The Organization for the Prohibition of Chemical Weapons consists of three entities: the Conference of the States Parties, the Executive Council, and the Technical Secretariat. The Conference of the States Parties currently comprises 147 representatives, one from each member state, and oversees the implementation of the convention. The Executive Council, consisting of 41 representatives from regionally distributed member states, meets in sessions throughout the year to supervise the Secretariat’s activities. The Secretariat, headed by the Director-General, manages the organization’s daily operations, including implementing the inspection measures of the convention and preparing the organization’s annual budgets and reports. About 60 percent of the Secretariat’s authorized staff level of 507 employees engages in the inspection-related activities mandated under Articles IV, V, and VI of the convention. Specifically, to verify compliance with Article IV, the Secretariat inspects declared chemical weapons stocks and destruction facilities. To verify compliance with Article V, it inspects and monitors the destruction and conversion of chemical weapons production facilities. Under Article VI of the convention, the Secretariat inspects commercial production facilities. As of July 2002, the organization had conducted 1,210 inspections at the 5,066 declared chemical weapons sites and facilities that fall under the convention’s purview. The Secretariat supports member states in their efforts to implement the convention. It also encourages international cooperation and assistance among the member states as mandated by Articles X and XI of the convention. Under these provisions, the Secretariat is authorized to coordinate the provision of assistance to member states that are the victims of chemical attacks. The Secretariat also encourages economic and technological developments in the field of chemistry by encouraging trade and exchange of information among the member states. The organization’s budget for calendar year 2002 is about $54 million. Funding for OPCW operations comes primarily from the 147 member states’ annual contributions, which are based on the United Nations scale of assessments. The other large source of funding is reimbursement payments for inspections conducted under Articles IV and V of the convention. As required by the convention, members states with chemical weapons related–facilities must reimburse the organization for its inspection costs related to the destruction of chemical weapons (Article IV) and the destruction of chemical weapons production facilities (Article V). The State Department reports annually to Congress on U.S. contributions to international organizations, including the OPCW. In early 2002, the United States and other member states to the convention raised concerns that the organization was not fulfilling its mandate because of a number of management weaknesses. According to the United States, such weaknesses included mismanagement by the organization’s then Director-General, as well as his advocacy of inappropriate roles for the organization—such as attempting to interfere with United Nations weapons inspections in Iraq. To address these management concerns, the Conference of the States Parties voted to remove the former Director- General in April 2002. In July 2002, the Conference appointed a new Director-General. In its budgets, the Secretariat has not accurately projected income and expenses. The Secretariat has overestimated its income for two reasons. First, the budgets include as income the assessed contributions of member states that are in arrears, some of which have not paid their contributions since before 1997. Second, the Secretariat has difficulty predicting and collecting income from inspections conducted at chemical weapons– related facilities. The budgets also include inaccurate expense projections. OPCW’s inaccurate income and expense estimates contributed to a budget deficit in 2000, and a potential deficit for 2002, despite plans to achieve balanced budgets in those years. In developing its budget plans for the past 6 calendar years, the Secretariat has overestimated the amount of income it would receive from member states’ assessed contributions and from reimbursable expenses paid by member states for inspections at chemical weapons–related facilities. When preparing its annual budgets, the Secretariat overestimates the income that it realistically expects to receive from member states’ annual assessments. The Chemical Weapons Convention requires all member states to pay their annual assessments or lose their voting privileges. The Secretariat’s annual budgets, however, included as income the contributions due from 30 member states, even though these members had not paid their annual assessments for at least the 2 previous years. The cumulative total of arrearages over the past several years amounted to almost $1 million as of August 2002. (See app. II for more details.) This includes $781,883 from 16 member states that had not paid any of their assessed or other contributions since before the organization’s inception in 1997. An OPCW official stated that budgeting for arrearages presents a politically sensitive problem for the organization because excluding member states’ assessed contributions from the annual budgets would require approval from the Conference of the States Parties. In response to these budgeting problems, the organization’s Advisory Body on Administrative and Financial Matters and its External Auditor recommended that the Secretariat improve its budgeting practices by developing more accurate and realistic budgets. For example, in 1998, the Advisory Body and the External Auditor stated that the Secretariat’s future budgets should be more realistic and accurate and based on the experience gained in the organization’s first year of operation. In 2000, the External Auditor recommended that income projections, which are used to establish expenditure targets, should be more realistic and based on reasonable and sound assumptions using past trends in the budget. The Secretariat has yet to act on these recommendations. As shown in table 1, every year since 1997, the budgets have overestimated the amount of money that the organization will invoice and receive each year for inspections conducted at chemical weapons–related facilities. As indicated by OPCW documents, the Secretariat often receives its reimbursements from those member states possessing chemical weapons– related facilities late because these states usually do not pay the OPCW during the year that they receive the inspection invoices. Frequently, the organization does not receive payments until several years after issuing the invoices. According to State Department officials, the United States and Russia have not made payments, in many cases, until several years after receiving OPCW invoices, because both governments experienced difficulties in identifying a funding source and obtaining appropriations. These officials added that both governments are working to improve their reimbursement records during 2002. As of June 2002, those states possessing chemical weapons–related facilities, including the United States, owed OPCW more than $2 million in reimbursable inspection expenses from the previous 2 years. The United States accounts for $1.4 million of the $2 million owed. It is difficult, however, for the Secretariat to estimate the number of inspections that will be conducted and therefore the amount of inspection reimbursement payments that can be collected from those states possessing chemical weapons–related facilities. According to State Department and OPCW officials, the Secretariat relies on states’ destruction plans to calculate the number of inspections the organization may conduct during the year. Chemical weapons possessor states cannot always accurately predict when their destruction facilities will become operational and what problems may arise once they do. Any change to the schedule of a destruction facility’s operations can affect the timing of OPCW inspections and thus affect the organization’s reimbursement estimates. In commenting on our draft report, the State Department stated that possessor states’ destruction plans have collectively overstated destruction activity, and consequently monitoring activity, by 30 percent or more. While it may be difficult for the Secretariat to estimate income from inspection reimbursements, the Secretariat does not issue the reimbursement invoices in a timely manner, according to State Department and OPCW officials. Recent OPCW analysis indicates, however, that the organization is working to improve the timeliness of its invoices. In addition, sometimes the invoices are inaccurate, causing those states possessing chemical weapons–related facilities to withhold payment until corrections are made. The organization’s External Auditor recommended in 2001 that the Secretariat take concrete steps to pursue and recover outstanding invoices and develop realistic estimates of its income from Articles IV and V (reimbursable) inspections. In its April 2002 report, the organization’s Advisory Body also recommended that the Secretariat avoid optimistic income forecasts regarding Articles IV and V inspections, as well as expedite and improve its billing procedures. As the result of a staff reclassification and upgrade undertaken in 1999 and mandatory United Nations salary increases, the Secretariat’s personnel costs increased, affecting the 2000, 2001, and 2002 budgets. However, the budgets underestimated this increase. The Secretariat’s budget for 2002 underestimated staff cost increases by about 6 percent ($1.8 million) and may contribute to a potential budget deficit for 2002. The audited financial statement for 1999 and the Advisory Body’s January 2001 report stated that increases in personnel costs were inevitable as a result of the staff reclassification and upgrade. The OPCW’s salary system further complicates the budget projections for staff costs. OPCW uses the United Nations compensation system, which budgets salaries and staff wages in U.S. dollars. The OPCW, however, pays its staff in euros. According to State Department and OPCW officials, the organization has had difficulty in covering the currency risks associated with fluctuations in the dollar-to-euro exchange rate. The organization can experience significant personnel cost increases, depending upon the exchange rate; staff costs represent about 75 percent of OPCW’s 2002 budget. Furthermore, OPCW and State Department officials stated that it is difficult to manage staff costs given the organization’s current tenure policy, which does not clearly establish a start date for OPCW employees. During the creation of the organization, a 7 year tenure policy was established to reduce the number of career employees in the organization. Currently, staff members are hired on a 3 year contract that can be renewed yearly thereafter. However, the Conference of the States Parties has yet to agree on a date for the commencement of the tenure policy. In 2000, the organization experienced a budget deficit of more than $2.8 million when expenditures exceeded the income for the year.