the  chemical industry inspections planned for 2001. As of June 2002, it had  conducted only 36 percent of these inspections planned for 2002. We do  not believe that a change in our report is needed. 7. We disagree that the State Department made every reasonable effort to  accommodate our requests for information and access to OPCW staff.  We were not allowed to hold meetings with representatives from  several key OPCW offices. The State Department failed to notify us of  any impending scheduling difficulties prior to our trip to The Hague in  May 2002. On our arrival, the Department made no effort to facilitate  meetings with the following offices: the Special Projects Division, the  Office of Internal Oversight, the Office of the Legal Advisor, the  Administration Division, the Verification Division, the Inspection  Division, the International Cooperation and Assistance Division, and  the Advisory Body on Administrative and Financial Matters.  8. This comment confirms that we were able to meet with only a few  select OPCW staff. It is unclear how the State Department concluded  that we were unable to identify specific questions to which answers  were not provided. Prior to our departure for The Hague in May 2002,  we provided State Department officials in Washington and at the U.S.  Delegation to the OPCW with five pages of detailed questions that we  planned to raise with OPCW officials. Many of these questions remain  unanswered. We also provided the State Department with a detailed set  of questions we planned to raise with representatives from other  member states.  9. We have updated our report to provide the most recent information on  OPCW initiatives currently under way. However, the State Department’s  mosaic of measures does not represent an overall strategy or plan for  improving the organization’s budgeting weaknesses. At best, it  represents only the first steps in addressing systemic weaknesses in the  OPCW’s budgeting process.  10. We believe that our recommendation for an annual reporting  requirement to Congress is appropriate. Such reporting will help  establish a baseline for judging OPCW progress in achieving needed  reforms. In addition, this requirement will not impose an undue administrative burden on the Department, since it already provides  various reports to Congress on international organizations, including  the OPCW.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the individual named above, Beth Hoffman León, Richard K.  Geiger, and Reid Lelong Lowe made key contributions to this report. Bruce  Kutnick, Christine Bonham, and Geoffrey Frank provided additional  assistance.
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