Strengthening the accountability mechanisms of the Secretariat in response to the flaws in the United Nations oil-for-food programme
7. The Independent Inquiry Committee found that the resources committed to audit of the oil-for-food programme were inadequate and hampered the audit coverage. It also noted that several important aspects of the programme (e.g., functions performed at the Office of the Iraq Programme headquarters and elements of the oil and humanitarian contracts, including price and quality of goods) were not reviewed by internal audit. Although the accounting and financial reporting processes and the results of the administrative (ESD) account were routinely audited by the Board of Auditors, the Internal Audit Division conducted only one internal audit relating to the administrative account.
Assessment
8. Future programmes of this magnitude would benefit from an independent assessment of the systems and controls that were lacking in the administration of the programme. In addition, steps have already been taken to address the issue of resources for the Office of Internal Oversight Services. The General Assembly, in its resolution 60/1, decided that the expertise, capacity and resources of the Office in respect of audit and investigations would be significantly strengthened.
Finding
9. Reporting of the Office of Internal Oversight Services to the General Assembly on programme-related matters was unsatisfactory, and reports were not published in a timely manner and in a consistent format.
Assessment
10. General Assembly resolutions 59/272 on the Office of Internal Oversight Services reporting requirements and 61/275 regarding the terms of reference of the Independent Audit Advisory Committee have helped to enhance accountability in the Organization.
Finding
11. The Office of Internal Oversight Services did not adequately monitor the implementation of recommendations that had been accepted by management. Similarly, prior to 2002, the Office of the Iraq Programme and the United Nations Office of the Humanitarian Coordinator for Iraq (UNOHCI) did not systematically monitor implementation of audit recommendations.
Assessment
12. The accountability framework recognizes the need to ensure prompt follow-up to accepted recommendations from oversight bodies. To date, the Management Committee is responsible for ensuring that these recommendations are fed into the management process.
Finding
13. The United Nations did not possess adequate means to resolve disputes regarding the activities of the Office of Internal Oversight Services and the scope of its audits. The OIOS Internal Audit Division deviated from “best practices” through its inability to report directly to an audit committee or other independent board, its failure to complete enterprise-wide risk assessments and its lack of budgetary independence.
Assessment
14. The Office of Internal Oversight Services has since adopted risk-based workplans. OIOIS budgets continue to go through a process similar to that followed by the other departments. The major difference is that OIOS budget proposals are reviewed and analysed by the Independent Audit Advisory Committee, which is an independent body that reports directly to the General Assembly.
Finding
15. Resources committed to investigations were limited and requests for additional resources from the programme were denied. Due to funding limitations, the approach by the Investigations Division of the Office of Internal Oversight Services in initiating programme reviews was merely reactive rather than proactive. Only limited investigation was undertaken, either due to absence of cooperation by the Iraqi authorities, or due to lack of funding and other resources.
Assessment
16. It is part of the mandate of the Independent Audit Advisory Committee to review the budgets of the Office of Internal Oversight Services. This process will ensure that resources are adequately provided according to a risk-based approach to management of oversight functions. See also response in paragraph 8 above with respect to resource allocation.
Administration of the programme
Finding
17. The report noted that the actions of the Executive Director of the Iraq Programme in soliciting oil allocations on behalf of an associate constituted a grave conflict of interest and violated United Nations Staff Regulations and Rules with regard to integrity, impartiality and independence. It further asserted that the Executive Director of the Programme, together with his associates, derived personal pecuniary benefit from the Programme, through the receipt of cash proceeds from the sale of oil allocated to them from Iraq. These parties were aware that illegal surcharges were paid to Iraq in respect of such oil sales, in violation of United Nations sanctions and the rules governing the oil-for-food programme.
Assessment
18. The United Nations has since established the Ethics Office, which has developed policies related to potential conflicts of interest, financial disclosure and whistle-blower protection. These measures could prevent, or at least mitigate, the recurrence of the cited violations.
Finding
19. The Secretariat’s response to the surcharge and kickback allegations and the oil smuggling activities revealed a pattern of inaction and inadequate disclosure to the Security Council and the Security Council Committee established pursuant to resolution 661 (1990).
Assessment
20. The proposed accountability instruments envisage building on the already strengthened oversight regime to create a robust oversight function that addresses failures of staff members to perform their duties in accordance with established regulations, rules, policies and procedures.
Finding
21. Weaknesses in control and oversight contributed to corruption and the United Nations agencies failed to investigate allegations of misappropriation of funds, mismanagement or conflicts of interest.
Assessment
22. Current accountability instruments affirm that adequate internal controls and a strong, independent oversight capacity are key to sound management.
Finding
23. There was an apparent absence of follow-up to audit findings and recommendations by management; this was symptomatic of the lack of authority and status for internal audit.
Assessment
24. Subsequent to the Independent Inquiry Committee report, the Management Committee was established, chaired by the Deputy Secretary-General. One of its main functions is to ensure that recommendations of oversight bodies are effectively fed into the executive management process and that accepted recommendations are implemented in a timely manner. The Management Committee meets on a quarterly basis to review the recommendations of the oversight bodies.
Programme implementation by United Nations agencies
Findings
25. Although the Independent Inquiry Committee acknowledged that the United Nations agencies achieved crucial successes in the northern governorates in managing a humanitarian crisis and distributing goods and services throughout the region, it also found significant weakness as well. It noted that programme implementation by agencies disclosed notable failures because they tackled problems beyond their core competencies, there was insufficient management, coordination and oversight, etc. Agencies also failed to successfully implement projects even though the projects fell within their traditional spheres of competency, resulting in waste of resources and delays in providing aid to the three northern governorates. In addition, the United Nations Secretariat failed to adequately control and supervise the activities of the agencies, and the programme’s design did not allow for such control and supervision. In addition, the Secretariat was reluctant to utilize the one tool at its disposal — the control over programme funds — to manage the activities of the agencies. Consequently, the Committee report notes that these weaknesses in control and oversight contributed to corruption and the agencies failed to investigate allegations of misappropriation of funds, mismanagement or conflicts of interest.
Assessment
26. To address these monitoring shortfalls, the Secretary-General is proposing a robust results-based management framework that will focus on achieving results and improving performance, integrating lessons learned into management decisions as well as monitoring and reporting on performance. This progress will be enhanced through the results-based management information system referred to earlier, by establishing the link between objectives, results and resources.
Procurement process
Findings
27. The Independent Inquiry Committee report noted that the selection process for each of the three United Nations contractors selected in 1996 did not conform to established financial and competitive bidding rules and did not meet reasonable standards of fairness and transparency.
28. In one instance, the lowest acceptable bidder was not selected and there was an absence of written justification by an appropriate official to reject the lowest acceptable bidder as required by Financial Rule 110.21. In another instance, the Procurement Division accepted an invalidly amended bid to lower a contractor’s contract price. In yet another instance, in contravention of the established rules and procedures, factors other than technical and financial considerations influenced the decision-making in awarding contracts.
29. The report further asserted that while an open bidding process did take place, United Nations procurement rules relating to the qualifications of prospective contractors were not appropriately followed: the contractor was not asked to submit a required financial statement and no account was taken of two criminal investigations against the Chief Executive Officer of the prospective contractor. The report also pointed out that one staff member in the Procurement Division provided confidential bid information, internal assessments and selection considerations to a prospective supplier contrary to the provisions of the United Nations Procurement Manual and the Staff Regulations and Rules.
Assessment
30. In the context of procurement reform, the Secretary-General introduced a number of measures to strengthen internal control and promote ethics, integrity, fairness and transparency in the procurement process, including the establishment of an independent mechanism to review challenges to procurement awards. Together with the current policies on financial disclosure, conflict of interest prevention, whistle-blower protection and an enterprise risk management framework, these measures would prevent, or mitigate, the recurrence of such a situation.
External audit
Findings
31. Resources committed to audit the programme were inadequate in relation to its size.
32. The scope of the audit by the Board of Auditors was narrowly defined, focusing particularly on the accuracy of financial statements, while the internal control environment of programme activity received little attention.
33. External audits failed to audit and test some of the programme’s most critical areas — including pricing of oil and humanitarian goods — and to assess their impact on the programme’s financial statements.
Assessment
34. The envisaged enterprise risk management approach would help to identify and mitigate risks. The Board of Auditors is an independent body and is solely responsible for the conduct of its audits. However, Regulation 7.4 of the Financial Regulations and Rules of the United Nations (ST/SGB/2003/7) provides that the audits are to be conducted in conformity with generally accepted common auditing standards and subject to any special directions of the General Assembly. Regulation 7.7 further provides that the Advisory Committee on Administrative and Budgetary Questions may request the Board of Auditors to perform certain specific examinations. With a robust enterprise risk management framework, the General Assembly would benefit from the identification of high-risk areas, which could provide additional guidance in identifying areas for possible special audits.
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