United Nations: Sustained Oversight Is Needed for Reforms to	 
Achieve Lasting Results (02-MAR-05, GAO-05-392T).		 
                                                                 
The U.N. regular budget for the 2004-2005 biennium exceeded $3	 
billion for the first time. In light of the organization's	 
increasing demands, the U.N. Secretary General and member states 
have called on the Secretariat to better define priorities and	 
eliminate outdated activities. In response, the Secretary General
launched major reform initiatives in 1997 and 2002, and we	 
reported on the status of these efforts in February 2004. Audits 
and investigations of the U.N. Oil for Food program have also	 
brought attention to recurring management weaknesses. As the	 
largest financial contributor to the United Nations, the United  
States has a strong interest in the completion of the Secretary  
General's reforms. GAO provides observations on areas for U.N.	 
reform based on our 2004 report and our continuing review of the 
Oil for Food program, including our analysis of internal audit	 
reports and other documents.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-392T					        
    ACCNO:   A18536						        
  TITLE:     United Nations: Sustained Oversight Is Needed for Reforms
to Achieve Lasting Results					 
     DATE:   03/02/2005 
  SUBJECT:   Accountability					 
	     Food relief programs				 
	     Internal audits					 
	     Internal controls					 
	     International organizations			 
	     Performance measures				 
	     Program evaluation 				 
	     Program management 				 
	     Strategic planning 				 
	     General management reviews 			 
	     Performance-based budgeting			 
	     United Nations Oil for Food Program		 

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GAO-05-392T

United States Government Accountability Office

GAO Testimony

Before the Committee on International Relations, Subcommittee on Oversight
and Investigations, House of Representatives

For Release on Delivery

Expected at 10:30 a.m. EST UNITED NATIONS

Wednesday, March 2, 2005

      Sustained Oversight Is Needed for Reforms to Achieve Lasting Results

Statement of Joseph A. Christoff, Director International Affairs and Trade

GAO-05-392T

[IMG]

March 2, 2005

UNITED NATIONS

Sustained Oversight Is Needed for Reforms to Achieve Lasting Results

  What GAO Found

The United Nations needs sustained oversight at all levels of the
organization to achieve lasting results on its reform agenda. We reported
in 2004 that the Secretariat had made progress in implementing 51 percent
of the Secretary General's 1997 and 2002 management reform initiatives.
However, we found that more than one-quarter of the completed reforms only
consisted of developing plans or establishing new offices-the first steps
in achieving longer term reform goals. In addition, the Secretariat had
not periodically conducted comprehensive assessments of the status and
impact of its reforms. Accordingly, the Secretariat had not been able to
determine what progress had been made or where future improvements were
needed.

At the program level, management reviews that compare actual performance
to expected results are critical elements of effective oversight and
accountability. The United Nations has completed the initial phase of
implementing reforms in a key area-performance-based budgeting. It adopted
a budget that reflects a result-based budgeting format, including specific
program costs, objectives, expected results, and performance indicators to
measure results. However, the United Nations has yet to implement the next
critical step in performance-based budgeting-a system to monitor and
evaluate program impact or results. Program reviews that compare actual
performance to expected outcomes are important for accounting for
resources and achieving effective results.

A strong internal audit function provides additional oversight and
accountability through independent assessments of U.N. activities, as
demonstrated by audits of the U.N Oil for Food program. U.N. internal
auditors found recurring management weaknesses in 58 audits it conducted
over 5 years. However, constraints on their scope and authority prevented
the auditors from examining and reporting widely on problems in the Oil
for Food program. U.N. oversight bodies did not obtain timely reporting on
serious management problems and were unable to take corrective actions
when needed. These constraints limited the internal audit unit's
effectiveness as an oversight tool. GAO plans to conduct more detailed
work on the role of the internal auditors in upcoming engagements.

                 United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss our review of the United Nations'
(U.N.) reform efforts.

The U.N. regular budget for the 2004-2005 biennium exceeded $3 billion for
the first time. In light of increasing demands, the U.N. Secretary General
and member states called on the Secretariat to better define priorities
and eliminate outdated activities. The Secretary General responded with
major reform initiatives in 1997 and 2002. Investigations of the U.N. Oil
for Food program have also brought attention to recurring management
weaknesses. As its largest financial contributor, the United States has a
strong interest in the completion of U.N. reforms.

Today, I will provide observations on U.N. reform efforts based on our
2004 report and our continuing review of the Oil for Food program,
including our analysis of internal audit reports and other documents.

To address these objectives, we reviewed our February 2004 report on
progress in implementing reforms and updated information where possible. 1
We also drew upon information from our previous reports of the Oil for
Food program, including our analysis of internal audit reports and other
documents.

In accordance with generally accepted government auditing standards, we
conducted our work on the status of U.N. reforms from June 2003 through
January 2004, updated information in February 2005, and conducted work on
the Oil for Food program from January through February 2005.

                                    Summary

The United Nations needs sustained oversight at all levels of the
organization to make progress in its reform agenda and achieve lasting
results. The Secretary General launched two major reform initiatives in
1997 and 2002 to address key efficiency, management, and accountability
challenges facing the organization. We reported in February 2004 that the
United Nations had carried out some of its initiatives, with 51 percent of
all reforms in place. The 1997 agenda consisted of initiatives that the
Secretary General could implement on his own authority and those that

1GAO, United Nations: Reforms Progressing but Comprehensive Assessments
Needed to Measure Impact, GAO-04-339 (Washington, D.C.: Feb.13, 2004).

required member states' approval. The implementation of reforms under the
Secretary General's authority advanced more quickly than those under the
authority of member states. We found that 70 percent of reform initiatives
under the Secretary General's authority were in place, compared with 44
percent of the initiatives requiring member state approval. However, we
found that more than one-quarter of the completed reforms only consisted
of developing plans or establishing new offices- the first steps in
achieving longer term reform goals. In addition, the Secretariat had not
periodically conducted comprehensive assessments of the status and impact
of its reforms. Without such assessments, the Secretariat could not
determine the progress made or where future improvements were needed.

At the program level, management reviews that compare actual performance
to expected outcomes are critical elements of effective oversight and
accountability. The United Nations has completed the initial phase of
implementing reforms in a key area-performance-based budgeting. It adopted
a budget that reflects a result-based budgeting format, including specific
program costs, objectives, expected results, and performance indicators to
measure results. For the first time, the 20042005 budget included specific
performance targets and baseline data for many performance indicators that
can help measure performance over time and allow program managers to
compare actual achievements to expected results. However, the United
Nations has yet to implement the next critical step in performance-based
budgeting-a system to monitor and evaluate program impact or results.
Program reviews that compare actual performance to expected outcomes are
important for accounting for resources and achieving effective results.

A strong internal audit function provides additional oversight and
accountability through independent assessments of U.N. activities, as
demonstrated by audits of the U.N Oil for Food program. This office
provided detailed oversight of many aspects of the Oil for Food program,
and its 58 reports point to the need for continued U.N. attention to
management reforms. Our review of the audit reports of the Oil for Food
program identified 702 findings and 667 recommendations across numerous
programs and sectors. The internal auditors found recurring problems in
procurement, financial and asset management, personnel and staffing,
project planning and coordination, security, and information technology.
However, constraints on the internal auditors' scope and authority
prevented the auditors from examining and reporting widely on problems in
the Oil for Food program. U.N. oversight bodies did not obtain timely
reporting on serious management problems and were unable to

Background

take corrective actions when needed. These constraints limited the
internal audit unit's effectiveness as an oversight tool. GAO plans to
conduct more detailed work on the role of the internal auditors in
upcoming engagements.

In July 1997, the Secretary General proposed a broad reform program to
focus the United Nations on achieving results as it carried out its
mandates. These reforms included restructuring U.N. leadership and
operations, developing a human capital system based on results, and
introducing a performance-based programming and budgeting process.
Although the Secretary General does not have direct authority over
specialized agencies and many funds and programs, changes at the
Secretariat were intended to serve as a model for reforms throughout the
U.N. system. The Secretary General launched a second round of reforms in
2002 that expanded on the 1997 initiatives and reflected new areas of
focus, such as public information activities and the human rights program.
The overall goal was to align U.N. activities with the priorities defined
by the Millennium Declaration and the new security environment.2

The 1997 and 2002 initiatives followed several efforts to reform the
United Nations that began soon after its creation in 1945. Despite
periodic cycles of reform, U.N. member states have continued to have
concerns about inefficient operations; problems of fragmentation,
duplication, and poor coordination; and the proliferation of mandates.
These calls have also highlighted the need for more accountable leadership
and improvement in key management practices. As the largest financial
contributor to the United Nations, the United States has a strong interest
in the completion of these reforms and has played a significant role in
promoting financial, administrative, and programmatic changes. The State
Department and the U.S. Permanent Mission to the United Nations continue
to promote further reforms and report on the status of major reform
initiatives to the U.S. Congress.

The call for reforms has also grown as a result of problems identified in
the United Nations' management of the Oil for Food program. Last year we
reported that the former Iraqi government obtained $10.1 billion through

2In 2000, the General Assembly adopted the Millennium Declaration, which
contains a set of priorities and specific time frames for meeting
development goals. The Millennium Declaration and the Secretary General's
Road Map toward Implementation of the U.N. Millennium Declaration provide
the overall priorities for all U.N. activities.

oil smuggling and illicit commissions and surcharges on commodity and oil
contracts.3 The Iraq Survey Group, responsible for investigating Iraq's
activities in developing weapons of mass destruction, estimated illicit
revenues at $10.9 billion and found similar irregularities in contract
overpricing and surcharges. In April 2004, the Secretary General
established the U.N. Independent Inquiry Committee (IIC) to investigate
allegations of mismanagement and misconduct within the Oil for Food
program. In February 2005, the IIC issued an interim report on the initial
procurement of U.N. contractors, recipients of oil allocations, internal
audit structure and activities, and management of administrative
expenses.4 The Committee offered numerous recommendations for improving
the United Nations' internal audit function.

Sustained oversight at all levels of the organization is needed for the
United Nations to advance its reform agenda and achieve lasting results.
The United Nations had completed 51 percent of its 1997 and 2002 reform
initiatives. However, it has not periodically conducted comprehensive
assessments to determine the status and impact of the reforms.
Consequently, the Secretariat could not determine if it was meeting the
Secretary General's overall reform goals.

  Sustained Oversight Is Needed for Lasting Results

Reforms under the Secretary General's Authority Advanced More Quickly

The Secretary General launched two major reform initiatives, in 1997 and
2002, to address the United Nation's core management challenges-poor
leadership of the Secretariat, duplication among its many offices and
programs, and the lack of accountability for staff performance. In
assessing the status of these reforms, we found that the United Nations
had made some progress in implementing these initiatives, putting in place
51 percent of all reforms. We found that 60 percent of the 88 reform
initiatives in the 1997 agenda and 38 percent of the 66 reforms in the
2002 agenda were in place.5

3GAO, United Nations: Observations on the Management and Oversight of the
Oil for Food Program, GAO-04-730T (Washington, D.C.: Apr. 28, 2004).

4Independent Inquiry Committee into the United Nations Oil-for-Food
Programme, Interim Report (New York: Feb. 3, 2005).

5These numbers differ from the figures in the U.N. reform plans because
many of the Secretary General's reform action items had several components
that we identified and counted as separate initiatives.

The 1997 agenda consisted of initiatives that the Secretary General could
implement on his own authority and those that required member states'
approval. The implementation of reforms under the Secretary General's
authority advanced more quickly than those under the authority of member
states. We found that 70 percent of reform initiatives under the Secretary
General's authority were in place, compared with 44 percent of the
initiatives requiring member state approval.6 Delays in acquiring member
state approval are due, in part, to the longer time needed for the General
Assembly to reach agreement from the majority.

In addition, many reform efforts comprise only the first step in achieving
longer-term goals. More than one-quarter of the Secretary General's
completed reforms in both the 1997 and 2002 agendas consisted of
developing a written plan or establishing a new office. Although the
establishment of a new office or department-such as the office to manage
the U.N.'s interrelated programs to combat crime, drugs, and terrorism-can
be counted as a completed reform, it is the office's performance in
meeting its objectives that will determine its impact and the extent to
which it contributes to the Secretary General's overall reform goals.

Periodic Assessments Are Not Conducted So Impact of Reforms Is Unclear

We also reported that the Secretariat had not conducted systematic,
comprehensive assessments of the status and impact of the Secretary
General's 1997 and 2002 reform initiatives. Without such assessments, the
Secretariat was not able to determine what progress had been made and
where further improvements were needed. Individual departments and offices
within the Secretariat tracked reforms that related to their specific area
of work. OIOS also monitored and evaluated the impact of selected reforms
but was not responsible for overseeing the implementation of the overall
reform agendas. In addition, the Deputy Secretary General, who is
responsible for overseeing the overall reform process, neither
systematically assessed departments' performance in implementing reforms
nor held managers directly accountable. The office of the Deputy Secretary
General had only one full-time professional staff member dedicated to
reform issues. In 1998 and 2003, the Secretary General issued status
reports on the 1997 and 2002 reforms, respectively. These reports

6The 2002 reform plan did not differentiate between initiatives that the
Secretary General could implement on his own authority and those that
required member states' approval.

did not cover all of the initiatives in the respective reform plans or
include comprehensive assessments of the reforms.

In February 2005, we contacted the Office of the Deputy Secretary General
to determine recent actions it has taken to report on the status and
impact of the Secretary General's reform initiatives. An official stated
that the office has conducted an internal assessment but has not released
this document to member states. The Secretary General announced his
intention to submit additional reform proposals to improve the
organization's transparency and accountability before a September 2005
summit of world leaders.

Holding staff accountable for implementing these reforms and measuring
their impact is difficult without regular, comprehensive reports on the
overall status and impact of reform initiatives. Adopting key practices in
management, oversight, and accountability for reforms, such as systematic
monitoring and evaluation, could facilitate the achievement of the
Secretary General's overall reform goals.

  Performance-Based Budgeting Had Begun but Lacked Monitoring and Evaluation

At the program level, management reviews that compare actual performance
to expected outcomes are critical elements of effective oversight and
accountability. The United Nations has completed the initial phase of
implementing reforms in a key area-performance-based budgeting. It adopted
a budget that reflects a result-based budgeting format, including specific
program costs, objectives, expected results, and performance indicators to
measure results. However, it has yet to develop a system to regularly
monitor and evaluate program results to shift resources to more effective
programs. Program reviews that compare actual performance to expected
outcomes are important to account for resources and achieve effective
results.

Secretariat Has First Element of Performance-Based Budgeting in Place

We reported in February 2004 report that the United Nations had begun to
adopt a performance-based budgeting system. A performance-based budgeting
framework includes three key elements: (1) a budget that reflects a
budgeting structure based on results, linking budgeted activities to
performance expectations; (2) a system to regularly monitor and evaluate
the impact of programs; and (3) procedures to shift resources to meet
program objectives. In December 2000, the Secretariat implemented the
first key element of a performance-based budgeting framework by adopting a
budget that reflects a results-based budgeting format, including specific
program costs, objectives, expected results, and performance

A Monitoring and Evaluation System Had Not Been Developed

indicators to measure the results.7 For the first time, the 2004-2005
budget included specific performance targets and baseline data for many
performance indicators that can help measure performance over time and
allow program managers to compare actual achievements to expected results.
However, oversight committees have reported that some programs still
lacked clear and concise expected outcomes and performance

8

indicators.

Further, although the United Nations had developed measures for assessing
program progress, many of these measures represent tasks and outputs
rather than outcomes. For example, in 2003, a key objective of the
peacekeeping operation in East Timor was to increase the capacity of the
national police force to provide internal security. The indicator for
measuring results was the number of police trained-a goal of 2,830 police
by 2004. We reported, however, that the number of police trained did not
reflect the quality of their training or whether they improved security in
East Timor.

The Secretariat had not systematically monitored and evaluated program
impact or results-the second element of performance budgeting.9 In 2002,
the Office of Internal Oversight Services (OIOS) found that nearly half of
U.N. program managers did not comply with U.N. regulations to regularly
monitor and evaluate program performance. Program managers were not held
accountable for meeting program objectives because U.N. regulations
prevented linking program effectiveness and impact with program managers'
performance. OIOS did not provide statistics on the number or percentage
of program managers complying with U.N. regulations regarding monitoring
and evaluation activities in its most recent report on

7We have previously reported that linking funding to specific performance
goals is a critical first step in supporting the transition to a more
results-oriented and accountable organization. See GAO, Managing for
Results: Agency Progress in Linking Performance Plans with Budget and
Financial Statements, GAO-02-236 (Washington, D.C.: Jan. 2002).

8For the purposes of this testimony, U.N. oversight committees refer to
the Committee for Program and Coordination, which reviews the U.N.
planning and budgeting documents and the work planned under each program,
and the Advisory Committee on Administrative and Budgetary Questions.
These committees report to the Fifth Committee, which is the General
Assembly committee responsible for financial oversight of the Secretariat.

9U.N. regulations require that programs should be regularly monitored and
evaluated to determine their relevance, effectiveness, and impact in
relation to their objectives. See

Regulations and Rules Governing Program Planning, the Program Aspects of
the Budget, the Monitoring of Implementation and the Methods of Evaluation
(New York: United Nations, Apr. 19, 2000).

the Secretariat's evaluation efforts.10 However, OIOS reported that
program managers did not develop comprehensive monitoring and evaluation
plans in 12 out of 20 programs surveyed, and management review of
evaluations was inconsistent among programs.

OIOS also reported that, overall, evaluation findings were not used to
improve program performance. In some cases, such as with the Office of the
High Commissioner for Human Rights, monitoring and evaluation
responsibilities were assigned to low-level staff with minimal oversight
from program managers. Further, for the majority of programs, no resources
had been assessed or allocated for monitoring and evaluation activities.
As a result, it is unlikely that the Secretariat will meet its goal of
implementing a full performance-based budgeting system by 2006.

The final component of performance budgeting-procedures to review
evaluation results, eliminate obsolete programs, and shift resources to
other programs-was not in place. The Advisory Committee on Administrative
and Budgetary Questions reported in 2003 that it did not receive
systematic information from the Secretariat on program impact and
effectiveness to determine whether a program was meeting its expected
results. In 2004, the Committee for Program and Coordination recommended
that the Secretariat improve its monitoring and evaluation system to
measure impact and report on results. In December 2003, the General
Assembly approved the elimination of 912 of more than 50,000 outputs in
the 2004-2005 program budget based on the Secretariat's review of program
activities. However, in 2003, the Advisory Committee on Administrative and
Budgetary Questions and the Committee for Program and Coordination
reported that many sections in the budget still lacked justifications for
continuing certain outputs. The committees recommended that program
managers in the Secretariat identify obsolete outputs in U.N. budgets in
compliance with U.N. regulations so resources could be moved to new
priority areas.

Our February 2004 report contained recommendations to promote full
implementation and accountability of the Secretary General's overall
actions. Specifically, we recommended that the United States work with
other member states to encourage the Secretary General to (1) report

10Strengthening the Role of Evaluation Findings in Programme Design,
Delivery, and Policy Directives: Report of the Office of Internal Audit
Services, A/59/79 (New York: May 5, 2004).

regularly on the status and impact of the 1997 and 2002 reforms and other
reform that may follow, (2) differentiate between short-and long-term
goals and establish time frames for completion, and (3) conduct
assessments of the financial and personnel implications needed to
implement the reforms.

  U.N. Oil for Food Program

In addition to a systematic monitoring and evaluation system, a strong
internal audit and evaluation function can provide the independent
assessments needed to help ensure oversight and accountability. OIOS
provides this service through audits, evaluations, inspections, and
investigations of U.N. funds and programs. This office provided detailed
oversight of many aspects of the Oil for Food program, and its 58 reports
point to the need for continued U.N. attention to management reforms.
Specifically, reports by the internal auditors and the Independent Inquiry
Commission revealed lax oversight of Oil for Food program contracts that
resulted in repeated violations of procurement rules and weaknesses in
contract management. In addition, constraints on the internal auditors'
scope and authority prevented the auditors from examining and reporting
more widely on some critical areas of the Oil for Food program. U.N.
oversight bodies did not obtain timely reporting on serious management
problems and were unable to take corrective actions when needed. These
constraints limited the internal audit unit's effectiveness as an
oversight tool.

Lack of Oversight Allowed Procurement Violations and Poor Contract
Management

Our review of the OIOS audit reports of the Oil for Food program released
in January 2005 identified 702 findings and 667 recommendations across
numerous programs and sectors. 11 OIOS found recurring problems in
procurement, financial and asset management, personnel and staffing,
project planning and coordination, security, and information technology.
The findings in these audits, which were conducted from 1999 to 2004,
suggested a lack of oversight and accountability by the offices and
entities audited. In particular, we identified 219 findings and 212
recommendations related to procurement and contract management
deficiencies.

In February 2005, the IIC also reported that the initial procurement of
three major Oil for Food contracts awarded in 1996 did not meet

11GAO, United Nations: Oil for Food Program Audits, GAO-05-346T
(Washington, D.C.: Feb. 15, 2005).

IIC Found Lack of Compliance with Procurement Regulations

OIOS Found Weaknesses in Procurement and Contract Oversight

reasonable standards of fairness and transparency. The IIC reported that
it will make recommendations concerning greater institutional transparency
and accountability in a later report. OIOS also conducted audits of three
key contracts for inspecting commodities coming into Iraq and for
independent experts to monitor Iraq's oil exports. OIOS' findings in the
management of two of these contracts supplemented the IIC's information on
the bidding and awarding process. The IIC found that the initial selection
process did not conform to competitive bidding rules, while OIOS found lax
oversight by the U.N. Office of the Iraq Program (OIP) over contractor
performance.

The IIC reviewed three major contracts awarded in 1996 to determine if
their selections were free from improper influence and were conducted in
accordance with U.N. regulations. These contracts were awarded to Lloyd's
Register Inspection Ltd. to inspect humanitarian goods coming into Iraq,
Saybolt Eastern Hemisphere BV to inspect oil exported from Iraq, and
Banque National de Paris to maintain revenues from Iraqi oil sales.

In its February 2005 report, the IIC found that the United Nations
initiated expedited competitive bidding processes for both the
humanitarian goods and oil inspection contracts. The IIC concluded that,
during the bid process, the U.N. Iraq Steering Committee and the Chief of
the Sanctions Branch prejudiced and preempted the competitive process by
rejecting the lowest qualified bidder in favor of an award to Lloyd's
Register. The IIC found that the regular bidding process was tainted when
the branch chief provided a diplomat from the United Kingdom with insider
information on the bid amount that Lloyd's Register needed to win the
contract.

Similarly, the IIC found that a U.N. procurement officer allowed Saybolt
to amend its bid to become the lowest bidder. The IIC characterized the
bidding process for this contract as neither fair nor transparent.

The IIC also found irregularities in the award of a contract to Banque
National de Paris. The decision did not conform to the U.N. requirement to
award contracts to the lowest acceptable bidder, and no official justified
the rejection of the lowest acceptable bidder in writing, as required by
U.N. regulations.

OIOS conducted audits of the Lloyd's Register and Saybolt contracts as
well as the contract to Cotecna Inspection SA, the company that succeeded
Lloyd's Register for the inspection of humanitarian goods.

In a July 1999 audit of the Lloyd's Register contract, OIOS found
contractor overcharges, unverified invoices, violations of procurement
regulations, and limited U.N. oversight. For example, while the contract
allowed the United Nations to inspect and test all contractor services,
the auditors found that OIP had received, certified, and approved the
contractor's invoices without on-site verification or inspection reports.
In responding to the auditors findings, OIP rejected the call for on-site
inspections and stated that any dissatisfaction with the contractor's
services should come from the suppliers or their home countries.

A July 2002 audit of Saybolt's operation found similar problems, including
inadequate documentation for contractor charges and payments made for
equipment already included in the contractor's daily staff cost structure.
As with the Lloyd's Register contract, OIOS found that OIP officials
charged with monitoring the Saybolt contract had made no inspection visits
to Iraq but had certified the contractor's satisfactory compliance with
the contract and approved extensions to the contract.

In an April 2003 report, OIOS cited concerns about amendments and
extensions to Cotecna's original $4.9 million contract. Specifically, OIOS
found that OIP increased Cotecna's contract by $356,000 4 days after the
contract was signed. The amendment included additional costs for
communication equipment and operations that OIOS asserted were included in
the original contract. In addition, OIOS found that the contract equaled
the offer of the second lowest bidder through amendments and extensions
during the contract's first year. Accordingly, OIOS concluded that, one
year after the start of the contract, the reason for awarding the contract
to Cotecna-on the grounds that it was the lowest bidder-was no longer
valid.

In addition to the three inspection contracts, OIOS reported procurement
weaknesses in other areas of the Oil for Food program. For example, in
November 2002, OIOS reported that almost $38 million in procurement of
equipment for the U.N.-Habitat program was not based on a needs
assessment. As a result, 51 generators went unused from September 2000 to
March 2002, and 12 generators meant for project-related activities were
converted to office use. OIOS further reported that 11 purchase orders
totaling almost $14 million showed no documentary evidence supporting the
requisitions.

Effectiveness of Internal Oversight Was Limited by Budgeting and Reporting
Constraints

In 1994, the General Assembly established OIOS to conduct audits,
evaluations, inspections, and investigations of U.N. programs and funds.
Its mandate reflects many characteristics of U.S. inspector general
offices in purpose, authority, and budget. For example, OIOS staff have
access to all U.N. records, documents, or other material assets necessary
to fulfill their responsibilities.

We reported in 1997 that OIOS was in a position to be operationally
independent, had overcome certain start-up problems, and had developed
policies and procedures for much of its work. We could not test whether
OIOS exercised its authority and implemented its procedures in an
independent manner because OIOS did not provide us with access to certain
audit and investigation reports and its working papers. However, we
concluded that OIOS could do more to help ensure that the information it
presents, the conclusions it reaches, and the recommendations it makes can
be relied upon as fair, accurate, and balanced. The IIC also made a number
of recommendations in January 2005 to help provide OIOS' audit division
with the mandate, structure, and support it needs to operate effectively.

The IIC found a need for greater reporting and budgetary independence for
OIOS and its internal audit division. This division has two funding
sources: (1) the U.N. regular budget, which covers normal, recurring audit
activities; and (2) extra-budgetary funds allocated outside the U.N.
regular budget, which cover audits of special non-recurring funds and
programs, such as the Oil for Food program. OIOS' internal audit division
received extra-budgetary funds directly from the Oil for Food program
managers it audited. It assigned 2 to 6 auditors to cover the program. The
IIC found that this level of staffing was low compared to OIOS' oversight
of peacekeeping operations and to levels recommended by the U.N. Board of
Auditors.

The IIC found that the practice of allowing executive directors of funds
and programs the right to approve the budgets and staffing of internal
audit activities can lead to critical and high risk areas being excluded
from internal audit examination and review by oversight bodies. For
example:

o  	Since its inception, OIOS has generally submitted its audit reports
only to the head of the audited agency. However, in August 2000 OIOS tried
to widen its report distribution by sending its Oil for Food reports to
the Security Council. However, the OIP director opposed this proposal,
stating that it would compromise the division of responsibility between
internal and external audit. The Deputy Secretary General also denied the
request,

and OIOS subsequently abandoned any efforts to report directly to the
Security Council.

o  	OIOS did not examine OIP's oversight of the contracts for humanitarian
goods in central and southern Iraq that accounted for almost $40 billion
in Oil for Food proceeds. OIP was responsible for examining these
contracts for price and value at its New York headquarters. The Iraqi
government's ability to negotiate contracts directly with commodity
suppliers was an important factor in enabling Iraq to levy illegal
commissions. OIOS believed that these contracts were outside its purview
because the Security Council's sanctions committee was responsible for
their approval. However, OIP management also steered OIOS toward program
activities in Iraq rather than headquarters functions where OIP reviewed
the humanitarian contracts.

o  	In May 2002, OIP's executive director did not approve the auditors'
request to conduct a risk assessment of OIP's Program Management Division,
citing financial reasons. We reported last year that it was unclear how
certain entities involved in the Oil for Food program, including OIP,
exercised their oversight responsibilities over humanitarian contracts and
sanctions compliance by member states.12 Such an assessment might have
clarified OIP's oversight role and the actions it was taking to carry out
its management responsibilities.

o  In 2002, the U.N. Compensation Commission challenged OIOS' audit

authority.13 In its legal opinion, the U.N. Office of Legal Affairs noted
that the audit authority extended to computing the amounts of compensation
but did not extend to reviewing those aspects of the panels' work that
constitute a legal process. However, OIOS disputed the legal opinion,
noting that its mandate was to review and appraise the use of U.N.
financial resources. OIOS believed that the opinion would effectively
restrict any meaningful audit of the claims process. OIOS identified more
than $500 million in potential overpayments by the Commission. However, as
a result of the legal opinion, the Commission did not respond to many OIOS
observations and recommendations, considering them beyond the scope of an
audit.

12GAO-04-730T.

13The U.N. Compensation Commission was established in 1991 to process
claims and provide compensation for losses resulting from Iraq's invasion
and occupation of Kuwait.

Conclusion

Contact and Staff Acknowledgments

Constraints on the internal auditors' scope and authority prevented the
auditors from examining and reporting more widely on problem areas in the
Oil for Food program. These limitations hampered the auditors' coverage of
the Oil for Food program and its effectiveness as an oversight tool. U.N.
oversight bodies did not obtain timely reporting on serious management
problems and were unable to take corrective actions when needed. However,
in December 2004, the General Assembly required OIOS to include in its
annual and semi-annual reports titles and brief summaries of all OIOS
reports issued during the reporting period and to provide member states
with access to original versions of OIOS reports upon request. The IIC
also recommended that OIOS and its internal audit division directly report
to a non-executive board and that budgets and staffing levels for all
audit activities be submitted to the General Assembly and endorsed by an
independent board.

The Secretary General's announcement that he intends to offer a U.N.
reform agenda in September 2005 offers the United Nations an opportunity
to take a more strategic approach to management reform. A systematic
review of the status of the 154 reforms begun in 1997 and 2002 and
information from the Oil for Food program would allow the Secretary
General to develop a comprehensive, prioritized agenda for continued U.N.
reform. We also encourage continued attention to our February 2004
recommendation that the United States work with other member states to
encourage the Secretary General to report regularly on the status of
reform efforts, prioritize short-and long-term goals, and establish time
frames to complete reforms.

Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions you or the other Subcommittee members may have.

For further information, please contact Joseph A. Christoff on (202)
5128979. Individuals making key contributions to this testimony and the
reports on which it was based are Phyllis Anderson, Leland Cogliani, Lynn
Cothern, Katie Hartsburg, Jeremy Latimer, Tetsuo Miyabara, Michael
Rohrback, and Audrey Solis.

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