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

Letter

Background

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.

UN Budgeting Processes Limit OIOS’s Effectiveness

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.

OIOS’s Oversight Capacity Is Hindered by the UN’s Budgeting Processes for the Regular Budget

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.

OIOS Lacks Control Over Extrabudgetary Resources

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.

The United Nations Has Made Progress but Has Yet to Fully Address Previously Identified Procurement Concerns

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.

The UN Procurement Service Has Improved the Clarity of its Procurement Manual

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.

The United Nations Has Not Established an Independent Bid Protest Process

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.

The United Nations Has Not Fully Addressed Concerns Regarding Certification and Training of Its Staff

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.

The United Nations Has Yet to Finalize Procurement Ethics Regulations

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.

Contact and Acknowledgments

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.

Related GAO Products

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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