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United States Government Accountability Office: 

GAO: 

Testimony: 

Before the Committee on International Relations, House of 
Representatives: 

United Nations: Internal Oversight and Procurement Controls and 
Processes Need Strengthening: 

Statement of David M. Walker: 
Comptroller General of the United States: 

GAO-06-701T 

GAO Highlights: 

Highlights of GAO-06-701T, a testimony before the Committee on 
International Relations, House of Representatives. 

Why GAO Did This Study: 

The United States has strongly advocated that the United Nations (UN) 
reform its management practices to mitigate various program and 
financial risks. The findings of the Independent Inquiry Committee into 
the Oil for Food Program have renewed concerns about UN oversight, and 
the 2005 UN World Summit proposed actions to improve the UNís Office of 
Internal Oversight Services (OIOS). Furthermore, over the past decade, 
as UN procurement more than tripled to $1.6 billion in response to 
expanding UN peacekeeping operations, experts have called on the UN to 
correct procurement process deficiencies. 

We examined (1) whether UN funding arrangements for OIOS ensure 
independent oversight; (2) the consistency of OIOSís practices with key 
auditing standards; and (3) the control environment and processes for 
procurement. 

What GAO Found: 

The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a 
range of weaknesses in existing management and oversight practices. In 
particular, current funding arrangements adversely affect OIOSís 
budgetary independence and compromise its ability to investigate high-
risk areas. Also, weaknesses in the control environment and UN 
procurement processes leave UN funds vulnerable to fraud, waste, and 
abuse. 

UN funding arrangements constrain OIOSís ability to operate 
independently as mandated by the General Assembly and required by 
international auditing standards OIOS has adopted. First, while OIOS is 
funded by a regular budget and 12 other revenue streams, UN financial 
rules severely limit OIOSís ability to respond to changing 
circumstances and reallocate resources among revenue streams, 
locations, and operating divisions. Thus, OIOS cannot always direct 
resources to high-risk areas that may emerge after its budget is 
approved. Second, OIOS depends on the resources of the funds, programs, 
and other entities it audits. The managers of these programs can deny 
OIOS permission to perform work or not pay OIOS for services. UN 
entities could thus avoid OIOS audits or investigations, and high-risk 
areas can be and have been excluded from timely examination. 

OIOS has begun to implement key measures for effective oversight, but 
some of its practices fall short of the applicable international 
auditing standards it has adopted. OIOS develops an annual work plan, 
but the risk management framework on which the work plans are based is 
not fully implemented. Moreover, OIOS annual reports do not assess risk 
and control issues facing the UN organization, or the consequences if 
these are not addressed. OIOS officials report the office does not have 
adequate resources, but they also lack a mechanism to determine 
appropriate staffing levels. Furthermore, OIOS has no mandatory 
training curriculum for staff. 

UN funds are vulnerable to fraud, waste, abuse, and mismanagement 
because of weaknesses in the UNís control environment for procurement, 
as well as in key procurement processes. The UN lacks an effective 
organizational structure for managing procurement, has not demonstrated 
a commitment to improving its procurement workforce, and has not 
adopted specific ethics guidance. While the UN Department of Management 
is responsible for UN procurement, field procurement staff are 
supervised by the UN Department of Peacekeeping Operations, which lacks 
the expertise and capacity to manage field procurement. Also, the UN 
has not established procurement training requirements or a career path, 
and has yet to adopt new ethics guidance for procurement staff, despite 
long-standing General Assembly mandates. In addition, the UN has not 
established an independent process to consider vendor protests despite 
a 1994 recommendation by a high-level panel to do so as soon as 
possible. Further, the UN does not consistently implement its process 
for helping to ensure it conducts business with qualified vendors. 

What GAO Recommends: 

GAO recommends that the Secretary of State and the Permanent 
Representative of the United States to the UN work with member states 
to support: (1) budgetary independence for OIOS; (2) measures for OIOS 
to more closely adhere to international standards; and (3) improvements 
to UN procurement internal controls and processes. State and OIOS 
generally agreed with our overall findings and recommendations. The UN 
did not provide us with written comments on procurement. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-701T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Thomas Melito at (202) 
512-9601 or melitot@gao.gov. 

[End of Section] 

Chairman Hyde, Ranking Member Lantos, and Members of the Committee: 

I appreciate the opportunity to be here today to discuss United Nations 
(UN) reforms in the context of improving UN internal oversight and 
strengthening internal controls and processes over its procurement 
system. During my tenure as Comptroller General, we have identified the 
21ST Century challenges that constitute many of the major concerns 
facing the U.S. government, and which illustrate the need for 
transformation to help ensure that our government functions in the most 
economical, efficient, and effective manner possible. Likewise, the UN 
faces a range of significant challenges in reforming its management 
practices and mitigating various program and financial risks by fully 
implementing internationally recognized standards and norms. As the 
largest financial contributor to the UN, with assessed and voluntary 
contributions totaling more than $1.6 billion in 2006,[Footnote 1] the 
United States has strongly advocated for the reform of UN management 
practices. Specifically, the United States strongly supported the 1994 
creation of an internal oversight office to help ensure the efficient 
and effective use of UN resources. 

Concerns about the financial independence and sufficiency of resources 
of the internal oversight unit at the UN have been long-standing. 
Additionally, for more than a decade, experts have called on the UN to 
correct serious deficiencies in its procurement process; however, 
recent audits and investigations have uncovered evidence of corruption 
and mismanagement in the UN's procurement activities. In 2005, the UN 
purchased more than $1.6 billion in goods and services--primarily to 
support a peacekeeping program that has more than quadrupled in size 
since 1999, and which may increase further in the future. Thus, it is 
vital that demonstrated deficiencies in procurement are addressed in a 
timely and effective manner. 

In 2005, UN member states approved an agenda to reform many of the UN's 
management practices, in particular by helping to ensure ethical 
conduct; strengthening internal oversight and accountability; reviewing 
budgetary, financial, and human resources policies; and reviewing UN 
mandates. Even though UN member states support management reforms, 
there is considerable disagreement within the General Assembly over the 
process and implementation of the reforms, which thus far has been slow 
and uneven. 

Because the UN is a multilateral institution, our oversight authority 
does not directly extend to the UN, but instead extends through the 
United States' membership in the organization. In recognition of this 
factor, we do UN related work only in response to specific requests 
from committees with jurisdiction over UN matters, including your own. 
Congressional interest in this area has been high in recent years, and 
many of our ongoing or recently completed requests are both bicameral 
and bipartisan in nature. 

My statement is based on two reports that we are releasing 
today.[Footnote 2] I will focus on the need to strengthen the UN Office 
of Internal Oversight Services (OIOS) in terms of its budgetary 
independence and its full implementation of key components of effective 
oversight. I will also focus on the need to address weaknesses in two 
of the key elements of internal controls affecting UN procurement-- 
specifically those concerning the overall control environment and 
several control activities,[Footnote 3] which are those procedures 
intended to provide reasonable assurance that staff are complying with 
management directives. 

The work for these reports and this testimony was conducted in 
accordance with generally accepted government auditing standards 
between April 2005 and March 2006. 

Summary: 

The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a 
range of weaknesses in existing management and oversight practices. In 
particular, current funding arrangements adversely affect OIOS's 
budgetary independence and compromise its ability to investigate high- 
risk areas. Also, weaknesses in the control environment and UN 
procurement processes leave UN funds vulnerable to fraud, waste, and 
abuse. 

UN funding arrangements constrain OIOS's ability to operate 
independently as mandated by the General Assembly and required by the 
international auditing standards that OIOS has adopted. According to 
these standards, an institution's financial regulations should not 
restrict an audit organization from fulfilling its mandate, and the 
audit organization should have appropriate and sufficient resources to 
achieve its mandate. First, while OIOS is funded by the UN's regular 
budget and 12 other extrabudgetary revenue streams, UN financial 
regulations and rules severely limit OIOS's ability to respond to 
changing circumstances and reallocate resources among revenue streams, 
locations, and operating divisions. As a result, OIOS cannot always 
deploy the resources necessary to address high-risk areas that may 
emerge after its budget is approved. Second, OIOS is dependent on UN 
funds and programs (and other UN entities) for resources as 
compensation for the services it provides. OIOS must obtain permission 
to perform audits or investigations from the managers of funds and 
programs, and negotiate the terms of work and payment for those 
services with them. Moreover, the heads of these entities have the 
right to deny funding for the oversight work OIOS proposes. By denying 
OIOS funding, UN entities could avoid, and have avoided, OIOS audits; 
high-risk areas could therefore be excluded from timely examination. 
For example, the practice of allowing the heads of programs the right 
to deny funding of internal audit activities prevented OIOS from 
examining high-risk areas in the UN Oil for Food program, where 
billions of dollars were subsequently found to have been misused. 

Although OIOS has developed and begun to implement key components of 
effective oversight, some of OIOS's audit practices fall short of 
meeting the international auditing standards it has adopted. 
Specifically, while OIOS develops an annual work plan, it has not fully 
implemented a risk management framework to provide reasonable assurance 
that its annual work plans are based on a systematic assessment of 
risks. As a result, OIOS may not be allocating resources to areas in 
the UN with the highest exposure to fraud, waste, and abuse. Moreover, 
OIOS's annual reports do not provide an overall assessment of risk 
exposures and control issues facing the UN organization as a whole, or 
the consequences to the organization if the risks are not addressed. In 
terms of resource management, OIOS officials report that the office 
does not have adequate resources; however, they do not have a mechanism 
in place to determine appropriate staffing levels and help justify 
budget requests. Furthermore, OIOS has no mandatory training curriculum 
for staff to develop and maintain their expertise. OIOS's shortcomings 
in meeting key components of international auditing standards can serve 
to undermine the office's effectiveness in carrying out its functions 
as the UN's main internal oversight body. Effective oversight demands 
reasonable budgetary independence, sufficient resources, and adherence 
to professional auditing standards. 

We found that UN procurement resources are unnecessarily vulnerable to 
mismanagement, fraud, waste, and abuse because of weaknesses affecting 
the control environment for UN procurement. First, the UN has not 
established a single organizational entity or mechanism capable of 
effectively and comprehensively managing procurement. Second, the UN 
has not demonstrated a commitment to improving the professionalism of 
its procurement staff in the form of training, a career development 
path, or other key human capital practices critical to attracting, 
developing, and retaining a qualified professional workforce. Third, 
the UN has failed to adopt a full range of new ethics guidance for 
procurement officials despite directives from the General Assembly in 
1998 and 2005. 

We also found weaknesses in key procurement processes that are intended 
to provide reasonable assurance that management's procurement 
directives are followed. We found that, although UN procurement has 
increased sharply in recent years, the size of the UN's principal 
contract-review committee and its support staff remained relatively 
stable. Committee members stated that they do not have resources to 
keep pace with the current workload. In addition, the UN has not 
established an independent process to consider vendor protests despite 
a 1994 recommendation by a high-level panel of international 
procurement experts to do so as soon as possible. Also, the UN has not 
updated its procurement manual since 2004 to reflect current UN 
procurement policy. Further, the UN does not consistently implement its 
process for helping to ensure that it is conducting business with 
qualified vendors. 

In our reports, we recommended that the Secretary of State and the 
Permanent Representative of the United States to the UN work with 
member states to: 

* support budgetary independence for OIOS and support OIOS's efforts to 
more closely adhere to international auditing standards; and: 

* encourage the UN to establish clear lines of authority, enhance 
training, adopt ethics guidance, address problems facing its principal 
contract-review committee, establish an independent bid protest 
mechanism, and implement other steps to improve UN procurement. 

Background: 

OIOS was created in 1994 to assist the Secretary-General in fulfilling 
internal oversight responsibilities over UN resources and staff. The 
stated mission of OIOS is "to provide internal oversight for the United 
Nations that adds value to the organization through independent, 
professional, and timely internal audit, monitoring, inspection, 
evaluation, management consulting, and investigation activities and to 
be an agent of change that promotes responsible administration of 
resources, a culture of accountability and transparency, and improved 
program performance." OIOS is headed by an Under Secretary-General who 
is appointed by the Secretary-General--with the concurrence of the 
General Assembly--for a 5-year fixed term with no possibility of 
renewal.[Footnote 4] The Under Secretary-General may be removed by the 
Secretary-General only for cause and with the General Assembly's 
approval. OIOS's authority spans all UN activities under the Secretary- 
General.[Footnote 5] To carry out its responsibilities, OIOS is 
organized into four operating divisions: (1) Internal Audit Division I 
(New York); (2) Internal Audit Division II (Geneva); (3) Monitoring, 
Evaluation, and Consulting Division; and (4) Investigations Division. 
OIOS derives its funding from (1) regular budget resources, which are 
funds from assessed contributions from member states that cover normal, 
recurrent activities such as the core functions of the UN 
Secretariat;[Footnote 6] and (2) extrabudgetary resources, which come 
from the budgets for UN peacekeeping missions financed through 
assessments from member states, voluntary contributions from member 
states for a variety of specific projects and activities, and budgets 
for the voluntarily financed UN funds and programs. 

Management of the UN's rapidly growing spending on procurement involves 
several UN entities. The Department of Management controls the UN's 
procurement authority, and its 70-person UN Procurement Service 
develops UN procurement policies and procures items for UN 
headquarters. While the Procurement Service procures certain items for 
peacekeeping, about one-third of all UN procurement spending is managed 
by about 270 staff at the Department of Peacekeeping Operations' 19 
widely dispersed field missions. These missions may not award contracts 
worth more than $200,000 without the approval of the Department of 
Management (based on advice from the Headquarters Committee on 
Contracts). UN procurement spending has more than tripled since 1997, 
peaking at $1.6 billion in 2005. Major items procured include air 
transportation services, freight forwarding and delivery services, 
motor vehicles and transportation equipment, and chemical and petroleum 
products. The sharp increase in UN procurement was due in part to a 
five-fold increase in the number of military personnel in peacekeeping 
missions.[Footnote 7] Peacekeeping expenditures have more than 
quadrupled since 1999, from $840 million to about $3.8 billion in 2005. 
Peacekeeping procurement accounted for 85 percent of all UN procurement 
in 2004. 

In September 2005, the UN World Summit issued an "outcome document," 
which addressed several management reform initiatives, including 
reforms for: ensuring ethical conduct; strengthening internal oversight 
and accountability; reviewing budgetary, financial, and human resources 
policies; and reviewing mandates. While the outcome document was 
endorsed by all UN member countries, there is considerable disagreement 
within the General Assembly over the process and implementation of the 
reforms. In December 2005, UN member states agreed to a $950 million 
spending cap on the UN's biennium budget for 2006-2007, pending 
progress on management reforms. These funds are likely to be spent by 
the middle of 2006, at which time the General Assembly will review 
progress on implementing reforms and decide whether to lift the cap and 
allow for further spending. 

Funding Arrangements Impede Independence of the UN Internal Auditors: 

The UN is vulnerable to fraud, waste, abuse, and mismanagement due to a 
range of weaknesses in existing oversight practices. The General 
Assembly mandate creating OIOS calls for it to be operationally 
independent. In addition, international auditing standards note that an 
internal oversight activity should have sufficient resources to 
effectively achieve its mandate. In practice, however, OIOS's 
independence is impaired by constraints that UN funding arrangements 
impose. 

UN Mandate and International Auditing Standards Require Independence: 

In passing the resolution that established OIOS in August 1994, the 
General Assembly stated that the office shall exercise operational 
independence and that the Secretary-General, when preparing the budget 
proposal for OIOS, should take into account the independence of the 
office. The UN mandate for OIOS was followed by a Secretary-General's 
bulletin in September 1994 stating that OIOS discharge its 
responsibilities without any hindrance or need for prior clearance. In 
addition, the Institute of Internal Auditors' (IIA) standards for the 
professional practice of auditing,[Footnote 8] which OIOS and its 
counterparts in other UN organizations formally adopted in 2002, state 
that audit resources should be appropriate, sufficient, and effectively 
deployed. These standards also state that an internal audit activity 
should be free from interference and that internal auditors should 
avoid conflicts of interest. International auditing standards also 
state that financial regulations and the rules of an international 
institution should not restrict an audit organization from fulfilling 
its mandate. 

Funding Arrangements Hinder OIOS's Flexibility to Respond to Changing 
Circumstances and Reallocate Resources to Address High-Risk Areas: 

In addition to funding from the UN regular budget, OIOS receives 
extrabudgetary funding from 12 different revenue streams.[Footnote 9] 
Although the UN's regular budget and extrabudgetary funding percentages 
over the years have remained relatively stable, an increasing share of 
OIOS's budget is comprised of extrabudgetary resources (see fig. 1). 
OIOS's extrabudgetary funding has steadily increased over the past 
decade, from 30 percent in fiscal biennium 1996-1997 to 63 percent in 
fiscal biennium 2006-2007 (in nominal terms). The majority of OIOS's 
staff (about 69 percent) is funded with extrabudgetary resources. The 
growth in the office's budget is primarily due to extrabudgetary 
resources for audits and investigations of peacekeeping operations, 
including issues related to sexual exploitation and abuse. 

Figure 1: Trends in UN and OIOS Regular Budget and Extrabudgetary 
Resources, Fiscal Bienniums 1996-1997 to 2006-2007: 

[See PDF for image] 

[End of figure] 

UN funding arrangements severely limit OIOS's flexibility to respond to 
changing circumstances and reallocate its resources among its multiple 
funding sources, OIOS locations worldwide, or among its operating 
divisions--Internal Audit Divisions I and II; the Investigations 
Division; and the Monitoring, Evaluation, and Consulting Division--to 
address changing priorities. In addition, the movement of staff 
positions[Footnote 10] or funds between regular and extrabudgetary 
resources is not allowed. For example, one section in the Internal 
Audit Division may have exhausted its regular budget travel funds, 
while another section in the same division may have travel funds 
available that are financed by extrabudgetary peacekeeping resources. 
However, OIOS would breach UN financial regulations and rules if it 
moved resources between the two budgets. According to OIOS officials, 
for the last 5 years, OIOS has consistently found it necessary to 
address very critical cases on an urgent basis. A recent example is the 
investigations of sexual exploitation and abuse in the Republic of 
Congo and other peacekeeping operations that identified serious cases 
of misconduct and the need for increased prevention and detection of 
such cases. However, the ability to redeploy resources quickly when 
such situations arise has been impeded by restrictions on the use of 
staff positions. 

Reliance on Other Entities for Funding Could Infringe on OIOS's 
Independence: 

OIOS is dependent on UN funds and programs and other UN entities for 
resources, access, and reimbursement for the services it provides. 
These relationships present a conflict of interest because OIOS has 
oversight authority over these entities, yet it must obtain their 
permission to examine their operations and receive payment for its 
services. OIOS negotiates the terms of work and payment for services 
with the manager of the program it intends to examine, and heads of 
these entities have the right to deny funding for oversight work 
proposed by OIOS. By denying OIOS funding, UN entities could avoid OIOS 
audits or investigations, and high-risk areas could potentially be 
excluded from timely examination. For example, the practice of allowing 
the heads of programs the right to deny funding to internal audit 
activities prevented OIOS from examining high-risk areas in the UN Oil 
for Food program, where billions of dollars were subsequently found to 
have been misused. In some cases, the managers of UN funds and programs 
have disputed the fees OIOS has charged after investigative services 
were rendered. For example, 40 percent of the $2 million billed by OIOS 
after it completed its work is currently in dispute, and since 2001, 
less than half of the entities have paid OIOS in full for the 
investigative services it has provided. According to OIOS officials, 
the office has no authority to enforce payment for services rendered, 
and there is no appeal process, no supporting administrative structure, 
and no adverse impact on an agency that does not pay or pays only a 
portion of the bill. 

OIOS Has Not Fully Met Key Elements of International Auditing 
Standards: 

OIOS formally adopted the IIA international standards for the 
professional practice of internal auditing in 2002. Since that time, 
OIOS has begun to develop and implement the key components of effective 
oversight. However, the office has yet to fully implement them. 
Moreover, shortcomings in meeting key components of international 
auditing standards can serve to undermine the office's effectiveness in 
carrying out its functions as the UN's main internal oversight body. 
Effective oversight demands reasonable adherence to professional 
auditing standards. 

OIOS Has Developed Annual Work Plans, but Has Not Fully Implemented a 
Risk Management Framework: 

[See PDF for image] 

[End of figure]  

OIOS has adopted a risk management framework[Footnote 11] to link the 
office's annual work plans to risk-based priorities, but it has not 
fully implemented this framework. OIOS began implementing a risk 
management framework in 2001 to enable the office to prioritize the 
allocation of resources to oversee those areas that have the greatest 
exposure to fraud, waste, and abuse. OIOS's risk management framework 
includes plans for organization-wide risk assessments to categorize and 
prioritize risks facing the organization; it also includes client-level 
risk assessments to identify and prioritize risk areas facing each 
entity for which OIOS has oversight authority. Although OIOS's 
framework includes plans to perform client-level risk assessments, as 
of April 2006, out of 25 entities that comprise major elements of its 
"oversight universe," only three risk assessments have been completed. 
As a result, OIOS officials cannot currently provide reasonable 
assurance that the entities they choose to examine are those that pose 
the highest risk, nor that their audit coverage of a client focuses on 
the areas of risk facing that client. OIOS officials told us they plan 
to assign risk areas more consistently to audits proposed in their 
annual work plan during the planning phase so that, by 2008, at least 
50 percent of their work is based on a systematic risk assessment. 

OIOS Not Reporting on Status of Overall Risk and Control Issues Facing 
the UN: 

Figure: IIA Standards for:

Managing the internal audit activity--planning.

* Establish risk-based plans to determine the priorities of the 
internal audit activity, consistent with the organization's goals.

* Plan of engagements should be based on a risk assessment undertaken 
at least annually.

[End of figure]

Figure: IIA Standard for:

Managing the internal audit activity--reporting to senior management:

Reporting should include significant risk exposure and control issues, 
corporate governance issues, and other matters needed or requested by 
senior management.

[End of Figure] 

Although OIOS's annual reports contain references to risks facing OIOS 
and the UN organization, the reports do not provide an overall 
assessment of the status of these risks or the consequence to the 
organization if the risks are not addressed. For instance, in February 
2005, the Independent Inquiry Committee reported that many of the Oil 
for Food program's deficiencies, identified through OIOS audits, were 
not described in the OIOS annual reports submitted to the General 
Assembly. A senior OIOS official told us that the office does not have 
an annual report to assess risks and controls and that such an 
assessment does not belong in OIOS's annual report in its current form, 
which focuses largely on the activities of OIOS. The official agreed 
that OIOS should communicate to senior management on areas where the 
office has not been able to examine significant risk and control 
issues, but that the General Assembly would have to determine the 
appropriate vehicle for such a new reporting requirement. 

OIOS Lacks a Mechanism to Determine Appropriate Resource Levels: 

Figure: IIA Standard for:

Managing the internal audit activity--resource management:

Ensure that internal audit resources are appropriate, sufficient, and 
effectively deployed to achieve the approved plan.

[End of figure] 

While OIOS officials have stated that the office does not have adequate 
resources, they do not have a mechanism in place to determine 
appropriate staffing levels to help justify budget requests, except for 
peacekeeping oversight services. For peacekeeping audit services, OIOS 
does have a metric--endorsed by the General Assembly--that provides one 
professional auditor for every $100 million in the annual peacekeeping 
budget. Although OIOS has succeeded in justifying increases for 
peacekeeping oversight services consistent with the large increase in 
the peacekeeping budget since 1994, it has been difficult to support 
staff increases in oversight areas that lack a comparable metric, 
according to OIOS officials. 

OIOS Offers Training Opportunities, but Does Not Require or 
Systematically Track Continuing Professional Development: 

Figure: IIA Standard for:

Proficiency--continuing professional development:

Internal auditors should enhance their knowledge, skills, and other 
competencies through continuing professional development.

[End of figure]

OIOS staff have opportunities for training and other professional 
development, but OIOS does not formally require or systematically track 
staff training to provide reasonable assurance that all staff are 
maintaining and acquiring professional skills. UN personnel records 
show that OIOS staff took a total of more than 400 training courses 
offered by the Office of Human Resources Management in 2005. Further, 
an OIOS official said that, since 2004, OIOS has subscribed to IIA's 
online training service that offers more than 100 courses applicable to 
auditors. 

Despite these professional development opportunities, OIOS does not 
formally require staff training, nor does it systematically track 
training to provide reasonable assurance that all staff are maintaining 
and acquiring professional skills. OIOS policy manuals list no minimum 
training requirement. OIOS officials said that, although they gather 
some information on their use of training funds for their annual 
training report to the UN Office of Human Resources Management, they do 
not maintain an officewide database to systematically track all 
training their staff has taken. 

The Control Environment Over UN Procurement Is Weak: 

UN funds are unnecessarily vulnerable to fraud, waste, abuse, and 
mismanagement because of weaknesses in the UN's control environment for 
procurement. Specifically, the UN lacks an effective organizational 
structure for managing procurement, has not demonstrated a commitment 
to improving its professional procurement workforce, and has failed to 
adopt specific ethics guidance for procurement officials. 

The UN Lacks an Effective Organizational Structure for Managing 
Procurement: 

The UN has not established a single organizational entity or mechanism 
capable of comprehensively managing procurement. As a result, it is 
unclear which department is accountable for addressing problems in the 
UN's field procurement process. While the Department of Management is 
ultimately responsible for all UN procurement, neither it nor the UN 
Procurement Service has the organizational authority to supervise 
peacekeeping field procurement staff to provide reasonable assurance 
that they comply with UN regulations. Procurement field staff, 
including the chief procurement officers, instead report to the 
Peacekeeping Department at headquarters through each mission's chief 
administrative officer. Although the Department of Management has 
delegated authority for field procurement of goods and services to the 
Peacekeeping Department, we found that the Peacekeeping Department 
lacks the expertise, procedures, and capabilities needed to provide 
reasonable assurance that its field procurement staff are complying 
with UN regulations. 

The UN Lacks a Plan to Improve its Professional Procurement Workforce: 

The UN has not demonstrated a commitment to improving its professional 
procurement staff in the form of training, a career development path, 
and other key human capital practices critical to attracting, 
developing, and retaining a qualified professional workforce. Due to 
significant control weaknesses in the UN's procurement process, the UN 
has relied disproportionately on the actions of its staff to safeguard 
its resources. Given this reliance on staff and their substantial 
fiduciary responsibilities, management's commitment to maintaining a 
competent, ethical procurement workforce is a particularly critical 
element of the UN's internal control environment. 

Recent studies indicate that Procurement Service staff and peacekeeping 
procurement staff lack knowledge of UN procurement policies. Moreover, 
most procurement staff lack professional certifications attesting to 
their procurement education, training, and experience. The UN has not 
established requirements for headquarters and peacekeeping staff to 
obtain continuous training, resulting in inconsistent levels of 
training across the procurement workforce. More than half of the 
procurement chiefs told us that they had received no procurement 
training over the last year and that their training opportunities and 
resources are inadequate. All of them said that their staff would 
benefit from additional training. Furthermore, UN officials 
acknowledged that the UN has not committed sufficient resources to a 
comprehensive training and certification program for its procurement 
staff. In addition, the UN has not established a career path for 
professional advancement for procurement staff, which could encourage 
staff to undertake progressive training and work experiences. 

The UN Has Not Fully Established Ethics Guidance for Procurement 
Personnel: 

The UN has been considering the development of specific ethics guidance 
for procurement officers for almost a decade, in response to General 
Assembly directives dating back to 1998. While the Procurement Service 
has drafted such guidance, the UN has made only limited progress 
towards adopting it. Such guidance would include a declaration of 
ethics responsibilities for procurement staff and a code of conduct for 
vendors. 

The UN Has Weaknesses in Key Procurement Processes: 

We found weaknesses in key UN procurement processes or control 
activities. These activities consist of processes that are intended to 
provide reasonable assurance that management's directives are followed 
and include reviews of high-dollar-value contracts, bid protest 
procedures, and vendor rosters. 

Headquarters Committee on Contracts Lacks Needed Resources: 

The Chairman and members of the Headquarters Committee on Contracts 
stated that the committee does not have the resources to keep up with 
its expanding workload. The number of contracts reviewed by the 
committee has increased by almost 60 percent since 2003.[Footnote 12] 
The committee members stated that the committee's increasing workload 
was the result of the growth of UN peacekeeping operations, the 
complexity of many new contracts, and increased scrutiny of proposals 
in response to recent UN procurement scandals. Concerns regarding the 
committee's structure and workload have led OIOS to conclude that the 
committee cannot properly review contract proposals. Without an 
effective contract review process, the UN cannot provide reasonable 
assurance that high-value contracts are undertaken in accordance with 
UN rules and regulations. The committee has requested that its support 
staff be increased from four to seven, and its chairman has stated that 
raising the threshold for committee review would reduce its workload. 

The UN Has Not Established an Independent Bid Protest Process: 

The UN has not established an independent process to consider vendor 
protests, despite the 1994 recommendation of a high-level panel of 
international procurement experts that it do so as soon as possible. An 
independent bid protest process is a widely endorsed control mechanism 
that permits vendors to file complaints with an office or official who 
is independent of the procurement process. Establishment of such a 
process could provide reasonable assurance that vendors are treated 
fairly when bidding and would also help alert senior UN management to 
situations involving questions about UN compliance. In 1994, the UN 
General Assembly recognized the advantages of an independent bid 
protest process. Several nations, including the United States, provide 
vendors with an independent process to handle complaints.[Footnote 13] 

The UN Has Not Updated its Procurement Manual Since 2004: 

The UN has not updated its procurement manual since January 2004 to 
reflect current UN procurement policy. As a result, UN procurement 
staff may not be aware of changes to UN procurement procedures that 
have been adopted over the past 2 years. Also missing from the 
procurement manual is a section regarding procurement for construction. 
In June 2005, a UN consultant recommended that the UN develop separate 
guidelines in the manual for the planning and execution of construction 
projects. These guidelines could be useful in planning the UN's future 
renovation of its headquarters building. A Procurement Service official 
who helped revise the manual in 2004 stated that the Procurement 
Service has been unable to allocate resources needed to update the 
manual since that time. 

UN Does Not Consistently Implement Its Process for Helping to Ensure 
That It Conducts Business with Qualified Vendors: 

The UN does not consistently implement its process for helping to 
ensure that it is conducting business with qualified vendors. As a 
result, the UN may be vulnerable to favoring certain vendors or dealing 
with unqualified vendors. The UN has long had difficulties in 
maintaining effective rosters of qualified vendors. In 1994, a high- 
level group of international procurement experts concluded that the 
UN's vendor roster was outdated, inaccurate, and inconsistent across 
all locations. In 2003, an OIOS report found that the Procurement 
Service's roster contained questionable vendors. In 2005, OIOS 
concluded that the roster was not fully reliable for identifying 
qualified vendors that could bid on contracts. While the Procurement 
Service became a partner in an interagency procurement vendor roster in 
2004 to address these concerns, OIOS has found that many vendors that 
have applied through the interagency procurement vendor roster have not 
submitted additional documents requested by the Procurement Service to 
become accredited vendors. In addition, most Peacekeeping Department 
field procurement officials with whom we spoke stated that they prefer 
to use their own locally developed rosters instead of the interagency 
vendor roster. Some field mission procurement staff also stated that 
they were unable to comply with Procurement Service regulations for 
their vendor rosters due to the lack of reliable vendor information in 
underdeveloped countries. OIOS reported in 2006 that peacekeeping 
operations were vulnerable to substantial abuse in procurement because 
of inadequate or irregular registration of vendors, insufficient 
control over vendor qualifications, and dependence on a limited number 
of vendors. 

Objectives, Scope, and Methodology: 

To conduct our study of UN oversight, we reviewed relevant UN and OIOS 
reports, manuals, and numerous program documents, as well as 
international auditing standards such as those of the IIA and the 
International Organization of Supreme Auditing Institutions (INTOSAI). 
The IIA standards apply to internal audit activities--not to 
investigations, monitoring, evaluation, and inspection activities. 
However, we applied these standards OIOS-wide, as appropriate, in the 
absence of international standards for non-audit oversight activities. 
We met with senior Department of State (State) officials in Washington, 
D.C., and senior officials with the U.S. Missions to the UN in New 
York, Vienna, and Geneva. At these locations, we also met with the UN 
Office of Internal Oversight Services management officials and staff; 
representatives of Secretariat departments and offices, as well as the 
UN funds, programs, and specialized agencies; and the UN external 
auditors--the Board of Auditors (in New York) and the Joint Inspection 
Unit (in Geneva). We reviewed relevant OIOS program documents, manuals, 
and reports. To assess the reliability of OIOS's funding and staffing 
data, we reviewed the office's budget documents and discussed the data 
with relevant officials. We determined the data were sufficiently 
reliable for the purposes of this testimony. 

To assess internal controls in the UN procurement process, we used an 
internal control framework that is widely accepted in the international 
audit community and has been adopted by leading accountability 
organizations.[Footnote 14] We assessed the UN's control environment 
for procurement, as well as its control activities, risk assessment 
process, procurement information processes, and monitoring systems. In 
doing so, we reviewed documents and information prepared by OIOS, the 
UN Board of Auditors, the UN Joint Inspection Unit, two consulting 
firms, the UN Department of Management's Procurement Service, the UN 
Department of Peacekeeping Operations, and State. We interviewed UN and 
State officials and conducted structured interviews with the principal 
procurement officers at each of 19 UN field missions. 

Concluding Observations: 

Although OIOS has a mandate establishing it as an independent oversight 
entity--and OIOS does possess many characteristics consistent with 
independence--the office does not have the budgetary independence it 
requires to carry out its responsibilities effectively. In addition, 
OIOS's shortcomings in meeting key components of international auditing 
standards can serve to undermine the office's effectiveness in carrying 
out its functions as the UN's main internal oversight body. Effective 
oversight demands reasonable budgetary independence, sufficient 
resources, and adherence to professional auditing standards. OIOS is 
now at a critical point, particularly given the initiatives to 
strengthen UN oversight launched as a result of the UN World Summit in 
the fall of 2005. In moving forward, the degree to which the UN and 
OIOS embrace international auditing standards and practices will 
demonstrate their commitment to addressing the monumental management 
and oversight tasks that lie ahead. Failure to address these long- 
standing concerns would diminish the efficacy and impact of other 
management reforms to strengthen oversight at the UN. 

Long-standing weaknesses in the UN's internal controls over procurement 
have left UN procurement funds highly vulnerable to fraud, waste, 
abuse, and mismanagement. Many of these weaknesses have been known and 
documented by outside experts and the UN's own auditors for more than a 
decade. Sustained leadership at the UN will be needed to correct these 
weaknesses and establish a procurement system capable of fully 
supporting the UN's expanding needs. 

Recommendations: 

We recommend that the Secretary of State and the Permanent 
Representative of the United States to the UN work with member states 
to: 

* support budgetary independence for OIOS, and support OIOS's efforts 
to more closely adhere to international auditing standards; and: 

* encourage the UN to establish clear lines of authority, enhance 
training, adopt ethics guidance, address problems facing its principal 
contract-review committee, establish an independent bid protest 
mechanism, and implement other steps to improve UN procurement 
priorities. 

Agency Comments and Our Evaluation: 

In commenting on the official draft of our report on UN internal 
oversight, OIOS and State agreed with our overall conclusions and 
recommendations. OIOS stated that observations made in our report were 
consistent with OIOS's internal assessments and external peer reviews. 
State fully agreed with GAO's finding that UN member states need to 
ensure that OIOS has budgetary independence. However, State does not 
believe that multiple funding sources have impeded OIOS's budgetary 
flexibility. We found that current UN financial regulations and rules 
are very restrictive, severely limiting OIOS's ability to respond to 
changing circumstances and to reallocate funds to emerging or high 
priority areas when they arise. 

In commenting on the official draft of our report on UN Procurement, 
the Department of State stated that it welcomed our report and endorsed 
its recommendations. The UN did not provide us with written comments. 

This concludes my testimony. I would be pleased to take your questions. 

Contact and Acknowledgments: 

Should you have any questions about this testimony, please contact 
Director Thomas Melito, (202) 512-9601 or melitot@gao.gov. Other major 
contributors to this testimony were Phyllis Anderson, Assistant 
Director; Joy Labez, Pierre Toureille, Jeffrey Baldwin-Bott, Joseph 
Carney, Kristy Kennedy, Clarette Kim, and Barbara Shields. 

(320432): 

FOOTNOTES 

[1] This includes funding for the UN Secretariat, various funds and 
programs, and peacekeeping operations. 

[2] GAO, United Nations: Funding Arrangements Impede Independence of 
Internal Auditors, GAO-06-575 (Washington, D.C.: April 25, 2006); GAO, 
United Nations: Procurement Internal Controls Are Weak, GAO-06-577 
(Washington, D.C.: April 25, 2006). 

[3] To assess internal controls in the UN procurement process, we used 
the Committee of Sponsoring Organizations of the Treadway Commission's 
Internal Control--Integrated Framework (September 1992), a framework 
that is widely accepted in the international audit community. The five 
elements of internal controls are: the control environment, control 
activities, risk assessment, information and communications, and 
monitoring. 

[4] The current Under Secretary-General for Internal Oversight Services 
was appointed in July 2005. 

[5] These include 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 UN Environment Program, UN 
Human Settlements Program (UN-HABITAT), and the Office of the UN High 
Commissioner for Refugees. OIOS's authority does not extend to UN 
specialized agencies such as the Food and Agriculture Organization, 
International Labor Organization, or World Health Organization. 

[6] The Secretariat carries out the day-to-day work of the UN 
Organization such as administering peacekeeping operations, mediating 
international disputes, surveying economic and social trends and 
problems, and preparing studies on human rights and sustainable 
development. 

[7] The number of military peacekeepers increased from about 14,000 in 
1999 to about 73,000 as of February 2006. 

[8] IIA is recognized as the internal audit profession's leader in 
certification, education, research, and technological guidance. 
Developed and maintained by the IIA, The Code of Ethics and Standards 
is mandatory guidance considered to be essential to the professional 
practice of internal auditing. The International Standards for the 
Professional Practice of Internal Auditing provides guidance for the 
conduct of internal auditing at both the organizational and individual 
auditor levels. 

[9] The 12 funding sources are peacekeeping support account, funds and 
programs reimbursement account, technical operations program support 
costs, substantive trust funds program support costs, UN Joint Staff 
Pension Fund, International Criminal Tribunal for the former 
Yugoslavia, International Criminal Tribunal for Rwanda, Capital Master 
Plan 2, Office for the Coordination of Humanitarian Affairs program 
support costs, UN High Commissioner for Refugees, International Trade 
Center, and UN Drug Control Program. 

[10] Throughout this testimony, we use the term "staff position" to 
refer to what the UN calls a "post." For budgeting purposes, the UN 
defines a post as a budgetary entity at a specific level, in a specific 
work unit, for a specific purpose. 

[11] OIOS defines risk management as the systematic approach to 
identifying, assessing, and acting on the probability that an event or 
action may adversely affect the organization. 

[12] In 2005, the committee reviewed 881 contracts valued at $3 billion 
(including long-term contracts), while in 2003 it reviewed 558 
contracts valued at about $2.3 billion. 

[13] In the United States, vendors may protest to the involved 
agencies, the U.S. Court of Federal Claims, or GAO. We receive more 
than 1,100 such protests annually. 

[14] GAO, Internal Control: Standards for Internal Control in the 
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999); 
Committee of Sponsoring Organizations of the Treadway Commission, 
Internal Control--Integrated Framework (Sept. 1992).

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