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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 [email protected] . Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix 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 [email protected]

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
[email protected].

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. ***