United Nations: Internal Oversight and Procurement Controls and Processes Need Strengthening
Published: 2006-04-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States has strongly advocated that the United Nations (UN) reform its management practices to mitigate various program and financial risks. The findings of the Independent Inquiry Committee into the Oil for Food Program have renewed concerns about UN oversight, and the 2005 UN World Summit proposed actions to improve the UN's Office of Internal Oversight Services (OIOS). Furthermore, over the past decade, as UN procurement more than tripled to $1.6 billion in response to expanding UN peacekeeping operations, experts have called on the UN to correct procurement process deficiencies. We examined (1) whether UN funding arrangements for OIOS ensure independent oversight; (2) the consistency of OIOS's practices with key auditing standards; and (3) the control environment and processes for procurement.
section_title: What GAO Found
paragraphs: The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a range of weaknesses in existing management and oversight practices. In particular, current funding arrangements adversely affect OIOS's budgetary independence and compromise its ability to investigate high-risk areas. Also, weaknesses in the control environment and UN procurement processes leave UN funds vulnerable to fraud, waste, and abuse. UN funding arrangements constrain OIOS's ability to operate independently as mandated by the General Assembly and required by international auditing standards OIOS has adopted. First, while OIOS is funded by a regular budget and 12 other revenue streams, UN financial rules severely limit OIOS's ability to respond to changing circumstances and reallocate resources among revenue streams, locations, and operating divisions. Thus, OIOS cannot always direct resources to high-risk areas that may emerge after its budget is approved. Second, OIOS depends on the resources of the funds, programs, and other entities it audits. The managers of these programs can deny OIOS permission to perform work or not pay OIOS for services. UN entities could thus avoid OIOS audits or investigations, and high-risk areas can be and have been excluded from timely examination. OIOS has begun to implement key measures for effective oversight, but some of its practices fall short of the applicable international auditing standards it has adopted. OIOS develops an annual work plan, but the risk management framework on which the work plans are based is not fully implemented. Moreover, OIOS annual reports do not assess risk and control issues facing the UN organization, or the consequences if these are not addressed. OIOS officials report the office does not have adequate resources, but they also lack a mechanism to determine appropriate staffing levels. Furthermore, OIOS has no mandatory training curriculum for staff. UN funds are vulnerable to fraud, waste, abuse, and mismanagement because of weaknesses in the UN's control environment for procurement, as well as in key procurement processes. The UN lacks an effective organizational structure for managing procurement, has not demonstrated a commitment to improving its procurement workforce, and has not adopted specific ethics guidance. While the UN Department of Management is responsible for UN procurement, field procurement staff are supervised by the UN Department of Peacekeeping Operations, which lacks the expertise and capacity to manage field procurement. Also, the UN has not established procurement training requirements or a career path, and has yet to adopt new ethics guidance for procurement staff, despite long-standing General Assembly mandates. In addition, the UN has not established an independent process to consider vendor protests despite a 1994 recommendation by a high-level panel to do so as soon as possible. Further, the UN does not consistently implement its process for helping to ensure it conducts business with qualified vendors.

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