This is the accessible text file for GAO report number GAO-06-877T 
entitled 'United Nations: Weaknesses in Internal Oversight and 
Procurement Could Affect the Effective Implementation of the Planned 
Renovation' which was released on June 21, 2006. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Testimony: 

Before the Subcommittee on Federal Financial Management, Government 
Information, and International Security: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:30 p.m. EDT: 

Tuesday, June 20, 2006: 

United Nations: 

Weaknesses in Internal Oversight and Procurement Could Affect the 
Effective Implementation of the Planned Renovation: 

Statement of Thomas Melito, Director: 

International Affairs and Trade: 

GAO-06-877T: 

GAO Highlights: 

Highlights of GAO-06-877T, a testimony before the Subcommittee on 
Federal Financial Management, Government Information, and International 
Security, United States Senate. 

Why GAO Did This Study: 

The UN headquarters buildings are in need of renovation. The Capital 
Master Plan is an opportunity for the organization to renovate its 
headquarters buildings and ensure conformity with current safety, fire, 
and security requirements. Estimated by the UN to cost about $1.6 
billion, the renovation will require a substantial management effort by 
the UN—including the use of effective internal oversight and 
procurement practices. 

Based on recently issued work, GAO (1) examined the extent to which UN 
funding arrangements for its Office of Internal Oversight Services 
(OIOS) ensure independent oversight and the consistency of OIOS’s 
practices with key international auditing standards and (2) assessed 
the UN’s procurement processes according to key standards for internal 
controls. 

What GAO Found: 

The effective implementation of the planned UN renovation is vulnerable 
due to a range of weaknesses in existing internal oversight and 
procurement practices. In particular, UN funding arrangements adversely 
affect OIOS’s budgetary independence and compromise OIOS’s ability to 
investigate high-risk areas. In addition, while the UN has yet to 
finalize a specific procurement process for the UN Capital Master Plan, 
to the extent that it relies on UN procurement processes, it remains 
vulnerable to the numerous procurement weaknesses that GAO have 
previously identified. 

First, UN funding arrangements constrain OIOS’s ability to operate 
independently as mandated by the General Assembly and required by 
international auditing standards. While OIOS is funded by a regular 
budget and 12 other 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. 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. 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. 

While the UN has yet to finalize its Capital Master Plan procurement 
strategy, to the extent that it relies on the current process, 
implementation of the Capital Master Plan remains vulnerable to 
numerous procurement weaknesses. For example, the UN has not 
established an independent process to consider vendor protests that 
could alert senior UN officials of failures by procurement staff to 
comply with stated procedures. Also, the chairman of the UN procurement 
contract review committee has stated that his committee does not have 
the resources to keep up with its expanding workload. In addition, the 
UN does not consistently implement its process for helping to ensure 
that it is conducting business with qualified vendors. GAO also found 
that the UN has not demonstrated a commitment to improving its 
professional procurement staff despite long-standing shortcomings and 
has yet to complete action on specific ethics guidance for procurement 
officers. 

What GAO Recommends: 

In prior reports, GAO recommended 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 processes. State and OIOS 
generally agreed with GAO’s overall findings and recommendations. The 
UN did not provide us with written comments on procurement. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-877T]. 

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 Coburn, Ranking Member Carper, and Members of the 
Subcommittee: 

I am pleased to be here today to discuss the United Nations' (UN) 
internal oversight unit and procurement process in the context of the 
UN Capital Master Plan (CMP). The planned renovation project represents 
a unique endeavor on the part of the UN--the first comprehensive 
renovation of the UN headquarters since the completion of its initial 
construction in 1952. Currently estimated by the UN to cost about $1.6 
billion, the renovation will require a substantial management effort by 
the UN--including the use of effective internal oversight and 
procurement practices. 

Several scandals, including those involving the UN's Oil for Food 
Program and procurement service, have spurred calls for UN management 
reform. In our review of the Oil for Food Program,[Footnote 1] we found 
that management problems allowed the former Iraqi regime to manipulate 
the program and circumvent sanctions to obtain illicit payments ranging 
from $7.4 billion to $12.8 billion.[Footnote 2] The UN's Office of 
Internal Oversight Services (OIOS) audited some aspects of the Oil for 
Food program and identified hundreds of weaknesses and irregularities. 
However, OIOS lacked the resources and independence needed to provide 
full and effective oversight of this large, costly, and complex UN 
effort. In addition, experts have called on the UN to correct serious 
weaknesses in its procurement process for more than a decade, including 
the lack of an independent process for considering vendor protests and 
ensuring selection of qualified venders. However, recent audits and 
investigations have uncovered evidence of corruption and mismanagement 
in the UN's procurement activities. 

In 2005, UN member states approved an agenda to reform many of the UN's 
management practices, in particular to strengthen internal oversight 
and accountability; help ensure ethical conduct; and review budgetary, 
financial, and human resources policies. 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 have been slow and uneven. 

Completing the CMP will require the UN to implement effective internal 
oversight and procurement practices. Accordingly, my statement is based 
on two reports that we released on these topics in April 2006.[Footnote 
3] First, I will focus on the need to strengthen OIOS's budgetary 
independence and its full implementation of key components for 
effective oversight. Second, I will also focus on our assessment of the 
UN's procurement processes according to key standards for internal 
controls. 

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: 

Effective implementation of the CMP is vulnerable due to a range of 
weaknesses in existing internal oversight and procurement practices. In 
particular, current funding arrangements adversely affect OIOS's 
budgetary independence and compromise its ability to investigate high- 
risk areas. In addition, while the UN has yet to finalize a specific 
procurement strategy for the renovation project, to the extent that it 
relies on current UN processes, implementation of the planned 
renovation is vulnerable to the procurement weaknesses that we have 
identified. 

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 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. In some 
instances, high-risk areas have been 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. In 
our April 2006 report concerning OIOS,[Footnote 4] 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. Both the Department of State and OIOS generally 
agreed with our findings and recommendation. 

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. In reviewing the CMP, OIOS reported 
in August 2005 that it obtained extrabudgetary funds from the CMP for 
one auditor on a short-term basis, but that the level of funding was 
not sufficient to provide the oversight coverage intended by the 
General Assembly.[Footnote 5] In addition, OIOS does 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 could undermine its 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. In our April 2006 report 
on OIOS, we also recommended that the Secretary of State and the 
Permanent Representative of the United States to the UN work with 
member states to support OIOS's efforts to more closely adhere to 
international auditing standards. Both the Department of State and OIOS 
generally agreed with our findings and recommendation. 

While the UN has yet to finalize its CMP procurement strategy, to the 
extent that it relies on the current process, implementation of the 
planned renovation is vulnerable to the procurement weaknesses that we 
have identified. For example, it has not established an independent 
process to consider vendor protests that could alert senior UN 
officials of failures by procurement staff to comply with stated 
procedures. Also, the Chairman of a key UN procurement contract review 
committee has stated that his committee does not have the resources to 
keep up with its expanding workload. In addition, the UN does not 
consistently implement its process for helping to ensure that it is 
conducting business with qualified vendors, has not demonstrated a 
commitment to improving its professional procurement staff despite long-
standing shortcomings, and has yet to complete action on specific 
ethics guidance for procurement officers. We also found that the UN has 
yet to incorporate guidance for construction procurement into its 
procurement manual. In our April 2006 report on UN 
procurement,[Footnote 6] we recommended that the Secretary of State and 
the Permanent Representative of the United States to the UN work with 
member states to encourage the UN to establish an independent bid 
protest mechanism, address problems facing its principle contract- 
review committee, implement a process to help ensure that it conducts 
business with qualified vendors, and to take other steps to improve UN 
procurement. The Department of State welcomed our report and 
recommendations. However, the UN did not provide us with written 
comments. 

Background: 

The UN headquarters buildings are in need of renovation. The original 
UN headquarters complex, located in New York City and constructed 
between 1949 and 1952, no longer conforms to current safety, fire and 
building codes and does not meet UN technology or security 
requirements. Over the last 50 years there have been no major 
renovations or upgrades to the buildings or their systems. For example, 
the UN headquarters complex lacks fire sprinklers, has a deteriorating 
window structure, and is vulnerable to catastrophic electrical 
failures. In September 2005, the headquarters complex was shut down and 
the staff sent home because a main breaker for electrical power to the 
top floors of the Secretariat building failed, causing it to fuse to 
the electrical panel. This failure could have resulted in a major fire. 

As host country, the United States financed construction of the 
original complex by providing the UN with a no-interest loan. The rest 
of the complex was built between 1960 and 1982 and funded through the 
UN's regular budget or private donations. In December 2002, the General 
Assembly endorsed the CMP to renovate the UN headquarters complex and 
approved funds to further develop the conceptual designs and cost 
estimate. In May 2003, we reported that the resulting renovation 
planning was reasonable, but that additional management controls and 
oversight were needed. Since our last report, the UN has completed 
design development of the renovation. In April 2006, the UN 
appropriated $23.5 million to finance the renovation's preconstruction 
phase and committed $77 million to finance the construction of 
temporary conference space and supplementary office space rental (swing 
space). However, the General Assembly has not yet decided whether to 
approve implementation of the CMP. 

In a February 2003 resolution, the General Assembly stressed the 
importance of oversight in implementing the CMP and requested that all 
relevant oversight bodies, such as OIOS, initiate immediate oversight 
activities.[Footnote 7] In our 2003 report on the CMP,[Footnote 8] we 
noted that OIOS assigned one staff member to begin researching the CMP 
on a part-time basis. OIOS officials also stated that they had 
requested funding for OIOS to hire contractors to help evaluate the 
CMP, project management plan, and security upgrades. In July 2005, OIOS 
reported that it had two auditors reviewing the CMP.[Footnote 9] 

OIOS's authority spans all UN activities under the Secretary-General. 
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 10] 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. Our work on the Oil 
for Food program demonstrates the weakness inherent in OIOS's reliance 
on extrabudgetary resources. OIOS audited some aspects of the Oil for 
Food program and identified hundreds of weaknesses and irregularities, 
but it lacked the resources and independence needed to provide full and 
effective oversight of this large, costly, and complex UN effort. As 
the program was implemented, the Oil for Food program was further 
weakened by inadequate attention to internal controls, including 
establishing clear responsibility and authority and identifying and 
addressing program risks. 

In addition to oversight, an effective procurement process is one of 
the keys to success for any large scale construction project. For more 
than a decade, experts have called on the UN to correct serious 
weaknesses in its procurement process. In addition, the UN procurement 
process has been under increasing stress in recent years as procurement 
spending has more than tripled to keep pace with a rapidly growing 
peacekeeping program. The UN Department of Management, through its 70- 
person UN Procurement Service, is ultimately responsible for developing 
UN procurement policies. 

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 conduct UN-related work only in response to specific 
requests from committees with jurisdiction over UN matters. 
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. 

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 state 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. In our April 2006 report concerning OIOS, 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. Both the Department of State and OIOS generally 
agreed with our findings and recommendation. 

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 should 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 11] 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 Ability to Respond to Changing 
Circumstances and to Reallocate Resources to Address High-Risk Areas: 

UN funding arrangements severely limit OIOS's ability to respond to 
changing circumstances and reallocate its resources among its multiple 
funding sources, OIOS locations worldwide, or 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 12] 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. 

Since 1996, an increasing share of OIOS's total budget is comprised of 
extrabudgetary resources. OIOS's regular budget and extrabudgetary 
resources increased in nominal terms from $21.6 million in fiscal 
biennium 1996-1997 to $85.3 million in fiscal biennium 2006-2007. Over 
that period, OIOS's extrabudgetary funding increased in nominal terms, 
from about $6.5 million in fiscal biennium 1996-1997 to about $53.7 
million in fiscal biennium 2006-2007. The majority of OIOS's staff 
(about 69 percent) is funded with extrabudgetary resources, which 
increased due to extrabudgetary resources for audits and investigations 
of peacekeeping operations, including issues related to sexual 
exploitation and abuse. 

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.[Footnote 13] 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. Moreover, in some cases, fund 
and program managers have disputed fees charged by OIOS for 
investigative services 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 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. 

GAO's Recommendation on OIOS Independence: 

In our April 2006 report concerning OIOS, 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. In commenting on the official draft of that 
report, OIOS and the Department of State (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 findings 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. 

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

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. 

Source: IIA.

[End of Figure} 

OIOS formally adopted the Institute for Internal Auditors' (IIA) 
international standards for the professional practice of internal 
auditing in 2002. Since then, 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 could 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. In our April 2006 report 
on OIOS, we also recommended that the Secretary of State and the 
Permanent Representative of the United States to the UN work with 
member states to support OIOS's efforts to more closely adhere to 
international auditing standards. 

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

Figure: 

IIA Standard for: 
Managing the internal audit activity--reporting to senior management: 

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

Source: IIA. 

[End of Figure] 

OIOS has adopted a risk management framework[Footnote 14] 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 for prioritizing the allocation of 
resources to 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 had 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 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. 

Source: IIA. 

[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: 

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. For the CMP, OIOS reported that it had 
extrabudgetary funds from the CMP for one auditor on a short-term 
basis, but that the level of funding was not sufficient to provide the 
oversight coverage intended by the General Assembly.[Footnote 15] To 
provide additional oversight coverage, OIOS assigned an additional 
auditor exclusively to the CMP, using funds from its regular 
budget.[Footnote 16] 

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.

Source: IIA. 

[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. 

Although OIOS provides these professional development opportunities, it 
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 office wide database to systematically track 
all training taken by their staff. 

GAO's Recommendation on OIOS Meeting Key Elements of International 
Auditing Standards: 

In our April 2006 report on OIOS, we also recommended that the 
Secretary of State and the Permanent Representative of the United 
States to the UN work with member states to support OIOS's efforts to 
more closely adhere to international auditing standards. In commenting 
on the official draft of that report, 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. 

The Current UN Procurement Process Contains Numerous Weaknesses: 

While the UN has yet to finalize its CMP procurement strategy, to the 
extent that it relies on current UN processes, implementation of the 
planned renovation is vulnerable to the procurement weaknesses that we 
have identified. We have identified problems affecting the UN's bid 
protest process, headquarters contract review committee, vender 
rosters, procurement workforce, ethics guidance for procurement 
personnel, and procurement manual. In our April 2006 report on UN 
procurement, we recommended that the Secretary of State and the 
Permanent Representative of the United States to the UN work with 
member states to encourage the UN to establish an independent bid 
protest mechanism, address problems facing its principal contract- 
review committee, implement a process to help ensure that it conducts 
business with qualified vendors, and to take other steps to improve UN 
procurement. 

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.[Footnote 17] Such a process would 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. 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. The 
General Assembly endorsed the principle of independent bid protests in 
1994 when it recommended for adoption by member states a model 
procurement law drafted by the UN Commission on International Trade 
Law.[Footnote 18] Several nations, including the United States, provide 
vendors with an independent process to handle complaints.[Footnote 19] 

The UN's lack of an independent bid protest process limits the 
transparency of its procurement process by not providing a means for a 
vendor to protest the outcome of a contract decision to an independent 
official or office. At present, the UN Procurement Service directs its 
vendors to file protests to the Procurement Service chief and then to 
his or her immediate supervisor. If handled through an independent 
process, vendor complaints could alert senior UN officials and UN 
auditors to the failure of UN procurement staff to comply with stated 
procedures. As a result of recent findings of impropriety involving the 
Procurement Service, the United Nations hired a consultant to evaluate 
the internal controls of its procurement operations. One of the 
consultant's conclusions was that the UN needs to establish an 
independent bid protest process for suspected wrongdoing that would 
include an independent third-party evaluation as well as arbitration, 
due process, and formal resolution for all reports. 

The Headquarters Contract Review Committee's Workload Is Increasing 
Faster Than Its Resources: 

While UN procurement has increased sharply in recent years, the size of 
the UN's Headquarters Committee on Contracts and its support staff has 
remained relatively stable. The committee's chairman and members told 
us 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 20] The 
committee members stated that the committee's increasing workload was 
the result in part of the complexity of many new contracts and 
increased scrutiny of proposals in response to recent UN procurement 
scandals. 

The committee is charged with evaluating proposed contracts worth more 
than $200,000 and advising the Department of Management as to whether 
the contracts are in accordance with UN Financial Regulations and Rules 
and other UN policies. However, concerns regarding the committee's 
structure and workload have led UN auditors to conclude that the 
committee cannot properly review contract proposals. It may thus 
recommend contracts for approval that are inappropriate and have not 
met UN regulations. Earlier this year, OIOS reiterated its 2001 
recommendation that the UN reduce the committee's caseload and 
restructure the committee "to allow competent review of the cases." 

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. OIOS later concluded 
that as of 2005 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. 

The UN Has Not Demonstrated a Commitment to Improving Its Professional 
Procurement Workforce: 

The UN has not demonstrated a commitment to improving its professional 
procurement staff through training, establishment of 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. 

Recent studies indicate that Procurement Service 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 
procurement staff to obtain continuous training, resulting in 
inconsistent levels of training across the procurement workforce. 
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. Doing so 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 toward 
adopting it. Such guidance would include a declaration of ethics 
responsibilities for procurement staff and a code of conduct for 
vendors. 

The UN Has Not Included Guidance on Construction Procurement in its 
Procurement Manual: 

The UN has yet to include guidance for construction procurement into 
its procurement manual. 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 and executing CMP procurement. Moreover, the UN has not 
updated its procurement manual since January 2004 to reflect current UN 
procurement policy. As a result, procurement staff may not be aware of 
changes to procurement procedures that the UN has adopted over the past 
2 years. 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. 

GAO's Recommendation to Address Weaknesses in UN Procurement: 

In our April 2006 report on UN procurement,[Footnote 21] we recommended 
that the Secretary of State and the Permanent Representative of the 
United States to the UN work with member states to encourage the UN to 
establish an independent bid protest mechanism, address problems facing 
its principle contract-review committee, implement a process to help 
ensure that it conducts business with qualified vendors, and to take 
other steps to improve UN procurement. In commenting on the official 
draft of this report, the Department of State stated that it welcomed 
our report and endorsed its recommendations. The UN did not provide us 
with written comments. 

Objectives, Scope, and Methodology: 

To conduct our study of UN oversight, we reviewed relevant UN and OIOS 
reports, manuals, and program documents, as well as the international 
auditing standards of the IIA and the International Organization of 
Supreme Auditing Institutions. 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 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 22] 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 Department of Management's Procurement Service, the 
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: 

If implemented, the CMP will be a large and unique endeavor for the UN. 
Effective internal oversight and management of the procurement process 
will be necessary for the successful completion of the project. 
However, weaknesses in internal oversight and procurement could impact 
implementation of the CMP. Recent UN scandals, particularly in the Oil 
for Food program, demonstrate the need for significant reforms in these 
areas. 

Although OIOS has a mandate establishing it as an independent oversight 
entity and to conduct oversight of the CMP, 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 could 
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 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. 

While the UN has yet to finalize its CMP procurement strategy, to the 
extent that it relies on the current process, we have identified 
numerous weaknesses with the existing procurement process that could 
impact implementation of the CMP. Long-standing weaknesses in the UN's 
procurement office have left UN procurement funds highly vulnerable to 
fraud, waste, and abuse. Many of these weaknesses have been identified 
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. 

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 me 
at (202) 512-9601 or melitot@gao.gov. Other major contributors to this 
testimony were Phyllis Anderson and Maria Edelstein, Assistant 
Directors; Joy Labez, Pierre Toureille, Valérie L. Nowak, Jeffrey 
Baldwin-Bott, Michaela Brown, Joseph Carney, Debbie J. Chung, Kristy 
Kennedy, Clarette Kim, J.J. Marzullo, and Barbara Shields. 

(320445): 

FOOTNOTES 

[1] GAO, United Nations: Lessons Learned from the Oil for Food Program 
Indicate the Need to Strengthen UN Internal Controls and Oversight 
Activities, GAO-06-330 (Washington, D.C.: Apr. 25, 2006). 

[2] The ranges given represent estimates developed by GAO, the 
Independent Inquiry Committee, and the Iraq Survey Group for 1997 
through about early 2003. 

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

[4] GAO, United Nations: Funding Arrangements Impede Independence of 
Internal Auditors, GAO-06-575 (Washington, D.C.: Apr. 25, 2006); 

[5] United Nations General Assembly, Report of the Office of Internal 
Oversight Services on the Capital Master Plan for the period from 
August 2004 to July 2005 A/60/288 (New York, N.Y.: Aug. 22, 2005). 

[6] GAO, United Nations: Procurement Internal Controls Are Weak, GAO- 
06-577 (Washington, D.C.: Apr. 25, 2006). 

[7] United Nations General Assembly, Resolution Adopted by the General 
Assembly, A/RES/57/292 (New York, N.Y.: Feb. 13, 2003). 

[8] GAO, United Nations: Early Renovation Planning Reasonable, but 
Additional Management Controls and Oversight Will Be Needed, GAO-03-566 
(Washington, D.C.: May 30, 2003). 

[9] United Nations General Assembly, Report of the Office of Internal 
Oversight Services on the Capital Master Plan for the Period from 
August 2004 to July 2005 A/60/288 (New York, N.Y.: Aug. 22, 2003). 

[10] 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. 

[11] 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. 

[12] 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. 

[13] Because the General Assembly has not approved funding for 
implementation of the CMP, there has been no decision on the level of 
OIOS funding for the CMP. 

[14] 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. 

[15] United Nations General Assembly, Report of the Office of Internal 
Oversight Services on the Capital Master Plan for the Period from 
August 2004 to July 2005 A/60/288 (New York, N.Y.: Aug. 22, 2005). 

[16] Because the General Assembly has not approved funding for 
implementation of the CMP, there has been no decision on the level of 
funding OIOS would receive for oversight of the CMP during the 
implementation phase. 

[17] United Nations, High Level Expert Group Procurement Study Report 
(New York, December 1994). 

[18] See GA Res. 49/54, UN Doc. A/Res/49/54; UN Commission on 
International Trade Law (UNCITRAL), Model Law on Procurement of Goods, 
Construction, and Services (1994), ch. 6. 

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

[20] 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. 

[21] GAO, United Nations: Procurement Internal Controls Are Weak, GAO- 
06-577 (Washington, D.C.: Apr. 25, 2006). 

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

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: