United Nations: Progress of Procurement Reforms (Chapter Report,
04/15/99, GAO/NSIAD-99-71).

Pursuant to a congressional request, GAO provided information on the
United Nations Secretariat's efforts to reform its procurement process,
focusing on: (1) the types of procurement problems that the U.N. High
Level Expert Group on Procurement and U.N. audit and inspection
organizations found; (2) progress on the implementation of the Expert
Group's recommendations and other reforms to correct procurement-related
problems; and (3) whether these actions have succeeded in achieving the
objectives of procurement reform.

GAO noted that: (1) the U.N. Board of Auditors, the U.N. Office of
Internal Oversight Services, and the High Level Group of Experts have
pointed out numerous problems in the operations of the U.N.
Secretariat's procurement system; (2) these problems involved issues
concerning all elements of an effective procurement system, such as lack
of competition, with over 50 percent of contracts not competed in the
past, and accountability, with confusion over responsibility and
authority leading to inconsistent application of rules; (3) many of
these findings refer to the period prior to 1996, but some findings have
been more recent; (4) to correct these and other problems, the
Secretariat established the Expert Group; (5) in 1995, the Secretariat
adopted the Expert Group's recommendations as the framework for
procurement reform and has since made considerable progress in
implementing the recommendations and taken other actions to improve its
procurement system; (6) for example, evidence developed by U.N. audit
and inspection organizations indicates that the Secretariat has
strengthened accountability by designating clear lines of authority,
improved competitive practices by increasing the percentage of contracts
that are awarded through competitive bid, and strengthened the fairness
of the process by publishing common specifications for goods procured by
the U.N. system; (7) while the Secretariat has made progress in
reforming its procurement system, action in several areas is incomplete,
and the overall systemic objectives sought by the High Level Expert
Group have not yet been achieved; (8) while the Secretariat now competes
most contracts, competition is still not completely open because
sufficient time is sometimes not given for vendors to prepare bid
proposals; (9) other steps recommended to help ensure transparency and
accountability, such as developing a procurement manual for all to use,
are partially completed; (10) also, the Expert Group's overarching
objective was to create a continuously improving procurement system; and
(11) achieving this objective will be difficult until the Secretariat
has developed performance measures to indicate whether it is reaching
its targets on: (a) timeliness in processing requisitions; (b) on-time
delivery of goods and services; and (c) quality and cost of contract
performance.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-99-71
     TITLE:  United Nations: Progress of Procurement Reforms
      DATE:  04/15/99
   SUBJECT:  Accountability
	     Agency missions
	     Procurement practices
	     Competitive procurement
	     Performance measures
	     International organizations
	     Contract performance

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NS99071 GAO United States General Accounting Office

Report to the Chairman, Committee on International Relations,
House of Representatives

April 1999 UNITED NATIONS Progress of Procurement Reforms

GAO/NSIAD-99-71

  GAO/NSIAD-99-71

United States General Accounting Office Washington, D. C. 20548
Lett er

Page 1 GAO/NSIAD-99-71 United Nations

GAO

National Security and International Affairs Division

B-281996 Letter April 15, 1999 The Honorable Benjamin A. Gilman
Chairman, Committee on International Relations House of
Representatives

Dear Mr. Chairman: Procurement at the United Nations Secretariat
has been criticized for its lack of accountability, fairness, and
competition as well as its failure to provide goods and services
on time. In response to these criticisms, the

U. N. Secretary- General established a High Level Expert Group on
Procurement in 1994 to examine the Secretariat's procurement
system. The Expert Group developed comprehensive recommendations
to create a procurement system that ensured accountability,
fairness, competition, and the economical and timely delivery of
goods and services. 1 Altogether, its 36 recommendations aimed at
creating a dynamic system that could

continuously improve its performance. While the U. N. Secretariat
has responded to the Expert Group's recommendations, allegations
of procurement irregularities continued to come to your attention.

As agreed with your office, this report discusses the U. N.
Secretariat's efforts to reform its procurement system, which
annually purchases about $400 million of goods and services for U.
N. headquarters in New York, field missions, and other offices.
Specifically, we (1) identified the types of procurement problems
that the Expert Group and U. N. audit and

inspection organizations found, (2) assessed progress on the
implementation of the Expert Group's recommendations and other
reforms to correct procurement- related problems, and (3) assessed
whether these

actions have succeeded in achieving the objectives of procurement
reform. As an agency of the United States, we do not have
authority to audit directly the operations of the United Nations.
For this report, our assessment is based on reports by the U. N.
's audit and oversight

organizations, supplemented by publicly available documents,
interviews with U. N. officials, and testing of some reforms. (See
app. I for further details about our report's scope and
methodology.)

1 High Level Expert Group Procurement Study Report (New York, N.
Y.: United Nations, Dec. 1994).

B-281996 Page 2 GAO/NSIAD-99-71 United Nations

Results in Brief The U. N. Board of Auditors, the U. N. Office of
Internal Oversight Services, and the High Level Group of Experts
have pointed out numerous problems

in the operations of the U. N. Secretariat's procurement system.
These problems involved issues concerning all elements of an
effective procurement system, such as lack of competition, with
over 50 percent of contracts not competed in the past, and
accountability, with confusion over responsibility and authority
leading to inconsistent application of rules. Many of these
findings refer to the period prior to 1996, but some findings have
been more recent. To correct these and other problems, the
Secretariat established a High Level Expert Group on Procurement.
In 1995, the Secretariat adopted the Expert Group's
recommendations as the framework for procurement reform and since
then has made considerable progress in implementing the
recommendations and taken other action to improve its procurement
system. For example, evidence developed by U. N. audit and
inspection organizations indicates that the Secretariat has
strengthened accountability by designating clear lines of
authority, improved competitive practices by increasing the
percentage of contracts that are awarded through competitive bid,
and strengthened the fairness of the process by publishing common
specifications for goods procured by the U. N. system.

While the Secretariat has made progress in reforming its
procurement system, action in several areas is incomplete, and the
overall systemic objectives sought by the High Level Expert Group
have not yet been achieved. For example, the Secretariat has not
established formal procedures to address and adjudicate vendors'
grievances, including appointment of an independent ombudsman to
help ensure fairness and openness when issues about U. N.
procurement procedures are raised. Also, while the Secretariat now
competes most contracts, competition is still not completely open
because sufficient time is sometimes not given for

vendors to prepare bid proposals. Other steps recommended to help
ensure transparency and accountability, such as developing a
procurement manual for all to use, are partially completed. Also,
the Expert Group's overarching objective was to create a
continuously improving procurement system. However, achieving this
objective will be difficult until the

Secretariat has developed performance measures to indicate whether
it is reaching its targets on (1) timeliness in processing
requisitions, (2) on- time delivery of goods and services, and (3)
quality and cost of contract performance.

B-281996 Page 3 GAO/NSIAD-99-71 United Nations

Background Each organization within the U. N. system, such as the
World Health Organization and the United Nations Development
Program, procures

goods and services in accordance with its own financial rules and
regulations and procurement procedures. (See app. II for a diagram
of the U. N. system.) More than 30 procurement offices procure
approximately $2. 9 billion of goods and services for these
organizations annually. Procurements by the U. N. Secretariat are
conducted by its Procurement

Division, which in 1997 procured $310 million of goods and
services while peacekeeping and other field missions procured
about $120 million.

Commonly Identified Characteristics of Effective Procurement
Systems

Several organizations have identified characteristics of an
effective procurement system. For example, the U. N. system
organizations identified such characteristics, which were
published by the U. N. 's Interagency Procurement Services Office
(IAPSO) 2 in The Common Guidelines for Procurement by U. N.
Organizations. This publication states that the objective of
procurement within the U. N. system is the timely acquisition of
goods, works, and services while addressing (1) the objective

of the U. N. organization concerned; (2) fairness, integrity, and
transparency through competition; and (3) economy, effectiveness,
and best value for money. The guidelines were intended to
communicate basic principles for

procurement by U. N. organizations and harmonize U. N. system
procurement procedures. The Organization for Economic Cooperation
and Development (OECD) identified similar characteristics for an
effective public procurement system. 3 Its December 1997 policy
brief states that a public procurement system should, among other
things, (1) employ open competition; (2) ensure that the selection
of bidders, tendering procedures, and the awarding of contracts
are open to public examination and scrutiny by external audit
authorities; (3) incorporate a legal and administrative framework
that defines the financial and legal responsibilities of all

2 IAPSO is an office under the oversight of the U. N. Development
Program's executive board and is funded by the development program
and by the procurement services it offers. IAPSO's mandates are to
conduct research and development activities in the area of
procurement for U. N. organizations and to provide a wide range of
procurement services, including advisory services on procurement,
direct procurement, and procurement training for U. N. member
states and organizations. 3 Support for Improvement in Governance
and Management Policy Brief 3: Public Procurement (Paris, France:
OECD, Dec. 1997). This publication is the result of an ongoing
joint initiative of the OECD

Center for Cooperation with Economies in Transition and the
European Union's PHARE Program. The OECD is a forum of
industrialized democracies that studies and formulates policies in
all economic and social spheres.

B-281996 Page 4 GAO/NSIAD-99-71 United Nations

participants in the procurement process; (4) employ well- trained
staff; and (5) ensure that it achieves good value for money in
public expenditure.

The Expert Group also used a similar set of characteristics as the
underlying objectives in developing its report and recommendations
to reform the U. N. procurement system. 4 These characteristics,
discussed in both the Expert Group report and in a report that was
used by the Expert Group, 5 included:

Integrity - public confidence earned by avoiding any conflict of
interest, maintaining impartiality, avoiding preferential
treatment for any group or individual, and dealing fairly and in
good faith with all parties. (Aspects of

this include development of a fair and impartial roster of
qualified vendors and using standard procedures consistently in
procurements.) Openness - policies and procedures available to and
understood by all sources and an acceptable procedure available to
redress grievances of vendors. (Aspects of this include clear
written policies, a procurement manual, standard operating
procedures, and a formal clear bid protest

process.) Accountability - clear lines of procurement
responsibility and authority, set with effective policy direction
and audit capabilities established. (Aspects of this include clear
and specific written authorities and delegations of authority and
strengthened oversight.)

Professional workforce - competent workforce responsive to mission
requirements, with continued review and training to improve
individual and system performance. (Aspects of this include
ensuring a competent and knowledgeable workforce through
professional training programs and curriculums, keyed to a career
procurement track.)

4 The Expert Group was composed of senior officials from Brazil,
France, Malaysia, South Africa, Sweden, the United Kingdom, and
the United States who had expertise in and responsibility for
managing procurement, finance, and logistics operations in their
countries. Among the members were

a senior logistics manager for Military Logistics, United Kingdom;
the Inspector- General of Finance for Brazil; and the Director,
Commodity Division, U. S. Agency for International Development.

5 Alan Burman, Constraining Costs and Improving the Efficiency of
United Nations Peacekeeping Procurement Operations (Washington, D.
C.: U. S. Office of Management and Budget, Sept. 9, 1994). This
study contained the characteristics of an effective procurement
system that the United States identified for the OECD and that the
OECD subsequently adopted in its efforts to provide a framework
for public procurement systems in emerging democracies.

B-281996 Page 5 GAO/NSIAD-99-71 United Nations

Competition - specifications that do not favor a single source and
solicitations widely publicized to benefit from the efficiencies
of the commercial marketplace. (Aspects of this include open
competition for procurement as the norm and all contract activity
and awards to be publicly advertised.)

Value - quality, timeliness, and cost fairly considered to ensure
contracts best meet needs. (Aspects of this include determining
requirements and planning for the procurement to take advantage of
economies of scale and measuring performance to ensure efficiency
in processing purchases and contractor performance.)

We use these six characteristics as the organizing framework to
report on the types of procurement problems the United Nations
experienced, our assessment of the progress the Secretariat has
made in carrying out the

Expert Group recommendations and other reform actions, and our
assessment of whether these actions have achieved the objectives
of the Expert Group. (See app. I for further detail on the work we
did to ensure these were commonly accepted characteristics of an
effective procurement system.)

U. N. Oversight Bodies Have Identified Procurement System Problems

The U. N. Board of Auditors (board), the U. N. Office of Internal
Oversight Services (OIOS), and the High Level Group of Experts
have pointed out numerous problems in the operations of the U. N.
Secretariat's procurement system. These problems involved issues
concerning all elements of an effective procurement system. Many
of these findings refer to the period

prior to 1996, but some findings have been more recent. Integrity
The Expert Group and U. N. audit agencies found practices that

undermined the fairness and impartiality of the procurement
system. For example, OIOS reported that in some locations
contracts were awarded to a limited number of vendors without
evidence of a market survey,

assessment of competitive quotations, or evaluation of vendor
performance. 6 Further, the Expert Group concluded that problems
with 6 Audits of the Regional Commissions, OIOS (A/ 52/ 776) (New
York, N. Y.: United Nations Jan. 27, 1998); Audit of Procurement
Handled by the Contracts and Procurement Service of the United
Nations Department for Development Support and Management
Services, OIOS (A/ 50/ 945) (New York, N. Y.: United Nations, Apr.
30, 1996).

B-281996 Page 6 GAO/NSIAD-99-71 United Nations

the vendor roster undermined the integrity of the system. The
roster, which lists vendors from whom U. N. officials solicit bids
and quotations, is prepared by obtaining from member states and
business groups the names

of potential suppliers, reviewing their qualifications, and
finalizing the list of qualified vendors for use by the
Secretariat. The Expert Group found the roster was outdated,
inaccurate, and not common to all locations and concluded that the
inconsistent and nonstandardized list exposed the procurement
system to abuse, self- interest, and fraud. Another problem the
board reported was that offices requisitioning goods and services
had too much influence on the selection of vendors. 7 This raised
questions of conflicts of interest in the process, since the
procurement office is charged with maintaining independence in the
selection of vendors and is not to be pressured by other parties,
including the requisitioning office.

Openness The Expert Group, the board, and OIOS also noted problems
related to the openness and transparency of the system. The Expert
Group found that policies and procedures were inconsistent,
unclear, and not available to all involved in the bidding process,
including both vendors and procurement officers. In 1995, the
board and OIOS reported that policy and procedures statements and
manuals on procurement were lacking and the available regulations
were too cumbersome to be of practical use. For example, OIOS
reported that guidance in the Department of Peacekeeping
Operations did not provide information on procurement procedures
for procurement staff to use on a day- to- day basis. OIOS also
reported that

50 percent of the procurements they reviewed did not meet the
requirements for sealed bids and public bid openings or were not
communicated to vendors. (App. III contains a flowchart of the
Secretariat's procurement process.) At the same time, the
procurement system lacked an ombudsman or impartial bureau to hear
vendor complaints and ensure fair treatment.

Accountability According to the Expert Group, clear lines of
authority and responsibility, as well as charts that clearly
indicated which officials were responsible for specific tasks,
were lacking. Similarly, the board's 1994- 95 biennial report
stated that adequate lines of authority, supervision, and
accountability had not been established and that appropriate
internal control systems needed 7 Financial Report and Audited
Financial Statements for the Biennium Ended 31 December 1993 and

Report of the Board of Auditors, Vol. I (A/ 49/ 5) (New York, N.
Y.: United Nations, July 29, 1994).

B-281996 Page 7 GAO/NSIAD-99-71 United Nations

to be established within the Procurement Division. In addition,
the Advisory Committee on Administrative and Budgetary Questions
found that there were no guidelines on the composition and
procedures for the Headquarters Committee on Contracts. 8 The
Committee is supposed to

review all contracts exceeding established thresholds to ensure
rules and regulations are followed and there is consistency
between the bid evaluations and the final decision. The board
stated in its report on the

1994- 95 biennium that 57 percent of the contracts for the
Department of Peacekeeping Operations and 23 percent of the
contracts for the remaining Secretariat departments were reviewed
only after they had been signed. In a 1996 audit, OIOS also found
a lack of documentation on vendor qualifications, financial
status, and past performance, making it difficult for auditors to
determine whether vendors had been selected in accordance

with U. N. financial rules and regulations. 9 Professional
Workforce The Expert Group and U. N. audit organizations found the
procurement staff lacked the requisite knowledge of procurement
procedures and

regulations. For example, in its report on the 1992- 93 biennium,
the board found that although some training events had taken
place, there were no formal training arrangements for staff
involved in procurement activities and that very few staff in the
procurement services had any recognized qualifications in
procurement. Likewise, in its 1994 study, the Expert Group
determined that U. N. staff assigned to procurement activities
were largely ill- prepared, untrained or inadequately trained, and
inexperienced.

It stated that staff expertise was extremely low, staff roles and
responsibilities were not aligned with mission requirements and
staff job descriptions, and specific duties were unclear. Further,
in 1995, OIOS identified as one of the general problems of the
procurement function a lack of proper training and experience by
some procurement officers. 10

8 The Advisory Committee on Administrative and Budgetary Questions
examines and reports on the regular and peacekeeping budgets and
accounts of the United Nations and the administrative budgets of
the specialized agencies (see app. II).

9 Audit of Procurement Handled by the Contracts and Procurement
Service of the Department for Development Support and Management
Services.

10 Report of the Office of Internal Oversight Services for the
Period 11/ 15/ 94 to 6/ 30/ 95, OIOS (A/ 50/ 459) (New York, N.
Y.: United Nations, Oct. 2, 1985).

B-281996 Page 8 GAO/NSIAD-99-71 United Nations

Competition The U. N. audit organizations found that the U. N.
Secretariat did not effectively compete procurements in the early
and mid 1990s. Similarly, a 1996 OIOS report on the then-
Contracts and Procurement Service of the Secretariat's Department
for Development Support and Management Services disclosed that in
46 percent of the cases, the technical specifications were either
restrictive in nature or pointed toward a

sole- source vendor. 11 Thus, the specifications precluded or
otherwise made extremely difficult a valid, practical, competitive
bidding process. The board outlined a pattern of poor competitive
practices in its reports on the 1988- 89, 1990- 91, 1992- 93, and
1994- 95 bienniums. Value The Expert Group and U. N. audit
organizations also discovered that U. N.

Secretariat procurement practices frequently did not incorporate
or emphasize quality, timeliness, and other aspects of value in
their procurements. For example, the Expert Group said that having
precise specifications for goods and services was the basis for
ensuring best value. It found, however, that bid specifications
were unclear and lacked specificity and quality measures, making
bid proposals impossible to compare. The Expert Group also found
that procurement planning was not done; thus, the Secretariat
could not take advantage of bulk purchases and

planned acquisitions. Other practices limited obtaining better
value. For example, the board reported in its 1992- 93 biennial
report that the use of a relatively narrow range of suppliers
created an environment where it was unlikely that the United
Nations was achieving the best value for its

money. 12 Also, in 1997, an OIOS report found in one location that
inadequate control over the hiring of consultants led to higher
fees and insufficiently qualified personnel. 13 11 Audit of
Procurement Handled by the Contracts and Procurement Service of
the Department for

Development Support and Management Services. 12 Financial Report
and Audited Financial Statements for the Biennium Ended 31
December 1997 and Report of the Board of Auditors, Vol. I (A/ 49/
5). 13 Review of the Program and Administrative Practices of the
U. N. Center for Human Settlements (Habitat), OIOS (A/ 51/ 884)
(New York, N. Y.: United Nations, Apr. 23, 1997).

B-281996 Page 9 GAO/NSIAD-99-71 United Nations

Reform Measures Taken to Improve the Procurement System

The Secretariat has made considerable progress in implementing the
recommendations proposed by the High Level Expert Group and taken
other steps to reform the procurement system. As the first step in
addressing its procurement problems, the Secretariat accepted the

36 recommendations of the Expert Group as the framework for its
reform efforts. These recommendations included designating clear
lines of responsibility and authority for procurement functions,
drafting a procurement manual available to all parties, and
developing a training curriculum for procurement staff. In June
1995, the Secretariat reported that some actions had already been
taken, and it listed additional future steps to implement the
plan. 14 In March 1996, the U. N. Advisory Committee on
Administrative and Budgetary Questions endorsed the

Expert Group's recommendations and stated that procurement reform
was of fundamental importance for reestablishing the confidence of
the member states in the integrity of U. N. Secretariat
procurement operations, 15 and in December 1996 the Committee
reported to the U. N.

General Assembly on progress being made by the Secretariat. 16 In
November 1998, the Advisory Committee noted that information from
the Secretary- General showed considerable progress in
implementing the recommendations of the Board of Auditors and the
High Level Expert Group.

Integrity The Advisory Committee noted that in the area of
strengthening the integrity of the system, the Secretariat had
purged the old roster of vendors and was updating and expanding
the new roster, had laid out the main criteria for evaluating
suppliers, and had developed common specifications

for goods used throughout the U. N. system. The Secretariat also
took steps to ensure that requisitioning offices did not unduly
influence the bid process, such as requiring the concurrence of
the Chief of the Procurement

14 Review of the Efficiency of the Administrative and Financial
Functioning of the United Nations: Progress in the Implementation
of Procurement Reform in the U. N. Secretariat, Report of the
Secretary- General (A/ C. 5/ 49/ 67) (New York, N. Y.: United
Nations, June 25, 1995). 15 The Implementation of Procurement
Reform in the U. N. Secretariat, Fourteenth Report of the Advisory
Committee on Administrative and Budgetary Questions (A/ 50/ 7/
Add. 13) (New York, N. Y.: United Nations, Mar. 8, 1996).

16 Review of the Efficiency of the Administrative and Financial
Functioning of the United Nations: Procurement Reform, Fourth
Report of the Advisory Committee on Administrative and Budgetary
Questions (A/ 51/ 7/ Add. 3) (New York, N. Y.: United Nations,
Dec. 4, 1996).

B-281996 Page 10 GAO/NSIAD-99-71 United Nations

Division to allow bids from vendors that had been recommended by
the requisitioning office.

Accountability Steps taken in the area of increasing
accountability included reorganizing the procurement function to
eliminate overlapping responsibilities and to designate clear
lines of authority for procurement. For example, prior to the
reorganization, authority for procurement was not centralized
within the Secretariat, but after reorganizing, all procurement is
to be conducted

under the authority of the Procurement Division. At headquarters,
procurement is undertaken under the authority of the Assistant
SecretaryGeneral for Central Support Services, who delegates this
authority to the Procurement Division and the field. In the field,
Directors- General of some offices have delegated this authority,
and the Assistant Secretary- General

clarified the authority and responsibility of field offices by
specifying the field officials that could approve contracts and
increasing the allowable contract amount field offices could
approve from $70,000 to $200, 000. Also, the committees required
to review contracts before approval, both at headquarters and in
the field, were strengthened by (1) selecting a full- time

permanent chair for the headquarters committee and (2) specifying
the committees' working methods and policy guidelines for required
reviews. The Secretary- General further reported that the
requirements for contract approval were being followed more
closely than in the past. For example,

the number of contracts awarded before required review by the
Headquarters Committee on Contracts decreased from 47 percent in
1995 to 3.4 percent for the Secretariat and 2.8 percent for
peacekeeping procurement in 1998. 17 Competition Competition has
also been strengthened. In 1998, the scope for competitive
contracting was significantly increased by adding professional

services, medicines, medical supplies, and hospital or surgical
supplies to the list of items subject to the open bidding process.
Both invitations to bid and contract awards are publicized
electronically on the internet, and the percentage of procurements
that were competitively bid increased from 31 percent in 1994 to
73 percent in 1998.

17 Procurement contracts that are awarded and then reviewed after
the award are termed ex post facto contracts. Current regulations
require that contracts equal to or greater than $200,000 be
reviewed by the Headquarters Committee on Contracts before they
are awarded.

B-281996 Page 11 GAO/NSIAD-99-71 United Nations

Other Areas of Improvement

The Secretariat has taken action on several of the other
recommendations of the Expert Group. For example, the Secretariat
has provided procurement staff, particularly at headquarters,
training seminars on cost and price analysis, conflict resolution,
and the new U. N. information

system. There is some evidence the steps taken have improved the
headquarters workforce. For example, in 1998, OIOS examined a
sample of personnel files and found that following a period of
high turnover, 90 percent of the headquarters procurement staff
now had procurementrelated qualifications, including government
and military procurement experience. OIOS also found that senior
officers at headquarters had an average of 17 years of procurement
experience, and it concluded that the

vast majority were qualified to do their jobs. Also, according to
board officials, the quality of the workforce at U. N.
headquarters has improved due in part to the training.

Outstanding Procurement Reform Issues

Although the Secretariat has taken some action on almost all
recommendations of the Expert Group and improved the procurement
system, several reform measures remain incomplete, and the
objective of creating an effective procurement system with the
capacity to continuously improve has not yet been achieved.
Recommendations or reform actions that have been partially
implemented fall in the areas of integrity and openness,
professional workforce, competitive practices, and value.
Integrity and Openness The Expert Group recommended that to help
ensure the integrity and openness of the system, an independent
complaints bureau/ ombudsman be established to adjudicate vendor
grievances. As of January 1999, formal procedures for the
grievance process had not been developed. Since

formal procedures were lacking, cases may be treated
inconsistently, and vendors may be treated unequally. Also, the
ombudsman function is not fully independent but is being carried
out by the Under Secretary- General for Management and the
Assistant Secretary- General for Central Support

Services. The Secretariat has stated that one or the other
official the one who is not involved in a particular case for
which a grievance arises would review the grievance. According to
OIOS, it is questionable whether these officials can act as
impartial judges. In this regard, there is a direct line of
authority from the Chief of the Procurement Division to the
Assistant Secretary- General, who reports to the Under Secretary-
General. According to a private sector expert on procurement and
the Deputy Assistant Administrator for Acquisition Policy for the
U. S. government's

B-281996 Page 12 GAO/NSIAD-99-71 United Nations

General Services Administration, to avoid the appearance of a
conflict of interest, the ombudsman should not be in the reporting
chain of the officials potentially involved in the cases he or she
reviews. In providing openness and transparency, the procurement
manual has shortcomings. The Secretariat developed a procurement
manual in response to the Expert Group's recommendations. However,
the manual does not include a mission statement, clear
explanations of policy, or detailed, step- by- step discussions of
procedures required for field personnel to perform their duties,
as recommended. According to the Expert Group and other
procurement experts, a clear and complete procurement manual is
essential to an open procurement system because

policies, regulations, and the procurement process need to be
available to all sources and must be sufficiently clear and
detailed for all sources to understand them. Secretariat officials
we spoke to acknowledged the weaknesses in the current manual and
are considering revisions. They also stated that the manual is
subject to regular review and revision.

Professional Workforce Although the Secretariat has provided
training courses to procurement staff, these courses do not
constitute a comprehensive curriculum to

provide a continuum of basic to advanced skills for the
development of procurement officers, as recommended by the Expert
Group. A 1998 OIOS report further found a mixed level of
professional experience among procurement personnel. While over 90
percent of a sample of headquarters procurement staff had
procurement- related qualifications or experience, only 62 percent
of a sample of field staff had U. N. or outside procurement
experience. 18 OIOS recommended that training needs be identified
and a formal, procurement- specific training program be created.
Also, in the view of board officials, training for peacekeeping
staff in the field

continues to be a problem. As a result, the board viewed field-
level procurement practices as a high- risk area. Without a more
systematic approach to training, the Secretariat cannot ensure
that procurement is carried out by a competent workforce capable
of meeting mission requirements. Secretariat officials told us in
January 1999 that an effort was under way to improve the training
and career path opportunities of U. N. system

18 Report of the Secretary- General on the Activities of the
Office of Internal Oversight Services, (A/ 52/ 813) (New York, N.
Y.: United Nations, Mar. 5, 1998).

B-281996 Page 13 GAO/NSIAD-99-71 United Nations

procurement officials. The Secretariat and other U. N.
organizations are developing a system to share and coordinate
training resources. Likewise, procurement staff are expected to be
rotated among U. N. organizations and field missions in an effort
to share their knowledge, broaden their experiences, increase
their proficiency, and provide them with a career

path. Competition Although the Secretariat has strengthened
competitive practices in its

procurements, there are still weaknesses in ensuring open
competition. For example, in the 1996- 97 biennial report, the
board noted that no uniform pattern existed in the amount of time
suppliers would be given to prepare and submit a bid. 19 Nor could
the board find any relationship between the size and complexity of
contracts and the amount of time given for bid preparation. For
example, some contracts valued over $200,000 allowed only 4 weeks
for bid preparation, while smaller contracts allowed a longer
period. Board officials emphasized that the lack of guidelines
setting out minimum times for the bidding period could lead to
noncompetitive practices. The board also found that open tendering
for

major procurements above $500, 000 was rarely used. Recent OIOS
audit reports found weaknesses in compliance with regulations on
competition. A 1998 OIOS report covering a series of audits
conducted between June 1996 and December 1997 on procurement in
the

U. N. Angola Verification Mission found that goods were procured
from a restricted group of middlemen at higher prices under
doubtful circumstances. 20 OIOS also reported that in several
instances, the Mission's procurement section interfered in the
requisitioning process. As

a result of this interference, requisitions were split and
processing was delayed. The splitting of requisitions allowed the
bypassing of normal procurement procedures and of scrutiny by the
Local and Headquarters

Committees on Contracts. The transactions were investigated from
1995 to 1997 and OIOS reported in April 1998 that action to
correct some of the issues had taken place but action on the
remaining issues needed to be closely monitored for completion. In
a January 1998 audit of the U. N. Regional Commissions, OIOS found
that at one of the four commissions,

19 Financial Report and Audited Financial Statements for the
Biennium Ended 31 December 1997 and Report of the Board of
Auditors, Vol. I (A/ 53/ 5) (New York, N. Y.: United Nations, July
30, 1998).

20 Report on the Audits of the Procurement Process in the U. N.
Angola Verification Mission, OIOS (A/ 52/ 881) (New York, N. Y.:
United Nations, Apr. 28, 1998).

B-281996 Page 14 GAO/NSIAD-99-71 United Nations

purchase files contained no evidence of a market survey or an
assessment of competitive quotations, except in a few major cases.
21 Board officials told us in January 1999 that these infractions
were issues of compliance rather than systemic internal control
problems, since clear rules and regulations are in place.

Value Two key reform actions to ensure the Secretariat receives
the best value for its money have not been implemented. First, the
Expert Group called for

the development of performance measures to monitor both the
internal work processes, such as timeliness in preparing
requisitions and vendor performance for quality, cost, and on-
time delivery. However, as of January 1999, Secretariat officials
had not developed performance measures for the procurement system,
except for procurement operating costs as a percentage of total
procurement costs. Other measures of performance might include
purchase order cycle time and average annual training hours per
professional employee. 22 According to procurement experts, such
measures are fundamental to developing an effective procurement
system

and are used routinely in government and private sector
organizations. Without such performance measures, the Secretariat
will find it difficult to assess the effectiveness of its
procurement system or to continuously improve its performance. A
second reform action to enhance value was to introduce procurement
planning so that purchases could be planned in advance. In August
1998, the Secretariat endorsed procurement planning a requisite
over the long term for ensuring best value for the money. 23
Before that date, the Secretariat had taken the position that,
particularly for peacekeeping missions, procurement planning was
not feasible. In January 1999, OIOS officials said they had yet to
see procurement planning occur. A senior Secretariat official said
the Secretariat had taken initial steps to begin procurement
planning, such as incorporating planned procurements in

21 Audits of the Regional Commissions, OIOS (A/ 52/ 776) (New
York, N. Y.: United Nations, Jan. 27, 1998). 22 Examples of
benchmarking are contained in the following two publications:
Cross- Industry Comparison of Standard Benchmarks (Tempe, AZ:
Center for Advanced Purchasing Studies, Winter 1997- 98); and
Guide to a Balanced Scorecard: Performance Management Methodology
(Washington, D. C.: Procurement Executives' Association, 1998).

23 Report of the Secretary- General: Procurement Reform (A/ 53/
271) (New York, N. Y.: United Nations, Aug. 18, 1998).

B-281996 Page 15 GAO/NSIAD-99-71 United Nations

future estimated budget submissions. However, a systemic planning
process would not be in place until later in 1999.

Conclusions The Secretariat has responded to the challenge of
reforming its procurement system and made improvements. However,
the Secretariat has not fully implemented several reform measures
that would help ensure the procurement system is open, fully
competitive, and provides the best

value for its money. The Secretariat also has not developed
performance measures that would allow it to take corrective action
and continuously improve.

Agency Comments and Our Evaluation

The Department of State and the United Nations provided written
comments on a draft of this report. The Department of State agreed
with our observations concerning the work that remains to be done
in U. N. procurement reforms, such as formalization of procedures
for handling bid protests. However, State and the United Nations
believe that the U. N. 's progress should have been better
highlighted in our report, that significant

progress had been made in procurement reform, and that the
structure and tone of the report downplayed the progress achieved.
The United Nations commented that reform is an ongoing process and
it would continue its procurement reforms. It further commented
that the report overemphasized past problems rather than measures
taken to address

them and that we could have developed a more comprehensive review
of the subject through more substantial research of publicly
available documents such as those of the General Assembly, which
reflected the discussions of the legislative bodies. In this
regard, the United Nations. stated that it had made significant
progress on the major system issues identified by the High Level
Expert Group and that it was working on the

few remaining operational issues to improve compliance. Our report
discusses examples of progress in the first paragraph of our
Results in Brief and devotes a section of the report to progress
that we could substantiate. We also state several times in the
report that the U. N. Secretariat has made considerable progress
in improving its procurement system. However, we balance the
findings of progress against findings based on OIOS and other
oversight organizations' reports, as well as testing of our own,
that some reform recommendations that affect the performance of
the entire system have not been implemented or are incomplete. Our
analysis, as well as interviews with U. N. officials,

B-281996 Page 16 GAO/NSIAD-99-71 United Nations

indicates that the issues that have not been fully implemented are
not merely compliance concerns but rather affect the procurement
system. For example, the lack of performance measures, a training
curriculum, formal grievance procedures, and a comprehensive
planning process affect overall procurement system operations and
indicate that the United Nations has yet to achieve the Expert
Group's baseline objective of creating

a procurement system with the capacity to continuously improve and
provide goods and services on time as cost- effectively as
possible.

State and U. N. officials also provided technical comments, which
we have incorporated in the report as appropriate. The comments of
the Department of State and the U. N. Secretariat are reprinted in
their entirety in appendixes IV and V, respectively.

We are sending copies of this report to the Honorable Madeleine K.
Albright, the Secretary of State; the Honorable A. Peter Burleigh,
the acting Permanent Representative of the United States to the
United Nations, the Honorable Kofi Annan, the Secretary- General
of the United Nations; and other interested congressional
committees. Copies will be made available to others on request.

Please contact me at (202) 512- 4128 if you or your staff have any
questions about this report. Major contributors to this report are
listed in appendix VI.

Sincerely yours, Harold J. Johnson, Associate Director
International Relations and Trade Issues

Page 17 GAO/NSIAD-99-71 United Nations

Page 18 GAO/NSIAD-99-71 United Nations

Contents Letter 1 Appendix I Scope and Methodology

20 Appendix II The U. N. System 23

Appendix III The U. N. Secretariat's Procurement Process

25 Appendix IV Comments From the Department of State

28 Appendix V Comments From the U. N. Secretariat

30 Appendix VI Major Contributors to This Report

34 Tables Table III. 1: Steps in the Secretariat's Procurement
Process 27 Figures Figure II. 1: The U. N. System 24

Figure III. 1: Flow Chart of the Secretariat's Procurement Process
26

Contents Page 19 GAO/NSIAD-99-71 United Nations Abbreviations

IAPSO Inter- Agency Procurement Services Office OECD Organization
for Economic Cooperation and Development OIOS Office of Internal
Oversight Services

Page 20 GAO/NSIAD-99-71 United Nations

Appendix I Scope and Methodology Appendi x I

We conducted our work at the U. N. headquarters in New York City
and at the Department of State in Washington, D. C., including the
U. S. Mission to the United Nations in New York. Our scope was
limited to examining the U. N. Secretariat's procurement system,
which includes procurements for U. N. peacekeeping missions; we
did not examine procurement at the other agencies, funds, and
programs of the U. N. system. We interviewed officials from and
reviewed documents from the U. N. Secretariat, the U. N. Board of
Auditors, the U. N. Office of Internal Oversight Services (OIOS),
the General

Assembly, and the U. S. Mission to the United Nations about the
Secretariat's procurement problems, reform history, and current
status. We also reviewed a report issued by the U. S. government
on problems in procurement for U. N. peacekeeping and reports by
the U. N. Advisory

Committee on Administrative and Budgetary Questions on measures
taken to resolve weaknesses in the Secretariat's procurement
system. Our information on the extent to which the Secretariat has
implemented reform measures was based on the findings of OIOS and
the U. N. Board of Auditors, and interviews with U. N. officials.

To develop an organizing framework for reporting on U. N.
procurement problems, the progress made in implementing reform
actions, and our assessment of whether this progress has met the
reform objectives of the High Level Expert Group on Procurement,
we identified the objectives of the reform. To do this, we
reviewed the Expert Group report, which contained a wide- ranging
discussion of issues that needed to be addressed in the U. N. 's
procurement system, including (1) integrity/ fairness, (2)
openness/ transparency, (3) accountability, (4) professional
workforce, (5) competition, and (6) value. These six elements were
most clearly discussed in a report used by the Expert Group
entitled Constraining Costs and Improving the Efficiency of United
Nations Peacekeeping Procurement Operations. This report explained
that these were the characteristics the United States identified
for the Organzation for Economic Cooperation and

Development (OECD) as central to any well- structured procurement
system. To ensure these characteristics were commonly recognized,
we reviewed procurement policy documents of several other
organizations and offices, such as the OECD (Support for
Improvement in Governance and Management Policy Brief 3: Public
Procurement), the United Nations (The Common Guidelines for Public
Procurement by U. N. Organizations), the European Union
(Application of European Procurement Law Communication Adopted by
the Commission on 27 November 1996), and several national
government agencies. These entities all used similar descriptions
about the objectives and characteristics of their procurement
systems. We also discussed these characteristics with the Deputy
Assistant

Appendix I Scope and Methodology

Page 21 GAO/NSIAD-99-71 United Nations

Administrator for Acquisition Policy for the U. S. government's
General Services Administration and a private sector expert on
procurement who was formerly the Administrator for Federal
Procurement Policy for the U. S. government. Based on this work,
we decided to use the six characteristics as the organizational
framework for our reporting.

To identify the types of problems found by the High Level Expert
Group on Procurement and U. N. oversight entities, we first
reviewed the 1994- 98 reports of OIOS and the Board of Auditors'
Biennial Financial Reports covering the period 1988 through 1997.
We found they had cited numerous

problems, ranging from individual instances of noncompliance with
procurement regulations to a systemwide failure to compete
contracts. We summarized all the problems and entered them into a
text query database. To organize the problems by type, we
categorized each problem according to the definitions for the six
elements of an effective procurement system integrity, openness,
accountability, workforce, competition, and value. For example,
the finding that open tendering for major procurements above
$500,000 was rarely used was categorized as a problem in the area
of competition. This provided us with concrete examples for each
type of

problem and gave us a sense of their nature and extent. To
identify the measures taken by the Secretariat to reform its
procurement system, we examined the Secretariat's progress reports
from 1995 to 1998 outlining the steps it had taken in response to
the recommendations in the

1994 Expert Group report. The most recent Secretariat progress
report was dated November 10, 1998. Where possible, we verified
that these steps had been taken. For example, we obtained (1) a
copy of the procurement manual to verify that it had been prepared
and contained clearly defined policies and procedures, (2) policy
documents on delegations of authority to verify that authority to
field missions had been increased, and (3) organization and
management charts and documents to verify that offices had been
consolidated. We also observed the computer operation

and supporting data entry sheets for the field inventory system to
verify that an inventory of existing assets had begun. In
addition, we reviewed statistics on the number and amount of
contracts awarded without competition, examined the electronic
filing for contract bids and awards on the internet, and followed
up on the extent of training provided to procurement officers and
the content of the training classes offered. We assessed the
Expert Group's report for its overall objectives, and we analyzed
and classified many of its specific recommendations by the
characteristics of an effective procurement system. We then
analyzed

Appendix I Scope and Methodology

Page 22 GAO/NSIAD-99-71 United Nations

OIOS and other reports on the extent to which the Secretariat had
implemented the recommendations. The latest OIOS report on
implementation of the recommendations was dated March 5, 1998. We
updated this information by interviewing OIOS and Board of
Auditors officials on their assessment of whether the Secretariat
had taken further

steps. We supplemented this assessment by reviewing reports that
included procurement issues published in 1998 by OIOS and the
Board of Auditors and seeing if problems still occurred in the
areas where the Secretariat had implemented reform measures. We
interviewed officials from the U. N. Board of Auditors, OIOS, and
Procurement Division staff as well as knowledgeable Secretariat
officials, such as the Assistant Secretary- General for Central
Support Services and the Under SecretaryGeneral for Management to
discuss the steps that had been taken to reform the procurement
system.

We performed our work from July 1998 to January 1999 in accordance
with generally accepted government auditing practices.

Page 23 GAO/NSIAD-99-71 United Nations

Appendix II The U. N. System Appendi x I I

The U. N. system of organizations covers a wide variety of
organizational units, including offices, departments, centers,
specialized agencies, funds, and programs that vary considerably
in size and mission. The U. N. General Assembly, consisting of
almost all nation states, is the major representative body of the
U. N. system and works with the other principal components of the
United Nations, such as the Security Council and the Economic and
Social Council. The Specialized Agencies are also considered part
of the U. N. system, although each has its own charter. (See fig.
II. 1.)

Appendix II The U. N. System

Page 24 GAO/NSIAD-99-71 United Nations

Figure II. 1: The U. N. System

Legend ACABQ= Advisory Committee on Adminsitrative and Budgetary
Questions Source: U. N. Documents

Page 25 GAO/NSIAD-99-71 United Nations

Appendix III The U. N. Secretariat's Procurement Process Appendi x
I I I

Goods and services procured by the Secretariat through its normal
process involves multiple steps depending on the size of the
contract, including entering information about the procurement
into a database. The process is outlined in figure III. 1, which
provides a flow chart of the process, and is described in table
III. 1, which lists the individual steps keyed to the flow

chart.

Appendix III The U. N. Secretariat's Procurement Process

Page 26 GAO/NSIAD-99-71 United Nations

Figure III. 1: Flow Chart of the Secretariat's Procurement Process

Department/ Office originating the requisition

Certifying Officer IMIS Goods inspection

ITB (equipment) or RFP (service) prepared ITQ

issued to vendors REALITY

1 Automated roster list 2 Other agencies' rosters 3 Catalog of
common items 4 Generic specifications

ITB (equipment) or RFP (service) prepared

ITB or RFP issued to vendors

Vendors provide bids/ proposals

Bid opening Bids evaluated Technical evaluation (Requisition
office) Commercial evaluation (Procurement Division) Short list of

potential vendors 1

2 12

>$ 25,000<$ 200,000 4c Systems contract

in place? 4a

3a 4b N Y

4 5 >$ 200,000

<$ 25,000 5c1

5a1 Lowest quote/ best value

accepted 5a2

ITB or RFP issued to vendors 5c2 Vendors provide bids/ proposals

5c3 Bid opening 5c4

5c5 Presentation to HCC 5c6

ASG approval 5c7 Purchase order (equipment) contract (service)
prepared

Transportation Division receives items 6

7 8 9 10 9

Procurement Division Receiving information Receiving information
Commodity

procurement section 1 Commodity

procurement section 2 3

11 10

5b1 5b2 5b3 5b4 5b5

Winning vendor notified by Procurement Division Bids evaluated

Technical evaluation (Requisition office) Commercial evaluation
(Procurement Division)

Appendix III The U. N. Secretariat's Procurement Process

Page 27 GAO/NSIAD-99-71 United Nations

Table III. 1: Steps in the Secretariat's Procurement Process

Source: GAO, based on U. N. procurement regulations and
discussions with U. N. officials.

Step Action

1 Department/ Office originates requisition in Integrated
Management Information System (IMIS)

2 Department/ Office certifying officer certifies requisition to
ensure funds are available, item is needed, and account for item
is available

3 Procurement Division pulls requisition from IMIS 3a Procurement
Division assigns requisition to appropriate section 4 Check for
existence of a systems contract 4a Systems contract in place (move
to step 7, issue purchase order/ contract) 4b No systems contract
in place, check REALITY system for potential vendors 4c Short list
of vendors prepared (goal: to include as many vendors as possible)
5 Establish value of the procurement 5a1 Value of procurement up
to $25,000, issue request for quotes 5a2 Accept lowest quote/ best
value (move to step 7, issue purchase order/ contract)

5b1 Value of procurement greater than $25,000 and up to, but not
more than, $200, 000, prepare invitation to bid/ request for
proposals 5b2 Issue invitation to bid/ request for proposals to
vendors 5b3 Vendors provide bids/ proposals 5b4 Bid opening 5b5
Bids evaluated by requisitioning office and Procurement Division
(move to step 6,

select and notify winning vendor) 5c1 Value of procurement greater
than $200,000, prepare invitation to bid

(equipment), request for proposals (service) 5c2 Issue invitation
to bid/ request for proposals to vendors 5c3 Vendors provide bids/
proposals 5c4 Bid opening 5c5 Bids evaluated by requisitioning
office and Procurement Division 5c6 Bids/ proposals presented to
the Headquarters Committee on Contracts

5c7 Assistant Secretary- General, Department of Central Support
Services, issues approval of winning vendor 6 Winning vendor
selected and notified 7 Purchase order (equipment)/ contract
(service) drafted, contract reviewed by Office of Legal Affairs

8 Transportation Division receives items purchased 9 Receiving
information entered into REALITY system and IMIS 10 Goods
delivered to requisitioning office 11 Requisitioning office
inspects goods 12 Inspection report entered into IMIS

Page 28 GAO/NSIAD-99-71 United Nations

Appendix IV Comments From the Department of State Appe ndi x I V

Appendix IV Comments From the Department of State

Page 29 GAO/NSIAD-99-71 United Nations

Page 30 GAO/NSIAD-99-71 United Nations

Appendix V Comments From the U. N. Secretariat Appe ndi x V

Note: GAO comments supplementing those in the report text appear
at the end of this appendix.

See comment 1.

Appendix V Comments From the U. N. Secretariat

Page 31 GAO/NSIAD-99-71 United Nations

See comment 2. See comment 3. See comment 4. See comment 5. See
comment 6.

Appendix V Comments From the U. N. Secretariat

Page 32 GAO/NSIAD-99-71 United Nations

The following are GAO's comments on the U. N. letter dated March
25, 1999. GAO Comments 1. Our report is based on a complete review
of the debate on activities

pertaining to the Secretariat's procurement reform efforts,
including documents from the General Assembly, Advisory Committee
on Administrative and Budgetary Questions, and the oversight
offices; testing of some reform implementation; and additional
information provided by U. N. officials. Our review of this
information demonstrated that while the Secretariat has taken
action on most of the Expert Group's

recommendations, in some instances, these actions have not been
fully implemented.

2. We found that some steps had been taken to do procurement
planning; however, as acknowledged by U. N. procurement officials,
a comprehensive procurement planning process was not yet in place.
Audit officials also said that although some peacekeeping
procurement planning was occurring, they had not seen evidence
that procurement planning had

become a routine activity within the Secretariat. The report has
been modified to recognize what has been accomplished in the area
of procurement planning. 3. The report has been modified to
reflect the progress that has been made to develop a performance
measurement system. However, it is important to recognize that
collecting information on one indicator does not mean a
performance measurement system is in place. 4. Our draft report
acknowledged that a new procurement manual had been issued.
However, we reviewed the revised manual and found that certain
elements recommended by the Expert Group, such as a mission

statement and step- by- step discussions of procedures for field
personnel to perform their duties, were not incorporated into the
manual.

5. Our draft report acknowledged that the U. N. Secretariat had
taken steps to improve the training of its procurement staff.
However, at the time of our review, a formal and comprehensive
training curriculum, as recommended by the Expert Group and U. N.
audit organizations, had not

been developed. 6. Although competitive practices have been
strengthened, we agree with the Board of Auditors that the time
period vendors have to bid on U. N. contracts needs to be clearly
written into the financial regulations and that

Appendix V Comments From the U. N. Secretariat

Page 33 GAO/NSIAD-99-71 United Nations

open tendering for large contracts should be routinely used. We
believe these shortcomings are systemic weaknesses and not simply
matters of compliance. On the other hand, the audit findings about
the failure in one location to conduct or document market surveys
and assessments of quotes were issues of compliance, which we
recognized.

Page 34 GAO/NSIAD-99-71 United Nations

Appendix VI Major Contributors to This Report Appe ndi x VI

National Security and International Affairs Division, Washington,
D. C.

Tetsuo Miyabara Richard J. Boudreau David M. Bruno Lenora R.
Fuller Rona H. Mendelsohn

(711344) Let t er

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