Resumed Fifty-fifth General Assembly

Fifth Committee

49^th Meeting (AM)

UNITED NATIONS AUDITORS DISCUSSED IN FIFTH COMMITTEE

The term of office of the members of the Board of Auditors, the Board’s qualified opinions regarding several United Nations bodies, and the question of gratis personnel were discussed in the Fifth Committee (Administrative and Budgetary) this morning.

Several speakers in the debate supported aligning the terms of office of the Board of Auditors with the United Nations biennial budget cycle, stressing that it was time to take a decision on that long-standing issue.

[According to the Secretary-General’s report before the Committee, the United Nations and most of its bodies have a two-year financial period, and the term of service of the Board’s members is three years, which means that one of the Auditors has to step down in the middle of each biennial audit cycle.]

Also today, the Committee returned to the financial statements of the United Nations Development Programme (UNDP), United Nations Population Fund (UNFPA) and the United Nations International Drug Control Programme (UNDCP) for the period ended 31 December 1999.  Last autumn, action on the audits of those funds and programmes was deferred, pending satisfactory progress to address matters that had led to the qualification of the Auditors' certification.

Speakers this morning welcomed measures taken by the organizations to rectify the situations highlighted by the Board of Auditors.  However, the representative of the United States said that it was necessary to understand whether those efforts represented “quick fixes to get over the immediate hurdle”, or serious measures to address the situation.  He also suggested that introduction of “sunset provisions” might provide an incentive to submit documentation in time for programme evaluation.  Under the sunset provisions proposal, funding would be withdrawn if required information was not submitted on time.

As the Committee concluded its general discussion on gratis personnel, it decided to prepare a draft decision, recommending the General Assembly take note of three related reports of the Secretary-General, contained in documents A/55/728, A/C.5/55/13 and A/C.5/55/36.  It was also suggested that -- as all gratis personnel were being phased out -- the Committee should consider making a recommendation that quarterly reports on the matter were no longer necessary.

The representatives of Sweden (on behalf of the European Union and associated States) and Canada also spoke this morning.

Introducing the reports before the Committee were the Chairman of the Board of Auditors, Guillermo Carague of the Philippines, the Under-Secretary-General for Management, Joseph E. Connor, and the Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), Conrad S.M. Mselle.

The Committee will continue its work at 10 a.m. on Thursday, 22 March, when it is scheduled to hear a statement by the Under-Secretary-General for Management on the financial situation of the United Nations.

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Background

The Fifth Committee (Administrative and Budgetary) met this morning to conclude its general discussion on gratis personnel (for background information, see Press Release GA/AB/3430 of 19 March) and begin its consideration of the financial reports of the Board of Auditors.

Financial Reports of Board of Auditors

In its resolution 55/220 of 23 December 2000, the General Assembly decided to defer action on the financial statements of the United Nations Development Programme (UNDP), United Nations Population Fund (UNFPA), and the United Nations International Drug Control Programme (UNDCP) for the period ended 31 December, pending satisfactory progress to address the matters that led to the qualification of the Auditors' certification.  The Assembly decided to revert to the matter during its resumed fifty-fifth session.

In that connection, the Committee had several documents before it.  A report from the United Nations Board of Auditors on the UNDP (document A/55/5/Add.1) contains the Auditors’ main findings regarding that body.  According to the report, the UNDP reported expenditure of some $2.653 billion on nationally executed programmes in 1998-1999, which was an increase of 27 per cent over the previous two years.  In addition, it reported expenditure of $226 million on projects funded by its trust funds.  There was, however, insufficient audit assurance on $723 million of this amount and that had restricted the scope of the Auditors’ opinion.

The Auditors noted that total expenditure from regular resources of

$1.692 billion was in excess of UNDP’s income of $1.504 billion by $188 million, and that total income from other sources ($3.621 billion) exceeded expenditure ($3.506 billion) by $115 million.   In the report, the Board made recommendations that the UNDP strengthen accountability; improve cost monitoring and management of major programmes; improve procurement procedures; strengthen implementation of green office policies; increase training of internal audit staff; and establish better internal audit documentation and guidance.

The findings of the Board of Auditors on the UNFPA (document A/55/5/Add.7) point to the Fund's regular resources expenditure of $575.9 million, which exceeded income of $524.9 million by $ 51.0 million. 

According to the document, the UNFPA uses the accounting and treasury services of the UNDP.  The delays in the introduction of the Integrated Management Information System (IMIS) and in the recording of transactions led to weaknesses in financial control during 1999.  The UNFPA did not receive audit reports from governments and non-governmental organizations (NGOs) in respect of programme expenditure totalling $98.3 million for the biennium 1998-1999, and the Board restricted the scope of its audit opinion to exclude this expenditure.  The proportion of national execution and NGO expenditure covered by audit reports decreased from 70 per cent in 1996-1997 to 50 per cent in 1998-1999.

Among other findings of the Board is the fact that in nine of the

12 completed projects examined, the executing agencies failed to deliver all their planned outputs.  Four projects, on which the UNFPA had spent $24.9 million by the end of 1999, fell significantly short in their deliveries.  In four cases involving expenditure totalling $37.4 million, project evaluators found that limitations in the design of the project prevented them from properly assessing the impact of the projects.  In four cases involving a total amount of

$1.36 million, the requisitioning units carried out their own procurement, including identifying potential suppliers, obtaining bids or quotations and assessing bids received.  This contravened UNFPA financial regulations.  The UNFPA did not routinely monitor deliveries and did not follow up with suppliers who had not delivered, nor did it monitor the receipt and inspection reports.

As a result of the audit, the Board made recommendations that the UNFPA should improve accountability, tighten budgetary controls, strengthen project management, and establish better procurement planning and management information.

Regarding the UNDCP (document A/55/5/Add.9), the Board states that the UNDCP had not complied with the requirement of the United Nations accounting standards to disclose liabilities for end-of-service benefits, post-retirement benefits and annual leave.  The Programme’s financial position improved significantly during the biennium 1998-1999, when it achieved a net excess of income over expenditure of $5.4 million, compared with a net excess of expenditure over income of

$1.1 million in 1996-1997.  Disbursements of $14.2 million incurred through the UNDP on nationally executed projects were not supported by audit reports.  There was insufficient evidence to allow the Board to form an audit opinion on that expenditure. 

The UNDCP had neither followed up on or received audit reports covering the $17.9 million incurred through the UNDP on nationally executed expenditures in 1996-1997.  It had not reconciled its bank accounts properly for significant periods, with the result that two accounts, totalling $825,000 were not brought to account until the Board carried out its audit.  The UNDCP had also not cleared three advances totalling $345,000, one of which was made in 1993.

The report further says that UNDCP’s procurement activities were undertaken by more than seven different agencies, and it did not routinely prepare procurement plans, thereby precluding any advantage from economies of scale.  A contract for a public awareness campaign was cancelled one month after the award when pledged funds failed to materialize.  The UNDCP settled with the contractor in the amount of $235,000 (58 per cent of the contract value) for preparatory work, and the campaign was never completed. 

The Board made recommendations to improve compliance with the United Nations accounting standards, to strengthen accountability and planning and to improve procurement practices and procedures.

The Committee also had before it the report of the Advisory Committee on Administration and Budgetary Questions (ACABQ) (document A/55/487) on the financial reports and audited financial statements and reports of the Board of Auditors.  The ACABQ notes that some progress has been made in implementing recommendations made by the Board in previous reports.  Of the 167 recommendations made by the Board, 115, or 69 per cent, were fully implemented; 42, or 25 per cent, are in progress; and only 10, or 6 per cent, are yet to be implemented.  The ACABQ requests that the process be monitored in terms of efficiency and capacity to produce clear and concise reports on time. 

According to the report, the Advisory Committee holds the view that the administrations concerned should no longer be allowed to believe that qualified audit opinions are a normal feature of the audit function.  Matters that led to a qualified audit opinion should be regarded as serious issues in the financial health of the audited United Nations entity.  These matters warrant immediate appropriate attention and remedy on a priority basis. 

The ACABQ recommends that the General Assembly defer action on the financial statements of the UNDP, UNDCP and UNFPA for the period ending 31 December 1999, pending certification by the Board that the matter has been resolved or that satisfactory progress is being made towards removing the reasons for the qualified opinion.  With regard to the United Nations University (UNU), the Committee requests that the administration implement without further delay the Board’s recommendation, which was previously approved by the Assembly, that the financial statements for the UNU should include a provision for long-outstanding unpaid pledges in line with United Nations accounting standards.

The report goes on to say that wherever the Board of Auditors has qualified the financial statements and accounts of an audited administration, the Secretary-General should bring the matter to the attention of the respective governing body to allow that body to take necessary measures for accountability requirements, when the head of the administration fails to remedy the situation which gave rise to a qualified audit opinion.  The ACABQ notes with concern a trend whereby some administrations now consider amending applicable regulations or rules to avoid implementing the recommendations of the Board. 

Concerning the issue of accountability of implementing partners, the ACABQ notes that weakness in accountability, particularly in relation to audit reports, persist in some funds and programmes and requests that corrective action be pursued to address the root causes of the weaknesses identified in the latest and previous reports of the Board and the ACABQ.  This observation is especially relevant to the operations of the United Nations Children’s Fund (UNICEF), UNDP and UNFPA.  Noting a number of references to write-offs and losses of cash, receivables and property, the ACABQ requests that the Board attempt to assess the reasons for such actions. 

According to the report, the ACABQ notes that the UNDP was unable to obtain sufficient audit evidence from executing agencies and governments, that funds advanced to them for national projects had been expended for the purposes intended.  Pointing out that the Board qualified its opinion on the UNDP for the last three biennia, the ACABQ recommends that the General Assembly defer action on UNDP financial statements. 

With regard to a change in a management initiative, which was closed in 1999, the ACABQ notes that its cost was estimated by the UNDP at $18.1 million. However, the Board was unable to determine the full costs of the initiative.  The ACABQ was provided with a summary of costs of the UNDP 2001 initiative totalling $28.1 million, as prepared by the UNDP Budget Office.  The ACABQ believes that there are lessons to be learned from this experience, in particular from the process of designing and planning projects and estimating costs.

Regarding the UNFPA, the report states that the ACABQ shares the Board’s concern over the fact that the Fund has no direct evidence to support half of its 1998-1999 national and NGOs' executive expenditure.  The high risk inherent in this type of activity warrants sustained and effective monitoring by the Fund administration, but there is no evidence that that was done.  It recommends that the Assembly defer action on the financial statements and accounts of the UNFPA, pending satisfactory measures by the administration of the Fund.

On the fund of the UNDCP, the ACABQ notes again that the Board qualified its opinion on the Programme owing to lack of audit reports for $14.2 million for nationally executed projects during 1998-1999.  The ACABQ is also concerned that the UNDCP has not received audit reports covering the $17.9 million incurred through the UNDP on nationally executed expenditure in 1996-1997.  It, therefore, recommends deferring action on the financial statements and accounts pending satisfactory measures by the administration.

Also before the Committee was the note by the Secretary-General on the matter (document A/55/820) transmitting the comments of the Board of Auditors concerning action taken by the three programmes in question towards removing the reasons that led to the qualified audit opinion on their financial statements.

According to the document, the UNDP, UNFPA and UNDCP have drawn plans to address the reasons that led to the qualified audit opinions.  They include continued efforts to obtain audit reports in respect of the biennium 1998-1999; setting targets to secure audit reports covering up to 95 per cent of expenditures incurred through governmental and non-governmental organizations; proposals to revise the financial rule and related internal directives to require an increased level of audit coverage; and more extensive focus by senior management on poorly managed projects and those with large expenditures.

Other actions reported to the Board include closer monitoring and evaluation of audit plans and their timely submission, and increased use of private audit firms where government auditors do not have the capacity to conduct audits.  The Board has not examined the audit reports received since the date of the audit opinion. 

The Board reports that it is satisfied that, in principle, the plans developed by the three organizations in question provide an adequate basis at this time for improving the extent to which national execution expenditure is covered by audit reports.  In the coming financial periods, this should result in a steady and significant progress towards removing the reasons for the qualified audit opinions.  If the problem is to be resolved, close cooperation of implementing partners is needed. 

Since, in the case of the UNDP, the Board also qualified its audit opinion in respect of unreconciled bank balances, the Auditors have since been informed that the UNDP has reconciled and resolved $10.4 million out of the total of

$11.1 million.  The Board will review progress made in its interim audit in the first part of 2001.

In its related report, the ACABQ (document A/55/836) welcomes measures taken to address the reasons for the qualified audit opinions, as well as progress made by the three organizations in obtaining additional audit reports.  It notes, however, that the Board has not examined the audit reports received since the date of the audit opinion and that some audit reports may contain audit qualifications or scope restrictions relating to nationally executed projects.  In that regard, the ACABQ recommends that the administrations review the reports carefully and take remedial action if required.

Regarding plans developed by the organizations to improve the extent to which national execution expenditure is covered by audit reports, the ACABQ welcomes the intention of the Board to continue to examine the receipt of audit reports and the level of audit assurance that those reports provide, the report continues.  The ACABQ plans to follow up on the progress made by the three organizations towards successfully removing the reasons for the qualified audit opinions and to inform the General Assembly accordingly.  In the meantime, however, it will not object to the Assembly's approval of the financial statements of the UNDP, UNFPA and UNDCP for the biennium ended 31 December 1999.

Review of Terms of Office of Board of Auditors

On this agenda item, the Committee had before it a report of the Secretary-General (document A/55/796), which states that in its resolution 48/216 of

23 December 1993, the General Assembly noted that, while the United Nations and most of its bodies had a two-year financial period, the term of office for members of the Board amounted to three years, and invited the Board to report to it on the implications of extending the term of office of its members to four or six years.

The Board commented that its regulations had been framed when the standard financial period of the United Nations was one year, the report states.  Since then, however, the Organization had moved to a biennial accounting cycle.  In practical terms, it meant that one of the members of the Board stepped down in the middle of each biennial audit cycle.  There were also problems in coordinating and reconciling working methods of the Board with those of the United Nations on the whole.  The Board also sought to show that since it had three members, to ensure a smooth pattern of rotation, a six-year term of appointment would be favoured over a four-year one. 

Under a six-year cycle, the term of office of one of the members would expire every two years, whereas with a four-year term none of the three members of the Board would cover the audit of three full financial periods.  The six-year term would synchronize the appointments to the Board with the financial reporting cycle.  It was further proposed that 1 July remained the most appropriate date for incoming members to take up office, since the financial statements of the United Nations and its agencies were submitted to the Board at the end of March or April.  Should the General Assembly decide to change the duration of the term of office of the members of the Board, it should make appropriate transitional arrangements to move from the existing pattern.

Statements

HUGH DUGAN (United States) said that given the reports before the Committee that indicated gratis personnel would soon be fully phased out, the Committee should consider making a recommendation that quarterly reports on the matter were no longer necessary.  Developments seemed to make quarterly reports redundant.

The Committee’s Chairman, GERT ROSENTHAL (Guatemala), said the Secretariat should draft a decision, by which the Committee would recommend to the Assembly it take note of the reports on the matter.

The Committee then turned its attention to the financial reports and audited financial statements of the Board of Auditors.

GUILLERMO CARAGUE, Chairman of the Philippine Commission on Audit and Chairman of the United Nations Board of Auditors, introduced the note of the Secretary-General transmitting the comments of the Board of Auditor.  He said that the Board had qualified its audit opinion on the financial statements for the biennium ending 31 December 1999 of the three organizations due to incomplete submission of audit reports for nationally executed projects and, in the case of the UNDP, unreconciled bank balances.  Regarding national execution projects, the UNDP, UNDCP and UNFPA had informed the Board that plans had been drawn up to address the problems.  The plans included setting targets to secure audit reports covering up to 95 per cent of the expenditures incurred through government and non-government organizations, more intensive focus by senior management on poorly managed projects and increased use of private audit firms.  The organizations had informed the Board that, between the date that the Board issued its audit opinion and 31 January 2001, the organizations had obtained additional audit reports

for $569.8 million, or some 37.2 per cent, of the outstanding report of

$1.533 billion. 

While the Board was satisfied that the plans developed provided an adequate basis for improving the extent to which nationally executed projects were covered by audit reports, it also recognized that the underlying problem needed close cooperation of the implementing partners, he said.  In the case of the unreconciled bank balances, the UNDP had informed the Board that it had since reconciled and resolved some $10.4 million of the $11.1 million unreconciled amounts reported in the Board’s report.  Noting that the Committee would be discussing the term of office of the Board of Auditors during its current session, the Board reaffirmed its preference for a six-year term of office so that its appointment might be synchronized with the financial reporting cycle.

CONRAD S.M. MSELLE, Chairman of the ACABQ, introducing that body’s report, said that the ACABQ had noted that plans had been drawn up by the three organizations to identify the problems which had led to the Board’s qualification of its audit opinion.  The ACABQ noted that additional audited reports in respect to nationally executed projects had been received since the last audit.  The need for the administration to pay closer attention to audit certificates it had received regarding nationally executed projects was also noted in the report.  The ACABQ would not oppose a decision to approve the financial statements and accounts of the three administrations.

THOMAS REPASCH (United States) said that the United States was happy that action had been taken to rectify the situation highlighted in the reports of the Board of Auditors.  However, he said it was necessary to understand to what extent the efforts represented “quick fixes to get over the immediate hurdle”, or whether they represented serious measures to address the situation.  He also wondered about the viability of the sunset provision, which had been instituted by the United Nations Fund for International Partnerships.  By the terms of that provision, funding would be withdrawn if required documentation was not submitted on time.  That could be an incentive to provide the necessary audit work in time for programme evaluation.

Mr. CARAGUE said that the actions taken by the bodies in question to address the problem were directed at both the short- and long-term situations.  Lessons should be learned in order to make sure that no qualified opinions would be issued in the future.

Mr. REPASCH (United States) said that he also wanted to receive an answer regarding the sunset provision he had mentioned.

Mr. CARAGUE said that it was better to further discuss that issue in informal consultations.

Introducing the report of the Secretary-General on the term of office of the Board of Auditors, JOSEPH E. CONNOR, Under-Secretary-General for Management, said that the extension the term of office of the members of the Board would synchronize it with the financial reporting cycle of the Organization.  In his report, the Secretary-General illustrated the various approaches that could be taken in that respect.  He wished to express his appreciation to the Board for its contribution to the work of the Organization.

Speaking on behalf of the European Union and associated States, CARL MAGNUS NESSER (Sweden) said that in view of the comments and recommendations concerning actions taken by the UNDP, UNFPA and UNDCP to remedy the serious shortfalls in their financial statements for the period ending 31 December 1999, the Union did not object to the approval of those statements.  That being said, he urged the administration of those bodies to strictly adhere to the plans they submitted to the Board of Auditors to correct the situation. 

He fully endorsed the comments of the ACABQ on the seriousness of its qualified audit opinions and on the important effect that they could have on the operations and future financing of the organizations concerned.  The European Union trusted that the UNDP, UNFPA and UNDCP would take all the necessary steps to prevent such shortfalls from occurring again. 

Turning to the term of service of the members of the Board, he said that the Union considered the Secretary-General’s report on the matter a helpful basis for discussion.  Several points needed to be further clarified before a decision could be taken, however.  He believed that an informal session on that item would be useful.

Mr. REPASCH (United States) said that his delegation welcomed the report and had actively participated in discussions on the issue last autumn.  Regarding the specifics of the proposals and alternatives, the United States was flexible.  Although the United States had no position on a particular alternative, it did believe that it was important to align the terms of office of the Board of Auditors with the United Nations biennial budget periods.  It was a long-standing issue which he thought would have been one of the first items to be resolved as a part of the United Nations reform.  He was glad it was on the agenda, and looked forward to discussions, with a view to taking a decision during the current session.

JOHN ORR (Canada) said that the issue first arose in December 1993.  As it was 2001, it was now time to take a decision on the matter.  He was concerned about the Board’s comment in its report that its work was seriously disrupted where a member of the Board was not re-elected in the middle of an audit cycle.  It was time to align the Board’s terms of office with the financial reporting period of the United Nations.  The Board had a difficult-enough task, without having to face a change of auditors in mid-audit.  Canada favoured the six-year term so that there would be a rotation through the cycle, but Canada was flexible.

The Committee then closed its general debate on the item. 

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