UN Office for Project Services: Management Reforms Proceeding but Effectiveness Not Assessed, and USAID's Oversight of Grants Has Weaknesses
Released: 2009-12-17T00:00:00

Letter

Background

UNOPS is an Autonomous, Self-Financing UN Entity

UNOPS originated in 1974 as part of the UN Development Program (UNDP), but has since become an autonomous, self-financing UN entity. UNDP, which is the UN’s global development agency, established the office to provide flexible procurement services for multidisciplinary projects. Effective January 1995, the UN General Assembly established UNOPS as a “separate and identifiable UN entity” to provide services to UN organizations and to governmental, intergovernmental, and nongovernmental entities. At the time UNOPS did not report directly to its governing body, the Executive Board, but instead reported to it through a Management Coordination Committee (MCC) chaired by the UNDP Administrator to provide additional oversight over UNOPS. In September 2008, based on an MCC recommendation, the Executive Board moved to make UNOPS completely autonomous by removing all ties to UNDP. The MCC was renamed the Policy Advisory Committee to reflect its change from being a part of UNOPS’s governance structure to now serving in an advisory capacity. As a result, UNOPS’s Executive Director now has independent authority and accountability for the conduct of UNOPS’s business. See appendix II for a description of UNOPS’s locations.

UNOPS was created to be a self-financing entity and does not receive any of its annual budget from assessed or voluntary contributions from member states. All of its resources come as fees-for-service. However, UNOPS does benefit from UN exemptions and immunities. For example, UNOPS is exempt from some taxes and custom duties on imports and exports. According to UNOPS officials, UNOPS and most of its officials can import and purchase goods duty-free.

UNOPS Provides Services to a Range of Clients

UNOPS provides services to a range of UN and other clients. These services include project management, procurement, human resources management, financial management, and UN common services. See appendix III for a detailed list of UNOPS services by type. Its clients include governments, UN agencies, international financial institutions, intergovernmental organizations, and nongovernmental organizations (NGO). In addition, UNOPS is responsible for administration of the UN Global Marketplace Web site, which helps connect UN organizations and potential vendors and prepares the annual statistical report on the procurement activities of the UN system.

UNOPS provides many of these services in difficult work environments, such as post-disaster and peace-building settings, developing countries, and economies in transition. Some UNOPS clients said they use UNOPS to implement programs because UNOPS can move quickly and maintain a presence in difficult environments, such as after natural disasters and in post-conflict and politically unstable countries. For example, the UN Children’s Fund used UNOPS as an implementing partner to perform rehabilitation, refurbishment, and other tsunami-related construction projects in Indonesia, Maldives, and Sri Lanka when there were no local contractors on the ground to perform the work. The UN Mine Action Service also uses UNOPS as its implementer of global demining services because UNOPS is one of the few organizations with expertise in mine detection and removal that has a presence in post-conflict and politically unstable countries.

From 2004 to 2008 UNOPS Funding Levels Have Increased

In the last 5 years, UNOPS spent about $4 billion delivering services to its clients, and its annual service delivery expenditures increased from less than $500 million in 2004 to more than $1 billion in 2008. (See table 1 for the amount spent on implementation of projects.) During the same time period, UNOPS’s operational reserve fund fell to as low as $4.4 million in 2005, but was restored to more than $30 million in 2008. UNOPS has also increased its annual acquisition of new business from $728 million in 2004 to $1.5 billion in 2008.

Multiple UN Audits Found Widespread Financial Mismanagement and Insufficient Documentation of UNOPS’s Financial Transactions

As shown in table 2, UN audits and investigations from 2002 through 2008 have found significant financial mismanagement at UNOPS and a lack of financial transaction documentation.

The UN Board of Auditors (BOA) is the only external auditor authorized to audit UNOPS’s financial statements and reports to member states through the UN General Assembly.

UNOPS Management Has Identified Areas for Reform based on Key Concerns about Internal Controls

The UNOPS management team has identified areas for reform to address previously identified concerns about internal controls. These areas— which include financial documentation, internal oversight, and ethics—are critical to developing a robust internal controls environment and reducing vulnerability to waste, fraud, and abuse.

Audits of UNOPS found deficiencies in financial documentation and reporting, including a lack of required information on UNOPS’s costs and financial statements and a lack of documentation corroborating project balances. International internal control standards emphasize that a strong financial documentation system is essential to effective management. Without a system in place that can document timely, accurate, and complete information, management’s capacity to ensure effective internal audits is limited.

Internal oversight, which includes audits and investigations, provides management with information about the effectiveness of internal controls, compliance with rules and regulations, and proposed corrective measures. Internal audits can be used to track recommendations to ensure that management addresses these areas. UNOPS has adopted Institute for Internal Auditors standards, which are internationally recognized best practices for internal audits. Findings from investigations can be used to hold an organization or individuals accountable for wrongdoing. UN Uniform Guidelines for Investigations require, among other things, that management ensure sufficient resources to perform investigations.

Previous audit reports have highlighted a lack of compliance with rules and a lack of documentation to support financial transactions at UNOPS, suggesting that some of the organization’s practices were at risk of ethics violations. Ethics policies could strengthen the organization’s internal controls environment by helping to ensure accountability and transparency within the organization.

USAID Has Distinct Policies for Awarding Grants with PIOs, including UNOPS

USAID, which provides the large majority of U.S. funding to UNOPS, has policies for making awards with PIOs that are distinct from its policies for making contracts, grants, or cooperative agreements with for-profit, nonprofit, international partners, and other organizations. For grants with PIOs, USAID primarily relies on policies in its Automated Directives System (ADS) 308, which outlines a different set of procedures for making grant awards with PIOs. For example, competition is not required for grants with PIOs. USAID also follows a simplified grant format, uses a separate set of pre-award assessment criteria, and generally relies on the PIO’s own management for oversight— including internal audit and procurement policies—except when USAID is the sole contributor to the grant award. According to its PIO policy, USAID uses a list of international organizations compiled by State and maintained by the Office of Personnel Management to designate those PIOs that may receive USAID grant funds (see appendix IV for this list). The 124 international organizations on the list are separated into six categories: UN organizations.

Specialized agencies of the UN and related organizations.

International financial institutions.

Inter-American organizations.

Other regional organizations.

Other international organizations.

According to USAID data, from January 2004 to July 2009, USAID issued approximately $8.1 billion in grants or cooperative agreements to 50 different PIOs. USAID’s data showed that the majority—60 percent—of USAID’s grants to PIOs had been awarded to UN organizations and specialized UN agencies.

UNOPS Reforms Are Proceeding, but the Effectiveness of Some Implemented Reforms Has Not Been Assessed

UNOPS Reforms to Its Documentation System, Internal Oversight, and Ethics Are Proceeding

UNOPS has taken actions to implement reforms in areas including its documentation system; internal oversight, including internal audits and investigations; and ethics.

The current UNOPS management team has continued to develop Atlas, its centralized project management system, to address previously identified deficiencies in UNOPS’s documentation. In 2007, UNOPS established an internal oversight office, including an internal audit program modeled after Institute for Internal Auditors standards. As part of its effort to address previously identified deficiencies through internal oversight, UNOPS management proposed investigations into allegations of wrongdoing by UNOPS employees. In addition, the management team established an ethics office in 2006 according to UN guidance on the roles of UN ethics offices.

Documentation System

The current UNOPS management team has continued to develop Atlas, its centralized electronic project management system, to address previously identified deficiencies and thereby ensure that its design reduces the risk of fraud, waste, and abuse and strengthens internal and financial controls. Atlas has been in use at UNOPS since 2004 and is designed to systematically consolidate and track project data worldwide, including financial transactions.

Prior to Atlas, UNOPS field offices used the Field Administrative Support Service (FASS). FASS, which is not a common platform, required UNOPS offices to each maintain their own database for tracking projects. Headquarters management did not have real-time capability for tracking project or field office expenditures and, therefore, had limited capacity to identify either poor performance or other problems with grants or contracts. According to a UNOPS official, most countries’ data systems before Atlas were unsatisfactory and were not integrated for centralized use or oversight. In addition, FASS provided no systematic way to include electronic documentation for every disbursement made by officials in the field. Under the new system, project managers enter financial transaction data and Atlas creates and documents vouchers used to make payments. Information is now more readily accessible to management in headquarters and in the field offices.

Internal Oversight

In July 2007 UNOPS management established the Internal Audit Office. Before UNOPS established this office, it had only minimal internal audit capacity. UNDP provided internal audit coverage to UNOPS until the office was established, but its capacity to audit UNOPS was limited. In 2007, for example, the three staff members performing internal audits for UNOPS were only able to complete one of the nine planned audits and management reviews of UNOPS core units and activities before the establishment of UNOPS’s office in July.

To address previously identified deficiencies, UNOPS management agreed to fund investigations into allegations of wrongdoing by UNOPS employees. In 2006 and 2007 UNOPS management agreed to pay for the UN Office of Internal Oversight Services (OIOS) to investigate UNOPS activities in Afghanistan, Argentina, and Kenya. In 2007 UNOPS management requested further investigation of misconduct in Afghanistan. One investigation in Kenya and the first phase of the Afghanistan investigation found evidence of alleged criminal activity. In 2009 UNOPS management approved the hiring of its first investigator and, in September, changed the name of the office from the Internal Audit Office to the Internal Audit and Investigations Group to reflect its expanded capacity.

Ethics

In July 2006 the current UNOPS management team established an ethics office modeled upon the UN Secretariat Ethics Office and UN guidance. The UN Secretary-General had made ethics reform a priority in 2005 and established a Secretariat Ethics Office in January 2006. UNOPS appointed its Ethics Officer “to advance United Nations reform and as part of its commitment to the highest standards of ethics, integrity, accountability and transparency.” Prior to 2006 UNOPS had neither an ethics office nor an ethics officer, thus no one had responsibility to identify and address ethics concerns.

Reforms Have Strengthened Internal Controls, but the Extent of Their Effectiveness Has Not Been Assessed

Project Tracking System Has Improved Documentation of Projects, but Weaknesses Remain

While changes to UNOPS’s project tracking system, Atlas, have improved documentation of projects at UNOPS, the effectiveness of these improvements is limited by the lack of systematic data reliability assessments and other system implementation inadequacies. Atlas has improved the internal controls environment at UNOPS in three primary ways: Atlas allows UNOPS management real-time global access to system data.

According to UNOPS officials, this improves management’s capacity to oversee worldwide operations and track progress toward project completion by country office or region. As a result, managers have the opportunity to identify and correct problems, such as poor performance or fraud, much more quickly than they could under FASS.

Atlas requires some data to be entered for each project, allowing managers the ability to more systematically measure, track, and compare performance by project or office. For example, financial data and procurements for each project must be systematically entered into Atlas. In addition, the system requires documentation of every purchase order and allows each one to be checked, either in the field or from headquarters, against the project’s budget and cash balance. UNOPS officials said that these additional requirements have made Atlas more effective at tracking UNOPS’s assets than FASS.

Atlas incorporates some functions that may reduce the risk of fraud. For example, within months after he was appointed, the Executive Director stated plans to require UNOPS field offices to document imprest account transactions in Atlas, because such transactions present a particularly high risk of fraud. Until they implemented this requirement, headquarters gave offices cash advances in imprest accounts and replenished the accounts monthly with only limited documentation of how offices spent the money. In September 2009, the officials reported that all offices were tracking imprest transactions in Atlas. Atlas also reduces vulnerability to fraud by using an electronic signature to verify that more than one person has been involved in every transaction as a management oversight measure.

We found that three major weaknesses may limit Atlas’s potential to address some of UNOPS’s previously identified internal and financial control problems.

The timeliness, accuracy, and completeness of data in Atlas are limited, and UNOPS does not systematically assess the reliability of data in Atlas. Based on our survey of UNOPS’s field offices, more than a third of the offices reported that the timeliness, accuracy, and completeness of data in Atlas were limited (see appendix V for more complete results of our survey). The UNOPS Director of internal oversight also told us in December 2008 that the accuracy and completeness of data entry remain a concern. However, UNOPS management does not know the extent to which data reliability is a problem because UNOPS has not sought any systematic check on data accuracy. While UNOPS officials periodically run reports to see if information is consistent, these reports are run on an ad-hoc basis, particularly when issues arise on a particular project or office. UNOPS officials said there have not been any UNOPS management reports on frequency or types of errors discovered in reviewing data entered into Atlas.

The Atlas system can be difficult to use and frequent turnover presents a training challenge. Managers from all of the UNOPS field offices we surveyed identified some conditions that made Atlas difficult to use (see appendix V). For example, according to 15 of the 17 field managers who responded to our survey, Atlas produced reports that did not meet the needs of their offices, which made the system at least “somewhat difficult” to use. In addition, more than half of the respondents indicated that the system was slow, data entry took too long, system connectivity or access was poor, and the system contained technical glitches. A UNOPS official we interviewed told us that one of Atlas’s technical glitches was its failure to release funds when expenses are re- evaluated. Another UNOPS official also said that UNOPS faces continued financial risk because it had not integrated all the necessary management controls. For example, UN WebBuy—the online procurement tool used by UNOPS—is not linked to Atlas, so there is no function for electronic approval of contract award ceilings, which leaves the organization vulnerable to possible price manipulation. Furthermore, while UNOPS’s Chief Information Officer told us UNOPS has offered nine training sessions on using Atlas in 2009 as of October, UNOPS officials said frequent turnover of staff at UNOPS presents a continuing training challenge. One official said there was a need to make the training more tailor-made for shorter-term employees and offer introduction training at more frequent intervals.

Several recommendations relating to Atlas from UNOPS internal oversight office have not been fully implemented. Several of the unresolved high priority audit recommendations from UNOPS’s 2007 and 2008 internal audits relate to deficiencies in the Atlas system. For example, the Director of internal oversight at UNOPS reported to the UNOPS Executive Board in 2009 that there is a need to (1) reconcile Atlas records and bank statements for all ongoing projects, (2) issue a guideline on budget overrides and a control mechanism to mitigate the risk of nonauthorized expenditures, and (3) expedite the review and application of the new version of Atlas where all operational technical concerns are solved.

Internal Audits at UNOPS Generally Comply with International Standards, but Phases of a Remaining Investigation of Alleged Wrongdoing Have Not Begun

UNOPS Has Established More Systematic Internal Audits As of August 2009, we found that UNOPS’s internal audit function generally complies with key Institute of Internal Auditors (IIA) standards, as discussed in table 3.

Sufficiency of Resources for UNOPS Investigations Is Unclear Because Remaining Phases of an Investigation Have Not Begun While UNOPS management has committed resources to investigations, the sufficiency of UNOPS’s resources for investigations is unclear because two phases of the investigation of its operations in Afghanistan have not yet begun. Although UN Uniform Guidelines for Investigations require management to ensure sufficient resources for investigations, the remaining phases of the investigation have not begun because negotiations between UNOPS and the OIOS over the investigation’s cost and scope have been slow. In 2007, when UNOPS management proposed the first phase of the investigation, UNOPS had no investigative capacity of its own and, thus, had to request and pay other investigators for their services. UNOPS management told us they selected OIOS because it is commonly viewed as the principal investigative authority for UN organizations. UNOPS management officials also said that selecting OIOS over other alternatives would be less likely to be seen as inappropriately influencing the investigations. However, as we reported previously, OIOS is not fully independent in investigating matters for UN funds and programs (and other UN entities), such as UNOPS. OIOS must negotiate the terms of work and payment for any investigations it conducts for UN funds, programs, and other UN entities. OIOS sent UNOPS a proposal for the second phase of the investigation about 5 months after the case was transferred to the OIOS Investigations Division from the Procurement Task Force (PTF), and UNOPS and OIOS management said negotiations were still ongoing because of disagreements over the proposed scope and cost of work. UNOPS management officials told us they found OIOS’s proposed cost too high and the proposed scope too narrow. State officials and a former PTF investigator said they are concerned that OIOS is not committed to pursuing the UNOPS investigations. However, OIOS officials said they were concerned about UNOPS’s willingness to pay, because UNOPS contested the cost of the first investigation of Afghanistan after it was completed by the PTF. Therefore, OIOS officials said they would not agree to the investigation until UNOPS had confirmed a payment schedule. As a result, the remaining phases of the investigation have not begun about 3 years after the activities in Afghanistan that are the proposed subject of the investigation occurred. According to investigators who worked on the first phase of the Afghanistan investigation, lengthy delays increase the chance that documentation of the activities to be investigated may be lost or destroyed, thus hindering any eventual investigation and ultimately, accountability. Because arrangements for the investigation of UNOPS are not finalized, it is unclear whether UNOPS has met the UN Investigative Guideline requiring the organization to provide sufficient resources to perform investigations.

In an effort to develop its own internal investigative capacity, UNOPS announced the opening of a position to hire a full-time investigator in August 2009, which has not been filled as of October 2009. UNOPS management officials told us they would consider contracting with additional investigators as needed.

UNOPS Ethics Office Has Met Most UN Requirements but Its Effectiveness Has Not Been Assessed

While we found that UNOPS’s Ethics Office generally complies with most of the key requirements for UN ethics offices of organizations outside the UN Secretariat as outlined in a 2007 UN Secretary-General’s bulletin, it has not met the requirement of annual reporting and has not fully met its own requirement for ethics training (see table 4). Furthermore, assessments of the effectiveness of UNOPS’s Ethics Office have not been conducted.

The effectiveness of the UNOPS Ethics Office remains unclear because the office’s activities have not been assessed. The UNOPS Director of internal oversight and the Ethics Officer told us that there have been no audits or assessments of UNOPS’s Ethics Office. Although the Ethics Office was established in 2006, they said it is too early to assess its effectiveness because the office has only been independent since February 2009. By contrast, the UN Secretariat Ethics Office, which was also established in 2006, has been audited or assessed by three entities in the last year.

UNOPS’s Executive Board Lacks Full Access to Internal Audit Reports that Could Provide Greater Insights into UNOPS’s Operations

While UNOPS’s Executive Board receives information from various sources about the effectiveness of UNOPS’s financial and programmatic operations, the board members—including the United States—do not have full access to internal audit reports, which could increase transparency and provide further insight into UNOPS’s operations. As a member of the Executive Board, the United States works with other member states represented on the Board to ensure oversight and accountability of UNOPS’s resources. Currently, the Executive Board receives information on UNOPS’s operations from the BOA’s external audit reports on the organization’s financial statements and the UNOPS internal oversight office’s annual report summarizing the office’s findings and activities. For example, in 2009, UNOPS’s internal oversight office provided the Executive Board with the annual report for its first full year of operation. While these existing information sources help the Executive Board exercise its oversight responsibilities, access to UNOPS’s internal audit reports is limited. In September 2008, at its annual meetings, UNOPS’s Executive Board approved a policy that granted member states limited access to internal audit reports completed after their decision entered into effect. Member states are not given copies of the reports, but are able to read them at the UNOPS internal oversight office after officially requesting access. However, the United States and other member states may still be denied access to any UNOPS internal audit reports that were completed before September 2008, covering the time frame when the negative findings were identified. By contrast, since December 2004, OIOS has provided members with full access to internal audit reports upon request.

USAID Has Not Consistently Implemented Its Oversight Policies When Making Grant Awards with UNOPS and Has Been Vulnerable to Program Fraud and Abuse

While USAID’s general policies for making grants with PIOs require USAID to evaluate grantees and to include provisions in some cases under which the grantee agrees to give USAID access to oversight information, USAID has not consistently implemented these policies when making grant awards with UNOPS. From 2004 through 2008, USAID did not meet its criteria for assessing UNOPS’s eligibility as a grantee before awarding each grant. Furthermore, in those assessments it did perform, USAID did not acknowledge adverse findings from a series of UN investigations and public UN audit reports. In addition, in the majority of these awards USAID did not negotiate to include a provision where UNOPS would agree to allow USAID access to UNOPS’s expenditure records and documents. We found that some of these omissions can be attributed to USAID’s lack of clear guidance, training, and monitoring of its required audit provisions. USAID’s failure to adhere to its policies limited its oversight of grants that were subsequently associated with alleged findings of criminal actions and mismanaged funds.

USAID’s Policies Require USAID to Evaluate Grantees Before Making an Award and to Include Provisions Allowing Access to Oversight Information When Applicable

USAID has policies that require it to evaluate PIOs before making an award and to include provisions to obtain access to information needed to oversee grant expenditures when USAID is the sole contributor to the award. According to the Domestic Working Group on Grant Accountability—a collection of federal, state, and local audit organizations tasked by the U.S. Comptroller General to suggest ways to improve grant accountability—pre-award assessments can provide the government with confidence that the grantee has the required financial systems to allow sufficient oversight. These assessments should ensure that an applicant has adequate financial systems and they should enable government agencies to decide whether to award the grant and if oversight conditions should be added. For grants with NGOs, USAID uses criteria for assessing grantees outlined by the Office of Management and Budget’s (OMB) Circular A-110. According to the Circular, these criteria can also apply to PIOs. In addition, USAID requires that the missions perform pre- award assessments, as well as additional assessments whenever a modification significantly increases the amount of the original grant. The assessments are to ensure that (1) the grantee’s program is an effective and efficient way to achieve a USAID objective, (2) the grantee’s program and objectives are compatible with USAID, (3) there are no reasons to consider the grantee not responsible, and (4) the grant is made for a specific program of interest to USAID.

In addition, under USAID policies, the application of certain audit provisions with PIOs depends on its contribution to the award relative to other donors—whether USAID is the sole or largest contributor. According to a 1988 USAID policy, when USAID is the sole contributor in a grant to a PIO, USAID shall include a provision in the grant requiring that the grantee provide all records and documents that support program expenditures to USAID or to the U.S. Comptroller General. USAID policy further states that if USAID is the largest contributor to a project it can, with the concurrence of State, seek to negotiate to apply increased audit authority to protect U.S. interests. Moreover, according to policy, when USAID is not the sole contributor to a UN award, USAID can apply the UN grant provision and the grant will be audited with established UN procedures. Appendix VI contains these USAID policies.

USAID’s Process for Awarding Grants to UNOPS Did Not Include Required Steps for Evaluating the Responsibility of Grantees or Include Findings from Multiple UN Reports

USAID Did Not Consistently Assess UNOPS’s Responsibility as a Grantee

During the years that the UN issued negative findings on UNOPS, USAID did not consistently perform pre-award assessments to justify selecting UNOPS as a responsible grantee. While USAID could apply the OMB Circular A-110 to perform eligibility assessments as it does for NGOs, it does not use this guidance to perform similar assessments for PIOs. According to USAID officials, USAID does not perform the same type of assessments that it performs for other grantees or contractors, although one USAID official said that addressing this lack of assessment is currently one of their top priorities. To the extent that USAID does perform assessments of PIOs, the assessments occur at the mission level before the grant is awarded and whenever a modification significantly increases the amount of the original grant. The assessments are to be recorded in memos and documented with the grant award. According to USAID Office of Acquisition and Assistance (OAA) officials, this requirement is the only policy that requires eligibility screening activities of PIOs.

However, USAID missions did not have official documentation of pre- award assessments for more than half of its grants with UNOPS in the last 5 years or for the majority of modifications that increased grant budgets. USAID could not provide official documentation of assessments for 7 of the 11 grants it made to UNOPS from 2004 through 2008 (see app. VII).

USAID also lacked assessment documentation for the majority of modifications to UNOPS grant programs that increased the budget of the grant award. According to USAID OAA officials, procurement staff should document assessment criteria in a memo whenever a modification increases the budget or introduces new work to the program. However, USAID did not have records of assessments for 11 out of 14 modifications that increased UNOPS’s grant budgets from 2004 through 2008. We previously reported that documentation is necessary to ensure that third parties can fully understand and review the actions that have occurred during the project period. For example, until 2006, the Afghanistan Mission had no documented assessments for modifications to the largest USAID-funded UNOPS project in Afghanistan—Rehabilitation of Secondary Roads—even though these modifications increased the scope and budget of the program by more than ten times its original amount. In 2006 the Afghanistan Deputy Mission Director reported in an official memo that there was no information in the grant files justifying these modifications and thus he had to rely on limited information, including anecdotal inputs, to justify additional increases to the program.

USAID OAA officials acknowledged that some of the memos documenting pre-award assessments from 2004 through 2008 could be missing. USAID officials told us that finding these memos from field offices was a difficult task, because the memos may be stored in the field and are not available from a centralized location. In addition, one USAID official said that institutional knowledge of grants is difficult to maintain at hardship posts where staff generally have only 1-year rotations.

USAID Did Not Acknowledge Information from UN Audits and Investigations of UNOPS while Continuing to Award Grants to UNOPS

None of USAID’s four official pre-award assessments of UNOPS from 2004 through 2008 acknowledged adverse findings from publicly available UN audits and investigations. As we noted earlier in this report, from 2002 through 2008, OIOS, the BOA, the UNDP Office of Audit and Performance Review, and the UNOPS Internal Audit Office all issued negative findings on UNOPS’s internal controls, financial monitoring, and lack of transparency. Furthermore, in 2004 and 2007, the BOA was unable to make a judgment about UNOPS’s financial statements due to UNOPS’s lack of sound financial controls and its unreliable financial accounting data. In 2008, the BOA expressed an unqualified audit opinion of UNOPS’s financial statements, although the report also expressed the need for improvements in financial controls, asset management, and project monitoring. However, USAID headquarters officials said they did not have knowledge of UN findings from the 2004 BOA report and several Mission officials had no knowledge of any UN findings, despite criticisms of UNOPS management by State. From 2004 through 2008, USAID awarded 11 grants with multiple modifications that increased the grant budgets, all of which were required instances for USAID to reassess UNOPS as a responsible grantee. During this time USAID obligated $478.3 million to UNOPS. Figure 1 juxtaposes the timing of USAID’s grant awards and modifications with the issuance dates of these UN reports.

USAID Grants Have Lacked Certain Required Audit Provisions and Were Associated With Findings of Criminal Actions and Mismanaged Funds

USAID Did Not Consistently Include Audit Provisions Allowing Direct Access to UNOPS Grant Expenditure Documentation

USAID did not consistently include the audit provision that would have allowed it access to documentation of how UNOPS spent funds from grants awarded to UNOPS during the last 5 years. Under USAID policy, for awards where USAID was the sole contributor, the audit provision was required. Where USAID was not the sole contributor, the inclusion of the audit provision was not required, but USAID could have negotiated for its inclusion. USAID only included the sole contributor audit provision in 2 of its 11 awards. (See table 5.)

For five of the awards, neither UNOPS nor USAID recorded additional contributors to the award—making USAID unequivocally the sole contributor—but USAID failed to include the sole contributor audit provision in those awards. USAID mission officials said there was no explanation in USAID’s documentation to indicate why contracting officials did not apply the sole contributor audit provision when USAID was the sole contributor. In addition, for four of the awards, USAID had the discretion to negotiate for the same provision and did not exercise such discretion.

According to UNOPS data, USAID has been the only outside contributor to all 11 of its grants with UNOPS during the last 5 years, but these data did not include any in-kind contributions made to the award. In at least three awards, UNOPS made small, in-kind contributions to the award—for example, they provided staff to perform landscaping services and administrative support. USAID also listed a nonfederal donor contributing to another award. UNOPS senior officials said they were unaware of the contributions UNOPS made to the three USAID grants. They said that these contributions were “strange” because UNOPS’s mandate is to provide implementation services, not to be a donor. They told us that these in-kind contributions might have been made to avoid USAID’s regulations.

Consistent with these statements, USAID gave us a 2005 e-mail exchange where a UNOPS official asked that the proposed grant use a UN provision as an alternative to the sole contributor provision. When asked, the USAID contracting officer in charge of the grant mentioned what actions could be taken in order for the sole contributor audit authority not to be required, such as contributions to the grants from another entity. As a result, UNOPS then contributed to the grant’s budget, and USAID did not include the sole contributor audit provision within the grant award.

USAID policy does not define sole contributor for the purposes of grants to PIOs. As a result we were unable to determine whether the four remaining awards would be considered sole contributor awards requiring, unless waived, the inclusion of the sole contributor audit provision. Nevertheless, as the largest contributor, USAID could have elected to negotiate for the application of selected procurement and audit policies with UNOPS to protect U.S. interests. USAID applied the UN grants provision to these four awards.

USAID Lacks Clear Guidance, Training, and Monitoring of Its Required Audit Provisions with UNOPS and Other PIOs

USAID has not provided clear guidance to ensure its audit provisions are correctly implemented. We found that contracting officers have not been consistent in their use of the sole contributor audit provision because there is no clear definition of what constitutes a sole contributor in USAID policy. USAID OAA officials said this lack of definitional clarity might weaken contracting officers’ abilities to include the provision when negotiating to include audit access with UN officials. For example, USAID has not defined the amount of contribution, the type of contribution, or the type of contributor necessary to establish USAID as the sole contributor. In addition, USAID provides no guidance to ensure that the contracting officers drafting the grant award know whether USAID is the sole contributor to the grant, because contracting officers do not participate in country donor meetings. USAID officials acknowledged that the absence of definitions and the absence of clear guidance for implementing the sole contributor audit authority have been weaknesses in their PIO policies.

USAID has also not provided contracting officers with specific training on how to apply the provisions in its grants with PIOs. For example, contracting officers at three missions that awarded grants to UNOPS said they received no training on awarding grants to PIOs, and the most recent assistance management workbook for contracting officers did not include any guidance on when to use the different PIO audit provisions.

Finally, USAID does not monitor whether the PIO audit provisions are implemented as required, in part because it has not developed or documented an approach to such monitoring. According to internal control standards for the federal government, management should provide ongoing monitoring of grant implementation performance. However, USAID OAA officials were not aware that in five of the seven grants with UNOPS for which USAID was unequivocally the sole contributor, the contracting officers had used the incorrect audit provision, in part because they had not monitored the provisions in these awards. While USAID’s Mission Compliance Checklist includes monitoring criteria to confirm other provisions specific to PIOs, it does not include a requirement to monitor whether the mission used the appropriate audit provision. USAID officials acknowledged that monitoring appropriate oversight provisions may not be a standard part of their monitoring protocol. According to USAID officials, missions do not document how and when the sole contributor audit provision is used in grant awards. The missions never check to determine if the provisions are correctly implemented, and the contracting officer’s choice of audit provision in the original grant award is not reviewed unless there are major changes to the award’s financial contributors. Furthermore, while USAID’s policy indicates that the sole contributor audit provision can be waived, the policy does not include criteria for requesting a waiver. USAID OAA officials said they have never seen a request to deviate from the sole contributor provision.

USAID’s Failure to Adhere to its Policies Severely Limited Its Access to Information about UNOPS Grants Associated with Findings of Alleged Criminal Actions and Mismanaged Funds

USAID’s failure to adhere to its policies severely limited its ability to require expenditure documentation from grants that were associated with findings of alleged criminal actions and mismanaged funds. From 2004 through 2008 USAID obligated $450 million in awards to UNOPS that did not include the sole contributor audit provision to provide access to UNOPS’s expenditure documents. In 2008, the PTF found instances of fraud, embezzlement, conversion of public funds, conflict of interest, and severe mismanagement of USAID-funded UNOPS projects in Afghanistan, including the $365.8 million Rehabilitation of Secondary Roads project. According to the allegations in the investigation, a UNOPS official diverted reconstruction funds for personal use, including hundreds of thousands of dollars in USAID funds for rent, a home renovation, and other luxury items. In addition, the investigation found that the UNOPS official repeatedly violated rules and regulations by severely misappropriating project funds and by engaging in fraudulent and unlawful acts. The USAID Office of Inspector General also reported in 2008 that UNOPS did not complete projects as claimed and that projects had defects and warranty issues, as well as numerous design errors, neglected repairs, and uninstalled equipment and materials—all of which were billed as complete. UNOPS was also missing key documentation for expenditures and bills of quantity.

USAID had limited access to expenditure records and documents during these grant awards and during subsequent investigations because it did not include the sole contributor provision in its awards with UNOPS. As a result, USAID officials have not been able to require UNOPS to provide information to substantiate how it spent U.S. grant funds. USAID officials said that certain UNOPS officials were unwilling to furnish requested documents during the grant, and UNOPS would not respond to requests for meetings and documentation after the grant. For example, a lead USAID investigator asked for bills of quantity for UNOPS projects that were underperforming to see if USAID had overpaid for those projects and to quantify how much money USAID had lost. Although the investigator sought meetings with the head of UNOPS in Afghanistan and the Acting Country Director of UNDP, the officials never responded to his requests for meetings and never provided the requested documentation. The investigator said that such problems will likely continue to occur with UN entities if USAID does not have a way to compel the UN to cooperate. However, some UNOPS officials have subsequently cooperated with requests for grant information made by the USAID Inspector General and other USAID OAA officials.

While USAID took actions related to UNOPS projects in Afghanistan based on the severity of the findings in the investigation reports, it took more than a year to reconcile the accounts, and USAID is still working to substantiate some claims from UNOPS. In July 2008 the Afghanistan Mission decreased UNOPS’s scope of work, deobligated unexpended balances from expired awards, and issued bills for collection for outstanding amounts that had been advanced to UNOPS. According to the Afghanistan Mission, UNOPS has since refunded the amounts requested in the bills for collection—including accrued interest and additional funds—and has also provided documentation for funds that had been incorrectly entered as expenditures for another international donor in the payment management system instead of expenditures belonging to USAID. However, the Afghanistan Mission is still working with UNOPS to substantiate claims for reimbursement that are being made for the Secondary Roads project that was terminated in December 2007. The UNOPS letter of credit was suspended in January 2008, requiring UNOPS to provide supporting documentation for approval before any additional funds were released. UNOPS has since requested $16 million from USAID for costs incurred before USAID canceled the program, and while USAID Mission officials have already reimbursed UNOPS $1.2 million, they are still reviewing and clarifying UNOPS’s documentation to determine additional amounts of repayment.

Conclusions

The current UNOPS management team has made significant progress in improving UNOPS’s financial position and in making changes to its systems that are designed to address the deficiencies highlighted in numerous UN oversight organizations’ audits and investigations. However, problems with data reliability in UNOPS’s project management system, lengthy negotiations slowing its investigations, and limited ethics reporting are evidence that UNOPS management’s reform efforts have not yet fully addressed UNOPS’s internal control weaknesses. By fully implementing remaining reforms and assessing the overall effectiveness of the reform effort, UNOPS can provide the Executive Board assurance that the problems have been addressed.

USAID’s policies are designed to provide USAID assurance that its project implementers are capable of responsibly managing U.S. funds. However, USAID’s pre-award assessments of UNOPS did not include the numerous negative findings in UN audit reports that would have alerted USAID to the risks involved when using UNOPS as an implementing partner. If these assessments had shown UNOPS’s risks, including its deficiencies in internal controls and inaccurate expenditure reporting, USAID may have recognized the importance of applying its required oversight authority to its grant awards. Instead, USAID’s inconsistent implementation of its audit policies made its programs vulnerable to fraud, waste, and abuse. USAID forfeited access to information that may have revealed mismanagement of USAID funds years before costly post-project investigations did.

Recommendations for Executive Action

We recommend that the Secretary of State work with other member states to take the following 2 actions: 1. support UNOPS’s continued management reforms as it addresses the areas of vulnerability that UN auditors have identified and 2. encourage UNOPS management to assess the effectiveness of the rt.

For adequate accountability of grants made with Public International Organizations (PIO), we make 4 recommendations to the USAID Administrator to ensure that USAID 1. develop and document its approach for assessing the eligibility of Public International Organizations deemed responsible for use by USAID, 2. define the terms and definitions in its existing guidance on PIO audit provisions permitting USAID access to financial records and documents, 3. ensure that cognizant contracting staff are sufficiently trained on the use of the PIO audit provisions, and 4. establish an approach t o monitor whether the PIO audit provisions are implemented as required.

Agency Comments and Our Evaluation

We requested and received written comments on a draft of this rep from State, USAID, and UNOPS. These comments are reprinted in appendixes VIII through X, along with our responses to specific points. ted UNOPS also submitted technical comments that we have incorpora into this report, as appropriate. In commenting on the draft, Stat endorsed the main findings and conclusions of the draft report. Specifically, State concurred with the recommendation that it support d UNOPS in its continued efforts to improve management practices an committed to continue to encourage and monitor assessment of the impact of the reform effort. State noted that our assessment of UNOPS’s progress is both accurate and balanced. State also noted that reforms in Executive Board access to internal audit reports is particularly important to fostering integrity, ethical conduct, and transparency. USAID concurr with our recommendations and proposed an agency plan to implement each recommendation and a target completion date. USAID agreed that it ed needs to adopt improved procedures, stronger guidance, training, and monitoring related to the use of Public International Organizations (PIO) audit provisions. For each recommendation, USAID set an implementation target date of either May or June of 2010. UNOPS provided comments on some of our findings and acknowledged the need for assessment of long- term impact of its reforms, but stated that the most recent extern al audit and improved f improvement. inancial position are indicators that demonstrate As agreed with your offices, unless you publicly announce the contents o this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Executive Director UNOPS, the Acting Administrator at the U.S. Agency for International Development, the Secretary of State, the U.S. Permanent Representativ the United Nations, and other interested congressional committees. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix XI.

Appendix I: Scope and Methodology

To assess the extent to which United Nations (UN) Office of Project Services (UNOPS) has addressed key concerns about its internal controls, we reviewed key UN and UNOPS reports and documents outlining changes UNOPS management made to the organization and its operations from 2006 to 2009. We obtained and reviewed official reports from UNOPS’s Executive Board and the UN General Assembly, UN Secretary- General bulletins, and UNOPS operational directives. We interviewed senior officials from UNOPS in New York, New York; Copenhagen, Denmark; and Geneva, Switzerland; and other UN officials in New York. Specifically, we met with officials from the UN Children’s Fund, the UN Development Program (UNDP), the UN Population Fund, the Advisory Committee on Administrative and Budgetary Questions, the UN Mine Action Service, the Office of Internal Oversight Services, and the Board of Auditors (BOA).

We also met with clients of UNOPS in Geneva—the Global Fund to Fight AIDS, Tuberculosis, and Malaria; and the Enhanced Integrated Framework—and Washington, D.C.—the U.S. Agency for International Development and the Departments of State, Defense, and Agriculture. We also discussed UNOPS reforms with Department of State (State) officials in Washington, D.C. and New York City.

We selected reforms in the areas of documentation, internal oversight, and ethics to track in more detail. We determined that these were key areas of reform through our review of UNOPS’s annual reports to its Executive Board and UNOPS’s Accountability Framework and in our discussions with UNOPS officials. We focused on reform efforts undertaken by the current management team since it was appointed in 2006. To assess the extent to which the Atlas project tracking system has improved the organization’s financial documentation, we administered a survey—with a response rate of 100 percent—to the managers of UNOPS’s 5 regional offices and 12 operations centers. We sent a draft of the survey to UNOPS management, who required that we cut almost half of the proposed questions in the survey, including questions we felt were important in assessing Atlas’s capacity to capture data and document transactions that could strengthen internal and financial controls. To determine how many survey respondents reported data reliability limitations in Atlas, we counted all respondents who answered that data were to no extent, to a little extent, to some extent, or to a moderate extent timely, accurate, or complete. To evaluate UNOPS’s reforms in internal oversight, we compared UNOPS’s internal audit program to Institute for Internal Auditors’ International Standards for the Professional Practice of Internal Auditing and UNOPS’s investigative program to the UN Uniform Guidelines for Investigations. We evaluated UNOPS’s ethics program against the requirements for UN Ethics Offices established by UN Secretary-General’s Bulletins ST/SGB/2007/11 and ST/SGB/2005/22 and against its own ethics policies.

To evaluate USAID’s oversight of UNOPS-implemented projects, we reviewed information from both headquarters and the USAID missions. At headquarters, we reviewed USAID’s policies for awarding, monitoring, and obtaining results from grants, including USAID’s policies in the Automated Directives System, USAID’s Acquisition Regulations, the Office of Management and Budget’s Circular A-110, and the Federal Acquisition Regulations. We also reviewed reports on USAID’s Office of Acquisition and Assistance, including prior reports from GAO and USAID’s Inspector General. We reviewed program information from USAID’s missions, including pre-award assessment memos, grant agreements, and modification memos. We compared USAID’s grant-related activities from 2004 through 2008 with the criteria in GAO’s Standards for Internal Control in the Federal Government. These standards, issued pursuant to the requirements of the Federal Managers’ Financial Integrity Act of 1982, provide the overall framework for establishing and maintaining internal control in the federal government. We identified whether USAID was the sole, largest, or smallest contributor to its grants with UNOPS from 2004 through 2008 by reviewing the grant awards for additional donors and comparing this data with information from UNOPS officials. We then reviewed the Audit and Records provisions that were used in the grants. We created a comprehensive spreadsheet to compare the levels of USAID contributions with the Audit and Records provisions used. To determine whether USAID had documented pre-award assessments of UNOPS, we requested pre-award memorandum in accordance with USAID’s policies for 11 awards and for any modifications to those awards made with UNOPS from 2004 through 2008. We reviewed all available memos that the USAID missions maintained, but for some grants the missions did not have documentation of these memos in their files. To determine if USAID had included findings from UN reports when completing the pre-award assessments, we reviewed audits and investigations from the BOA and the UNDP Office of Audit and Performance Review, which we compared to findings in USAID’s pre-award assessments of UNOPS. We also reviewed investigations from the Procurement Task Force on UNOPS programs in Kenya and Afghanistan, and from the USAID Inspector General on UNOPS programs in Afghanistan.

We used data provided by USAID from its database sources to determine the amount of funding USAID obligated to Public International Organizations (PIO), including UNOPS, from 2004 to July 2009. However, USAID was unable to provide accurate counts of its obligation information. For example, USAID provided us a list of its PIO grants from its Electronic Procurement Information Collection System, New Management System, and Global Acquisition and Assistance System databases, but this information contained numerous inconsistencies. We made numerous attempts to resolve inconsistencies in the information USAID provided over the course of our review, which caused us to question its accuracy. As a result, we used UNOPS expenditure data from its U.S. grant awards to identify the total amount of USAID funding UNOPS has spent in the last 5 years. We used this data to supplement the obligation information provided by USAID.

In addition to our review of documents and grant files described above, we interviewed key staff at USAID headquarters in Washington, D.C., and USAID missions in Afghanistan, Haiti, Liberia, and Sudan and about how they conducted and documented grant-related activities since 2004.

We conducted this performance audit from July 2008 to November 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: UNOPS’s Locations Worldwide

United Nations Office of Project Services (UNOPS) operates from offices located worldwide, including headquarters, regional offices, operations centers, and project centers. UNOPS’s five regional offices are located in New York, New York; Bangkok, Thailand; Copenhagen, Denmark; Johannesburg, South Africa; and Panama City, Panama. In 2006, UNOPS moved its headquarters from New York to Copenhagen. UNOPS also has 12 operations centers and 10 project centers throughout the world. Figure 2 shows UNOPS’s primary office locations worldwide. From these locations UNOPS oversees activities in more than 50 countries.

Appendix III: Types of Services Provided by UNOPS

As shown in table 6, United Nations Office for Project Services (UNOPS) services may be grouped according to the types of services it provides, although project management may encompass many different types of UNOPS services.

Appendix IV: Designated International Organizations by the Department of State

The U.S. Agency for International Development (USAID) uses a list of international organizations approved for detail and transfer of federal employees to designate Public International Organizations (PIO) that may receive assistance agreements. This list is composed of 124 organizations that the Department of State has designated as an international organization, as shown in table 7.

According to USAID data, USAID awarded grants or cooperative agreements to 50 different PIOs from January 2004 to July 2009 at a total estimated cost of approximately $8.1 billion. The majority of the awards were to United Nations (UN) entities. The largest amount of money was budgeted for World Food Program grants, at about $1.9 billion, and for UN Children’s Fund grants, at about $1 billion.

Appendix V: Results of GAO’s Survey of UNOPS Field Office Managers

We sent a survey to the managers of 17 United Nations Office of Project Service (UNOPS) field offices—its 5 regional offices and 12 operations centers. All 17 managers responded to the survey. Questions focused on UNOPS’s project management system, Atlas. See tables 8 and 9 below for a compilation of all the responses to survey questions referred to in this report.

Appendix VI: USAID Oversight Policies for Grants with Public International Organizations

According to U.S. Agency for International Development’s (USAID) policies outlined in its Automated Directive System (ADS) 308, USAID is required to apply specific pre-award assessment policies when making grants with Public International Organizations (PIO). In addition, the ADS 308 Mandatory Standard Provisions outline standard provisions that USAID, when applicable, is required to use. According to this policy, when a standard provision is determined to be applicable in accordance with the applicability statement, the use of such standard provision is mandatory unless a deviation has been approved.

Appendix VII: USAID’s Documented Pre- Award Assessments of UNOPS

According to policy directives, the U.S. Agency for International Development’s (USAID) agreement officers, who are responsible for signing grants to Public International Organizations (PIO), must complete pre-award assessments documented in a memo from the requesting office that justify using the PIO as a grantee for the program. In addition, USAID officials told us that this assessment should also be specifically completed before a modification that significantly increases the budget of the original award. We reviewed available information from USAID missions for all 11 of USAID’s awards with UNOPS from 2004 through 2008 to determine which awards and modifications documented these assessments (see figure 3).

Appendix VIII: Comments from the Department of State

Appendix IX: Comments from the U.S. Agency for International Development

Appendix X: Comments from the UN Office for Project Services

GAO Comments

1. Regarding investigations, UNOPS noted that only one of six investigations performed by OIOS is incomplete. Because investigators recommended the remaining two phases of the Afghanistan investigation after they found alleged criminal activity and mismanagement of funds in the first phase of the investigation, we maintain that timely investigation of these activities is essential for UNOPS to demonstrate that it has provided sufficient resources for investigations. Furthermore, the remaining phases include plans to investigate broader management responsibility for the inappropriate activities identified in the first phase. 2. UNOPS stated that systematic assessment of Atlas takes place on an ongoing basis. However, according to some UNOPS officials we spo with, assessment of data reliability was not conducted in a systema manner. Moreover, based on our survey findings, data reliability remains an ongoin g problem. 3. Regarding ethics training, UNOPS reported that it has complied with, or exceeded UN requirements. We modified our report to note th UNOPS’s policy exceeds UN requirements, but maintain that UNOPS is not fully meeting its own requirement to provide ethics training for all its personnel. Additionally, we reported that a technical glitch in the system has kept UNOPS management and Ethics Officer from verifyin who has completed the course. 4. UNOPS said that our report does not explain the “single audit principle” as it relates to external audits of UN entities. The United States supports the “single audit principle” and we note that GAO has successfully completed a body of work reviewing UN entities in which we successfully gained the voluntary cooperation of UN entities to perform our work. We had similar cooperation from UNOPS and had access to sufficient information to complete this review.

Appendix XI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the person named above, Phillip Thomas (Assistant Director), Jeffrey Baldwin-Bott, Erin Carson, Debbie Chung, Leah DeWolf, Etana Finkler, and McKenzie Lawyer Davies made key contributions to this report. Joel Grossman, Jackson Hufnagle, Grace Lui, and Jena Sinkfield also provided technical assistance.

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