INTERNAL CONTROL FRAMEWORK DEFICIENCIES RAISE RISK OF UN MISMANAGEMENT, FRAUD, SAY SPEAKERS, AS BUDGET COMMITTEE TAKES UP REPORTS OF OVERSIGHT BODIES

Sixty-second General Assembly

Fifth Committee

4^th Meeting (AM)

INTERNAL CONTROL FRAMEWORK DEFICIENCIES RAISE RISK OF UN MISMANAGEMENT, FRAUD,

SAY SPEAKERS, AS BUDGET COMMITTEE TAKES UP REPORTS OF OVERSIGHT BODIES

Several speakers in the Fifth Committee (Administrative and Budgetary) today echoed the concern of the Office of Internal Oversight Services (OIOS) over deficiencies in the internal control framework within the United Nations, which increased the Organization’s exposure to the risk of mismanagement and fraud.

Introducing several reports of the OIOS to the Committee, Inga-Britt Ahlenius, Under-Secretary General for Internal Oversight Services, appealed for the establishment of “an organization-wide internal control framework, which sets objectives, identifies and assesses risks to those objectives, and determines how those risks should be managed”, calling such a system an “absolute” and a “front-line defence to guard against the inefficient, ineffective and unethical management of Member States’ resources.”

New Zealand’s representative, also speaking on behalf of Australia and Canada, called the Organization’s lack of a structured internal control framework “alarming”, asking for specific recommendations from the OIOS to address existing gaps.  He also inquired about the Secretary-General’s intentions for responding to the fissures.  He recommended that the OIOS work hand in hand with management on development and implementation of the Enterprise Risk Management Framework.  It was important for the Fifth Committee to be able to form a coherent view of what was expected of the OIOS and what it was required to deliver. 

Also noting the lack of a formal and structured internal control framework within the United Nations, the representative of the United Republic of Tanzania, speaking on behalf of the African Group, said it was difficult to comprehend how the management structures of the United Nations could have had such loopholes throughout the Organization’s 60 years of existence.  It was the responsibility of the management to undertake effective internal control measures and to ensure that resources were employed effectively.  He urged the Secretary-General to expedite the implementation of Assembly resolutions that called for the establishment of a clearly defined accountability framework and development of a results-based management framework, as well as an enterprise risk-management system for the Organization.

The United States’ representative strongly urged the Secretariat to complete and circulate to Member States the reports on risk management and accountability that had been requested in previous Assembly sessions and looked forward to the election of the members of the newly established Independent Audit Advisory Committee.  The Advisory Committee could contribute to ensuring the operational independence of the OIOS and be helpful in ensuring that the Office had adequate flexibility to deploy its resources to address emerging risks and changing priorities.  As noted by the Under-Secretary-General, the current funding structure of the OIOS “does not necessarily allow for attention to be focused on the areas of highest risk”.  It was time for Member States to address that critical shortcoming.

Assessing the outcome of OIOS activities in the period under review, several speakers commended the Office for identifying a total of $27.8 million in cost savings, with actual savings and recoveries amounting to $12.8 million.  In that connection, the United States’ representative urged action to realize the remaining savings recommended by the OIOS and stressed that the Office’s nearly 1,800 recommendations had little value, unless implemented.

The representative of Pakistan, speaking on behalf of the “Group of 77” developing countries and China, also emphasized the importance of implementation of the Office’s recommendations and full cooperation of all departments with the OIOS.  The Group was particularly concerned with some recommendations that had either not been accepted or where the management had failed to take swift and adequate action.

The need to ensure full implementation of oversight bodies’ recommendations was also prominent in the discussion of the reports of the Board of Auditors today, including its reports on the voluntary funds administered by the Office of the United Nations High Commissioner for Refugees (UNHCR) and the United Nations Office for Project Services (UNOPS).

At the opening of the meeting, the Committee approved a draft resolution, by the terms of which the Assembly would allow the Central African Republic, the Comoros, Guinea-Bissau, Liberia, Sao Tome and Principe, Somalia and Tajikistan to vote in the General Assembly until the end of its sixty-second session, deciding that their failure to pay the dull minimum amount necessary to avoid the sanctions under Article 19 of the Charter was due to conditions beyond their control.  [According to Article 19, Member States lose their right to vote in the General Assembly if the amount of their arrears to the Organization equals or exceeds their dues for two full preceding years.]

Statements were also made this morning by representatives of Portugal (on behalf of the European Union and associated States), Switzerland, Singapore, Cuba and the Russian Federation.  Other documents before the Committee were introduced by Bernard Levallois, Director of External audit of France and Chairman of the Audit Operations Committee of the Board of Auditors; Jonathan Childerley, Chief, Oversight Support Unit, Office of the Under-Secretary-General, Department of Management; and Rajat Saha, Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ).

The Committee will take up its “pattern of conferences” agenda item at 10 a.m. Monday, 15 October.

Background

As the Fifth Committee (Administrative and Budgetary) met this morning, it was expected to begin its consideration of several reports by two of the Organization’s oversight bodies -– the Board of Auditors and the Office of Internal Oversight Services (OIOS).

Board of Auditors

Following an audit of the financial statements of the Office of the United Nations High Commissioner for Refugees (UNHCR) for 2006, the Board of Auditors, in its report (document A/62/5/Add.5), notes that the UNHCR has recorded an excess of income over expenditure of $47 million for 2006, and reserves at year’s end totalled $195 million -- the largest year-end amount in the last five years.  Achieved as a result of a combination of cost-control measures and foreign exchange gains, the sustainability of this improvement depended on the ability of the UNHCR to build on those short-term remedies to secure a more permanent turnaround.

The Board issued an unqualified audit opinion in respect of UNHCR’s 2006 financial statements, but emphasized its concerns regarding the timeliness, monitoring and impact on the Office’s financial situation of audit certificates in respect of implementing partners’ expenditure, deficient asset management and its impact on the value of some non-expendable property, and the improper recording of some expenditures incurred in 2007 as unliquidated obligations as at 31 December 2006.

Regarding the implementation of the Board’s previous recommendations, the report states that, of the 64 recommendations for 2005, five had been implemented (8 per cent), while 57 were under implementation (89 per cent) and two had not been implemented (3 per cent).

The Board notes that, despite recording a foreign exchange gain of $23.7 million in 2006, the UNHCR continued to be exposed to considerable currency fluctuations.  The Office needed to develop foreign exchange risk-management strategies, tools for cash forecasting, and a more integrated treasury management system.  Installation of such a system was scheduled for completion in December 2007.  Further, the UNHCR did not keep an accurate list of bank accounts closed during 2006.  In respect of 403 bank accounts, three year-end reconciliations had not been performed, two were inadequately supported, and another two contained unexplained entries.

The Board states that the UNHCR disbursed $315.3 million to implementing partners in 2006 and received subproject monitoring reports in respect of $204.9 million by the end of the year.  As at 22 June 2007, it had received monitoring reports covering $296.1 million, or 93.9 per cent of disbursements to implementing partners.  Audit certificates that had been received in respect of implementing-partner expenditures contained qualified audit opinions regarding 7.9 per cent and 5.3 per cent of the 2004 and 2005 expenditures, respectively.  The impact of those opinions on the financial position of the Office of the United Nations High Commissioner for Refugees varied, depending on the exact nature of the findings supporting the opinion.

Unliquidated obligations at the end of 2006 amounted to $84.1 million, of which $2.9 million was not adequately supported.  Migration to a new asset management system in 2006 highlighted such deficiencies as wrong data entries; inflated values because of entries in local currencies; errors in the depreciation rate applied by the database; and duplication of the disposal of the same assets in different locations.  Procedures followed for the recruitment of the Deputy High Commissioner and Assistant High Commissioners were not established in writing, creating a risk that future recruitments might not comply with the requirement for competitive selection of staff.  In one country office, several staff members’ spouses were employed with an implementing non-governmental organization or working as UNHCR consultants.  This situation was allowed by existing policies, even though it created a potential conflict of interest.

Also noted in the report are high vacancies and low staff retention at the UNHCR Emergency and Security Service.  The Office’s emergency response increasingly depended on standby arrangements with external partners.  Although the UNHCR had decided that its emergency stockpiles should address the needs of 500,000 refugees, actual stocks fell short of that objective by at least 25 per cent.  The Board was concerned that 36 per cent of duty stations were not compliant with minimum operating security standards.  The Board also found that estimates of the refugee population in Uganda were unreliable.

According to the Board of Auditors report on the United Nations Office for Project Services (UNOPS) (document A/61/5/Add.10), the Board has issued a qualified opinion on the financial statements for the financial period ended 31 December 2005.  The UNOPS was part of the United Nations Development Programme (UNDP) until January 1995, when it became “a separate and identifiable” self-financing entity within the United Nations development system.  The UNOPS had a net shortfall of $18.8 million of income over expenditure for the biennium 2004-2005 (for 2002-2003, a surplus of $18.1 million).

The qualification of the Board’s opinion related to the fact that UNOPS and the UNDP have not been properly reconciling the amounts payable to each other.  As at 31 December 2005, an amount of $9.9 million reflected as a receivable from the UNDP could not be confirmed with that Programme.  The UNOPS has raised a provision of $5 million against this receivable in its 2004-2005 financial statements, with the remaining balance of $4.9 million.  While the agencies were in the process of reconciling the $9.9 million, the Board was unable to assess whether unconfirmed balance could be recovered, or if the provision raised was adequate.

Among the matters of concern is the fact that UNOPS’ reserves of $4.36 million as at 31 December 2005 were below the desired level (as approved by the Executive Board) of $27.3 million.  The UNOPS reform process, which commenced in 2003, has not significantly improved its financial position and, therefore, it may not be able to fund in full any future deficits from the operational reserve.  The Board was also concerned about a significant breakdown in internal controls and financial reporting, as well as associated costs and delays.  Many balances in the Office’s financial statements were either not corroborated by supporting documents or not in accordance with accounting records.

As noted in the Board’s report and in the Secretary-General’s report on the implementation of the Board of Auditors recommendations (document A/61/214/Add.2), UNOPS undertook a comprehensive financial clean-up exercise during the period from July to December 2006, which resulted in the identification and correction of extensive errors committed in the period 1999-2005.  A consulting firm was hired to assist with the reconciliations of accounts, including the inter-fund account with the UNDP.  The overall cost of the financial clean-up effort amounted to approximately $2 million.

Other major initiatives have included the establishment of a new senior management team and organizational restructuring, investment in a professional-level finance team, decentralization of functional accounting activity and the relocation of the UNOPS headquarters from New York to Copenhagen.  In addition, in 2007, UNOPS formed an internal audit function, led by the Head of Audit and supported by a team of internal auditors.  The function had previously been entrusted to a team of dedicated auditors at the UNDP.  The UNOPS is currently in the process of recruiting members for a soon-to-be-formed audit and advisory committee.

Concurring with the recommendations of the Board on UNOPS, the Advisory Committee on Administrative and Budgetary Questions (ACABQ), in a related report (document A/61/350/Add.1), expresses deep concern at the gravity of the financial problems indicated by the Board and notes that the report is unprecedented in the scope of issues of qualification.  While welcoming recent measures taken by UNOPS to address the problems, the ACABQ shares the Board’s comments regarding the sustainability of the organization as a going concern.  The Advisory Committee expects prompt settlement of remaining pending issues and welcomes the fact that the membership of the UNOPS audit and advisory committee was nearly complete.  The ACABQ was informed that all of its members integrated thus far had agreed to provide their services pro bono, with the organization paying only travel and subsistence costs.

In the Advisory Committee’s discussions with members of the Audit Operations Committee, a number of additional risk factors were noted, the report states.  With the financial problems it is facing, UNOPS may find itself in a position where it must take on larger, riskier projects with lower profit margins.  Should only one such project go badly, the $4.4 million reserve could be eliminated or drastically reduced.  Furthermore, the addition of senior staff as part of UNOPS’ restructuring will entail additional costs.  Managerial changes of the magnitude described in the reports do not come without risks. In addition, the merger of the Inter-Agency Procurement Services Office and UNOPS would entail the creation of 32 positions in UNOPS, at an estimated cost of approximately $4.5 million annually.

Despite all that, the ACABQ believes it is appropriate to allow UNOPS reasonable time to implement fully the recommendations of the Board, as well as its own reforms.  In the meantime, the ACABQ will remain seized of this matter.  The Advisory Committee also looks forward to discussing with the management of UNOPS the findings of the OIOS review, which should be completed by the end of October.

According to the Board’s report on the implementation of its recommendations relating to the biennium 2004-2005 (document A/62/120), although the number of recommendations increased by 28 per cent over the last biennium, the rate of implementation as at 31 March 2007 has improved.  Overall, as of that date, some 52 per cent of the Board’s recommendations have been implemented, and 47 per cent were under implementation.  Some 4 per cent were not implemented, and 1 per cent was overtaken by events.

The reasons for the lack of full implementation of the recommendations varied depending on the organization, but the Board has identified some common elements, including the lack of a dedicated follow-up mechanism and of sufficient inter-agency coordination in the implementation.  The good practices in relation to the implementation and follow-up of the recommendations include:  the identification and monitoring of a list of top priority audit issues; validation of management’s assessment of the status of implementation of the Board’s recommendations by internal auditors; and identification of causes of recurring audit observations and development of appropriate action plans.

Timely implementation of the Board’s recommendations is also emphasized in another ACABQ’s report (document A/62/355).  Given the low implementation rate of past recommendations, coupled with gaps between meeting requirements and funds available to the UNHCR, the Advisory Committee stressed the importance of ensuring predictability, flexibility and early funding for that office, particularly in the context of the new budget cycle.  The report notes that, with the exception of 2003, in the years 2000 to 2005, the agency’s expenditures exceeded income.  However, reductions in temporary staff led to UNHCR saving $40 million in 2006.  Such short-term remedies are paramount to the UNHCR.

The Advisory Committee also shared the Board’s concern over another source of vulnerability for the UNHCR -- an almost $24 million decrease in voluntary contributions from 2005 to 2006.  The ACABQ urged the UNHCR to increase its efforts to raise voluntary contributions.  Concurring with the Board, it also urged the UNHCR to continue to implement a strict policy for staff in-between assignments, making concerted efforts to provide staff members with full-time positions.  In addition, the Advisory Committee recommended that the UNHCR ensure full compliance with minimum operating and residential security standards.  The Committee supported the Board’s recommendation for the UNHCR to address the gap in current conflict-of-interest policies.

As far as implementation of the 2004-2005 recommendations by some 14 United Nations entities is concerned, the Advisory Committee commended the new streamlined report offered by the Board, but agreed that a follow-up mechanism -- including high-level management in the form of a standing committee, regular reporting and an adequate information technology system -- should be established to increase rates of implementation.

Noting that the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) has implemented only nine of the Board’s 34 recommendations, the ACABQ encouraged that agency to expedite implementation.  The low rate of implementation by the United Nations Institute for Training and Research (UNITAR), at only 5 per cent, gives even more cause for concern.  Of the 21 recommendations by the Board, only one has been implemented, five are under implementation, and 15 have not been implemented.  Particularly troubling is the fact that, of the 15 unimplemented recommendations, six relate to fraud prevention and management.  In that connection, the Advisory Committee expected representatives of UNITAR to be prepared to provide it with full accounting of proposed implementation measures.

OIOS Reports

According to the report of the Office of Internal Oversight Services (OIOS) (document A/62/281) for the period from 1 July 2006 to 30 June 2007, the OIOS issued 268 oversight reports, which included 1,792 recommendations to improve internal controls, accountability mechanisms and organizational efficiency and effectiveness.  Of those recommendations, 960 were classified as critical to the Organization.  Through the recommendations, the Office identified a total of $27.8 million in cost savings.  Actual savings and recoveries amounted to $12.8 million.

The Office’s audit and investigation reports, including 22 reports by the OIOS Procurement Task Force, have indicated serious deficiencies in internal control that have left the Organization susceptible to mismanagement and fraud.  For instance, in an audit of procurement at the United Nations Mission in the Sudan (UNMIS), the Oversight Office found that a $17 million contract had been awarded on a “sole bid” basis at what appeared to be exorbitant prices.  In the United Nations Organization Mission in the Democratic Republic of the Congo, extensive corruption in procurement was reported.  While noting ongoing efforts at the Secretariat to introduce a formal internal control framework, following Assembly resolution 61/245, the Office continues to underscore the urgency of this initiative.

Stressing the need to make audit, evaluation, inspection and, when appropriate, investigation reports available in the public domain, as a minimum measure of transparency, the OIOS states that it lists the titles of all its reports on its website on a monthly basis.  The issue of transparency came to the forefront in 2006 when the OIOS was unable to fully carry out the Assembly’s request to present a consolidated report on audits and investigative reviews of the tsunami relief operations, due to lack of agreement among United Nations entities to share their internal audit reports with the OIOS.  Following those events, the High-Level Committee on Management of the Chief Executives Board has begun discussions on the sharing of internal audit reports.

The report further states that OIOS contributions to the Organization are only fully realized when its recommendations are implemented.  To streamline and improve the monitoring of recommendation implementation, in 2006, the OIOS launched a recommendation database known as Issue Track.  The final phase of the development of Issue Track, slated for piloting in December 2007, will allow departments and offices to view and update their recommendations online.  This feature is expected to facilitate communication, enabling the OIOS and its client departments and offices to conduct an online dialogue until full agreement is reached on the status of a recommendation.  In addition, with access to the OIOS database, departments and offices will have the option to run various summary reports on all recommendations issued to them since 2002.

The addendum to the report (document A/62/281 (Part I)/Add.1) provides a detailed analysis of the implementation status of the recommendations and highlights those recommendations that are of particular concern.

In addendum II (document A/62/281/Add.2), the Secretary-General presents his comments on a number of issues which he considers require clarification.

Commenting on the OIOS intention to have a fully risk-based work plan for the 2008 calendar year and present to the Assembly a funding mechanism to implement such a plan, the Secretary-General states that the issue needs to be analysed in the wider context of the financial management of the Organization.  There will continue to be a need for stringent budgetary approval and control systems, and any funding and budgetary mechanism envisioned for the OIOS will have to meet those high standards.

The Secretary-General further states that identification of savings resulting from OIOS recommendations has continued to be the subject of much debate within the Secretariat.  The Office has claimed a total of $27.8 million in cost savings and recoveries, with actual savings and recoveries totalling approximately $12.9 million.  In this context, the Secretary-General reiterates his view that only funds surrendered to Member States should be considered as savings.  It is questionable whether the cost avoidance, recovery of overpayments, efficiency gains, recovery of erroneous disbursements, rationalization and/or streamlining of processes mentioned by the OIOS in its report would lead to any release of resources available for return to Member States.  Also, in some cases, the savings and recovery identified by the OIOS refer to audit recommendations pertaining to earlier financial periods that have already been closed.

The Committee also had before it an OIOS report on the audit of the Thessaloniki Centre for Public Service Professionalism (document A/62/176), a core facility under the direction of the Department of Economic and Social Affairs, which was responsible for the implementation of a “Regional programme framework for Europe and the Commonwealth of Independent States:  capacity-building and informative exchange”, funded by the Government of Greece.

The Oversight Office concluded that the programme performance of the project was poor.  Only one activity was completed in 2004, and in 2005 only three activities were implemented.  There were indications of a lack of commitment on the part of the Department to a single work plan against which it would monitor the performance of the Centre.  Organization of two unplanned events had a negative impact on the implementation of the 2005 programme priorities.

There were also indications of inefficient use of resources by the Department.  For example, without the knowledge of the resident Chief Technical Adviser, who had been recruited to head the Centre, the Department of Economic and Social Affairs recruited consultants to produce project outputs that should have been produced by Centre staff.  Despite repeated requests by the Greek authorities, the Department did not comply with the project’s biannual reporting requirement during 2004 and 2005.  Two cumulative progress reports covering the period from October 1999 to June 2005 provided by the Department to the Government of Greece were considered to be inadequate under the requirements specified in the technical cooperation agreement.

In its response to the draft audit report, the Department did not accept responsibility for the failure of the project and rejected three of the four recommendations made by the OIOS.  Later, in its response to the final report, the Department acknowledged several failures and indicated its intention to learn lessons and thus improve the management of its technical cooperation projects.  In the future, the Department indicated its intention to pursue timely submission of all required reports; completion of performance appraisals for project personnel; and project evaluations on a regular basis.

However, the Department maintained its rejection of the recommendation calling for a comprehensive evaluation of the Centre and the establishment of accountability for its inadequate management.  It stated that it would accept a reformulated recommendation to conduct a comprehensive evaluation of the Centre in order to establish accountability for the inadequate delivery of its outputs.  The Department also maintained its disagreement with the finding that its use of consultants represented an inefficient use of project resources.

Action on Draft

At the opening of the meeting, the Committee approved a draft resolution (document A/C.5/62/L.2) by the terms of which the General Assembly would decide that the Central African Republic, the Comoros, Guinea-Bissau, Liberia, Sao Tome and Principe, Somalia and Tajikistan should be permitted to vote in the General Assembly until the end of its sixty-second session, as their failure to pay the full minimum amount necessary to avoid the application of Article 19 of the Charter was due to conditions beyond their control.  [According to Article 19, Member States lose their right to vote in the General Assembly if the amount of their arrears to the Organization equals or exceeds their dues for two full preceding years.]

Introduction of Reports

BERNARD LEVALLOIS, Director of External Audit of France and Chairman of the Audit Operations Committee of the Board of Auditors, introduced the Board of Auditors’ reports.  At the opening of his statement, he noted an improved format for the Board’s reports.  In particular, at 37 pages, the report on the implementation of the recommendations was much shorter than in the past.

JONATHAN CHILDERLEY, Chief, Oversight Support Unit, Office of the Under-Secretary-General, Department of Management, introduced the Secretary-General’s report on the implementation of the Board of Auditors recommendations on UNOPS, adding that, in order to provide Member States with the latest information on the status of implementation of recommendations, UNOPS would shortly be making available an updated version of the Annex to the report.  In addition, a representative of UNOPS would be available during the course of the Committee’s deliberations to provide any further explanations and information that might be required.

The Chairman of the ACABQ, RAJAT SAHA, introduced a related report of the Advisory Committee.  He said that, at the Advisory Committee’s request, the Board had provided an update on the UNHCR practice of retention on special leave with full pay of staff without assignment after the expiration of their standard assignment.  The Board’s findings indicated that, while the number of Professional staff in-between assignments had decreased overall since 2003, the number of such staff had increased significantly between 2005 and 2006.

The Board had reiterated its recommendation that the UNHCR continue to implement a strict policy with a view to providing every staff member with a full-time assignment in order to limit the cost for the Organization.  The ACABQ concurred with the Board’s recommendation and recommended that the issue be addressed urgently.  The Advisory Committee also commended the Board for its efforts to streamline and improve the presentation of the report on the implementation of its recommendations.  In particular, it appreciated the expansion of the section that provided statistical data to include general analysis and overall observations and encouraged the Board to continue to refine its report along those lines.

He added that the Advisory Committee noted that UNITAR and the United Nations Population Fund (UNFPA) were both showing relatively low rates of implementation and was especially concerned that some of the recommendations that remained to be fully implemented related to fraud prevention and procurement and contract management.

Statements

IMTIAZ HUSSAIN (Pakistan), speaking on behalf of the “Group of 77” developing countries and China, commended the hard work of the Board of Auditors and the ACABQ, which acted as an oversight mechanism and provided Member States with the necessary assurances that the proper procedures and practices and full disclosure of financial statements were properly adhered to by the Organization.  Given the crucial nature of oversight, he noted that recommendations should be implemented in a full and timely fashion.  He was satisfied that the number of recommendations have grown throughout the past four bienniums and that implementation rates have improved.

He expressed concern, however, that the number of recommendations still not being implemented remained high.  In addition, he was concerned that the implementation of previous recommendations also remained a serious issue for many entities.  He urged those who had not done so to take prompt and effective measures to implement the Board’s recommendations.  He said agreeing with the reiterated recommendations of the Board year after year was not enough -- action was important.

In particular, the Group was seriously concerned with the delays in the implementation of the Capital Master Plan, which had resulted in the loss of one year.  He noted that the delay had led to an overall estimated overrun of about $150 million.  He noted that high vacancy rates, especially in management, had led to delays.  He urged the Secretary-General to take measures to avoid further delays and financial burdens incurred by Member States.  Continuing, he stressed the need for the Board of Auditors to continue auditing the Capital Master Plan’s implementation on an annual basis.

He also noted with concern that, during the past year, the gap between the total funds available for the Annual Programme Fund and the Executive Committee-approved budget had further increased for the UNHCR.  He reiterated the Group’s support for the work of the Commissioner and concern with decreases in voluntary contributions.  He urged the High Commissioner to increase efforts to raise voluntary contributions.  He also urged full implementation of the Board’s recommendations by the UNHCR.  Finally, he emphasized that, when streamlining reports, the Board should not do so in a way that compromised their quality.

CLOTHILDE MESQUITA ( Portugal), speaking on behalf of the European Union and associated States, said that the Union attached great importance to the work of the Board of Auditors and welcomed the improvements in its reporting format, particularly on the implementation of the Board’s recommendations.  On the implementation of the recommendations for 2004-2005, the Union was pleased to see conditions favourable to the implementation and would invite those in charge to take them into account.

Turning to the report on the UNHCR, she noted the Office’s difficult financial situation and expressed interest in the information regarding the improvements in that regard.  However, a number of observations of the Board should be carefully considered by the UNHCR with a view to follow-up, particularly regarding supplying the partners’ audit certificates and unliquidated obligations.  The Board’s comments on accounting and ethics should be taken into consideration, as well.  The Union was sure that, thanks to the efforts taken on all the recommendations, the UNHCR would continue to improve its financial situation and would be able to adopt the International Public Sector Accounting Standards (IPSAS) within the desired timeframe.

Regarding UNOPS, she said that the Union was seriously disturbed by reservations and emphasis on matter in the Board’s report.  During the period under review, there had been serious deficiencies there.  Of course, the Union had taken note of the elements provided by the new management of UNOPS, including on internal audit, the efforts to improve accounts and books, as well as efforts to settle the almost $10 million financial dispute with the UNDP.  The intent to proceed in that way was a step in the right direction, but the settlement still remained to be achieved.

ANDREW HILLMAN ( United States) noted that the recommendations of the Board would improve the efficiency and effectiveness of the United Nations and, therefore, he urged improved rates of implementation in the areas of human resources management, treasury and investment accounts management, inter-agency services, and information and communications technology systems.  Noting that the Secretary-General entrusted the Management Committee with the overall responsibility for ensuring programme managers were implementing recommendations in a timely manner, he said he would like to know how often the Management Committee had met during the present calendar year to discuss oversight matters. 

Commending the Board for identifying areas for each reviewed organization where implementation rates had been low, he said the UNDP had a crucial obligation to expedite completion of the Board’s remaining recommendations.  Additionally, he identified five areas involving low implementation rates in the work of UNRWA, including:  procurement and contract management, human resources management, results-based management, programme and project management, and information and communications technology.  Given that the agency had only implemented 26 per cent of the Board’s recommendations, he urged UNRWA to provide information to the Fifth Committee concerning delays in implementation.

Calling the situation “deeply troubling”, he brought attention to the Board’s reports on UNOPS.  Noting the observations of the ACABQ, he said that he was concerned with the observations and the ongoing risks posed to the departments and offices involved with UNOPS-implemented projects.

Regarding the UNHCR, he remained concerned by the decrease of $24 million in voluntary contributions from 2005 to 2006 and the continued gap between expenditures and income. However, he commended UNHCR for reducing its expenditures in 2006 by more than $40 million.  Continuing, he concurred with the Board’s view about the questionable sustainability of UNHCR’s improved financial situation, if it continued to be based on short-term remedies.  He also expressed concern about:  the ongoing costs incurred by the agency for paying off 88 staff members who were between assignments; UNHCR’s low rates of compliance with minimum security standards; and the gap that exists in UNHCR’s current conflict-of-interest policies.  He called on the Secretary-General to extend the jurisdiction of the United Nations Ethics Office and the policies it oversees throughout the system.

Mr. CHILDERLEY, Chief, Oversight Support Unit, Office of the Under-Secretary-General, Department of Management, introduced the Secretary-General’s comments on the OIOS annual report, which included comments on the provision of funding for internal audit of the United Nations Compensation Commission, clarifications of the Organization’s response to some of the recommendations made by the Procurement Task Force, and reiteration of the Secretary-General’s views concerning the use of the term “savings”.  He emphasized the Secretariat’s commitment to the full and timely implementation of OIOS recommendations and noted the positive contribution that the implementation of the recommendations made to improving the Organization’s efficiency and effectiveness.

Mr. HUSSAIN (Pakistan), once again speaking on behalf of the Group of 77, reiterated his support for the operational independence of the OIOS within the context of resolution 48/218 B and its role in assisting the Secretary-General in fulfilling his internal oversight responsibilities.  The Oversight Office had issued 1,782 recommendations on internal control, accountability mechanisms, organizational efficiency and effectiveness, and the Group was pleased at the positive development in the implementation rate of general and critical recommendations, within one year of issuance.

He also noted financial savings of $12.8 million that had resulted from the recoveries of the overall $27.8 million identified by the Office.  However, certain entities had consistently failed to provide information about the implementation of OIOS recommendations, and the Group would like to emphasize the importance of implementation of recommendations and full cooperation of all departments with the OIOS.  The Group was particularly concerned with some recommendations that had either not been accepted or where the management had failed to take swift and adequate action.  The issues raised in document A/62/281/Add.1 were extremely serious.  He hoped that the reports and recommendations issued to the Programme Managers would be fully implemented.

The Group noted with concern serious deficiencies in internal control and the Organization’s exposure to serious risk of mismanagement and fraud in procurement, as found out by the 22 reports of the Procurement Task Force, he said.  The amounts involved in the reported incidents of abuse of authority and procedures were significant.  Given the importance of the issue, the OIOS should provide those reports to the General Assembly expeditiously.  He would also like to have details on the funding arrangements of the Procurement Task Force, as well as the amount of resources spent to date in carrying out the procurement-related investigations.

Expressing appreciation for the OIOS initiative for cooperation and coordination with other oversight bodies, he said that, similarly, the Office’s participation in the system-wide professional networks, lending its expertise to train and support, and providing input to the management’s organizational activities deserved appreciation.  On the Office’s ongoing work to develop a risk-assessment methodology in accordance with international standards, he said that a comprehensive discussion on the funding arrangements of the OIOS would be possible after it presented a fully risk-based work plan for 2008, which would be reviewed by the Independent Audit Advisory Committee.

The quality of human resources employed by the OIOS was critical to its output, he continued.  He looked forward to the outcome of the external assessment of the current state of knowledge, skills and ability of its staff against needs and standards and to determine current and future training needs.  The Group noted the Office’s repeated concerns over the urgent need to introduce an internal control policy, including a risk-management policy in the Secretariat.  Urgent implementation of an internal control framework was critical for a controlled environment and accountability within the Organization.

Continuing, he noted various internal reform initiatives of the Office to improve its investigative, inspection and evaluation divisions and to strengthen its executive office.  The report on external reviews of various departments of the Office should be shared with the Assembly.  He also reiterated the importance of achieving the goals of equitable geographic distribution and hiring suitable qualified personnel for the OIOS.  He also noted the Office’s continuous efforts to improve its oversight strategies and methodologies in accordance with international standards.  Classification of OIOS work in seven risk categories reflected a comprehensive approach that covered the full spectrum of potential risks faced by the United Nations.  Addressing those categories would be critical to strengthening the internal controls of the Organization.  The report spelled out action on the part of the management of several entities that faced risks in various categories, to avoid the loss of precious resources.

On the Capital Master Plan, he said that the Group attached high importance to timely completion of the project as outlined in resolution 61/251.  Most of the recommendations had been accepted by the management.  He emphasized the need to implement fully three open recommendations concerning the incorporation of United Nations general conditions of contract in the three construction phase agreements, the draft construction management service agreement, and establishment of a working group to develop internal procedures for resolving claim disputes.  The Group was concerned over the lack of implementation of OIOS recommendation by the United Nations Compensation Commission, as well as inadequacies in its internal control and other financial procedures.  He hoped the issues raised by the OIOS in its four assignments on the duplicate claims, transfer of funds to the actual claimants, its strategic planning process and financial monitoring reviews would be fully addressed.  In connection with the Thessaloniki Centre report, he shared the concern over the low level of substantive activities by the Centre in 2004 and 2005.  The issues identified by the OIOS should be urgently addressed, and he hoped the recommendations would be fully implemented.

Ms. MESQUITA (Portugal), speaking on behalf of the European Union, said she appreciated the clear reporting of the OIOS on its activities and she welcomed the risked-based approach for the 2008 work plan.  However, she said she shared concerns with the OIOS regarding internally strengthening processes and procedures to enhance the effectiveness of the Organization.  She looked forward to the reports on Enterprise Risk Management and internal control framework, results-based management, and an accountability framework.

She urged the OIOS and management to work constructively together to have a more effective and efficient United Nations.  However, she said she was concerned with low rate of implementation, and said critical recommendations should be implemented in a timely manner, unless reasons were given for delays.  She looked forward to hearing more from the Secretariat about why critical recommendations had not been acted on.  She welcomed a close relationship among the OIOS, Joint Inspection Unit and the Board of Auditors, to avoid duplication of work.  Calling attention to the report on the audit of the activities of the Thessaloniki Centre for Public Service, she said the looked forward to hearing clarifications from the Department of Economic and Social Affairs on the degree to which recommendations were implemented.

JOHN J. NG’ONGOLO (United Republic of Tanzania), speaking on behalf of the African Group, aligned himself with the position of the Group of 77 and China and said that the United Nations was by nature a public organization, and a corporate management style was critical for running it effectively and efficiently.  Member States, who were literally owners of the Organization, needed, therefore, to exert the level of management discipline similar to the management prudence found in private organizations.  Unless they exercised effective governance akin to that of private entrepreneurs, it would be difficult to expect the achievement of standard management with due diligence.  The management malpractices reported quite regularly by the Organization’s oversight bodies were, to a large extent, a result of Member States’ weakness in exercising their collective responsibility for oversight.

His delegation was, therefore, not very much surprised to note, in paragraph 11 of document A/62/281 (Part 1)/Add.1, that the OIOS was proposing to refer to the Security Council a purely administrative matter which fell under the mandate of the Assembly.  That was because the Assembly was perceived to be incompetent in the exercise of effective governance of the Organization.  His delegation wished to emphasize the need to strengthen the Assembly to ensure, among other things, that it effectively exercised the oversight function of the United Nations.

[Paragraph 11 of the report refers to the OIOS recommendation that the United Nations Interim Administration Mission in Kosovo (UNMIK) contact air carriers to determine if any Pristina International Airport officials had improperly interfered with the conduct of aviation operations or the scheduling of flights, or if any person with an official function at the Airport had sought a bribe at the Airport.  The UNMIK had not accepted the recommendation, indicating that much time had passed since the events occurred and that the chance of success was considered negligible.  The OIOS considers that response not acceptable, as the matter of bribes paid to Airport officials for aviation operations touched upon the very core of airport activity.  The OIOS also stands by its recommendation, not accepted by the Secretary-General and UNMIK, that the report be shared with the Security Council.]

Turning to the management responsible for effective internal controls, he had noted, in document A/62/281 (Part 1), that the United Nations did not yet have a formal and structured internal control framework that would provide reasonable assurance to management that financial resources were being handled effectively, and that the Organization’s objectives were being achieved.  He found it difficult to comprehend how the management structures of the United Nations could have such loopholes, since the Organization had been established 60 years ago.  In that connection, he stressed that it was the responsibility of management to undertake effective internal control measures and to ensure that resources were employed effectively.  He urged the Secretary-General to expedite the implementation of Assembly resolutions that called for the establishment of a clearly defined accountability framework and development of a results-based management framework and an enterprise risk-management system for the Organization.  The Secretary-General should also ensure that the observations of the OIOS were followed up closely for necessary action, and that its recommendations were fully implemented.

PHILLIP TAULA (New Zealand), also speaking on behalf of Australia and Canada, underscored the high importance attached to an effective, highly professional and operationally independent internal oversight function in the United Nations.  He noted that the relationship between the administration and OIOS was particularly important and called on the Office to make further efforts to secure a close, frank dialogue and partnership between the two entities.

Calling attention to the Under-Secretary-General’s preface to the report, he noted that the Organization’s lack of a structured internal control framework was alarming.  He wanted to know more about where the gaps were and what specific recommendations the OIOS had for helping management address them, as well as the Secretary-General’s intentions for responding to the fissures.  He recommended that the OIOS work hand in hand with management on development and implementation of the Enterprise Risk Management Framework.  He said it was important for the Fifth Committee to be able to form a coherent view of what was expected of the OIOS and what it was required to deliver.  He expressed appreciation for the measures being taken by the Office to enhance professionalism, such as the skill assessment now under way and the creation of a professional practices unit.

Mr. HILLMAN ( United States) said the work of the OIOS continued to be of critical importance to the ongoing viability of the United Nations.  The Office had played, and would continue to play, a central role in enhancing the effectiveness of all United Nations programmes by exercising appropriate internal oversight, promoting responsible administration of resources, and identifying instances of abuse, fraud and mismanagement, as well as relevant measures to correct such actions.  The United States commended the OIOS for improvements in its annual report that had made it more readable and user-friendly. In particular, the presentation of OIOS findings by risk area was a welcome and helpful approach.

In the preface to this year’s report, the Under-Secretary-General had noted that the United Nations did not yet have a formal and structured internal control framework to ensure that financial resources were being handled effectively and that the Organization’s objectives were being met.  That serious deficiency in internal control had left the United Nations susceptible to mismanagement and fraud, as demonstrated by various abuses and scandals that had come to light in the past few years.  It was essential that an internal control framework for the Organization be adopted as soon as possible, and he strongly urged the Secretariat to complete and circulate to Member States the reports on risk management and accountability that had been requested in previous Assembly sessions.  It was essential to take action on that matter.

Welcoming the approval during the sixty-first resumed session of terms of reference for the Independent Audit Advisory Committee, he looked forward to the election of its members in November and to the contribution it would make to ensuring the operational independence of the OIOS.  The Audit Committee could also be helpful in ensuring that the OIOS had adequate flexibility to deploy its resources to address emerging risks and changing priorities.  As noted by the Under-Secretary-General, the current funding structure of the OIOS “does not necessarily allow for attention to be focused on the areas of highest risk”.  It was time for Member States to address that critical shortcoming.

Turning to the outcome of OIOS activities in the period under review, he commended the Office for identifying a total of $27.8 million in cost savings, even though actual savings and recoveries only amounted to $12.8 million.  It was imperative to take appropriate action to realize the remaining savings recommended by the OIOS, but not yet recovered.  As important as the nearly 1,800 OIOS recommendations were to the work of the Organization, they had little value, unless implemented.  He was encouraged that the overall implementation rate within one year of recommendations’ issuance had increased by 10 per cent and commended United Nations management for such progress.  However, a number of recommendations had either been not accepted or the management had failed to take swift and adequate action.  He wanted to know what steps the Secretary-General had taken to review regularly the status of Secretariat action and to follow up on those recommendations with concerned offices.  He would also welcome information concerning the implementation rate of “critical” recommendations during the current reporting period.

He was pleased that the steps to increase transparency in resolution 59/272 had significantly facilitated the dialogue between the OIOS and Member States, he said.  As the next step towards even greater transparency, he urged the Secretary-General, as head of the United Nations System Chief Executives Board for Coordination, to help facilitate the establishment of similar practices throughout the United Nations system and to ensure the sharing of internal oversight reports with Member States.  For example, the failure of the Organization to seek recovery of $589,000 associated with the procurement of substandard goods in violation of existing rules was not acceptable, nor was the decision not to hold staff members financially responsible for such losses.  It was necessary to take immediate steps to recover funds from staff and vendors who had allegedly helped recently convicted former procurement official, Sanjaya Bahel, in his bribery and fraud schemes.  Allowing such transgressions to occur without penalty sent a wrong message and did little to discourage those willing to undermine the work of the Organization in exchange for personal gain.  The work of the Procurement Task Force in reviewing cases of possible fraud and abuse remained essential to identifying those who might be guilty of misconduct, in order to re-establish a sense of trust in the integrity of the procurement system.  He was concerned that the 2008-2009 budget proposal did not provide funding to allow the Procurement Task Force to conclude its important work.

In conclusion, he also had questions regarding the working relationship of the OIOS with senior United Nations management and said he looked forward to the release later this fall of the OIOS report on investigations, including recommendations on how that key function could be strengthened.

THOMAS GUERBER ( Switzerland) said the OIOS output in terms of the number of oversight reports, recommendations and proposed savings was impressive.  However, he remained concerned about the unacceptably low implementation rate of recommendations.  Truly disturbing was the fact that roughly a quarter of the recommendations of the OIOS issued in its last report still had not been implemented.  He hoped that the updated version of Issue Track would remedy the problem of non-implementation.   Should the OIOS not report progress during the next 12-month period, he said his delegation stood ready to consider increasing disciplinary measures, especially in the upcoming discussions on the accountability framework.  In the meantime, he urged the senior management to communicate about their ongoing efforts.

He urged the Office to share its experience and expertise in all high-risk areas with management to reinforce ongoing reform in the areas such as administration of justice, human resources or procurement.  He said there was potential for cooperation between management and the Office that had not been fully explored.  Continuing, he welcomed the Office’s intention to base its work plan on a comprehensive risk assessment from the 2008 calendar year onward and further steps towards establishing a state-of-the-art oversight capacity, based on the Guidelines for Internal Control Standards for the Public Sector of the International Organization of Supreme Audit Institutions.  He hoped that the work plan would induce the Secretary-General to place other fundamentals of effective governance without delay, such as enterprise risk management, an internal control framework, results-based management and an accountability framework.

Expressing confidence that the additional resources made available to the Office and the establishment of the Independent Audit Advisory Committee would further improve the quantity and quality of the OIOS output, he said he was equally convinced that more resources would be needed in the short to medium term.  He said one of the greatest difficulties that the Office must contend with was its lack of operational independence, evident in those parts of the annual report that focus on internal auditing.  He looked forward to the options the Secretariat would present the Committee concerning giving the OIOS more flexibility in terms of a funding structure, which had impeded the Office’s work by making it dependent on funding from centrally administered extrabudgetary programme support accounts.  Concluding, he expressed his delegation’s support for the efforts made in meeting the remaining challenges put forward in this year’s report and urged that the work of the Office to be professional and performed with respect to due process.

HOEN YEEN TECK ( Singapore) said that his delegation would reserve its comments on the findings of the Procurement Task Force to the time when the Committee would be discussing a report on the matter.  Today, he had only one observation and one query to make.  Fairness, transparency and accountability were the concepts that his delegation held dear.  It had supported the creation of the OIOS to be the champion of accountability within the United Nations.  And it was precisely for that reason that OIOS’ own internal processes had to be of the highest standard.  Accountability applied to everyone, and not just the people that the OIOS investigated.

In last year’s report on the activities of the OIOS, the Assembly had been informed that the OIOS had started a comprehensive management audit of the Department of Management, he continued.  That audit was supposed to be similar in scope with the management audit for the Department of Peacekeeping Operations and cover how responsibility was assigned within the Department of Management and how the Department handled accountability.  A year later, he wanted to know when the report would be issued and asked about the reason for its delay.  He was particularly concerned, because his delegation had “heard rumblings” during a noon briefing last week that the report on the Department of Management audit had been “scuttled”.  Was that the case?

PABLO BERTI OLIVA ( Cuba) said his delegation regretted the delay in the publication of documents.  In particular, he drew attention to the note of the Secretary-General setting out views of the administration.  He said that, while he understood the variety of views expressed by the Committee, he was specifically concerned with the tardiness in receiving the document.  Second, he noted that the OIOS should be a champion of compliance with rules and regulations and the practices of the General Assembly and other bodies.  He asked that in the future there be avoidance of the difficulties observed at the last session of the Committee for Programme and Coordination (CPC) regarding the presentation of tri-annual reports to subsidiary bodies of the General Assembly.

Continuing, he said one of the factors arousing great concern were problems arising in the implementation of recommendations made by the OIOS, in particular where the administration did not agree and where Member States agreed with the opinion of the administration.  He would like to know how to solve problems arising from such misunderstandings.  Regarding the Capital Master Plan, he said the administration was quite clear on the decision of Member States.  However, he said the OIOS indicated that its decision was not followed up.  He said that, although the administration’s response was the correct one, he would like to find a way to solve discrepancies in the implementation of recommendations.

Regarding the use of external consultants for work of the Office, he wondered how often the recommendations from consultants were actually implemented.  He noted that those recommendations were not presented to Member States.  Finally, he inquired about when the report would be submitted on strengthening the investigative function of the OIOS.  In particular, he requested more information on mechanisms for examining certain national cases, such as cases of misconduct, and how they had been supervised in the OIOS.  Also, he asked who had the mandate to address investigations of misconduct.

ANDREY V. KOVALENKO ( Russian Federation) requested that the report on the work of the Procurement Task Force be introduced to the Committee before consideration of the agenda item under discussion was closed.  The document -– to which, incidentally, several references had been made in the OIOS annual report -- contained much useful and interesting information relating to the work of the OIOS over the period under review.  His delegation attached great importance to the efficient and effective work of the OIOS and improvement in its operations.  It was also very important that it discharged the mandate given to it by Member States and followed established procedures.

He noted the information in the report regarding further steps to continue improving the working procedures of the Office in various areas of its activities.  For example, the Office was going to amend its investigation manual and develop standard procedures for investigations by managers.  That was an important part of the functioning of the United Nations, and there should be no gray areas.  He believed that all those matters, including procedures of interaction between the Organization and law enforcement of Member States, in cases of possible criminal misconduct, should be fully clarified in the form of the Secretary-General’s report to the Assembly.

At this stage, it would be premature to deal with certain matters referred to in the OIOS annual report, such as the planning of enterprise risk management and changes in how the Office would be financed, he continued.  Nevertheless, before any serious discussion or decisions on those matters took place, there must be consideration by the General Assembly of the proposals to establish within the United Nations a clear and reliable internal control framework.  His delegation attached great importance to the implementation of OIOS recommendations, particularly those described as critical and of greatest concern.

He said that, despite a positive trend in terms of implementation, the number of unimplemented recommendations remained high, and the management either did not agree with a number of recommendations of particular concern or not take swift action to implement them.  For example, according to paragraph 7 in document A/62/281/Add.1, the Procurement Task Force had identified a scheme between a United Nations official and a vendor to steer certain contracts for a peacekeeping operation towards that vendors’ company.  The OIOS made a recommendation that the matter be referred to proper prosecutorial authorities, but the Organization did not take appropriate action.  Moreover, according to document A/62/281/Add.2, the official referred to in the OIOS report was no longer a staff member of the United Nations.  What was happening in that case?  What was preventing the matter from being referred to proper authorities?  It was also interesting what was done vis-à-vis the vendor company involved.  He also did not understand what had interfered with the referral to the appropriate law enforcement authorities of a case, referred to in paragraph 9 of document A/62/281/Add.1, involving a supplier who, in a fraudulent scheme, transported goods through the diplomatic pouch service.  He would appreciate receiving additional information on those two matters.

INGA-BRITT AHLENIUS, Under-Secretary General for Internal Oversight Services, called attention to the planned comprehensive audit of the Department of Management.  She noted that the OIOS had issued various audits on management, which were in various stages of completion.  She said they would be available to the Member States and listed monthly on the Office’s website.  She said that the Office had not completed its resolution of the draft assessment of management.  However, she said it had issued some 12 reports on various issues.  She said her decision to refer the report to the Assembly was because the Office was not ready to work on a comprehensive audit, in the same way it had conducted an audit of the Department of Peacekeeping Operations.  She said that the OIOS planned to submit a comprehensive audit in the sixty-third session.

Next, she addressed the reports she had heard about the Department of Management having “been scuttled”.  She called those accusations rumours.  She said the Assembly, in its oversight report, had decided that investigative functions should remain within the OIOS.  She said the Office would submit a report later this fall on restructuring investigative functions.  She said the Office would closely consult with the Fifth Committee and the Secretariat to find proper times to discuss relevant agenda items.

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