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    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-577

    TITLE:     UNITED NATIONS: Procurement Internal Controls Are Weak

    DATE:   04/25/2006

    -----------------------------------------------------------------

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    GAO-06-577

         * Report to Congressional Committees
              * April 2006
         * UNITED NATIONS
              * Procurement Internal Controls Are Weak
         * Contents
              * Results in Brief
              * Background
                   * The UN Procures Many Goods and Services
                   * Procurement Primarily Involves Two Departments
                   * UN Procurement Tripled Due to Growth in Peacekeeping
                     Operations
                   * Internal Control Framework Useful for Assessing Procurement
                     Process
              * The Control Environment over UN Procurement Is Weak
                   * The UN Lacks an Effective Organizational Structure for
                     Managing Procurement
                   * The UN Lacks a Commitment to Improving Its Professional
                     Procurement Workforce
                   * The UN Has Not Fully Established Ethics Guidance for
                     Procurement Personnel
              * The UN Has Weaknesses in Key Procurement Control Activities
                   * Although UN Procurement Has Increased Sharply in Recent
                     Years, the Size of the Headquarters Committee on Contracts
                     and Its Staff Has Remained Relatively Stable
                   * The UN Has Not Established an Independent Bid Protest
                     Process
                   * The UN Has Not Updated the Procurement Manual Since 2004
                   * UN Does Not Consistently Implement Its Process for Helping
                     to Ensure That It Conducts Business with Qualified Vendors
              * The UN Has Not Comprehensively Assessed Procurement Risks
              * Fragmented Information Systems Impede UN Procurement
              * Procurement Managers Lack Mechanisms to Monitor Procurement and
                Rely on Oversight Entities
                   * UN Officials Lack Mechanisms for Monitoring Headquarters and
                     Field Procurement Activity
                   * UN Lacks Centralized Process for Addressing Oversight
                     Recommendations
                   * UN Does Not Have an Effective Mechanism for Holding Staff
                     Accountable
              * The United States Has Recently Taken Steps to Support UN
                Procurement Reform
              * Conclusions
              * Recommendations for Executive Action
              * Agency Comments and Our Evaluation
         * Scope and Methodology
         * UN Procurement Processes
         * Comments from the Department of State
         * GAO Contact and Staff Acknowledgments
         * Related GAO Products

    Report to Congressional Committees

    April 2006

    UNITED NATIONS

    Procurement Internal Controls Are Weak

    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

    The United Nations (UN) Secretariat procured more than $1.6 billion in
    goods and services in 2005, primarily to support a peacekeeping program
    that has more than quadrupled in size since 1999.1 For more than a decade,
    experts have called on the UN to correct serious deficiencies in its
    procurement process. However, audits and investigations continue to
    uncover evidence of corruption and mismanagement in the UN's procurement
    activities. For example, in 2005, a former UN procurement officer pled
    guilty to charges of accepting money from vendors seeking contracts. In
    2006, the UN placed eight officials on administrative leave pending the
    outcome of an ongoing investigation involving procurement activities. Four
    of the officials were in the Department of Management, which is
    responsible for all UN procurement functions-including establishing
    procurement policies through its UN Procurement Service and approving
    high-value contracts. The remaining four staff were from the Department of
    Peacekeeping Operations. Procurement staff in field peacekeeping missions
    procure goods and services amounting to more than one-third of all UN
    procurement.

    UN procurement occurs in a highly decentralized organizational structure,
    widely dispersed geographic setting, and conflict situations. These
    conditions underscore the need for effective internal controls to help
    provide reasonable assurance against fraud, waste, mismanagement, and
    abuse. Internal controls serve as the first line of defense in
    safeguarding assets and preventing fraud. The United States is the largest
    financial contributor to the UN and has a strong interest in helping to
    ensure that the UN exercises sound internal controls over its resources.
    In addition, the United States, through the Department of State, takes
    measures to advance reform of UN management processes.

    In this report, we assess the UN's procurement process according to the
    five key standards for internal control.2 First, we assessed the control
    environment over procurement by examining the organizational structure for
    managing procurement, elements required for a professional procurement
    workforce, and ethics guidance for procurement staff. Second, we assessed
    several UN control activities, including its process for reviewing
    contracts; mechanisms for considering vendor protests; processes for
    updating the procurement manual; and procedures for maintaining vendor
    rosters. Third, we determined the extent to which the UN examines the
    risks regarding its procurement activities. Fourth, we reviewed the UN's
    measures for recording procurement information and communicating it to
    management. Fifth, we examined the UN's mechanisms for monitoring
    management oversight of procurement activity and closing audit
    recommendations. In addition, we examined the U.S. government's efforts to
    support reform of UN procurement.

    To assess internal controls in the UN procurement process, we used a
    framework that is widely accepted in the international audit community and
    has been adopted by leading accountability organizations, including the
    International Organization of Supreme Audit Institutions, the U.S. Office
    of Management and Budget, and GAO.3 We also reviewed reports issued by the
    UN's internal oversight unit, the Office of Internal Oversight Services;
    and by its external auditors, the Board of Auditors and the Joint
    Inspection Unit. We also analyzed reports prepared for the UN in 2005 by

    consulting firms4 and reviewed documents and data provided by the UN
    Procurement Service and the Department of Peacekeeping Operations
    (Peacekeeping Department) and by the U.S. Department of State. We
    interviewed UN and Department of State officials in New York and conducted
    structured interviews with the principal procurement officers at each of
    19 missions.5 To determine the implementation rate of the internal
    oversight unit's recommendations, we discussed the data collection
    procedures with relevant officials and performed basic reliability checks.
    We determined that the recommendations data used were sufficiently
    reliable for the purposes of this report.

    We performed our work from April 2005 through March 2006 in accordance
    with generally accepted government auditing standards. Appendix I provides
    detailed information on our scope and methodology.

    Results in Brief

    UN resources are unnecessarily vulnerable to mismanagement, fraud, waste,
    and abuse because the UN (1) lacks an effective organizational structure
    for managing procurement; (2) has not demonstrated a commitment to
    maintaining a professional, trained procurement workforce; and (3) has
    failed to adopt the full range of ethics guidance for procurement
    officials. First, the UN has not established a single organizational
    entity or mechanism capable of comprehensively managing procurement. This
    condition may have hampered efforts to correct long-standing procurement
    weaknesses. Second, the UN has not demonstrated a commitment to improving
    the professionalism of its procurement staff in the form of training, a
    career development path, or other key human capital practices critical to
    attracting, developing, and retaining a qualified professional workforce.
    For example, the UN has not established training requirements for its
    procurement staff. We also found that 16 of 19 field procurement chiefs
    did not possess a professional certification of their procurement
    qualifications. Because significant control weaknesses have led the UN to
    rely disproportionately on the actions of its staff to safeguard its
    resources, the UN's commitment to providing a professional, trained
    procurement workforce is particularly critical. Third, the UN has failed
    to adopt a full range of ethics guidance for procurement officials despite
    directives from the General Assembly in 1998 and 2005. Since the control
    environment provides the structure and climate for the quality of internal
    controls of an organization, failure to address these weaknesses
    undermines other UN efforts for taking corrective action to improve its
    procurement process.

    We also found weaknesses in key procurement control activities that are
    intended to provide reasonable assurance that management's directives are
    followed. These activities include processes for (1) reviewing high-value
    procurement contracts; (2) considering vendor protests; (3) updating the
    procurement manual; and (4) maintaining qualified vendor rosters.

    o We found that, although UN procurement tripled over the past 7 years,
    the size of the UN's principal contract review committee and its support
    staff remained relatively stable. In 2005, the Headquarters Committee on
    Contracts reviewed contracts valued at $3 billion (including long-term
    contracts) and committee members stated that they do not have resources to
    keep pace with the current workload. In addition, UN auditors have
    concluded that the committee cannot properly review contract proposals.
    Without an effective contract review process, the UN cannot provide
    reasonable assurance that high-dollar value contracts are undertaken in
    accordance with the Financial Regulations and Rules of the UN.

    o The UN has not established an independent process to consider vendor
    protests despite a 1994 recommendation by a high-level panel of
    international procurement experts to do so as soon as possible. Without
    such a process, the UN may not be able to provide reasonable assurance of
    the fair treatment of vendors. In addition, senior UN management may not
    be alerted to procurement staff's failure to comply with procurement
    regulations.

    o The UN has not updated its procurement manual since 2004 to reflect
    current UN procurement policy. For example, the manual does not reflect a
    June 2005 delegation of procurement authority that allows peacekeeping
    missions to purchase up to $1 million in certain goods or services without
    obtaining the prior approval of the Department of Management and the
    Headquarters Committee on Contracts. All 19 Peacekeeping Department field
    procurement officials informed us that they have access to the manual at
    their mission, and all are somewhat to very familiar with it. In a highly
    decentralized organization with geographically dispersed field missions,
    it is essential that staff have access to the most current procurement
    policy so that they can be informed of and consistently comply with UN
    regulations.

    o The UN does not consistently implement its process for helping to ensure
    that it is conducting business with qualified vendors. As a result, the UN
    may be vulnerable to favoring certain vendors and awarding contracts to
    vendors that are unqualified. For example, according to UN auditors, one
    vendor appears to have been awarded approximately $36 million in contracts
    without completing the vendor registration process.

    The UN lacks a risk assessment framework for identifying and managing the
    procurement activities that are most vulnerable to mismanagement, fraud,
    waste, and abuse. UN procurement officials and auditors have identified
    significant risks associated with headquarters and peacekeeping
    procurement operations, such as start-up peacekeeping missions that
    operate under tight time frames in logistically complex environments.
    Without a comprehensive risk assessment framework, the UN is at risk of
    not allocating proper attention to start-up missions or other procurement
    activities prone to fraud, waste, and abuse.

    We found that the UN lacks an integrated information management system,
    which adversely affects its ability to oversee field and headquarters
    procurement operations. We also found that the Peacekeeping Department has
    established only limited reporting requirements for field missions. A
    wider range of management reports, if used, would serve to alert
    management of procurement actions requiring additional monitoring. For
    example, a report of cumulative awards to vendors would help management
    identify possible instances of inadequate competition and bid rigging by
    vendors. Without such reporting  tools or a full-time manager to review
    them, the likelihood that procurement mismanagement, fraud, and abuse go
    undetected is increased.

    UN procurement officials lack internal mechanisms for monitoring
    procurement activity in headquarters and the field. For example, we found
    that chief procurement officers in the field did not have a systematic,
    standardized approach for determining whether procurement under their
    supervision is consistent with UN regulations. Instead, to monitor
    procurement activity, officials rely heavily on the UN oversight entities'
    periodic audits. Although these entities have identified numerous
    weaknesses in the procurement process, the UN has not always implemented
    their recommendations to correct the weaknesses. In many cases, the
    oversight entities have found similar problems in different field missions
    and issued similar recommendations. Yet, UN management does not review the
    audit reports in a methodical manner to determine whether changes to
    policy or processes are warranted to address systemic problems. In
    addition, the UN does not have a mechanism that provides reasonable
    assurance that corrective actions, once taken, are institutionalized.
    Without effective management oversight of procurement activity, the UN is
    unable to identify and correct existing control weaknesses that could lead
    to mismanagement, fraud, waste, and abuse.

    The United States has recently taken steps to advocate procurement reform
    as one element of overall UN management reform. The most visible of these
    steps was a U.S.-chaired Security Council review of the Peacekeeping
    Department's procurement problems in February 2006. However, the position
    of Ambassador for UN Management and Reform at the U.S. Mission to the UN
    in New York was vacant for more than 1 year. This position was recently
    filled in March 2006. U.S. Mission officials stated that this vacancy
    limited the mission's ability to influence procurement reform.

    We are recommending that the Secretary of State and the Permanent
    Representative of the United States to the UN work with other member
    states to encourage the UN Secretary-General to take several steps to
    address these problems, including establishing clear and effective lines
    of authority and responsibility between headquarters and the field over UN
    procurement; establishing a comprehensive training program and formal
    career path for procurement staff; providing the Headquarters Committee on
    Contracts with an adequate structure and manageable workload; and
    establishing an independent bid protest process. We also are recommending
    that the Secretary of State report to the Congress annually regarding UN
    progress in reforming its procurement process.

    The Department of State provided written comments on a draft of this
    report, which are reproduced in appendix III. The department stated that
    it welcomed our report and endorsed its recommendations. The UN did not
    provide us with written comments. State and UN officials provided us with
    a number of technical suggestions and clarifications that we have
    addressed as appropriate.

    Background

    UN Secretariat procurement has tripled over the past decade, as
    peacekeeping operations have grown. The UN procures a variety of goods and
    services, including freight services, motor vehicle parts, and
    telecommunications equipment. UN procurement is conducted by the
    Department of Management and the Department of Peacekeeping Operations
    through its field missions. Internal controls can be used to manage an
    organization and to identify areas of weaknesses and strengths in the
    procurement process.

    The UN Procures Many Goods and Services

    In 2004, the UN spent a total of $1.31 billion on procurement, with $276
    million being devoted to air transportation services alone.6 The UN
    procures a variety of goods and services, including air transportation,
    freight forwarding and delivery, motor vehicle parts and transportation
    equipment, and telecommunications equipment and services, as shown in
    figure 1.

    Figure 1: Major Commodities Purchased in 2004

    Procurement Primarily Involves Two Departments

    The Department of Management is responsible for procurement in the UN
    Secretariat. The department's Procurement Service develops policies and
    procedures for headquarters and field procurement based on the UN
    Financial Regulations and Rules.7 The Procurement Service also oversees
    training for all staff involved in procurement. In addition, it also
    provides advisory support for field purchases within the authority of
    field missions. The Procurement Service also negotiates, prepares, and
    administers contracts for goods and services for UN headquarters and
    certain large contracts (such as air transportation services or multi-year
    systems contracts) for peacekeeping missions. The UN's procurement process
    at headquarters involves several steps (see fig. 7, app. II).

    The UN's field procurement process involves the Peacekeeping Department
    and includes additional steps (see fig. 6, app. II). Each field mission is
    required to establish a Local Committee on Contracts to review and
    recommend contract awards for approval by the chief administrative officer
    of the mission. The Local Committee on Contracts is composed of four
    members from the mission: a legal advisor, and the respective chiefs of
    the mission's finance, general services, and transport sections. Field
    missions may not award contracts worth more than $75,000 without approval
    by the chief administrative officer of the mission based on the advice of
    the Local Committee on Contracts. In addition, field missions may not
    award contracts worth more than $200,000 without approval first by the
    mission's chief administrative officer based on the advice of the Local
    Committee on Contracts and then by the Department of Management based on
    the advice of the Headquarters Committee on Contracts.8 The Headquarters
    Committee on Contracts evaluates the proposed contracts and advises the
    Department of Management as to whether the contracts are in accordance
    with UN Financial Regulations and Rules and other UN policies.

    The Procurement Service employs about 70 individuals to procure items for
    the UN's headquarters operations, peacekeeping missions, international
    criminal tribunals, regional commissions, and upon request, other UN
    agencies and subsidiary organs. The Peacekeeping Department employs about
    270 field procurement staff at its field missions.9 The members of the
    Headquarters Committee on Contracts are drawn from the UN Office of
    Central Support Services; Office of Programme Planning, Budget and
    Accounts; Office of Legal Affairs; and the Department of Economic and
    Social Affairs. The committee relies on support staff to assist it in
    coordinating its activities and drafting minutes detailing the results of
    its meetings.

    UN Procurement Tripled Due to Growth in Peacekeeping Operations

    UN procurement has more than tripled over the past decade as UN
    peacekeeping operations have grown. UN procurement grew from $430 million
    in 1997 to $1.6 billion in 2005. This increase has been due primarily to a
    rapid increase in UN peacekeeping operations. Eight of the UN's 15 current
    peacekeeping missions were established in 1999 or later. Peacekeeping
    expenditures more than quadrupled between 1999 and 2005, as shown in
    figure 2. In addition, the number of military personnel in peacekeeping
    missions has increased fivefold, from about 14,000 in 1999 to about 73,000
    as of February 2006. Although peacekeeping missions were originally
    conceived as short term in nature, many missions are long-standing and
    have continued for more than 5 years.

    Figure 2: UN Peacekeeping Expenditures and Military Personnel, 1999-2005

    Note: Military personnel includes civilian police, troops, and observers.
    It does not include UN civilian personnel.

    As shown in figure 3, 85 percent of UN procurement in 2004 was conducted
    in support of peacekeeping operations. Peacekeeping field missions alone
    procured 35 percent of all UN procurement in 2004.

    Figure 3: UN Headquarters and Peacekeeping Procurement for 2004

    Internal Control Framework Useful for Assessing Procurement Process

    Internal control is an integral part of managing an organization and can
    be used to identify areas of weaknesses and strengths in the UN's
    procurement process. Internal control guidance provides a framework for
    establishing and maintaining internal control and for identifying and
    addressing major performance and management challenges and areas at
    greatest risk of fraud, waste, abuse, and mismanagement. Internal control
    comprises the plans, methods, and procedures used to meet missions, goals,
    and objectives. There are five interrelated components of internal
    control: (1) control environment, (2) control activities, (3) risk
    assessment, (4) information and communications, and (5) monitoring.

    The Control Environment over UN Procurement Is Weak

    UN funds are unnecessarily vulnerable to fraud, waste, and abuse because
    the UN lacks an effective organizational structure for managing
    procurement, has not demonstrated a commitment to improving its
    professional procurement workforce, and has failed to adopt specific
    ethics guidance for procurement officials. These conditions have weakened
    the UN control environment for procurement.

    The UN Lacks an Effective Organizational Structure for Managing
    Procurement

    The UN has not established a single organizational entity or mechanism
    capable of comprehensively managing procurement. As a result, it is
    unclear which department is accountable for addressing problems in the
    UN's field procurement process. While the Department of Management is
    ultimately responsible for all UN procurement, neither it nor the UN
    Procurement Service has the organizational authority to supervise
    peacekeeping field procurement staff to provide reasonable assurance that
    they comply with UN regulations (see fig. 4).10 Procurement field staff,
    including the chief procurement officers, instead report to the
    Peacekeeping Department at headquarters through each mission's chief
    administrative officer. Although the Department of Management has
    delegated authority for procurement of goods and services to the
    Peacekeeping Department's Office of Mission Support at headquarters, we
    found that the Peacekeeping Department lacks the expertise, procedures,
    and capabilities needed to provide reasonable assurance that its field
    procurement staff are complying with UN regulations in executing this
    authority. The UN's Office of Internal Oversight Services (OIOS) has
    concluded that neither department has taken reasonable care to safeguard
    UN assets.

    Figure 4: Supervisory Oversight and Delegation of Field Procurement
    Authority

    The UN previously considered giving the Peacekeeping Department the
    headquarters positions it needs to oversee field procurement activities.
    In 2000, a UN panel11 recommended that the Department of Management
    transfer procurement positions to the Peacekeeping Department's

    headquarters.12 The Department of Management subsequently drafted a
    delegation of procurement authority that would have required the
    Peacekeeping Department to provide trained procurement staff at each
    peacekeeping mission with procurement authority and to establish
    headquarters systems to administer and monitor field procurement
    activities. However, the Department of Management's delegation of
    authority did not provide for a transfer of procurement staff to the
    Peacekeeping Department. According to UN officials, the Peacekeeping
    Department rejected the proposed delegation of authority because (1) the
    department lacked resources to oversee field procurement activities, (2)
    the proposed delegation did not include a transfer of procurement staff to
    the Peacekeeping Department, and (3) the proposed delegation was more
    restrictive than previous delegations to the missions themselves.

    In 2005, the Department of Management delegated procurement authority to
    the headquarters of the Peacekeeping Department. Although the headquarters
    of the Peacekeeping Department accepted the delegation, it did so without
    the resources needed to oversee the execution of the delegation by its
    field procurement activities. The Peacekeeping Department is seeking to
    hire an individual to manage its field procurement activities. The
    individual's responsibilities would include supervising field procurement
    activities, developing centralized procurement reporting procedures,
    monitoring field procurement trends, implementing improved management
    control tools, and working with the Department of Management to review
    existing procurement rules and regulations. Given the scope of these
    responsibilities, it is unclear how one individual would be able to
    fulfill the responsibilities of the proposed position. As of March 2006,
    Peacekeeping Department headquarters officials were interviewing
    candidates for this position.

    While the Peacekeeping Department field procurement staff may seek
    guidance on UN procurement policies from the Procurement Service, we found
    that they do so infrequently. Of the 19 field procurement chiefs or acting
    chiefs that we spoke with, 12 stated that they contacted Procurement
    Service staff as often as once a month or once a quarter. Four others
    stated that they contacted the Procurement Service once or twice a year,
    and three others stated that they had never contacted the Procurement
    Service for guidance during the past year.

    The lack of more frequent contact between the Procurement Service and
    Peacekeeping Department field staff is significant because field staff
    face the challenge of complying with the procurement policies established
    by the Procurement Service while securing needed goods and services under
    often difficult conditions to meet peacekeeping deadlines. The
    Peacekeeping Department has characterized its operational needs as being
    too great and its human resource demands as too intense for the UN's
    existing procurement regulations and procedures. While most field
    officials that we spoke with reported that the Procurement Service had
    been at least somewhat helpful to them, several stated that they do not
    believe the Procurement Service understands the difficult field conditions
    in which they work.

    The UN Lacks a Commitment to Improving Its Professional Procurement
    Workforce

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

    Recent studies indicate that Procurement Service staff and peacekeeping
    procurement staff lack knowledge of UN procurement policies. For example,
    a November 2005 consultant report stated that Procurement Service staff
    did not appear to have a clear understanding of procurement policies and
    procedures, resulting in inconsistent application of procurement
    policies.13 In addition, OIOS found that field procurement staff in one of
    the largest peacekeeping missions lack sufficient knowledge of basic
    procurement policies and procedures. OIOS also found that, in another
    mission, requisitioning units that lacked procurement authority had
    directly purchased $9 million in goods and services during the start-up
    phase, violating the principle of segregation of duties between
    requisitioners and procurement staff.14 Moreover, most procurement staff
    lack professional certifications attesting to their procurement education,
    training, and experience. We found that 16 of 19 field procurement chiefs
    did not possess any professional certification of their procurement
    qualifications. A June 2005 consultant survey also found that only 3 of 41
    Procurement Service officers and assistants had been certified by a
    recognized procurement certification body.

    The UN has not established requirements for headquarters and peacekeeping
    staff to obtain continuous training, resulting in inconsistent levels of
    training across the procurement workforce. Most field procurement chiefs
    stated that the training they had received from the UN was at least
    generally useful to their procurement roles, but 11 of 19 field
    procurement chiefs stated that they had received no procurement training
    over the last year. While most field procurement chiefs stated that their
    staff are adequately trained,  all of them said that their staff would
    benefit from additional training, citing areas such as contract drafting
    and management, negotiation, business writing, and bid evaluation.
    Recently, a UN interagency group developed common certification standards
    for procurement staff in all UN agencies.15 However, the decision for a UN
    agency to participate in the certification program is voluntary. Each UN
    agency would be responsible for developing its own training materials to
    prepare staff for certification. As of January 2006, Procurement Service
    officials had not yet determined whether this common UN procurement
    certification would be a requirement for existing staff or for hiring new
    staff.

    Furthermore, UN officials acknowledged that the UN has not committed
    sufficient resources to a comprehensive training and certification program
    for its procurement staff. UN officials stated that Procurement Service
    training resources are insufficient to deliver adequate training. The
    Procurement Service's annual training budget was $20,000 for approximately
    70 staff as of March 2006. Similarly, 11 of 19 peacekeeping chief
    procurement officers stated that their training opportunities and
    resources are inadequate. Some indicated that a single field individual's
    attendance at an annual conference of chief procurement officers consumed
    the mission's annual allotment for procurement training. Peacekeeping
    Department officials noted that the lack of resources to train field
    procurement officers is symptomatic of the general lack of professional
    development funding for all peacekeeping mission personnel.

    The UN has not established a career path for professional advancement for
    Procurement Service and peacekeeping procurement staff.16 Career paths, if
    well designed by management, can actively encourage and support staff to
    undertake progressive training and work experiences in order to prepare
    them for increased levels of responsibility. A procurement career path
    also would serve to recognize procurement as a specialized profession in
    the UN. A November 2005 consultant report recommended that the Secretariat
    establish and define career paths for Procurement Service management and
    staff. In field missions, most procurement chiefs told us that the absence
    of a career path is detrimental to the professional caliber of procurement
    staff. In addition, 14 of 19 field procurement officials told us that they
    do not have professional development plans for all of their staff. UN
    auditors also have expressed concern that UN managers do not give proper
    care to helping ensure the qualifications and integrity of procurement
    staff.

    Difficult staffing conditions and practices in both the Procurement
    Service and peacekeeping missions continue to expose the UN to significant
    risks. The Procurement Service reported that it lacks the staffing
    resources to implement recommended controls such as team-based rather than
    individual procurement, peer review of major bidding, and periodic
    rotation of staff. Peacekeeping staff said that staff turnover at the
    Procurement Service has also hurt the continuity of their operations. In
    the field, the Peacekeeping Department faces challenges in deploying
    qualified, experienced staff to missions, especially during the critical
    start-up phase. For example, OIOS noted that a staff member involved in
    leaking confidential information to a UN supplier had been appointed to a
    post on a short-term temporary duty assignment and was later competitively
    selected for the post.

    The Peacekeeping Department has had difficulties in retaining high-quality
    procurement staff for sustained periods in peacekeeping missions. For
    example, a peacekeeping official informed us that about 23 percent of
    procurement staff positions in peacekeeping missions were vacant as of
    December 2005. Peacekeeping officials informed us that a chronic lack of
    field procurement staff has helped to undermine existing control
    mechanisms. The peacekeeping procurement workforce is adversely affected
    by considerable staff turnover, especially in peacekeeping missions where
    UN staff must operate in demanding, unpredictable, and dangerous
    conditions. The current conditions of service in peacekeeping missions are
    not competitive with those of other UN entities or similar organizations,
    according to UN officials. For example, peacekeeping officials stated that
    peacekeeping mission staff are not able to have their families at their
    duty station and that the benefits and short-term nature of employment
    contracts for peacekeeping mission staff are disadvantageous compared with
    those at UN headquarters and other UN funds and programs. In March 2006,
    the Secretary-General issued proposals to revise the UN's human resource
    policies to address the unfavorable conditions of service in peacekeeping
    missions. However, the UN has not provided specific facts regarding the
    substance and time frames for these revisions, and they would require the
    action and support of member states of the General Assembly to implement.

    The UN Has Not Fully Established Ethics Guidance for Procurement Personnel

    The UN has failed to adopt the full range of ethics guidance for
    procurement officials despite repeated directives from the General
    Assembly in 1998 and 2005. Such guidance would include a declaration of
    ethics responsibilities for procurement staff and a code of conduct for
    vendors. Ethical principles are key elements of an internal control
    environment, and management plays an important role in providing guidance
    for proper behavior. Because of the fiduciary responsibilities held by
    procurement staff, the lack of specific ethics guidance increases the risk
    of fraud, waste and abuse. Earlier in 2005, a former UN procurement
    officer pled guilty to charges of accepting money from vendors seeking
    contracts.

    The UN has been considering the development of specific ethics policies
    for procurement officers for almost a decade. For example, on September 8,
    1998, the General Assembly asked the Secretary-General to prepare
    additional ethics guidance for procurement officers "as a matter of
    priority."17 In 2002, the Secretary-General acknowledged that separate
    procurement ethics guidance should be developed "pursuant to the request
    of the General Assembly."18 In 2005, the General Assembly again asked the
    Secretary-General to issue ethical guidelines for those involved in the
    procurement process and called for "the early adoption of a code of
    conduct for vendors and a declaration of ethical responsibilities for all
    staff involved in the procurement process."19

    Despite other efforts to bolster ethics policies at the UN,20 the UN has
    yet to fully enact new ethics guidance for procurement officials. As we
    reported in October 2005,21 the Procurement Service has drafted such
    guidance. It would include a declaration of ethics responsibilities for
    procurement staff and embody a code of conduct for vendors.22 It would
    also outline current rules and regulations relating to procurement staff
    and address ethics standards for procurement staff on conflict of interest
    and acceptance of gifts. In addition, the draft ethics guidance would
    outline UN rules, regulations, and procedures for suppliers of goods and
    services to the UN.

    Since October 2005, the UN has made only limited progress toward
    addressing the directives of the General Assembly. UN officials stated
    that the UN has not established ethics guidance for procurement personnel
    due to resource constraints and the need for extensive consultations
    within the UN. In November 2005, a consultant review concluded that the
    Procurement Service lacked an effective and well-coordinated ethics
    program that makes ethics a fundamental element of the Procurement Service
    culture, including a single recognized and well-understood code of conduct
    governing ethics and integrity expectations and requirements for UN
    procurement staff. The UN has subsequently adopted new procedures that
    outline UN rules, regulations, and procedures for suppliers of goods and
    services to the UN. The UN also now requires all procurement officers to
    file financial disclosure statements. However, most of the other draft
    regulations continue to be reviewed within the UN. The UN has not set firm
    dates for their adoption. Department of Management officials informed us
    in April 2006 that rules for governing the conduct of staff engaged in
    procurement activities, including a declaration of ethical
    responsibilities, would be promulgated "shortly."

    The UN Has Weaknesses in Key Procurement Control Activities

    We found weaknesses in key procurement control activities that are
    intended to provide reasonable assurance that management's directives are
    followed. UN procurement control activities include processes for (1)
    reviewing high-value procurement contracts, (2) considering vendor
    protests, (3) updating the procurement manual, and (4) maintaining
    qualified vendor rosters. The persistence of weaknesses in these areas
    indicates that the UN does not have reasonable assurance that its staff
    are complying with management policies and directives.

    Although UN Procurement Has Increased Sharply in Recent Years, the Size of
    the Headquarters Committee on Contracts and Its Staff Has Remained
    Relatively Stable

    We found that although UN procurement has increased sharply in recent
    years, the size of the Headquarters Committee on Contracts and its support
    staff remained relatively stable. The committee's Chairman and members
    stated that the committee does not have the resources to keep up with its
    expanding workload. The number of contracts reviewed by the committee has
    increased by almost 60 percent since 2003.23 The committee members stated
    that the committee's increasing workload was the result of the growth of
    UN peacekeeping operations, the complexity of many new contracts, and
    increased scrutiny of proposals in response to recent UN procurement
    scandals. Committee data from 2005 indicate that the average time taken to
    report a committee decision is within the time frames allowed by UN
    regulations. However, a senior committee official stated in March 2006
    that this time had increased significantly in recent months due to the
    committee's workload. He indicated that the average time to report a
    committee decision is now approaching 20 business days instead of 10. In
    addition, 8 of 19 peacekeeping field procurement officials stated that the
    committee only reviewed their cases in a moderately timely manner, while 5
    felt that there was little to no extent of timeliness in these reviews.

    Concerns regarding the committee's structure and workload have led UN
    auditors to conclude that the committee cannot properly review contract
    proposals. It may thus recommend contracts for approval that are
    inappropriate and have not met UN regulations. In a 2006 report, OIOS
    stated that the committee cannot determine if procurement officials had
    complied with regulations or if they had been unduly influenced by
    vendors. OIOS cited a report it had prepared in 2001 that concluded that
    the committee had not developed the tools needed to provide reasonable
    assurance that it could thoroughly and objectively evaluate contract
    proposals and add value to the procurement process. OIOS also reiterated
    its 2001 recommendation that the UN reduce the committee's caseload and
    restructure the committee "to allow competent review of the cases."
    Without an effective contract review process, the UN cannot provide
    reasonable assurance that high value contracts are undertaken in
    accordance with the Financial Regulations and Rules of the UN.

    The UN's plans to address these issues are unclear. In January 2006, the
    Under-Secretary-General for Management stated that the committee should be
    restructured in some form in response to consultant concerns.24 However,
    OIOS reported in January 2006 that the Department of Management had been
    "unresponsive" to its recommendations regarding the committee.25 The
    committee Chairman stated that the committee's four existing posts are all
    in support of the regular budget, and it needs additional support for
    reviewing contracts under the peacekeeping budget. The Chairman told us
    that the committee has requested that its support staff be increased from
    4 to 7, but does not yet know if this will be approved. The Chairman also
    stated that raising the $200,000 threshold for contracts that require
    review by the committee would reduce the committee's workload.

    The UN Has Not Established an Independent Bid Protest Process

    The UN has not established an independent process to consider vendor
    protests, despite the 1994 recommendation of a high-level panel of
    international procurement experts that it do so as soon as possible.26
    Such a process would provide reasonable assurance that vendors are treated
    fairly when bidding and would also help alert senior UN management to
    situations involving questions about UN compliance. An independent bid
    protest process is a widely endorsed control mechanism that permits
    vendors to file complaints with an office or official who is independent
    of the procurement process. The General Assembly endorsed independent bid
    protest in 1994 when it recommended for adoption by member states a model
    procurement law drafted by the UN Commission on International Trade Law.27
    Several nations, including the United States, provide vendors with an
    independent process to handle complaints.28

    At present, UN vendors cannot protest the handling of their bids to an
    independent official or office. The Procurement Service directs its
    vendors to file protests through a complaints ladder process that begins
    with the Procurement Service chief and moves up to his immediate
    supervisor. The majority of peacekeeping field procurement officers also
    stated that vendor protests were not reviewed by an independent body at
    their mission. Procurement Service and peacekeeping field staff told us
    that, in their opinion, there is no vendor demand for a more independent
    process.

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

    The UN Has Not Updated the Procurement Manual Since 2004

    The UN has not updated its procurement manual since January 2004 to
    reflect current UN procurement policy. As a result, UN procurement staff
    may not be aware of changes to UN procurement procedures that have been
    adopted over the past 2 years. An organization's control activities
    include taking action to make staff aware of its policies and procedures.
    The Procurement Service's procurement manual is intended to guide UN staff
    in their conduct of procurement actions worldwide. All 19 Peacekeeping
    Department field procurement officials informed us that they have access
    to the manual at their mission, and all are somewhat to very familiar with
    it.

    The Procurement Service revised the manual in 2004 to address several
    problems. In 1999, we noted that the manual did not provide detailed
    discussions of procedures and policies.29  As revised by the Procurement
    Service, the manual now has detailed step-by-step instructions on the
    procurement process for both field and headquarters staff, including
    illustrative flow charts. It also includes more guidance that addresses
    headquarters and field procurement concerns, such as more specific
    descriptions of short- and long-term acquisition planning and the
    evaluation of requests for proposals valued at more than $200,000.

    In a decentralized organization with geographically dispersed field
    missions, it is essential that staff have access to the most current
    procurement policy so that they can be informed of and consistently comply
    with UN regulations. While 16 of 19 peacekeeping procurement officers
    acknowledged that the Procurement Service or the Peacekeeping Department
    provided them with timely updates on the most current procurement policies
    and procedures to a great or moderate extent, the procurement manual still
    does not contain the latest information concerning procurement policies
    and procedures. For example, the manual does not reflect the June 2005
    delegation of procurement authority from the Department of Management to
    the Peacekeeping Department. The new delegation of authority allows
    peacekeeping field missions to purchase up to $1 million in goods or
    services in support of their core requirements (e.g., waste disposal
    services, fresh food, janitorial services, and building materials) without
    obtaining the prior approval of the Department of Management and the
    Headquarters Committee on Contracts. When we spoke with peacekeeping
    procurement officers in the field, one officer stated that his mission
    staff were not using this new delegation of authority because they were
    not sure whether it was official UN policy. Another peacekeeping
    procurement officer was unclear on some of the details for implementation
    of the new authority.

    Also missing from the procurement manual is a section regarding
    procurement for construction. In June 2005, a UN consultant recommended
    that the UN develop separate guidelines in the manual for the planning and
    execution of construction projects.30 These guidelines could be useful in
    planning the UN's future renovation of its headquarters building.

    A Procurement Service official who took part in the manual's 2004 revision
    stated that the Procurement Service had been unable to allocate the time
    and resources needed to update the manual since that time. In addition, in
    January 2006, OIOS found that changes in procurement policies were not
    always effectively disseminated, leading to possible inconsistency in the
    awarding of contracts. A UN consultant also has recommended that the
    Department of Management address the lack of a standard process for
    updating the procurement manual. Department of Management staff informed
    us that they plan to follow these recommendations.

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

    The UN does not consistently implement its process for helping to ensure
    that it is conducting business with qualified vendors. As a result, the UN
    may be vulnerable to favoring certain vendors or dealing with unqualified
    vendors. Approved vendor rosters are an important procurement control
    activity for limiting procurement to vendors that meet stated standards.
    Vendors apply for registration to the list and are then evaluated by the
    agency before placement on the approved list. Effective rosters are
    impartial and provide sufficient control over vendor qualifications.

    The UN has long had difficulties in maintaining effective rosters of
    qualified vendors. In 1994, a high-level group of international
    procurement experts concluded that the UN's vendor roster was outdated,
    inaccurate, and inconsistent across all locations. It warned that
    inconsistent and nonstandardized rosters could expose the procurement
    system to abuse and fraud. In 2003, an OIOS report found that the
    Procurement Service's roster contained questionable vendors. For example,
    one vendor appeared to have been awarded approximately $36 million in
    contracts without completing its registration to the list. Another vendor
    appeared to not have applied for registration to the list but was
    nonetheless awarded a $16.6 million contract. Although the Procurement
    Service corrected some of the noted weaknesses, OIOS concluded that, as of
    2005, the roster was not fully reliable as a tool for identifying
    qualified vendors that could bid on contracts.

    To address such concerns, the Procurement Service became a partner in an
    interagency procurement vendor roster in 2004, which was intended to serve
    as a single roster for potential suppliers to apply for registration with
    participating organizations within the UN system and to be used by
    peacekeeping field missions.31 It was seen as a common system that would
    allow sharing of vendor performance information within the UN.

    The UN's use of the interagency procurement vendor roster, however, has
    not fully addressed concerns regarding UN vendor lists. OIOS found that
    many vendors that have applied through the interagency procurement vendor
    roster have not submitted additional documents requested by the
    Procurement Service to become accredited vendors. In addition to the
    audited financial statements and income tax returns that a vendor must
    submit to be registered in the UN interagency vendor roster, the
    Procurement Service also requires the vendors to submit a copy of a
    certificate of incorporation, copies of quality certification standards
    for the goods and services to be registered, and letters of reference from
    at least three clients to which the vendor has provided its goods or
    services over the past 12 months. OIOS found that, as of December 2005,
    about 2,800 vendor applicants had not submitted the necessary documents
    for the Procurement Service to review. OIOS expressed concern that the
    Procurement Service vendor registration procedure remains vulnerable to
    procurement officials who might manipulate it to favor certain vendors.

    In addition, most Peacekeeping Department field procurement officials we
    spoke with stated that they prefer to use their own locally developed
    rosters instead of the interagency vendor roster because the local lists
    were shorter and contained more specific information regarding the goods
    and services available in the area near their field missions. Moreover,
    some field mission procurement staff also stated that they were unable to
    comply with Procurement Service regulations for their vendor rosters due
    to the lack of reliable vendor information in underdeveloped countries in
    which there were conflicts, as is common in peacekeeping missions. One
    procurement officer in the field stated that many of the local vendors
    could not prepare financial statements required by the Procurement Service
    and the interagency database because the country was just starting to
    recover from a war. Other field procurement officers noted that issues
    such as low levels of education and literacy and smaller vendors not being
    in a position to deliver internationally prevented vendors from
    registering on the interagency vendor list. OIOS reported in 2006 that
    peacekeeping operations were vulnerable to substantial abuse in
    procurement because of inadequate or irregular registration of vendors,
    insufficient control over vendor qualifications, and dependence on a
    limited number of vendors.

    The UN Has Not Comprehensively Assessed Procurement Risks

    The UN lacks a comprehensive risk assessment framework for identifying,
    evaluating and managing the procurement activities most vulnerable to
    fraud, waste, and abuse. UN officials and auditors have identified
    significant risks associated with headquarters and peacekeeping
    procurement operations. However, without a comprehensive risk assessment
    framework, the United Nations cannot have reasonable assurance that it
    allocates proper attention to procurement activities that could be most
    prone to fraud, waste, and abuse.

    OIOS has repeatedly identified procurement as one of the areas in the UN
    with significant potential for inefficiency, corruption, fraud, waste, and
    abuse. For example, OIOS issued recommendations relating to collusion and
    conflicts of interest between UN staff and vendors, accountability for
    theft of UN property, and misuse of UN equipment. In addition, senior UN
    officials identified several major risks impacting peacekeeping
    procurement. First, they stated that field procurement staff currently
    operate under regulations that do not always reflect differences inherent
    in operating in field locations. According to Peacekeeping Department
    officials, present UN procurement rules and processes are difficult to
    apply in peacekeeping missions during start-up. Second, field procurement
    staff work in demanding operating environments, especially during the
    first few months of a mission's start-up, and must expediently resolve
    issues such as uncertainties regarding the free movement of goods, customs
    clearances, and taxation. Finally, the Peacekeeping Department stated that
    its missions do not have enough field procurement staff willing to serve
    under current conditions of service. An environment laden with such
    considerable risks demonstrates the need for management to establish a
    comprehensive framework for continuously identifying, analyzing, and
    managing risks in procurement operations. While Peacekeeping Department
    officials informed us that they have developed strategies to mitigate
    certain risks, they acknowledged that the UN does not have a formal risk
    management framework.

    Procurement Service officials stated that they do not systematically
    assess procurement risks. In addition, 13 out of 19 peacekeeping field
    procurement chiefs stated that they do not prepare formal or informal risk
    assessments for their missions. A November 2005 consultant report found
    that the Procurement Service does not have a formal and regular risk
    management process to assess compliance, evaluate risks, implement
    controls, and bring serious issues to the attention of management.
    Similarly, OIOS reported in January 2006 that UN management had failed to
    establish and implement a formal procurement risk management strategy. An
    OIOS official also identified several risk areas in the UN's procurement
    operations relating to individual span of control and supervision,
    segregation of functions, access to bids, and the use of brokers and
    subcontractors.

    Without a risk management strategy for procurement, the UN would not be
    fully equipped to identify areas that would require stronger oversight.
    For example, start-up peacekeeping missions constitute a high-risk area
    because they require a significant volume of procurement activity under
    demanding time pressures in challenging geographic regions. Similarly, UN
    efforts to adjust procurement rules to suit field conditions or to reduce
    the caseload of the Headquarters Committee on Contracts would be hampered
    by the absence of a risk assessment process.

    Fragmented Information Systems Impede UN Procurement

    The UN lacks an integrated information management system, which adversely
    impacts its ability to oversee field and headquarters procurement
    operations. A sound internal control system requires that relevant,
    reliable information be recorded and communicated in a timely manner to
    equip management to carry out their responsibilities.

    The UN is exposed to risks arising from fragmented procurement and
    financial systems in both headquarters and field procurement operations.
    We found that Procurement Service staff had limited access to data on
    procurement activities conducted locally in field missions. No single
    procurement database supports both the Procurement Service and
    peacekeeping missions; they utilize two separate procurement systems. As a
    result, no single UN entity was able to readily provide us with data on
    the total value of purchase orders and contract awards issued by each
    peacekeeping mission, including actions procured both locally and by the
    Procurement Service at headquarters. These issues raise concerns about the
    ability of headquarters managers to comprehensively oversee procurement by
    the various field missions. Moreover, the Peacekeeping Department has
    established only limited reporting requirements for field missions and
    lacks a full-time manager at headquarters to review the reports of all
    peacekeeping missions. A November 2005 consultant study also found that
    the fragmented information systems limit the Procurement Service's ability
    to generate comprehensive and timely management reports. Furthermore, the
    study found that the current information systems did not use fraud
    detection tools and exception reports. Such reports, if used, would serve
    to alert management of procurement actions requiring additional
    monitoring. For example, a report of cumulative awards to vendors would
    help management identify instances of inadequate competition or bid
    rigging by vendors.

    Procurement Managers Lack Mechanisms to Monitor Procurement and Rely on
    Oversight Entities

    Procurement officials lack a systematic and standardized approach for
    conducting management oversight of procurement activity. Instead, to
    monitor procurement activity, they rely heavily on UN oversight entities.
    Although these entities have identified numerous weaknesses in the
    procurement process, the UN has not always implemented their
    recommendations to correct the weaknesses. In many cases, the oversight
    entities found similar problems in different field missions and issued
    similar recommendations. Yet, UN management does not review the audit
    reports systematically to determine whether changes to policy or processes
    are warranted to address recurring problems. In addition, the UN does not
    have a mechanism that provides reasonable assurance that corrective
    actions, once taken, are institutionalized. Further, the UN does not have
    an effective process for consistently holding procurement staff
    accountable for their actions, and it is too early to determine whether a
    newly established management performance board will do so.

    UN Officials Lack Mechanisms for Monitoring Headquarters and Field
    Procurement Activity

    Internal control standards state that while audits and other reviews of
    controls by internal and external auditors can be useful, the
    responsibility for establishing mechanisms to monitor and evaluate program
    activities rests with managers. Ongoing monitoring occurs during normal
    operations and includes regular management and supervisory activities,
    such as helping to ensure that staff follow UN procurement policies.

    As noted earlier, the UN lacks an effective organizational structure for
    managing procurement at headquarters and in the field. In addition, UN
    procurement managers do not have a standardized and systematic process to
    monitor headquarters or field procurement during normal operations as part
    of their regular management duties. In 2006, OIOS reported that the UN
    does not have sufficient controls for providing reasonable assurance of
    compliance with the Financial Regulations and Rules of the UN and that
    important controls were lacking, existing controls were often bypassed,
    and senior officials did not take proper care to design controls for
    overseeing peacekeeping procurement operations. Senior procurement
    officials at headquarters stated that they rely heavily on the auditors to
    monitor procurement activity. Also, in 2005 a consultant reported that the
    Procurement Service cannot adequately monitor procurement activities due
    to (1) inadequate reporting of procurement activity, and (2) a lack of
    system support for management reporting and financial transaction
    information.

    Field procurement managers also lack a standardized and systematic
    approach for monitoring procurement activity to provide reasonable
    assurance that the Financial Regulations and Rules of the UN are followed.
    Although UN chief procurement officers reported taking a variety of
    actions to determine whether their staff comply with the Financial
    Regulations and Rules of the UN, there were considerable differences in
    the steps reported, both in terms of what the officers were doing and the
    degree of their involvement. For example, while one chief procurement
    officer reported that he reviewed all procurement files, another stated
    that he did not have the time or resources to provide any oversight. Most
    field procurement officials told us that the local committee on contracts
    at their mission is generally helpful and timely in reviewing contract
    proposals. However, UN auditors have found that noncompliance with the
    UN's Financial Regulations and Rules has resulted in financial losses to
    the UN. For example, in its audit of peacekeeping operations in 2004, the
    Board of Auditors found that one contractor was declared bankrupt in May
    2002 and could not fulfill contract requirements. A performance bond for
    $1.4 million should have been provided, as required by the contract, but
    it could not be located by UN officials. In addition, OIOS found instances
    where procurement staff split requisitions to come in under review
    thresholds; requisitioners sometimes procured items directly; vendors were
    not properly registered; and contracts were awarded without sufficient
    justification.

    Also, most UN chief procurement officers report taking a variety of
    actions to determine whether vendors comply with the Financial Regulations
    and Rules of the UN; however, there were considerable differences between
    the steps the officers were taking and the degree of their involvement.
    Most chief procurement officers stated that they inform vendors of the UN
    regulations that need to be followed and that the regulations were also in
    the contracts. Some officers stated that they had an independent unit for
    contracts management in their mission that would monitor vendors for
    contract performance and hold meetings with the vendors to discuss their
    performance, while others said that they used vendor performance reports
    to monitor vendors. However, UN auditors have noted that in many
    instances, procurement staff did not prepare vendor performance reports.
    For example, in 2005, the Board of Auditors reported that for seven of a
    sample of nine contracts worth nearly $163 million, no supplier
    evaluations could be found for $160.7 million of those purchases.

    UN Lacks Centralized Process for Addressing Oversight Recommendations

    Internal controls guidance states that monitoring should provide
    reasonable assurance that the findings of audits and other reviews are
    promptly resolved. OIOS and the Board of Auditors conduct regular
    examinations of procurement. In many cases, the oversight entities have
    found similar problems and issued similar recommendations in multiple
    field missions. UN management, however, does not systematically review the
    audit reports to determine whether changes to policies or processes are
    warranted to address systemic problems.

    OIOS conducts smaller-scope audits on specific procurement policies and
    procedures at one or more missions or offices. Over the past 5 years, OIOS
    has identified numerous weaknesses in areas such as management
    accountability, planning and needs assessments, vendor qualifications and
    rosters, and contract reviews. OIOS's recommendations-tracking database
    indicates that the Procurement Service and the Peacekeeping Department
    have implemented about 88 percent of about 330 procurement recommendations
    and about 85 percent of approximately 170 critical procurement
    recommendations.32 However, a recent study by a UN consultant concluded
    that while OIOS provides spot audit coverage, OIOS has lacked the
    resources to provide coverage that would be sufficient to prevent
    breakdowns in internal controls.

    The Board of Auditors serves as the UN's external auditor and is charged
    with auditing the UN financial statements biannually, including those of
    the Procurement Service. The board also audits peacekeeping field
    operations annually, including field procurement. According to board
    staff, the board devotes about half of its operations to procurement
    oversight, primarily peacekeeping oversight. Over the past 4 years, the
    board identified weaknesses concerning procurement ethics, vendor
    performance reports, and the absence of a comprehensive internal antifraud
    plan. According to some board officials, the UN could further benefit from
    procurement audits of system contracts, the bid-tendering process, and air
    operations. The board also pointed to the lack of an adequately trained
    and professional procurement workforce and stated that the UN should
    create a professional cadre of procurement officers. In addition, the
    board reported that the UN has not fully implemented key audit
    recommendations, such as having peacekeeping missions identify training
    needs for procurement officers and establishing a time frame for
    implementing ethical guidelines for procurement staff. According to board
    officials, based on the board's audit of peacekeeping operations for the
    period ended June 30, 2003, of 69 recommendations, 26 were implemented; 33
    were in progress; and 10 had not yet started.

    The Joint Inspection Unit (JIU) conducts UN-wide evaluations, inspections,
    and investigations and prepares reports and notes identifying best
    practices and opportunities for cost savings within the UN system. JIU has
    called attention to weaknesses in UN procurement training. In 2004, JIU
    reported that training funds for procurement staff were small relative to
    procurement volumes and amounted to about 0.01 percent of aggregate
    procurement expenditures with the majority of UN entities allocating no
    resources for that purpose. The UN had not fully addressed JIU's call for
    additional funding for procurement training and certification for
    procurement officers. However, JIU does not track separately and report on
    the implementation rate of its procurement recommendations.

    In many cases, the oversight entities have found similar problems in
    different field missions and issued similar recommendations. Yet, UN
    management does not review the audit reports in a methodical manner to
    determine whether changes to policy or processes are warranted to address
    systemic problems or have a mechanism to help ensure that corrective
    actions, once taken, are institutionalized. According to UN officials, the
    UN currently does not systematically track all of the information from the
    oversight entities and does not perform any systematic analysis of what
    the three oversight entities are reporting to identify systemic weaknesses
    or lessons learned. The UN had begun exploring the possibility of
    establishing a high-level follow-up mechanism to help ensure proper and
    systematic implementation of oversight recommendations and share
    audit-related information and lessons learned, where appropriate; however,
    such a mechanism has yet to be implemented. At the request of the General
    Assembly, in 2005 the Secretary-General called for a high-level mechanism
    to be established to help ensure proper implementation of all oversight
    recommendations. As proposed, this oversight committee would (1) provide
    independent advice to the Secretary-General on all Secretariat activities
    relating to oversight and investigations, (2) advise the Secretary-General
    on the response of management to the recommendations made by oversight
    bodies and on the manner in which the implementation of those
    recommendations can have the greatest impact, and (3) help ensure
    systematic implementation of recommendations that have been approved by
    the General Assembly or accepted by the Secretariat. However, the UN has
    yet to implement such a mechanism and plans for doing so are uncertain.

    UN Does Not Have an Effective Mechanism for Holding Staff Accountable

    The UN does not have an effective mechanism in place for holding
    procurement staff accountable for their actions. Internal control
    standards state that management should maintain the organization's ethical
    tone, provide guidance for proper behavior, remove temptations for
    unethical behavior, and provide discipline when appropriate. OIOS recently
    reported that the UN's lack of enforcement of accountability and
    reluctance to investigate the mismanagement of resources, fraud, and abuse
    of delegated authority has increased the risk of corrupt practices in UN
    procurement. In addition, peacekeeping officials agree that a lack of
    enforcement of accountability in some locations has led to a pattern of
    poor control over procurement practices. Both OIOS and peacekeeping
    officials agree that there is evidence that some senior managers in the
    peacekeeping and management departments may not have been reasonably
    diligent in discharging their duties or helping to ensure that adequate
    internal controls and procedures are in place to safeguard the
    organization's assets.

    In May 2005, the Secretary-General abolished an accountability panel
    established in 2000 because it was ineffective and replaced it with a
    management performance board. This panel was to help ensure that the UN
    addressed findings of its oversight review bodies from a systemic
    perspective and to reinforce existing accountability mechanisms. It
    consisted of the Deputy Secretary-General, acting as the chairperson, and
    four members at the under-secretary-general level, appointed by the
    Secretary-General. The new management performance board will focus
    primarily on the performance and accountability of senior managers and
    advise the Secretary-General, according to a UN official. Chaired also by
    the Deputy Secretary-General, this board is intended to help ensure that
    the UN addresses serious managerial issues identified by its oversight
    bodies in a timely manner, monitors senior managers in their exercise of
    their authority, and reviews UN justice proceedings for management
    accountability purposes. The board also consists of two members at the
    under-secretary level and an external expert in public sector management.
    A UN official stated that the board has met twice as of February 2006. The
    board has been operational for too short a time to allow a determination
    of its effectiveness.

    The United States Has Recently Taken Steps to Support UN Procurement
    Reform

    The United States has recently taken steps to advocate procurement reform
    at the UN as part of its efforts to advance overall UN management
    reforms.33 The U.S. Mission has publicly stated that accountable,
    cost-effective, and transparent procurement practices at the UN are vital
    to UN operations and are therefore an ongoing management priority. The
    Permanent U.S. Representative to the UN has recognized management
    weaknesses in the procurement area, particularly with regard to the
    unclear lines of authority and responsibility between the Departments of
    Management and Peacekeeping. He has indicated that clarifying these lines
    of authority would need to be part of overall UN management reform. The
    U.S. Mission also has pressed to have peacekeeping procurement concerns
    brought to the attention of the Security Council, despite the objections
    of some other member states. As a result, a senior UN official briefed the
    Security Council in February 2006 on OIOS's audit of procurement practices
    in Security Council-mandated peacekeeping missions.

    A staffing vacancy at the U.S. Mission to the UN in New York may have
    limited U.S. influence in encouraging and formulating proposals for
    procurement reform. The position of ambassador to the UN for management
    and reform was vacant from February 2005 until 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
    to at the World Summit in 2005. As a result, officials said, the U.S.
    Mission had limited capacity to influence reform.

    Conclusions

    Long-standing weaknesses in the UN's internal controls over procurement
    have left UN procurement funds highly vulnerable to fraud, waste, and
    abuse. Many of these weaknesses have been known and documented by outside
    experts and the UN's own auditors for more than a decade. The UN, however,
    has not demonstrated the sustained leadership needed to correct these
    weaknesses. It has instead undertaken piecemeal reforms while failing to
    clearly establish management accountability for correcting procurement
    weaknesses. The negative effects of this lack of UN leadership in
    procurement have been compounded by a peacekeeping program that has more
    than quadrupled in size since 1999 and may expand even further.

    Recommendations for Executive Action

    We recommend that the Secretary of State and the Permanent Representative
    of the United States to the UN work with other member states to encourage
    the Secretary-General to take the following eight actions:

    o establish clear and effective lines of authority and responsibility
    between headquarters and the field for UN procurement;

    o enhance the professionalism of the UN procurement workforce by
    establishing a comprehensive procurement training program and a formal
    career path;

    o provide the Headquarters Committee on Contracts with an adequate
    structure and manageable workload for contract review needs;

    o establish an independent bid protest process for UN vendors;

    o take action to keep the UN procurement manual complete and updated on a
    timely basis and complete the ethics guidance;

    o develop a consistent process for providing reasonable assurance that the
    UN is conducting business with only qualified vendors;

    o develop a strategic risk assessment process that provides reasonable
    assurance of systematic and comprehensive examination of headquarters and
    field procurement; and

    o standardize and strengthen monitoring of procurement activities by
    procurement managers, including actions aimed at helping to ensure that
    oversight agencies' recommendations are implemented and that officials are
    held accountable for their actions.

    We also recommend that the Secretary of State report to the Congress
    annually regarding UN progress in reforming its procurement process, with
    particular attention to the status of UN progress in addressing the above
    recommendations.

    Agency Comments and Our Evaluation

    The Department of State provided written comments on a draft of this
    report that are reproduced in appendix III. The department stated that it
    welcomed our report and endorsed its recommendations. The UN did not
    provide us with written comments. State and UN officials provided us with
    a number of technical suggestions and clarifications that we have
    addressed, as appropriate.

    As agreed with your offices, unless you publicly announce the contents of
    this report earlier, we plan no further distribution until 30 days from
    the report date. At that time, we will send copies of this report to other
    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 h ttp://www.gao.gov.

    If you or your staff have any questions about this report, please contact
    me at (202) 512-9601 or melitot@gao.gov . 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 IV.

    Thomas Melito Director, International Affairs and Trade

    Scope and MethodologyAppendix I

    To assess internal controls in the United Nations (UN) procurement
    process, we used a framework that is widely accepted in the international
    audit community and has been adopted by leading accountability
    organizations, including the International Organization of Supreme Audit
    Institutions, the U.S. Office of Management and Budget, and GAO.1
    Specifically, we assessed five key elements of internal control: (1) the
    control environment, (2) control activities, (3) risk assessment, (4)
    information and communications, and (5) monitoring.

    Our review focused primarily on the Department of Management, the United
    Nations Procurement Service (which reports to the Department of
    Management), and the Department of Peacekeeping Operations (Peacekeeping
    Department), including 19 field missions. To assess the control
    environment for UN procurement, we reviewed the UN's procurement manual,
    organizational structure, financial regulations and rules, and information
    obtained from the Headquarters Committee on Contracts. We also examined
    training and staffing data, information on ethics guidance, and the UN
    Office of Internal Oversight Service's (OIOS) 2006 report on peacekeeping
    procurement activities.2

    To assess the control activities, risk assessments, and information and
    communications for UN procurement, we reviewed certain policies,
    procedures, and mechanisms that the UN has in place to provide reasonable
    assurance that staff comply with directives. Specifically, we reviewed (1)
    the mechanism that the UN has established to review procurement contracts;
    (2) approaches to addressing vendor grievances, updating the procurement
    manual, and the maintenance of qualifying vendor rosters; and (3)
    approaches to assessing procurement risk to the UN, as well as the UN's
    information management system for procurement.

    To assess procurement monitoring, we reviewed the structure and mandates
    of OIOS, the UN Board of Auditors, and the UN Joint Inspection Unit (JIU).
    We also reviewed their roles in monitoring UN procurement activities. We
    also reviewed the board's audited financial statements and reports for
    Secretariat and peacekeeping operations, which includes procurement
    findings and recommendations; OIOS and JIU reports containing procurement
    findings and recommendations; annual reports of the monitoring entities
    covering the status of implementation of their recommendations, as well as
    the process they have in place to track their recommendations; resolutions
    and reports on the UN Secretariat Accountability Panel, the Management
    Performance Board, and the Oversight Committee. We discussed OIOS's
    process for monitoring and reporting on its recommendations with relevant
    officials. While the evidence these officials have obtained indicates that
    the data are generally reliable, the officials said they would like to
    perform more testing of recommendations that have been implemented but
    lack the resources to do so. We obtained the recommendations data set from
    OIOS and performed basic reliability checks. Based on our interviews and
    checks, we determined the data were sufficiently reliable for the purposes
    of this report.

    In addition, to assess the control environment and other standards, we
    prepared an interview instrument and conducted a series of structured
    interviews with the principal procurement officers at each of the
    Peacekeeping Department's 19 missions in Africa, Asia, Europe, and the
    Americas (see fig. 5). We developed the interview questions based on our
    audit work, discussions with UN officials, and review of questionnaires
    conducted of headquarters staff. The structured interview instrument
    included open- and closed-ended questions, and covered various topics,
    including the background of procurement staff at each mission, such as
    experience, training, and certification; information on the types and
    volume of procurement at each mission; and questions regarding integrity,
    openness, competitiveness, and accountability. We conducted pretests of
    the instrument to provide reasonable assurance that our questions were
    clear and would be interpreted correctly. We addressed possible
    interviewer bias by ensuring that all respondents received copies of the
    instrument ahead of time and had them available when we conducted our
    interviews by telephone.

    To examine U.S. government efforts to support reform of UN procurement, we
    reviewed position statements and various program documents. We also met
    with senior Department of State officials in Washington, D.C., and senior
    officials with the U.S. Permanent Mission to the UN in New York.

    In addition, we reviewed reports prepared in 2005 by consulting firms
    hired by the UN to assess its procurement process.3 In addition, we
    reviewed reports by the Oil for Food Independent Inquiry Committee,4 the
    UN Panel on United Nations Peace Operations, and the UN High-Level Expert
    Procurement Group.5 We interviewed officials of the Department of
    Management, the Department of Peacekeeping Operations, the Headquarters
    Committee on Contracts, the UN Procurement Service, OIOS, and the Board of
    Auditors in New York.

    We performed our work from April 2005 through March 2006 in accordance
    with generally accepted government auditing standards.

    Figure 5: Peacekeeping and Other Missions Administered by the Department
    of Peacekeeping Operations

    Notes: Dollars in millions.

    We contacted the 19 missions shown above. They consist of all 15 of the
    UN's current peacekeeping operations, one logistics base (UNLB), and three
    other missions administratively supported by the Peacekeeping Department
    (UNAMA, UNAMI, and UNIOSIL).

    UN Procurement ProcessesAppendix II

    Figure 6: Procurement Process in the Field

    Note: In cases of certain defined core requirements, peacekeeping field
    offices may award up to $1 million without prior review by the
    Headquarters Committee on Contracts or the approval of the Department of
    Management.

    Figure 7: Procurement Process in UN Headquarters for Contracts Greater
    Than $200,000

    Comments from the Department of StateAppendix III

    GAO Contact and Staff AcknowledgmentsAppendix IV

    Thomas Melito, (202) 512-9601 or melitot@gao.gov

    In addition to the person named above, Phyllis Anderson, Assistant
    Director; Pierre Toureille; Kristy Kennedy; Clarette Kim; Barbara Shields;
    and Lynn Cothern made key contributions to this report. Jaime Allentuck,
    Martin De Alteriis, Bonnie Derby, Timothy DiNapoli, Mark Dowling, Etana
    Finkler, John Krump, and James Michels also provided technical assistance.

    Related GAO Products

    United Nations: Funding Arrangements Impede Independence of Internal
    Auditors. GAO-06-575 . Washington, D.C.: April 25, 2006.

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

    Peacekeeping: Cost Comparison of Actual UN and Hypothetical U.S.
    Operations in Haiti. GAO-06-331 . Washington, D.C.: February 21, 2006.

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

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

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

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

    United Nations: Progress of Procurement Reforms. GAO/NSIAD-99-71 .
    Washington, D.C.: April 15, 1999.

    (320345)

    www.gao.gov/cgi-bin/getrpt? GAO-06-577 .

    To view the full product, including the scope

    and methodology, click on the link above.

    For more information, contact Thomas Melito at (202) 512-9601 or
    melitot@gao.gov.

    Highlights of GAO-06-577 , a report to congressional committees

    April 2006

    UNITED NATIONS

    Procurement Internal Controls Are Weak

    For more than a decade, experts have called on the United Nations (UN)
    Secretariat to correct serious deficiencies in its procurement process.
    Recent evidence of corruption and mismanagement in procurement suggests
    that millions of dollars contributed to the UN by the United States and
    other member states are at risk of fraud, waste and abuse. During the last
    decade, UN procurement has more than tripled to more than $1.6 billion in
    2005, largely due to expanding UN peacekeeping operations. More than a
    third of that amount is procured by UN peacekeeping field missions.

    To review the UN's internal controls over procurement, GAO assessed key
    control elements, including (1) the overall control environment and (2)
    specific control activities aimed at providing reasonable assurance that
    staff are complying with directives.

    What GAO Recommends

    GAO recommends that the State Department work with member states to
    encourage the UN to establish clear lines of authority, enhance training,
    adopt ethics guidance, establish an independent bid protest mechanism, and
    implement other steps to improve UN procurement. GAO provided State and
    the UN with an opportunity to comment on a draft of this report. State
    endorsed GAO's recommendations. The UN chose not to provide comments.

    Weak internal controls over UN headquarters and peacekeeping procurement
    operations expose UN resources to significant risk of waste, fraud, and
    abuse. The UN's overall control environment for procurement is weakened by
    the absence of (1) an effective organizational structure, (2) a commitment
    to a professional workforce, and (3) specific ethics guidance for
    procurement staff. GAO found that leadership responsibilities for UN
    procurement are highly diffused. While the UN Department of Management is
    responsible for UN procurement, field procurement staff are instead
    supervised by the UN Department of Peacekeeping Operations, which
    currently lacks the expertise and capacities needed to manage field
    procurement activities. Also, the UN has not demonstrated a commitment to
    maintaining a qualified, professional procurement workforce. It has not
    established training requirements or a procurement career path. In
    addition, the UN has yet to establish specific ethics guidance for
    procurement staff in response to long-standing mandates by the UN General
    Assembly, despite recent findings of unethical behavior.

    Diffusion of Leadership Responsibilities for UN Procurement

    GAO also found weaknesses in key control activities. For example, the UN
    has not addressed workload and resource problems that are impeding the
    ability of a key committee to review high-value contracts. Also, the UN
    has yet to establish an independent process to review vendor complaints,
    despite long-standing recommendations that it do so. In addition, the UN
    has not updated its procurement manual since 2004. As a result of these
    and other weaknesses, many millions of dollars in U.S. and other member
    state contributions could be vulnerable to fraud, waste, and abuse.
    *** End of document. ***