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REPORTNUM:   GAO-06-575		

TITLE:     UNITED NATIONS: Funding Arrangements Impede Independence 
of Internal Auditors

DATE:   04/25/2006 
				                                                                         
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GAO-06-575

     

     * Report to Congressional Committees
          * April 2006
     * UNITED NATIONS
          * Funding Arrangements Impede Independence of Internal Auditors
     * Contents
          * Results in Brief
          * Background
               * Organization of OIOS
               * Funding Structure
          * UN Funding Arrangements Hinder Independent Oversight
               * UN Mandate and International Auditing Standards Require
                 Independence
               * Funding Arrangements Hinder OIOS's Flexibility to Reallocate
                 Resources to Address High-Risk Areas
               * Reliance on Other Entities for Funding Could Infringe on
                 OIOS's Independence
          * OIOS Has Not Fully Met Key Elements of International Auditing
            Standards
               * OIOS Has Developed Annual Work Plans but Has Not Fully
                 Implemented a Risk Management Framework
               * OIOS Not Reporting on Status of Overall Risk and Control
                 Issues Facing the UN
               * OIOS Lacks a Mechanism to Determine Appropriate Resource
                 Levels
               * OIOS Offers Training Opportunities but Does Not Require or
                 Systematically Track Continuing Professional Development
               * OIOS Has No Guidance or Systematic Framework for Assessing
                 Data Reliability
               * Most OIOS Staff Are Not Required to Submit Independence and
                 Financial Disclosure Statements
               * OIOS Has Key Quality Assurance Measures, but Work Remains to
                 Meet International Standards
               * OIOS Has a Process to Regularly Monitor Disposition of
                 Recommendations
          * UN Oversight Entities Undertake Activities to Coordinate Efforts
            but Do Not Provide Reasonable Assurance for a Comprehensive
            Approach to Oversight
               * UN Resolutions Call for Coordinating Efforts to Ensure
                 Comprehensive Approach to Oversight
               * Responsibility for Ensuring a Comprehensive Approach and
                 Minimizing Duplication Is Unclear
               * Several Forums Provide Venues for Information Exchange among
                 UN Oversight Entities
               * Joint Efforts to Collaborate and Share Annual Work Plans and
                 Reports Are Limited
          * U.S. Prioritizes Efforts to Strengthen UN Internal Oversight, but
            Influence Is Limited by a Key Vacancy at the U.S. Mission to the
            UN
          * Conclusion
          * Recommendations for Executive Action
          * Agency Comments and Our Evaluation
     * Scope and Methodology
     * OIOS Oversight Authority
     * OIOS Organizational Structure
     * Process for Developing OIOS Budget
     * Resources of Selected UN Oversight Entities
     * Comments from the Office of Internal Oversight Services
     * Comments from the Department of State
          * GAO Comments
     * GAO Contact and Staff Acknowledgments
     * Related GAO Products
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to Congressional Committees

April 2006

UNITED NATIONS

Funding Arrangements Impede Independence of Internal Auditors

Contents

Figures

April 25, 2006Letter

The Honorable Norm Coleman Chairman The Honorable Carl Levin Ranking
Minority Member Permanent Subcommittee on Investigations Committee on
Homeland Security   and Governmental Affairs United States Senate

The Honorable Henry J. Hyde Chairman The Honorable Tom Lantos Ranking
Minority Member Committee on International Relations House of
Representatives

As the largest financial contributor to the United Nations (UN) with
assessed and voluntary contributions totaling more than $1.6 billion to
the UN in 2006,1 the United States has advocated the need for strong
oversight for years and provided early support to establish the Office of
Internal Oversight Services (OIOS) in 1994. The findings of the
Independent Inquiry Committee (IIC) into the UN's Oil for Food Program in
February 2005 renewed long-standing concerns about the independence,
resources, and professional standards of internal oversight functions at
the UN.2 To address these concerns, in September 2005, heads of member
states of the UN approved the World Summit Outcome Document that called
for a series of reforms to strengthen the OIOS.

In response to your request for a study on the internal oversight function
at the United Nations, we examined (1) the extent to which UN funding
arrangements for OIOS ensure independent oversight, (2) the consistency of
OIOS's practices with key international auditing standards, (3)
coordination among UN oversight entities, and (4) U.S. government efforts
to advance UN reforms to strengthen internal oversight.  3 In addition, as
requested, we are providing information on the budget and staff resources
of selected UN oversight entities.

To address our objectives, we reviewed relevant UN and OIOS reports,
manuals, and numerous program documents, as well as international auditing
standards such as those of the Institute of Internal Auditors (IIA) and
the International Organization of Supreme Auditing Institutions (INTOSAI).
The IIA standards apply to internal audit activities-not to
investigations, monitoring, evaluation, and inspection activities.
However, we applied these standards OIOS-wide, as appropriate, in the
absence of international standards for non-audit oversight activities. We
met with senior Department of State (State) officials in Washington, D.C.,
and senior officials with the U.S. Missions to the UN in New York, Vienna,
and Geneva. At these locations, we also met with OIOS management officials
and staff; representatives of Secretariat departments and offices, as well
as the UN funds, programs, and specialized agencies;4 and the UN external
auditors-the Board of Auditors (in New York) and the Joint Inspection Unit
(in Geneva). To assess the reliability of OIOS's funding and staffing data
for fiscal bienniums 1996-1997 to 2006-2007, we reviewed the OIOS's budget
documents and discussed the data with relevant officials. To review OIOS's
recommendations monitoring process, we discussed the data collection
procedures with relevant officials. We determined that the data we used to
examine the budget, staffing, and recommendations were sufficiently
reliable for the purposes of this report. We performed our work between
April 2005 and March 2006 in accordance with generally accepted U.S.
government auditing standards. (Appendix I provides a detailed discussion
on our scope and methodology.)

Results in Brief

UN funding arrangements constrain OIOS's ability to operate independently
as mandated by the General Assembly and required by international auditing
standards that OIOS has adopted. According to these standards, an
institution's financial regulations should not restrict an audit
organization from fulfilling its mandate, and the audit organization
should have appropriate and sufficient resources to achieve its mandate.
First, while OIOS is funded by the UN's regular budget and 12 other
revenue streams, UN financial regulations and rules severely limit OIOS's
flexibility to 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 for the services it provides. OIOS must obtain
permission to perform audits or investigations from the managers of funds
and programs, and negotiate the terms of work and payment for those
services with them. Moreover, the heads of these entities have the right
to deny funding for the oversight work OIOS proposes. By denying OIOS
funding, UN entities could avoid, and have avoided, OIOS audits; high-risk
areas could therefore be excluded from adequate examination. For example,
the practice of allowing the heads of programs the right to approve
funding of internal audit activities prevented OIOS from examining
high-risk areas in the UN Oil for Food program, where billions of dollars
were subsequently found to have been misused.

Although OIOS has developed and begun to implement key components of
effective oversight, some of OIOS's audit practices fall short of meeting
the international auditing standards it has adopted. Specifically, while
OIOS develops an annual work plan, it has not fully implemented a risk
management framework to provide reasonable assurance that its annual work
plans are based on a systematic assessment of risks. As a result, OIOS may
not be allocating resources to areas in the UN with the highest exposure
to fraud, waste, and abuse. Moreover, OIOS annual reports do not provide
an overall assessment of risk exposures and control issues facing the UN
organization as a whole, or the consequences to the organization if the
risks are not addressed. In terms of resource management, OIOS officials
report that the office does not have adequate resources; however, they do
not have a mechanism in place to determine appropriate staffing levels and
help justify budget requests. Moreover, OIOS has no mandatory training
curriculum for staff to develop their expertise, nor does the office have
guidance and systematic procedures to ensure that the data it uses to
support its work are reliable. Except for the Investigations Division,
OIOS also has no requirement for staff to document their independence as
called for by international auditing standards. In terms of quality
assurance, although two OIOS divisions have undergone external reviews,
the other two have not complied with the requirement for such a review
every 5 years. To monitor the disposition of the recommendations it has
made, OIOS has a system to track and report regularly on the status of its
recommendations, and efforts to strengthen this system are under way.

The internal and external oversight bodies of the various UN organizations
have made efforts to coordinate their activities; however,
responsibilities for ensuring a comprehensive approach to oversight are
unclear. To avoid duplication and leverage resources within the UN
oversight community, the General Assembly and many member states have
emphasized the importance of coordination between OIOS and the UN external
oversight bodies-the Joint Inspection Unit and the Board of Auditors-and
among the oversight offices of the UN funds and programs, specialized
agencies, and other entities. However, existing forums to foster
coordination primarily provide opportunities for sharing information and
best practices. They are not meant to fully explore joint activities that
could avoid duplication of efforts and leverage resources. OIOS, the Joint
Inspection Unit, and the Board of Auditors share annual work plans-which
can help identify gaps in oversight coverage and avoid unnecessary
duplication. Also, OIOS is required to provide copies of its reports to
the Joint Inspection Unit and the Board of Auditors for comment as
appropriate. However, the practice of sharing work plans and the
requirement to share reports do not apply to the internal oversight
entities of separately administered UN funds and programs, and specialized
agencies. Many of these UN entities are not subject to OIOS oversight but
represent a substantial portion of UN-wide activities and report to their
respective governing bodies. Without clear responsibilities for
coordination and concerted efforts to collaborate on joint activities, it
is difficult to ascertain gaps in oversight coverage, identify
opportunities to avoid duplication of effort, or fully leverage the
resources of the UN oversight community.

The United States has made advancing UN reforms to strengthen internal
oversight a priority, but a key senior-level vacancy at State may have
limited the U.S. ability to influence management reforms. As part of U.S.
efforts to reform UN management, State has adopted a multifaceted approach
to creating a culture of transparency, accountability, and efficiency. In
addition, a State representative co-chairs the Geneva Group Focal Group on
Oversight. The focal group is completing an overview of internal oversight
in the UN agencies and plans to issue its report in fall 2006. Although
the United States has made efforts to advance UN reforms to strengthen
internal oversight a priority, the position of U.S. Representative for UN
Management Reform at the U.S. Mission to the UN in New York was vacant for
more than a year. This position was recently filled in March 2006. U.S.
Mission officials stated that this vacancy limited the mission's ability
to influence oversight and other management reform proposals during the
months leading up to the 2005 World Summit and the resulting document.

This report makes recommendations to the Secretary of State and the
Permanent Representative of the United States to the UN to work with
member states to support budgetary independence for OIOS and OIOS's
efforts to more closely adhere to international auditing standards,
including measures to

o ensure reliable funding arrangements that do not undermine the
independence of OIOS, and provide it with sufficient resources that it can
reallocate or deploy as may be necessary to meet high-risk areas as they
arise;

o complete the implementation of OIOS's risk management framework;

o report to the General Assembly on the status of significant risks and
control issues facing the UN organization;

o develop a workforce planning methodology;

o institute a mandatory training curriculum for OIOS professional staff;

o establish guidance and procedures for assessing the reliability of data
used to support significant findings in OIOS reports; and

o require all OIOS professional staff to file statements of independence
and financial disclosures, and institute procedures to adequately review
such statements.

In commenting on the official draft of this 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. State fully agreed with GAO's
finding that UN member states need to ensure that OIOS has budgetary
independence. However, State does not believe that multiple funding
sources have impeded OIOS's budgetary flexibility. We found that current
UN regulations and rules are very restrictive, severely limiting the
ability to move funds across revenue streams to emerging or high priority
areas. OIOS and State also reviewed a draft of this report for technical
accuracy. We incorporated their technical comments and updates throughout
the report, as appropriate. We have reprinted OIOS's and State's comments
in appendixes VI and VII, respectively.

Background

OIOS was created in 1994 to assist the Secretary-General in fulfilling
internal oversight responsibilities over UN resources and staff. (See fig.
1 for a timeline of the development of OIOS since 1994.) The stated
mission of OIOS is "to provide internal oversight for the United Nations
that adds value to the organization through independent, professional, and
timely internal audit, monitoring, inspection, evaluation, management
consulting, and investigation activities and to be an agent of change that
promotes responsible administration of resources, a culture of
accountability and transparency, and improved program performance." As an
internal auditor, OIOS audit reports were previously available to only the
Secretary-General and the heads of UN entities under examination. However,
in December 2004, the General Assembly passed a resolution making all
OIOS's reports available to any member state upon request.5

Figure 1: Development of OIOS

The UN oversight structure consists of internal and external oversight
bodies (see fig. 2). Internal oversight is provided by OIOS for the UN
Secretariat and other UN organizations under the authority of the UN
Secretary-General; many UN funds and programs, specialized agencies, and
other UN organizations have their own internal oversight offices. External
oversight is provided by the Board of Auditors,6 which examines the UN
Secretariat and other UN organizations within the Secretary-General's
authority; and the Joint Inspection Unit, which has UN systemwide

authority.7 In general, the Board of Auditors audits the financial
statements of the UN Secretariat and UN funds and programs. The Joint
Inspection Unit primarily examines thematic areas, such as the possibility
of outsourcing certain services that cut across UN organizations, although
the unit also examines some single-organization issues.8 In addition, UN
organizations that have their own internal oversight offices appoint
external auditors who serve fixed terms. These external auditors are often
from the national auditing office of a member state that has an expressed
interest in providing an external auditor.9

Figure 2: UN Oversight Bodies

Organization of OIOS

OIOS is headed by an Under Secretary-General who is appointed by the
Secretary-General, with the concurrence of the General Assembly, for a
5-year fixed term with no possibility of renewal.10 The Under
Secretary-General may be removed by the Secretary-General only for cause
and with General Assembly approval.

OIOS's authority spans all UN activities under the Secretary-General.
These include the UN Secretariat in New York, Geneva, Nairobi, and Vienna;
the five regional commissions for Africa, Asia and the Pacific, West Asia,
Europe, and Latin America and the Caribbean; peacekeeping missions and
humanitarian operations in various parts of the world; and numerous UN
funds and programs, such as the UN Environment Program, UN Human
Settlements Program (UN-HABITAT), and the Office of the UN High
Commissioner for Refugees. OIOS's authority does not extend to UN
specialized agencies such as the Food and Agriculture Organization,
International Labor Organization, and World Health Organization (see app.
II).

To carry out its responsibilities, OIOS is organized into four operating
divisions: (1) Internal Audit Division I (New York); (2) Internal Audit
Division II (Geneva); (3) Monitoring, Evaluation and Consulting Division;
and (4) Investigations Division.11 An executive office supports the Under
Secretary-General and these four divisions. (See app. III for a chart of
the OIOS organizational structure and the number of staff in each
division.)

Funding Structure

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;12
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. UN regular budget resources are determined on a biennial
basis and are estimated at approximately $3.8 billion UN-wide for
2006-2007, the current biennium. OIOS's share of regular budget resources
is estimated at about $31.3 million for fiscal biennium 2006-2007.

Extrabudgetary resources are estimated at $5.6 billion for the biennium
2006-2007; OIOS's share of extrabudgetary resources is about $54
million.13

UN Funding Arrangements Hinder Independent Oversight

The General Assembly mandate creating OIOS calls for it to be
operationally independent. In addition, according to international
auditing standards, an internal oversight unit should have sufficient
resources to effectively achieve its mandate. In practice, however, OIOS's
independence is impaired by constraints that UN funding arrangements
impose. First, while OIOS is funded by a regular budget and 12 other
revenue streams, UN financial regulations and rules severely limit OIOS
from reallocating its resources between funding sources, locations, and
operating divisions as may be necessary. Second, OIOS is dependent on UN
funds and programs and other UN entities for resources and reimbursement
for the services it provides. As a result of these structural constraints,
OIOS may not be able to examine high-risk areas as appropriate.

UN Mandate and International Auditing Standards Require Independence

In passing the resolution that established OIOS in August 1994, the
General Assembly stated that the office shall exercise operational
independence and that the Secretary-General, when preparing the budget
proposal for OIOS, should take into account the independence of the
office.14 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.15

In addition, the Institute of Internal Auditors (IIA) standards for the
professional practice of auditing,16 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.17

Funding Arrangements Hinder OIOS's Flexibility to Reallocate Resources to
Address High-Risk Areas

In addition to funding from the UN regular budget, OIOS receives
extrabudgetary funding from 12 different revenue streams. These include
funds and programs, a peacekeeping support account, and tribunals for
Rwanda and the former Yugoslavia.18 Although the UN's regular budget and
extrabudgetary funding percentages over the years have remained relatively
stable, an increasing share of OIOS's budget is comprised of
extrabudgetary resources (see fig. 3). OIOS's extrabudgetary funding has
steadily increased over the past decade, from 30 percent in fiscal
biennium 1996-1997 to 63 percent in fiscal biennium 2006-2007 (in nominal
terms). The majority of OIOS's staff (about 69 percent) is funded with
extrabudgetary resources. The growth in the office's budget is primarily
due to extrabudgetary resources for audits and investigations of
peacekeeping operations, including issues related to sexual exploitation
and abuse.

Figure 3: Trends in UN and OIOS Regular Budget and Extrabudgetary
Resources, Fiscal Bienniums 1996-1997 to 2006-2007

In fiscal biennium 2006-2007, the majority of OIOS's extrabudgetary
funds-about $40.7 million or about 75 percent of the total-represents
funding for peacekeeping services, primarily resident auditors and
investigators in the field.19 (Figure 9 in app. III shows the number of
resident auditors and investigators OIOS has in each of its duty stations
worldwide.) Figure 4 provides a breakdown of OIOS's extrabudgetary
resources by funding source.

Figure 4: OIOS Extrabudgetary Resource Estimates, by Funding Source,
Fiscal Biennium 2006-2007

aThe General Assembly is not expected to approve the peacekeeping budget,
a key component of extrabudgetary resources, until May or June 2006.
Extrabudgetary figures for the fiscal biennium 2006-2007 are estimated.

UN funding arrangements severely limit OIOS's flexibility to reallocate
its resources among its multiple funding sources, OIOS locations
worldwide, or among its operating divisions-Internal Audit Divisions I and
II; Investigations Division; and Monitoring, Evaluation, and Consulting
Division-to address changing priorities. In addition, the movement of
staff

positions20 or funds between regular and extrabudgetary resources is not
allowed. (Appendix IV illustrates the UN budget processes.) For example,
one section in the Internal Audit Division may have exhausted its regular
budget travel funds, while another section in the same division has 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.

In addition, the movement of staff positions from one duty station to
another can be time consuming. According to the UN budget office and OIOS
officials, the redeployment of staff positions between duty stations
requires approval by the Fifth Committee,21 and is reflected in the budget
document and consequently in a staffing authorization. For example, OIOS
officials requested a reallocation of 11 staff positions from the
Investigations Division in New York to the Investigations Division in
Vienna to save travel funds and to be closer to the entities they examine.
According to OIOS officials, this change was approved only after repeated
requests by OIOS over a number of years. Although OIOS can move staff
positions between and across its four divisions to address priority areas,
the positions must be funded from the same source as the priority area
addressed.

According to OIOS officials, for the last 5 years, OIOS has consistently
found it necessary to address very critical cases on an urgent basis. A
recent example is the investigations of sexual exploitation and abuse in
the Republic of Congo and other peacekeeping operations that identified
serious cases of misconduct and the need for increased prevention and
detection of such cases. However, the ability to redeploy resources
quickly when situations arise has been impeded by restrictions on the use
of staff positions. The Under Secretary-General for OIOS has proposed that
the office be allowed the flexibility to direct the resources as
necessary.

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 the permission of funds
and programs to examine their operations and to 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
adequate examination. In some cases, the fund and program manager have
disputed the fees OIOS has charged after investigative services are
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.

UN funds and programs limit OIOS's ability to independently set its work
priorities because they exercise the power to decide whether to fund OIOS
oversight activities and to negotiate the level of funding. OIOS officials
stated that, because of OIOS's funding arrangements, some high-priority
work was not undertaken. For example, the practice of allowing the heads
of programs the right to fund 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 be misused. The Independent
Inquiry Committee into the Oil for Food Program previously reported that
the UN Office of the Iraq Program denied OIOS's request in May 2001 for
two resident investigators to cover Iraq.22 Also, according to the head of
the Investigations Division, the division would like to undertake more
investigative work in certain funds and programs, but it does not have the
resources to do so. A senior OIOS official said that there are contracts
valued in the hundreds of millions of dollars, including certain high-risk
UN Procurement Service air contracts that have not been audited in several
years because OIOS does not have sufficient staff to perform the work. In
addition, the official said that OIOS has not audited the UN Secretariat's
budget office in a systematic manner.

In November 2005, the Under Secretary-General for OIOS proposed to the
Advisory Committee on Administrative and Budgetary Questions (ACABQ)23
that a single source of funding be established for the office; however, it
is unclear whether this proposal is under consideration. OIOS officials
said they would prefer that OIOS be allocated a percentage of the UN
budget, which would be placed in a trust fund for its use. As envisioned
by the Under Secretary-General, the funding would come from one source and
provide the flexibility and the independence OIOS needs to perform its
oversight functions. Pursuant to the 2005 World Summit, in January 2006,
the UN Secretary-General commissioned a study on governance and oversight
in the UN. OIOS officials told us that the report is expected to be issued
in the summer of 2006. According to OIOS officials, they intend to use the
report to help them determine their resource requirements.

OIOS Has Not Fully Met Key Elements of International Auditing Standards

Since its formal adoption of the IIA international standards for the
professional practice of internal auditing in 2002, OIOS has begun to
develop and implement the key components of effective oversight. However,
the office has yet to fully implement them (see fig. 5). Specifically,
OIOS develops annual work plans, but these plans are not fully based on a
systematic risk assessment process as required by international auditing
standards and called for by OIOS's risk management framework. Moreover,
OIOS annual reports do not provide an overall assessment of risk exposures
and control issues facing the UN organization as a whole or the
consequence to the organization if the risks are not addressed. In terms
of human resource management, OIOS officials report that the office does
not have adequate resources, but they do not have a mechanism in place to
determine appropriate staffing levels and help justify budget requests.
OIOS has no mandatory training curriculum for staff to develop their
expertise nor does it have guidance and systematic procedures to provide
reasonable assurance that data it uses are reliable. OIOS also does not
require all staff to document their independence. Although OIOS has
quality assurance measures in place, it falls short of meeting the
international auditing standards in areas such as external assessments.
OIOS monitors and reports regularly on the implementation status of its
recommendations, but a committee established by the Secretary-General to
follow up on the implementation of oversight recommendations is not yet
operational.

Figure 5: OIOS's Progress on Key Elements of International Standards for
the Professional Practice of Internal Auditing

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

OIOS has adopted a risk management framework24 to link the office's annual
work plans to risk-based priorities, but it has not fully implemented this
framework. Thus, OIOS cannot provide reasonable assurance that its annual
work plans give the highest priority to the highest-risk audits. OIOS
began implementing a risk management framework in 2001 to enable the
office to prioritize the allocation of resources to oversee those areas
that have the greatest exposure to fraud, waste, and abuse. OIOS's risk
management framework includes plans for organization-wide risk
assessments, to categorize and prioritize risks facing the organization,
and client-level risk assessments, to identify and prioritize risk areas
facing each entity for which OIOS has oversight authority.25 According to
OIOS officials, the annual work planning process included discussions of
the work that OIOS would undertake and identified 31 risk areas for
prioritizing its work. In addition, OIOS officials stated that they
consider program budget size, time elapsed since the last audit, number of
staff, and risks to the UN's reputation if fraud and waste go undetected
when deciding which audits to perform. Although OIOS's framework includes
plans to perform client-level risk assessments,26 as of April 2006, out of
25 entities that comprise major elements of its oversight universe, three
risk assessments had been completed, three were in progress, and four more
are planned for 2006.

In practice, however, OIOS annual work plans are not fully based on the
risk assessments it has completed or called for in its risk management
framework. OIOS officials stated that the office does not systematically
rank audit proposals in the annual work plan by risk level or weight more

significant risk factors.27 The office's 2005 annual report stated that 70
percent of its work was risk-based. However, OIOS officials stated that
this estimate includes a number of oversight activities that have risk
areas assigned to them retroactively (instead of during the preliminary
planning process). 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. As a result, OIOS officials cannot
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 Not Reporting on Status of Overall Risk and Control Issues Facing the
UN

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 IIC 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 stated that the office does
not have an annual report to assess UN-wide 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.

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

OIOS staff have opportunities for training and other professional
development, and OIOS officials said that they encourage staff to seek
training and professional certifications. UN personnel records show that
OIOS staff took 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 that are applicable to auditors. According to
the official, the service tracks all courses completed (and who completed
them), making this information available to OIOS management. Since
subscribing, 49 OIOS staff have completed and passed a total of almost 200
online IIA courses. OIOS officials reported that they encourage staff to
seek professional certifications such as Certified Internal Auditor, for
example, by reimbursing the costs of course materials for those who
certify. According to an OIOS official, about 80 percent of the auditors
from the Geneva division have current professional certifications.28

Despite these professional development opportunities, OIOS does not
formally require staff training, nor does it systematically track training
to provide reasonable assurance that all staff are maintaining and
acquiring professional skills. OIOS policy manuals list no minimum
training requirement. OIOS officials stated that, although they gather
some information on their use of training funds for their annual training
report to the UN Office of Human Resources Management, they do not
maintain an officewide database to systematically track all training their
staff has taken. The 2005 training report, for example, lists about 50
different training courses and conferences attended by OIOS staff members.
However, the report also shows that the Monitoring, Evaluation, and
Consulting Division used 30 times more OIOS training funds than the
Investigations Division, even though the Investigations Division has more
than 5 times as many staff. Therefore, it is difficult to assess whether
all OIOS staff are getting training and other professional development
opportunities to maintain or acquire the skills needed to perform the
oversight duties to which they are assigned. Board of Auditors' reviews,
for example, have noted a lack of information technology expertise in
OIOS.

OIOS Has No Guidance or Systematic Framework for Assessing Data
Reliability

Although OIOS uses program data in its oversight activities, it has not
developed guidance or a framework to help its staff determine the
reliability of the data it uses to support the findings and
recommendations in its reports. OIOS division manuals do not provide
guidance on data reliability checks. OIOS officials stated that they
expect staff to use professional judgment in determining which data to use
to support their findings, but that they do not require them to document
that they have determined the data to be sufficiently reliable. The Board
of Auditors reported that OIOS's auditors routinely use field missions'
applications and databases as part of their audits, particularly in the
areas of asset control, financial management, and procurement and that
OIOS noted that their capacity to perform information technology audits
was not sufficient. Computer-processed data require a more technical
assessment than other forms of evidence and the very nature of information
systems allows opportunities for errors to be introduced by many people.
Unreliable data are a significant risk because key management decisions
may be based on the information that these automated systems generate.
However, because OIOS does not have systematic guidance or a framework on
data reliability, it cannot provide reasonable assurance that data
reliability assessments are risk-based and geared to the specific
circumstances of the audit.

Most OIOS Staff Are Not Required to Submit Independence and Financial
Disclosure Statements

OIOS does not require all staff to attest to their independence and, in
OIOS, only the Under Secretary-General and senior managers are required to
complete an annual financial disclosure statement. All UN staff are
expected to follow UN staff rules and regulations, but OIOS has no
office-wide policy for documenting that oversight staff are free from
impairment to their independence. Only the Investigations Division
requires its staff to sign a statement of independence, which OIOS
officials said is kept in personnel files. According to a UN official, the
UN ethics policy was recently changed to require approximately 1,000 UN
staff at the D-1 level and above29 to submit financial disclosures, but it
still does not include staff-level employees in OIOS.30 OIOS officials
stated that, in the absence of official statements of independence, they
rely on individuals to voluntarily report potential conflicts of interest
when they are assigned to work on a specific audit or investigation.

OIOS Has Key Quality Assurance Measures, but Work Remains to Meet
International Standards

OIOS has some quality assurance policies and processes in place, but
external reviews of OIOS have revealed weaknesses. We found that all OIOS
divisions have an internal report review process as a quality check before
their reports are sent to the General Assembly. In addition, the Internal
Audit Division in New York has a checklist for draft reports that requires
supervisors to document when quality assurance processes are completed;
and the Internal Audit Division manual contains a chapter devoted to
quality assurance policies and procedures.

Although periodic external reviews required by the IIA could provide
reasonable assurance of the quality of OIOS's work, two out of four OIOS
divisions have not undergone an external review since its inception in
1994. Although not required to follow IIA standards, the Investigations
Division was reviewed in 2004 by a team from the European Anti-Fraud
Office on the occasion of OIOS's 10th anniversary.31 The Internal Audit
Division in Geneva became the second division to undergo an external
review. The final report of the team, led by the chief auditor of the UN
Children's Fund, was released to OIOS management in December 2005. The
Internal Audit Division in New York and the Monitoring, Evaluation, and
Consulting Division have not undergone an external review. Audit officials
in New York said they must complete an external review by January 2007 in
order for the Internal Audit Division to continue reporting that its work
complies with IIA standards.32 The external oversight bodies of the UN-the
Joint Inspection Unit and Board of Auditors-have never fully reviewed
OIOS's quality assurance framework. Both have reviewed some elements of
the office's management practices, but officials representing both bodies
said that a full and regular external review of OIOS's quality assurance
framework is outside their mandates and would not be feasible with their
limited resources. Without a comprehensive external review by bodies with
access to OIOS internal documents and staff, it is difficult to fully
assess OIOS's compliance with IIA quality assurance standards.

External reviews of OIOS have also found weaknesses limiting OIOS's
ability to provide reasonable assurance as to the quality of its work. The
Board of Auditors has noted that OIOS work papers show inconsistent
documentation of supervisory review, and that OIOS lacks expertise to
assess the effectiveness of client information and communications
technology. In this regard, an OIOS official said a vacancy announcement
for an Information and Communications Technology Auditor has recently been
issued, and the announcements for two more are planned. The European
Anti-Fraud Office3334 reported that some sampled files from the
Investigations Division had incomplete interview records, work plans, and
documentation regarding the results of recommendations made or proposed
follow-up. The peer review team for the Internal Audit Division in Geneva
reported on deficiencies in supervisory reviews and some other aspects of
documenting their work. In response to the report, the head of the
division issued instructions requiring supervisors to complete a working
paper confirmation form to ensure working papers were completed and
organized in a manner that could be easily reviewed by someone independent
of the audit assignment.

OIOS Has a Process to Regularly Monitor Disposition of Recommendations

OIOS has a process in place that tracks and reports on the status of its
recommendations. The recommendations from each of OIOS's four divisions
are consolidated into one database that is updated formally twice per
year-once to prepare the annual report in September, and once in January
for the semi-annual report on open recommendations to the
Secretary-General. According to OIOS officials, OIOS has been tracking
recommendations in various databases since at least 1997, and OIOS's four
divisions have seven separate databases to record and track
recommendations. OIOS has recognized the need for a single system and on
April 1, 2006, launched an automated recommendation tracking system. The
system will be able to record, track, and monitor recommendations data for
each OIOS division. OIOS officials stated that in the future, the system
will allow online interaction and communication with OIOS clients for
reporting the status of recommendations, rather than the current process
of sending electronic files to clients to obtain the status of
recommendations.

Although OIOS reports that about 80 percent of its recommendations from
2001 to 2005 have been implemented, some of its critical
recommendations-including those made to high-risk areas such as
procurement, the Department of Peacekeeping Operations, the UN Office at
Nairobi, and the UN Interim Administration Mission in Kosovo-have not yet
started, or were not fully implemented by audited entities as of June
2005.35 For example, the implementation of three recommendations from a
report on the Economic Commission for Africa's procurement and inventory
store management issued in 2001-2002 are still in progress. According to
OIOS, the UN Office in Nairobi has not fully implemented a critical
recommendation issued in a report between 2001 and 2002 on contracting and
procurement services; neither has it begun to address a critical
recommendation issued in 2002-2003 regarding alleged procurement
irregularities in awarding a UN staff transportation contract. According
to OIOS officials, although they have noted a generally positive trend in
implementing recommendations more expeditiously, they are not entirely
satisfied with the situation. Several recommendations, some of which are
critical, have remained open for up to 6 years. As a result, OIOS proposed
and the General Assembly concurred that a high-level mechanism be
established to address, among other things, the implementation of
recommendations.36

In September 2005, the Secretary-General endorsed the establishment of a
high-level committee to ensure, among other things, proper implementation
of all oversight recommendations-including those made by OIOS, the Board
of Auditors, and the Joint Inspection Unit.37 The oversight committee is
to provide independent advice to the Secretary-General on all Secretariat
activities relating to internal and external oversight and investigations,
including internal controls and the monitoring of corrective actions
recommended by internal and external auditors. However, the committee had
not convened as of March 2006. In addition, the Department of Management
is in the process of considering a management control tracking system,
which is expected to be operational within a year. According to a
Department of Management official, this system will have the capacity to
interface with the new recommendations tracking system that OIOS is
implementing. In addition, the official stated that the department does
not currently prepare statistics on implementation rates of
recommendations since this responsibility is assigned to the oversight
bodies; however, with the new monitoring system, the department would be
able to provide these statistics.

UN Oversight Entities Undertake Activities to Coordinate Efforts but Do
Not Provide Reasonable Assurance for a Comprehensive Approach to Oversight

UN oversight entities have undertaken a number of activities to coordinate
efforts, but these activities are not geared toward ensuring a
comprehensive approach to oversight  or minimizing duplication of effort.
No single entity in the UN oversight community is clearly responsible for
identifying gaps in oversight, identifying opportunities to avoid
unnecessary duplication of effort, or leveraging the resources of the UN
oversight community. Although several forums have been established to
foster coordination, these forums are aimed at sharing information and
best practices, rather than focusing on joint activities that could
minimize duplication and leverage resources. While it is not a common
practice, some UN oversight entities made efforts to collaborate. The
Joint Inspection Unit, Board of Auditors, and OIOS share annual work plans
and reports; however, these practices do not apply to the internal
oversight entities of the separately administered UN funds, programs, and
specialized agencies. These separately administered entities represent a
significant part of UN activities, and report to their own respective
governing bodies.

UN Resolutions Call for Coordinating Efforts to Ensure Comprehensive
Approach to Oversight

Although the General Assembly and many member states have emphasized the
importance of coordination among UN oversight entities to ensure a
comprehensive approach, avoid unnecessary duplication, and leverage
resources, the General Assembly does not clearly designate responsibility
for this effort. In this regard, when OIOS was established in 1994, the
Secretary-General issued a bulletin directing the office to coordinate
with the Board of Auditors, the Panel of External Auditors, and the Joint
Inspection Unit; and to maintain a close working relationship with other
inspection and internal audit offices in the UN system.38 More recently,
the General Assembly passed a resolution reaffirming the importance of
effective coordination between the Joint Inspection Unit, the Board of
Auditors, and OIOS. This resolution aimed to maximize the use of
resources, and to share experiences, knowledge, best practices, and
lessons learned.39 Similarly, member states have also encouraged the Joint
Inspection Unit, the Board of Auditors, and OIOS to continue working
together to ensure greater coordination and avoid duplication. Toward this
end, the Joint Inspection Unit-the only independent external oversight
body whose authority includes the specialized agencies-recently completed
a report that calls upon internal and external oversight entities within
the UN system to provide effective coordination and cooperation with each
other to avoid duplication and ensure leveraging resources.40 However, the
report has not yet been reviewed or endorsed by the General Assembly.

Responsibility for Ensuring a Comprehensive Approach and Minimizing
Duplication Is Unclear

Notwithstanding these calls for coordination, OIOS's ability to coordinate
is limited. Its authority does not extend to specialized agencies; in
practice, coordination activities among the entities overseeing funds and
programs are geared toward sharing information-not toward ensuring
comprehensive oversight or avoiding duplication. The Board of Auditors'
authority also does not extend to specialized agencies and is limited to
the UN organizations that have a direct reporting relationship to the
Secretary-General. The Joint Inspection Unit has systemwide authority, but
is not required to track the work performed by the various UN oversight
entities. Thus, no one entity in the UN oversight community is charged
with the responsibility of tracking the work performed by all the
oversight entities for the purpose of ensuring a comprehensive approach to
oversight. Without clear designation of this responsibility, it is not
possible to ascertain whether there are any gaps in oversight coverage,
identify opportunities to avoid unnecessary duplication of efforts, or
leverage the resources of the UN oversight community. This is of
particular concern given the limited resources of some of these entities.
(See app. V for a summary of the resources of selected UN oversight
entities.)

Several Forums Provide Venues for Information Exchange among UN Oversight
Entities

Several forums to coordinate efforts have been established, and OIOS
participates in these venues (see fig. 6). However, despite calls for
coordination, the existing forums that are meant to foster coordination do
not optimize opportunities for collaboration to achieve these purposes.
Rather, these forums provide opportunities to share information and best
practices on oversight approaches and methodologies. Specifically, in the
annual tripartite oversight coordination meetings that began in November
1997, representatives of OIOS, the Board of Auditors, and the Joint
Inspection Unit convene to exchange information and minimize duplication.
In addition, since 1969, an interagency organization of internal
auditors-the Representatives of Internal Audit Services (RIAS) of the
United Nations Organizations and Multilateral Financial Institutions-has
met annually to share best practices on audit approaches and
methodologies. Similarly, a counterpart organization organized in 1998 for
investigators-the Conference of Investigators of International
Institutions and Bilateral Organizations-meets annually to exchange ideas,
foster best practices, and encourage cooperation among the investigative
offices of the participating organizations. Also, the UN Evaluation
Group-a forum for the discussion of evaluation issues within the UN
system-aims to simplify and harmonize evaluation reporting practices; OIOS
noted that the UN Evaluation Group has developed norms and standards for
evaluation in the UN system, as well as core competencies for UN
evaluators.

Figure 6: Key Forums to Facilitate Coordination among UN Oversight
Entities

Joint Efforts to Collaborate and Share Annual Work Plans and Reports Are
Limited

While it is not a common practice, UN officials stated that some UN
oversight entities made efforts to collaborate. A prime example of this
took place during the recent UN tsunami relief efforts. In an April 2005
report to the Secretary-General, OIOS investigators issued an assessment
of the risks and opportunities for corruption and waste associated with
weak coordination, rushed procurement and recruitment decisions, and the
size of the funding. According to OIOS, the assessment was the result of
collaborative efforts between OIOS and the investigative offices of the UN
Children's Fund, UN Development Program, UN High Commissioner for
Refugees, and the World Food Program; as well as the Anti-Fraud Office of
the European Commission, the Asian Development Bank, and the World Bank.

The Joint Inspection Unit, the Board of Auditors, and OIOS do share annual
work plans-tools that could help identify gaps in oversight coverage and
avoid unnecessary duplication. Also, in December 1999, the General
Assembly passed a resolution that required OIOS to provide copies of all
reports to the Joint Inspection Unit and the Board of Auditors; it also
requested that reports be made available within 1 month of being finalized
and emphasized the need for comments as appropriate.41 However, the
practice of sharing work plans and the requirement to share reports do not
apply to the internal oversight entities of the separately administered UN
funds, programs, and specialized agencies; these entities represent a
significant part of UN activities and report to their own respective
governing bodies. In September 2005, the IIC report on the management of
the UN Oil for Food program stated that the UN's disjointed and
sometimes-overlapping approach to oversight left a number of contentious
issues about the program unresolved. According to IIC, UN oversight
agencies resisted sharing their audit reports, which could have
facilitated coordination. OIOS officials told us that UN oversight
agencies have subsequently begun to share lessons learned from the Oil for
Food experience and have made a concerted effort to apply these lessons to
the UN's tsunami relief efforts.

U.S. Prioritizes Efforts to Strengthen UN Internal Oversight, but
Influence Is Limited by a Key Vacancy at the U.S. Mission to the UN

The United States has made it a priority to advance UN reforms to
strengthen internal oversight. As part of U.S. efforts to reform UN
management, the U.S. Mission has adopted a multi-faceted approach to
creating a culture of transparency, accountability, and efficiency. Among
other things, the U.S. strategy for UN reform includes measures to
strengthen the independence of the OIOS, enhance internal oversight of
peacekeeping missions, outsource internal oversight at small UN agencies
to OIOS, reinforce the Secretary-General's duty to waive immunity, and
avoid even the appearance of conflict of interest.

The United States played a major role in influencing the General Assembly
to pass a resolution allowing all member states access to OIOS audit
reports, upon request, according to OIOS and U.S. Mission officials.42 The
U.S. Mission to the UN in New York, which has a UN Management and Reform
unit, regularly participates in deliberations of the Fifth Committee and
other bodies to promote efforts to strengthen UN oversight. In January
2006, for example, the U.S. Ambassador to the UN spoke to the press about
the need for oversight reform in the wake of the recent procurement
scandals. Another senior official released a statement to the General
Assembly in late December 2005 regarding the need to limit spending until
progress is made toward implementing reforms agreed to during the
September 2005 World Summit. Also, the representative of the U.S. Mission
to UN Organizations in Geneva co-chairs the Geneva Group Focal Group on
Oversight that is completing an overview of internal oversight in the UN
agencies, and plans to issue its report in fall 2006.43

Staffing at the U.S. Mission to the UN in New York may have limited U.S.
influence in encouraging and formulating proposals for UN oversight
reform. The position of U.S. Representative for UN Management and Reform
was vacant from February 2005 until it was filled in late March 2006.
According to State officials, statements from ambassador-level
representatives in UN bodies have more impact and influence than
statements from other U.S. representatives. This key vacancy represents a
missed opportunity for the United States in the formation of the UN
Management Reform agenda agreed upon at the World Summit in 2005. As a
result, officials said, the U.S. Mission had limited capacity to influence
reform.

Conclusion

Although OIOS has a mandate establishing it as an independent oversight
entity-and OIOS does possess many characteristics consistent with
independence-the office does not have the budgetary independence it
requires to carry out its responsibilities effectively. Over the years, UN
funding arrangements for OIOS have eroded the office's ability to conduct
independent oversight. The office's ability to conduct audits and respond
to changing priorities based on developing risks have been impeded,
raising serious questions about its independence. To perform effective
oversight, OIOS must have budgetary independence, but it must also fully
implement the management processes and auditing practices that would help
it best exercise that independence. Notwithstanding funding impediments to
OIOS's budgetary independence, OIOS officials cannot make most effective
use of the office's resources and independent authority to choose its work
because they have not fully implemented a risk management framework that
provides reasonable assurance that the most critical work is given highest
priority. Moreover, OIOS's shortcomings in meeting key components of
international auditing standards undermine the office's effectiveness in
carrying out its functions as the UN's main internal oversight body.
Further, the lack of coordination between UN oversight bodies hinders a
comprehensive approach to oversight, which could minimize duplication and
leverage the use of available resources. Effective oversight demands
budgetary independence, sufficient resources, adherence to professional
auditing standards, and coordination. OIOS is now at a critical point,
particularly given the initiatives to strengthen UN oversight launched as
a result of the World Summit in fall 2005. In moving forward, the degree
to which the UN and OIOS embraces international auditing standards and
practices will indicate the institution's commitment to addressing the
monumental management and oversight tasks that lie ahead. The failure to
address these long-standing concerns would diminish the efficacy and
impact of other management reforms to strengthen oversight at the UN.

Recommendations for Executive Action

To provide reasonable assurance of independent, effective oversight in the
United Nations, we recommend that the Secretary of State and the Permanent
Representative of the United States to the United Nations work with member
states to support budgetary independence for OIOS and OIOS's efforts to
more closely adhere to international auditing standards, including
measures to

o ensure reliable funding arrangements for OIOS that do not undermine the
independence of OIOS and provide it with sufficient resources that it can
effectively reallocate and deploy as may be necessary to meet high-risk
areas as they arise;

o complete the implementation of OIOS's risk management framework to
ensure that its annual work plans address those areas that pose the
highest risks;

o report to the General Assembly on the status of significant risks and
control issues facing the UN organization, the resources necessary to
address these issues, and the consequences to the organization if any
risks and control weaknesses are not addressed;

o develop a workforce planning methodology to systematically assess and
determine appropriate staffing levels for the office;

o institute a mandatory training curriculum for OIOS professional staff,
including auditors and investigators;

o establish guidance and procedures for assessing the reliability of data
used in support of significant findings in OIOS reports; and

o require all OIOS professional staff to file statements of independence
and financial disclosures; institute procedures to adequately review such
statements.

Agency Comments and Our Evaluation

OIOS and State provided written comments on a draft of this report, which
are reproduced in appendixes VI and VII, respectively. OIOS and State
agreed with our overall conclusions and recommendations. OIOS stated that
observations made in the report were consistent with OIOS's internal
assessments and external peer reviews. State fully agreed with our finding
that UN member states need to ensure that OIOS has budgetary independence.
However, State does not believe that multiple funding sources have impeded
OIOS's budgetary flexibility. We found that current UN financial
regulations and rules are very restrictive, severely limiting the ability
to reallocate funds across revenue streams to emerging or high-priority
areas when they arise. OIOS and State also reviewed a draft of this report
for technical accuracy. We incorporated their technical comments and
updates throughout the report, as appropriate.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days after
the date of this report. We are sending copies of this report to
interested members of Congress, the Secretary of State, and the U.S.
Permanent Representative to the United Nations. We will also make copies
available to others upon request. In addition, this report will be
available at no charge on the GAO Web site at http://www.gao.gov .

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

Thomas Melito Director, International Affairs and Trade

Scope and MethodologyAppendix I

Our objectives were to review (1) the extent to which United Nations (UN)
funding arrangements for the Office of Internal Oversight Services (OIOS)
ensure independent oversight, (2) the consistency of OIOS practices with
key international auditing standards, (3) coordination among UN oversight
entities to ensure a comprehensive approach to oversight, and (4) U.S.
government efforts to advance UN reforms to strengthen internal oversight.
In addition, as requested, we are providing information on the budget and
staff resources of selected UN oversight entities.

To examine the extent to which UN funding arrangements ensure independent
oversight, we reviewed relevant UN and OIOS reports, manuals, and numerous
program documents. We met with senior Department of State (State)
officials in Washington, D.C., and senior officials with the U.S. Missions
to the UN in New York, Vienna, and Geneva. At these locations, we also met
with UN and OIOS management officials and staff. To assess the reliability
of UN and OIOS funding and staffing data, we reviewed the office's budget
reports for fiscal bienniums 1996-1997 to 2006-2007 and discussed the data
with relevant officials. We determined that the funding and staffing data
were sufficiently reliable for the purposes of this report.

To assess OIOS's consistency with key international auditing standards, we
reviewed relevant internationally accepted standards for oversight such as
those issued by the Institute for Internal Auditors (IIA) and the
International Organization of Supreme Auditing Institutions (INTOSAI). The
IIA standards apply to internal audit activities-not to investigations,
monitoring, evaluation, and inspection activities. However, we applied
these standards OIOS-wide, as appropriate, in the absence of international
standards for non-audit oversight activities. We examined documentation
for the office's strategic planning and annual work plans; risk management
framework; quality assurance; recommendations tracking; and ethics
practices to assess the extent to which OIOS's practices in these areas
were consistent with IIA standards, which OIOS has adopted. Because we had
limited access to certain key documentation, OIOS officials agreed to
"walk us through" their annual plans and external peer review reports. We
met with OIOS management officials and staff in each of the office's
divisions, including the executive office; the Internal Audit Divisions I
and II in New York and Geneva; the Investigations Division in New York and
Vienna; and the Monitoring, Evaluation, and Consulting Division in New
York. We discussed OIOS's process for monitoring and reporting on its
recommendations with relevant officials. In most instances, OIOS officials
informed us that the data they track to report on the status of their
recommendations are reliable. The officials added that they would like to
perform more testing of the recommendations that have been implemented,
but lack the resources to do so. We obtained the recommendations database
from OIOS and performed basic reliability checks. We determined the data
were sufficiently reliable for the purposes of this report.

To review coordination among UN oversight entities, we reviewed UN
documents and reports relating to the mandates, resources, and activities
of the oversight entities of selected UN funds and programs, specialized
agencies, and other UN entities. We met with representatives of several of
these entities, including the International Atomic Energy Agency;
International Labor Organization; International Telecommunication Union;
UN Children's Fund; UN Development Program; UN Educational, Scientific,
and Cultural Organization; UN High Commissioner for Refugees; UN
Industrial Development Organization; UN Training Institute; World Health
Organization; World Intellectual Property Organization; and the World
Meteorological Organization. We also met with the UN external auditors-the
Board of Auditors in New York, and the Joint Inspection Unit in Geneva.

To review U.S. government efforts to advance UN reforms to strengthen
internal oversight, we reviewed State mission program plans, position
statements, and various program documents. We also met with senior State
officials in Washington, D.C., and senior officials with the U.S. Missions
to the UN in New York, Geneva, and Vienna. In addition, we met with
several representatives of the Geneva Group to obtain information on their
efforts to strengthen oversight in the UN system and their views on UN
reforms.

For information on the budget and staff resources of selected UN oversight
entities, we used fiscal biennium 2004-2005 data for several entities that
participated in a survey conducted by the Joint Inspection Unit, which
provided us with an advance copy of the report completed in February
2006.1 We determined the data to be sufficiently reliable for purposes of
this report.

OIOS Oversight AuthorityAppendix II

The UN organization and OIOS's oversight authority over selected UN
entities is presented in figure 7. The diagram shows (1) those entities
over which OIOS has oversight authority that do not have their own
oversight units, such as departments and offices within the UN
Secretariat; (2) funds and programs, such as the UN Children's Fund and
the UN Development Program, that fall under OIOS's oversight authority but
may use OIOS services only upon request because they have their own
oversight units; and (3) the International Atomic Energy Agency and the
specialized agencies, such as the International Labor Organization and the
World Health Organization, some of which have their own oversight units
and do not fall under OIOS's oversight authority.

Figure 7: UN Organizations and OIOS's Oversight Authority Over Selected
Entities

aIncludes only selected UN organizations, not a complete listing.

OIOS Organizational StructureAppendix III

Based on the General Assembly approved 2006-2007 biennium budget, OIOS has
a total of 293 funded staff positions in its executive office and
operating divisions comprised of:

o the Office of the Under Secretary-General and the Executive Office,
which has 16 staff positions (about 5 percent);

o Internal Audit Division I located in New York, which has 103 staff
positions (about 35 percent);

o Internal Audit Division II in Geneva and several overseas locations,
which has 40 staff positions (about 14 percent);

o Investigations Division in New York, Vienna, and several overseas
locations, which has 113 staff positions (about 39 percent); and

o the Monitoring, Evaluation, and Consulting Division, which has 21 staff
positions (about 7 percent).

As shown in figure 8, the majority of these staff positions are funded
through extrabudgetary resources. As the General Assembly recently
authorized, some extrabudgetary staff positions are for General Temporary
Assistance, which provides OIOS with the flexibility to use funding to
hire contractors as it deems necessary.

Figure 8: OIOS Organizational Structure and Number of Staff Positions by
Division, Fiscal Biennium 2006-2007

Note: The information shown reflects the number of staff positions as of
January 31, 2006, including 39 General Temporary Assistance positions that
the General Assembly approved for OIOS for fiscal biennium 2006-2007.

OIOS is located in numerous locations throughout the world. Figure 9 shows
the number of staff positions at headquarters in New York and the field
offices in Geneva, Vienna, Nairobi, and Addis Ababa, as well as duty
stations for peacekeeping missions and tribunals.

Figure 9: OIOS Presence Worldwide as of January 31, 2006

aAudit staff positions in Addis Ababa, Afghanistan, Kuwait, and Sudan are
not currently authorized and included in OIOS's account.

bICTY is the International Criminal Tribunal for the former Yugoslavia.

cICTR is the International Criminal Tribunal for Rwanda.

Process for Developing OIOS BudgetAppendix IV

The process for developing the OIOS's regular budget is complex, involving
several entities and multiple steps that begin about 16 months before the
budget for a biennium goes into effect. Figure 10 illustrates the process
involved in developing OIOS's regular budget for one biennium. OIOS
divisions submit their regular and extrabudgetary proposals first to the
executive office of OIOS, which may revise the requests either in line
with OIOS priorities or pursuant to instructions from the UN Secretariat's
Office of Program Planning, Budget, and Accounts (OPPBA). As shown in
figure 10, the OIOS budget proposal is reviewed by the OPPBA, the Advisory
Committee on Administrative and Budgetary Questions (ACABQ),  and the
Fifth Committee before it is approved by the General Assembly. As a
comparison, the Board of Auditors submits its budget requests directly to
the ACABQ; the Joint Inspection Unit submits its draft budget through the
Chief Executives Board (CEB) to all participating organizations for
comments, which are consolidated by the CEB before the budget proposal is
submitted to the ACABQ.

The budget office reviews OIOS's budget request to ensure that it conforms
to the Secretary-General's established budget outline. The budget outline
is the Secretary-General's preliminary estimate of UN Secretariat resource
needs for the biennium, and it specifies OIOS's share of the total budget.
For example, the budget outline for the 2006-2007 biennium was prepared in
October 2004, and OIOS's preliminary estimate was $23.2 million-the same
amount as its 2004-2005 appropriation.1 OIOS can negotiate any suggested
changes to its budget proposal with the budget office. If OIOS does not
agree with the modification to its budget, the Under Secretary-General of
OIOS has the authority to discuss the office's concerns directly with the
Secretary-General.2

Figure 10: Process for the Preparation, Approval, and Execution of OIOS
Regular Budgeta

aThe budget process for trust funds and special accounts is the same as
that of the regular budget process. However, the budget cycle for
peacekeeping operation's support account operates on a July to June fiscal
year, and the budget is prepared annually. The Peacekeeping Finance
Division provides budget instructions in September of each year. OIOS
submits its budget to the controller in November. The Peacekeeping Finance
Division provides comments to OIOS's proposed budget in December;
subsequently, they meet in January to discuss the budget. ACABQ reviews
the proposed budget in March, and the General Assembly reviews and
approves the budget around May or June of each year.

Resources of Selected UN Oversight EntitiesAppendix V

Some of the UN funds and programs falling under the authority of the
Secretary-General have established their own internal oversight offices.
Similarly, specialized agencies that do not fall within the authority of
the Secretary-General and the International Atomic Energy Agency (IAEA)
also have their own internal oversight offices that report to their
respective executive heads and governing bodies. The capacities of these
internal oversight offices and the services they provide vary. While some
internal oversight offices are staffed to provide a full range of audit,
investigation, inspection, and evaluation services, others have fewer
staff and may augment their capabilities by engaging OIOS or outside
consultants when necessary.

In February 2006, the Joint Inspection Unit completed a report that, among
other things, assessed the capacity of existing UN oversight entities to
deal with major risks that may arise in the UN system.1 In doing so, the
Joint Inspection Unit developed a suggested range of resources based on
the size of the resources managed by each of the UN organizations and
their respective internal oversight budgets. For example, as shown in
figure 11, the UN was below the suggested range-while its internal
oversight budget was $58.8 million in the 2004-2005 biennium, the total
resources it managed amounted to more than $12.2 billion. Its oversight
budget was, therefore, 0.48 percent of the organization's total resources,
which is slightly lower than the suggested range of 0.50 to 0.70 percent
for organizations with resources of $800 million or more.

Based on the suggested ranges, the Joint Inspection Unit report showed
that

o 2 of the 18 organizations surveyed (the UN Industrial Development
Organization and the Food and Agriculture Organization) have internal
oversight resources that exceeded the suggested range;

o 3 organizations (the UN Population Fund; the UN Educational, Scientific,
and Cultural Organization; and the International Labor Organization) were
within the suggested range;

o 10 organizations fell below the suggested range; and

o the remaining 3 organizations did not have a suggested range because of
their smaller budgets.

Figure 11: Budget Comparison of Selected UN Oversight Entities, Biennium
2004-2005

aFor organizations with total resources of $250 million or less, the Joint
Inspection Unit suggested in-sourcing internal oversight services because
there is not enough of a resource base to justify an internal oversight
unit.

Figure 12 provides information on the total budget and staff resources of
selected UN organizations for the fiscal biennium 2004-2005 and the number
of internal oversight professional staff on board.

[This page left blank intentionally]

Figure 12: Total Budget and Staff Resources of Selected UN Organizations
and Number of Internal Oversight Professional Staff

aUN data includes 16 monitoring, evaluation, and consulting professional
staff.

bBreakdown of UNHCR data does not include six professional inspectors and
one ethics and diversity officer.

cIAEA`s five professional evaluation staff includes two management
services staff.

dUPU's professional staff position is part-time at 80 percent.

Comments from the Office of Internal Oversight ServicesAppendix VI

Comments from the Department of StateAppendix VII

The following are our comments on State's letter dated April 11, 2006.

GAO Comments

1.We maintain that UN funding arrangements hinder OIOS's flexibility to
reallocate resources. Our conclusion focuses on the impediments to
redirecting resources to high-risk areas between multiple funding sources
and does not necessarily advocate a single source of funding; rather, we
recommend measures to ensure reliable and sufficient funding so OIOS can
reallocate as necessary. Although the regular budget and peacekeeping
funding sources make up the majority of OIOS's budget, there are still 11
other extrabudgetary funding sources where there is limited flexibility to
redeploy resources to high-risk areas. One of the lessons learned from the
Oil for Food Program was that OIOS did not receive sufficient budgetary
funding for work that it proposed for the program, which prevented OIOS
from examining problems.1 When the Office of the Iraq Program denied
OIOS's proposal for additional investigators to perform work it deemed
necessary, redeploying resources to the Oil for Food Program was not a
viable option given the restrictions that UN financial regulations and
rules place on the movement of resources between funding sources.

GAO Contact and Staff AcknowledgmentsAppendix VIII

Thomas Melito, Director, (202) 512-9601

In addition to the person named above, Phyllis Anderson, Assistant
Director; Joy Labez; Jeffrey Baldwin-Bott; Barbara Shields; Lynn Cothern;
and Etana Finkler made key contributions to this report. Jaime Allentuck,
Marcia Buchanan, Martin De Alteriis, Mark Dowling, Jackson Hufnagle, and
James Michels also provided technical support.

Related GAO Products

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

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

United Nations: Preliminary Observations on Internal Oversight and
Procurement Practices, GAO-06-226T. (Washington, D.C.: Oct. 31, 2005).

United Nations: Sustained Oversight Is Needed for Reforms to Achieve
Lasting Results, GAO-05-392T. (Washington, D.C.: Mar. 2, 2005).

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

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

United Nations: Status of Internal Oversight Services, GAO/NSIAD-98-9 .
(Washington, D.C.: Nov. 19, 1997).

(320346)

www.gao.gov/cgi-bin/getrpt? GAO-06-575 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Thomas Melito (202) 512-9601
([email protected]).

Highlights of GAO-06-575 , a report to congressional committees

April 2006

UNITED NATIONS

Funding Arrangements Impede Independence of Internal Auditors

With contributions to United Nations (UN) organizations totaling more than
$1.6 billion in 2006-2007, the United States has advocated strong UN
oversight. In 1994, the United States provided support to establish the
Office of Internal Oversight Services (OIOS). The findings of the
Independent Inquiry Committee (IIC) into the Oil for Food Program have
renewed concerns about UN oversight, and the 2005 World Summit proposed
actions to improve OIOS. We were asked to examine (1) the extent to which
UN funding arrangements for OIOS ensure independent oversight, and (2) the
consistency of OIOS practices with key international auditing standards.

What GAO Recommends

We recommend that the Secretary of State and the Permanent Representative
of the United States to the UN work with member states to support
budgetary independence for OIOS, complete a risk management framework,
develop a workforce planning methodology, report to the General Assembly
on risk and control issues facing the UN, and institute mandatory training
requirements, among other things.

The Department of State and OIOS generally agreed with our overall
findings and recommendations.

UN funding arrangements constrain OIOS's ability to operate independently
as mandated by the General Assembly and required by international auditing
standards that OIOS has adopted. First, while OIOS is funded by a regular
budget and 12 other revenue streams, UN financial rules severely limit
OIOS's ability to reallocate resources among revenue streams, locations,
and operating divisions. Thus, OIOS cannot always direct resources at
high-risk areas when they arise. Second, OIOS is dependent on the funds,
programs, and other entities it audits for reimbursement for its services.
The managers of the programs OIOS intends to examine 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 examination.

Funding Arrangements Constrain OIOS's Ability to Operate Independently

OIOS has begun to implement key measures for effective oversight, but some
of its practices fall short of applicable international auditing
standards. OIOS develops an annual work plan, but the risk management
framework on which the work plans are based is not fully implemented.
Moreover, OIOS annual reports do not assess risk and control issues facing
the UN organization or the consequences if these are not addressed. OIOS
officials report that the office does not have adequate resources, but
they also do not have a mechanism to determine appropriate staffing
levels. Moreover, OIOS has no mandatory training curriculum for staff or
systematic procedures for ensuring the reliability of data used for their
audits. OIOS also does not require all staff to document their
independence. Although two OIOS divisions have recently undergone external
reviews, the other two have not undergone such a review within the last 5
years. OIOS monitors and reports on the status of its recommendations and
is making efforts to improve follow up on oversight recommendations.

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