United Nations: Preliminary Observations on Internal Oversight and Procurement Practices
Published: 2005-10-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses internal oversight and procurement in the United Nations (UN). The findings of the Independent Inquiry Committee into the UN's Oil for Food Program have rekindled long-standing concerns about internal oversight and procurement at the United Nations. In addition, the UN's 2005 World Summit called for a host of reforms, from human rights, terrorism, and peace-building to economic development and management reform. Specifically, this testimony conveys our preliminary observations on the UN's budgeting processes as it relates to the ability of the UN's Office of Internal Oversight Services (OIOS) to perform independent and effective oversight. We will also discuss some of the UN's efforts to address problems affecting the openness and professionalism of its procurement system. We would like to emphasize that our comments reflect the preliminary results of two ongoing GAO engagements examining the UN's internal oversight and procurement services. We will issue reports covering a wide range of issues in both areas early next year.
section_title: What GAO Found
paragraphs: OIOS's ability to carry out independent, effective oversight over UN organizations is hindered by the UN's budgeting processes for its regular and extrabudgetary resources. In establishing OIOS in 1994, the General Assembly passed a resolution stating that OIOS should exercise operational independence in carrying out its oversight responsibilities and that the Secretary-General should take into account the independence of the office in preparing its budget. The Secretariat's budget office--over which OIOS has oversight authority--exercises control over OIOS's regular budget, which may result in conflicts of interest and infringe on OIOS's independence. In addition, UN budgeting processes make it difficult for OIOS to reallocate its regular budget resources among OIOS locations worldwide or among its three oversight divisions--internal audit; investigations; and monitoring, evaluation, and consulting services--to meet changing priorities. OIOS officials provided us with several examples of work funded through the regular budget that they were unable to undertake due to resource constraints. In addition, OIOS does not have a mechanism in place to identify or justify OIOS-wide staffing needs, except for peacekeeping oversight services. OIOS also lacks control over its extrabudgetary resources, which comprise 62 percent of its overall budget in fiscal biennium 2004-2005. The UN funds and programs that OIOS oversees maintain control over some of these resources since OIOS negotiates its terms of work and payment for services with the managers of the programs it intends to examine. If the entity does not agree to an OIOS examination or does not provide sufficient funding for OIOS to carry out its work, OIOS cannot adequately perform its oversight responsibilities. The United Nations has made progress in improving the clarity of its procurement manual but has yet to fully address previously identified concerns affecting the lack of openness and professionalism of its procurement system. Specifically, concerns remain relating to an independent bid protest system, staff training and professional certification, and ethics regulations. In 2002, the United Nations revised its procurement manual, which now provides staff with clearer guidance on UN procurement regulations and policies, including more detailed step-by-step instructions of the procurement process than it had when we reported in 1999. However, the Secretariat has yet to enhance the openness of the procurement system by heeding a 1994 recommendation by outside experts that it establish an independent bid protest process. At present, vendors cannot file complaints with an independent official or office if they believe that the UN Procurement Service has not handled their bids appropriately. As a result, senior UN officials may not be made aware of problems in the procurement process. In addition, the United Nations has not fully addressed longstanding concerns affecting the professional qualifications of its procurement workforce. The Procurement Service is developing a new training curriculum and a professional certification program. It has trained some procurement staff as instructors but has yet to complete training curricula. In addition, the United Nations still needs to develop the individual training profiles necessary to determine the extent of its training requirements. A June 2005 report by an independent contractor indicated that most headquarters procurement officers and procurement assistants do not possess professional procurement certifications. According to the contractor, the level of certification was low in comparison to other organizations. Further, the United Nations has yet to adopt several internal proposals to clarify UN ethics regulations for procurement staff and vendors, such as a code of conduct.

section_title: Letter
paragraphs: I am pleased to be here today to discuss internal oversight and  procurement in the United Nations (UN). The findings of the Independent  Inquiry Committee into the UN’s Oil for Food Program have rekindled  long-standing concerns about internal oversight and procurement at the  United Nations. In addition, the UN’s 2005 World Summit called for a host  of reforms, from human rights, terrorism, and peace-building to economic  development and management reform.
Today, I will share with you our preliminary observations on the UN’s  budgeting processes as it relates to the ability of the UN’s Office of  Internal Oversight Services (OIOS) to perform independent and effective  oversight. I will also discuss some of the UN’s efforts to address problems  affecting the openness and professionalism of its procurement system. I  would like to emphasize that my comments today reflect the preliminary  results of two ongoing GAO engagements examining the UN’s internal  oversight and procurement services. We will issue reports covering a wide  range of issues in both areas early next year.
To conduct our work to date, we met with senior Department of 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; UN Procurement Service officials and staff; representatives of  several 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 reports and discussed the  data with cognizant officials. We determined the data were sufficiently  reliable for the purposes of this report. To conduct our work on UN  procurement, we reviewed past GAO, UN audit, and expert reports on UN  procurement practices. We also reviewed the UN’s procurement manual,  training materials, ethics rules, and financial rules and regulations. In  addition, we interviewed UN and U.S. government officials. We made the  Department of State and UN officials aware of the contents of our  testimony. We performed our work between April 2005 and October 2005  in accordance with U.S. generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: Established in 1994 to serve as the UN’s main oversight body, OIOS  operated with a budget of $63.9 million in fiscal biennium 2004-2005 and  employs a workforce of 256 staff in 20 locations around the world. OIOS  was established 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.” The office is headed  by an Under Secretary-General who is appointed by the Secretary-General  for a 5-year fixed term with no possibility of renewal. The Under  Secretary-General may be removed by the Secretary-General only for  cause and with General Assembly approval. OIOS’s authority spans all UN  activities under the Secretary-General, namely the UN Secretariat in New  York, Geneva, Nairobi, and Vienna; the five regional commissions for  Africa, Asia and the Pacific, West Asia, Europe, and Latin America and the  Caribbean; peacekeeping missions and humanitarian operations in various  parts of the world; and numerous UN funds and programs, such as the  United Nations Environment Program (UNEP), United Nations Human  Settlements Program (UN-HABITAT), and the Office of the United Nations  High Commissioner for Refugees (UNHCR).
The UN Procurement Service is located within the UN Secretariat’s  Department of Management, at the UN headquarters in New York City. As  of August 2005, the Procurement Service had a staff of 71 personnel that  included 21 procurement officers, 5 associate procurement officers, and 24  procurement assistants. The Procurement Service manages procurement  for the UN Secretariat headquarters and procures air services and items  costing more than $200,000 for the Secretariat’s peacekeeping and other  field missions. While it also provides procurement guidance and support to  UN personnel who procure goods and services in the Secretariat’s  peacekeeping and other field missions, it does not directly supervise  them. Overall Secretariat procurement spending tripled between 1994 and  2004 as the number of UN peacekeepers in the field increased.
Past reviews of the UN’s procurement system have identified problems in  each of the six commonly identified characteristics that define an effective  procurement system. In 1999, we found that the United Nations had yet to  fully address these problems. The United Nations has retained a consulting  firm to assess the Procurement Service’s financial and internal controls,  following the decision of a former procurement official to plead guilty to  federal charges involving his receipt of funds from firms seeking UN  contracts. The Procurement Service is currently under interim  management.
section_title: UN Budgeting Processes Limit OIOS’s Effectiveness
paragraphs: The ability of OIOS to carry out independent, effective oversight is  impeded by the UN’s budgeting processes for the regular budget and funds  from the assessed peacekeeping budget and voluntary contributions from  funds and programs subject to OIOS’s oversight, which are known as  extrabudgetary resources. The Secretariat’s budget office—over which  OIOS has oversight authority—exercises control over OIOS’s regular  budget, which may result in potential conflicts of interest. UN budgeting  processes make it difficult for OIOS to shift resources among OIOS  locations or divisions to meet changing priorities. In addition, OIOS lacks  control over extrabudgetary resources from UN funds and programs. OIOS  negotiates its terms of work and payment for services with the manager of  the program it intends to examine. However, if the entity does not agree to  an OIOS examination or does not provide requested funding for OIOS to  perform its work, OIOS cannot adequately perform its oversight  responsibilities. These regular budget and extrabudgetary processes have  impeded OIOS in its ability to complete some of its identified oversight  priorities and raise serious questions about OIOS’s independence.
subsections: section_title: OIOS’s Oversight Capacity Is Hindered by the UN’s Budgeting Processes for the Regular Budget
paragraphs: OIOS’s ability to carry out independent, effective oversight is hindered by  the UN’s budgeting processes for its regular budget. A General Assembly  resolution in the creation of OIOS stated that the new internal oversight  body 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. OIOS receives its funding from  two sources, the UN’s regular budget and funds from the assessed  peacekeeping budget and voluntary contributions from funds and  programs subject to OIOS’s oversight—known as extrabudgetary  resources. UN rules and regulations preclude the movement of funds  between the regular budget and extrabudgetary resources. From 1996-1997  through 2004-2005, the number of staff funded by the regular budget has  been relatively flat while the number funded by extrabudgetary resources  has increased steadily. During that same period, OIOS’s regular budget  increased from about $15 million to about $24 million; its extrabudgetary  resources grew from about $7 million to about $40 million. OIOS officials  stated that the increase in extrabudgetary resources has been largely due  to growth in oversight for UN peacekeeping (see fig. 1).
The Secretariat’s budget office—over which OIOS has oversight  authority—exercises control over OIOS’s regular budget, which infringes  on the office’s independence. In developing the biennium budget, the  Under Secretary-General of OIOS sends its biennial budget request to the  Secretariat’s budget office for review. While OIOS can negotiate with the  budget office on suggested changes to its budget proposal, it has limited  recourse regarding the budget office’s decisions. This process limits  OIOS’s ability to independently request from the General Assembly the  resources it has determined it needs to provide effective oversight and  also poses a conflict of interest.
UN budgeting processes make it difficult for OIOS to reallocate its regular  budget resources among OIOS locations worldwide or among its three  divisions—internal audit; investigations; and monitoring, evaluation, and  consulting services—to meet changing priorities. For example, OIOS  officials requested a reallocation of 11 investigative posts from New York  to Vienna to save travel funds and be closer to the entities that they  investigate. This change was approved only after repeated requests by  OIOS over a number of years. In addition, although OIOS officials stated  that they routinely identify high-risk and high-priority audits and  investigations after the biennial budget has been determined, it is difficult  to mobilize the resources required to carry out the work.
OIOS officials have stated that the office is under resourced, but they do  not have a mechanism in place to determine appropriate staffing levels or  to justify budget requests, except for peacekeeping oversight services.  Officials provided us with several examples of work funded through the  regular budget that they were unable to undertake due to resource  constraints. For example, although the Board of Auditors recommended  on several occasions that OIOS develop the capacity to perform more  information technology audits, OIOS officials said that they lack the  financial and human resources to do so. We found that OIOS does not  have a mechanism in place to determine its overall staffing requirements,  which would help justify requests for additional resources. On the other  hand, for peacekeeping audit services, OIOS has a metric—endorsed by  the General Assembly—that provides one professional auditor per $100  million 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.
section_title: OIOS Lacks Control Over Extrabudgetary Resources
paragraphs: OIOS lacks control over the extrabudgetary resources funded by UN funds  and programs. OIOS’s reliance on extrabudgetary resources has been  steadily increasing over the years—from 30 percent in fiscal biennium  1996-1997 to 62 percent in the last fiscal biennium, 2004-2005 (see fig. 1).  According to OIOS officials, the growth in the office’s budget is primarily  due to extrabudgetary resources for audits and investigations of  peacekeeping. OIOS is dependent on UN funds and programs and other  UN entities for resources, access, and reimbursement for the services it  provides. Heads of these entities have the right to approve or deny funding  for oversight work proposed by OIOS. By denying OIOS funding, UN  entities could avoid OIOS audits, and high-risk areas could potentially be  excluded from adequate examination. For example, we have previously  testified that the UN Office of the Iraq Program refused to fund an OIOS  risk assessment of its program management division.
UN funds and programs limit OIOS’s ability to independently set its work  priorities in that they exercise the power to decide and negotiate whether  to fund OIOS oversight activities and at what level. OIOS officials stated  that because of OIOS’s budgetary structure, some high-priority work has  not been undertaken. For example, according to a senior OIOS official, the  office has not been able to adequately oversee the extrabudgetary  activities of many entities, particularly those based in Geneva. In addition,  the office also has not been able to oversee the UN Framework  Convention on Climate Change or the UN Convention to Combat  Desertification. OIOS reports that if funding is not forthcoming, OIOS may  have no choice but to discontinue auditing certain extrabudgetary  activities as of January 2006. In addition, in some cases, the fund and  program managers have disputed the fees OIOS charges for its services.  For example, 40 percent of the $2 million billed by OIOS after it completed  its work are currently in dispute, and since 2001, less than half of the  entities have paid OIOS in full for investigative services it has provided. If  the funds and programs fail to pay or pay late, this also adversely affects  OIOS’s resources.
section_title: The United Nations Has Made Progress but Has Yet to Fully Address Previously Identified Procurement Concerns
paragraphs: The United Nations has improved the clarity of its procurement manual,  which now provides procurement staff with clearer guidance on UN  procurement regulations and policies. However, the United Nations has  yet to fully address several problems affecting the openness and  professionalism of its procurement system. Specifically, concerns remain  relating to an independent bid protest system, staff training and  professional certification, and ethics regulations.
subsections: section_title: The UN Procurement Service Has Improved the Clarity of its Procurement Manual
paragraphs: The UN Procurement Service has improved the clarity of its procurement  manual. The manual guides UN staff in their conduct of procurement  actions worldwide. The Procurement Service is responsible for ensuring  that the manual reflects financial rules and regulations and relevant  Secretary-General bulletins and administrative instructions. An open and  effective procurement system requires the establishment of processes that  are available to and understood by vendors and procurement officers  alike.
In 1999, we reported that the manual did not provide detailed discussions  of procedures and policies. The United Nations has addressed these  concerns in the current manual, which was endorsed by a group of outside  experts. The manual now has detailed step-by-step instructions of the  procurement process for both field and headquarters staff, including  illustrative flow charts. It also includes more guidance that addresses  headquarters and field procurement concerns, such as delegations of  procurement authority, more specific descriptions of short- and long-term  acquisition planning, and the evaluation of requests for proposals valued at  more than $200,000. However, the United Nations has yet to add a section  addressing renovation construction to the manual.
section_title: The United Nations Has Not Established an Independent Bid Protest Process
paragraphs: The United Nations has not heeded a 1994 recommendation by a group of  independent experts to establish an independent vendor bid protest  process as soon as possible. As a result, UN vendors cannot protest the  Procurement Service’s handling of their bids to an independent official or  office. We reported in 1999 that such a process is an important aspect of  an open procurement system. A process that allows complaints to be  adjudicated by an independent office could promote the openness and  integrity of the process and help alert senior UN officials to the failure of  procurement staff to comply with stated procedures.
The current UN bid protest process is not independent of the Procurement  Service. Vendors are directed to file protests through a complaints ladder  process that begins with the acting Chief of the Procurement Service and  moves through his immediate supervisor, currently the Secretariat  Controller. The Chief of the Procurement Service at the time of our audit  stated that there is no vendor demand for an independent process.
In contrast to the UN’s approach to bid protest, the U.S. government  provides vendors with an agency-level bid protest process. In addition, it  also provides vendors with two independent bid protest forums. Vendors  dissatisfied by a U.S. agency’s handling of their bids may protest to the  U.S. Court of Federal Claims or to the GAO. The GAO receives more than  1,100 such protests annually. Several other countries provide vendors with  independent bid protest processes. Moreover, the United Nations has  endorsed the use of similar independent bid protest mechanisms by other  member nations. In 1994, the General Assembly approved a model  procurement law that incorporates independent bid protest. In its  comments on the law it drafted for the General Assembly, the UN  Commission on International Trade Law stressed that a bid protest review  body should be independent of the procuring entity.
section_title: The United Nations Has Not Fully Addressed Concerns Regarding Certification and Training of Its Staff
paragraphs: The United Nations has not fully addressed longstanding concerns  regarding the qualifications of its procurement staff. Although the  Procurement Service is developing new training curricula and has initiated  a certification program, most Procurement Service staff at headquarters  have not been professionally certified. In addition, it has yet to determine  the extent to which its training budget may need to increase to pay for  these new programs.
A June 2005 report by a UN contractor indicated that most UN  headquarters Procurement Service officers and assistants have not been  certified as to the level of their procurement experience and education.  The report indicated that only 3 of the 20 procurement officers and 21  procurement assistants responding to a survey had been certified by a  recognized procurement certification body. The contractor informed us  that the UN’s level of certification was low compared with the level at  other organizations. Their report concluded that it was imperative that  more UN procurement staff be certified. Although the experts did not  address the qualifications of field procurement staff, UN headquarters  officials informed us that field procurement staff are also in need of more  training.
Concerns regarding the qualifications of UN procurement staff are  longstanding. Since 1994, international procurement experts reported that  UN procurement staff were largely ill-trained or inexperienced and very  few had any recognized procurement qualifications. In 1998, OIOS  reported that the majority of the 20 professional headquarters  procurement staff had procurement-related experience and were qualified.  However, OIOS also stated that field procurement staff had limited  procurement-related experience. In addition, OIOS reported that field-level  procurement practices were at high risk due to continuing problems in  training peacekeeping procurement staff in the field. In 1999, we reported  that the UN Secretariat procurement training program did not constitute a  comprehensive curriculum to provide a continuum of basic to advanced  skills for the development of procurement officers.
The UN Procurement Service has acknowledged that more needs to be  done to train and certify procurement staff. It has developed basic and  advanced training curricula and provided training to staff at headquarters  and in the field during 2004 and 2005. However, although the training  curriculum covers several key topics in procurement, it does not provide  in-depth or comprehensive coverage of some topics. For example, the  training material does not include in-depth information on procurement  negotiation, which is of particular importance in light of UN plans to  renovate its headquarters complex. UN data indicates that 1-week basic  procurement training courses are being provided to some field staff and  that advanced procurement training courses are being provided to some  headquarters and field staff. However, it is not clear whether all  procurement staff have received training in both the basic and advanced  curricula.
The Procurement Service has also begun developing a mandatory  certification program. Procurement officials stated that their goal is to  secure certification of all staff within 5 years. As part of this certification  program, UN officials will train procurement staff to serve as trainers.  According to UN officials, the curriculum for the trainers has been  finalized and the UN has trained some staff as trainers. However, these  staff have yet to receive the certification they need before they can train  UN procurement staff. Other uncertainties relating to the certification  program exist, including the number of staff who will require certification  training and the type of certification they will receive.
Current budget levels for procurement training may not be adequate to  support the new training efforts. A June 2005 report by the National  Institute of Governmental Purchasing, advised the Procurement Service  that its training budget was not sufficient to maintain the levels of training  needed to ensure fair, open, and ethical procurement operations. It  recommended that the Procurement Service seek a larger budget.  However, the budget’s adequacy cannot be assessed because the  Procurement Service has not yet developed training profiles for each staff  member. Without assessments of individual training needs, the  Procurement Service cannot accurately determine the funds it requires to  address those needs.
section_title: The United Nations Has Yet to Finalize Procurement Ethics Regulations
paragraphs: The United Nations has not yet acted on several proposals forwarded by  the UN Procurement Service to clarify ethics regulations for procurement  staff. Although the United Nations has established general ethics rules and  regulations for all UN staff, the Secretary-General has directed that  additional rules be developed for procurement officers concerning their  status, rights, and obligations. The General Assembly also has asked the  Secretary-General to issue ethics guidelines for procurement staff without  delay. Several draft rules and regulations specifically addressing  procurement ethics are waiting internal review or approval; no firm dates  have been set for their promulgation.
If approved, the documents would emphasize that all procurement  activities in the Secretariat are conducted in the sole interest of the United  Nations. They include a declaration of ethics responsibilities for  procurement staff, a code of conduct for vendors, and an outline of the  policies in current rules and regulations as they relate to procurement  staff. The proposed policies would also address ethics standards on  conflict of interest and acceptance of gifts for procurement staff, and  outline UN rules, regulations, and procedures for suppliers of goods and  services to the United Nations.
Mr. Chairman, this completes my prepared statement. I will be happy to  address any questions you may have.
section_title: Contact and Acknowledgments
paragraphs: For further information, please contact Thomas Melito at (202) 512-9601.  Individuals making key contributions to this testimony included Assistant  Director Phyllis Anderson, Jaime Allentuck, Jeffrey Baldwin-Bott, Richard  Boudreau, Lynn Cothern, Timothy DiNapoli, Etana Finkler, Jackson  Hufnagle, Kristy Kennedy, Clarette Kim, John Krump, Joy Labez, Jim  Michels, Valérie Nowak, Barbara Shields, and Pierre Toureille.
section_title: Related GAO Products
paragraphs: United Nations: Sustained Oversight Is Needed for Reforms to Achieve  Lasting Results, GAO-05-392T (Washington, D.C.: Mar. 2, 2005).
United Nations: Oil for Food Program Audits, GAO-05-346T (Washington,  D.C.: Feb. 15, 2005).
United Nations: Reforms Progressing, but Comprehensive Assessments  Needed to Measure Impact, GAO-04-339 (Washington, D.C.: Feb. 13, 2004).
United Nations: Progress of Procurement Reforms, GAO/NSIAD-99-71  (Washington, D.C., Apr. 15, 1999).  (320394)
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