Top Auditing Body’s Scrutiny over United Nations Finances Earns Praise from Budget Committee as It Considers Board of Auditors’ Reports
Delegates at today’s session of the Fifth Committee (Administrative and Budgetary) praised the Organization’s top auditing watchdog’s crucial work in keeping tabs on the finances of nearly two dozen United Nations entities responsible for spending billions of dollars each year.
A key Board of Auditors’ official set forth the results gleaned from its audits of the financial statements of 20 United Nations entities, including the Secretariat and peacekeeping operations. In introducing the Board’s reports, Salhina Mkumba (United Republic of Tanzania), Chair of the Board’s Audit Operations Committee, said 2014 was the first year in which there were no qualified opinions — a statement issued when the independent auditor believes that the entity's financial statements are not sound — for any of the entities. The audits were carried out for the 12-month period ending on 31 December 2014. “This was a commendable achievement, but was not achieved smoothly in some cases as some challenges were experienced in the preparation of the financial statements,” Mr. Mkumba said.
Mr. Mkumba also pointed out this was the first year in which all entities had adopted the International Public Sector Accounting Standards (IPSAS) and produced their financial statements on an annual accruals accounting basis.
While pleased with the Board’s work and the Organization’s financial health, several delegates pushed the Administration to move more fully on Board recommendations. South Africa’s delegate, speaking on behalf of the “Group of 77” developing countries and China, also wanted to obtain more information on the key observations — made by the Board and the Advisory Committee on Administrative and Budgetary Questions (ACABQ) — regarding the management of financial performance, workforce, enterprise risk, fraud risk, procurement and contracts.
The United States agreed with the Board’s conclusions and the need to shift the Organization’s culture surrounding financial management practices. The United States delegate said his country agreed the United Nations needed to shift its financial management focus from transactional work to strategic planning and implementing priorities.
Chandramouli Ramanathan, Deputy Controller of the Department of Management’s Office of Programme Planning, Budget and Accounts, introduced the Secretary-General’s report on the implementation of the Board’s recommendations contained in its reports for the year ended 31 December 2014 on the United Nations and on the Capital Master Plan. Carlos Ruiz Massieu, Chairman of the Advisory Committee, introduced that body’s related report, which examined the observations, comments and recommendations of the Board of Auditors for 2014.
Also speaking today were representatives of the Russian Federation and European Union.
The Fifth Committee will reconvene at 10 a.m. on Thursday, 15 October, to discuss the financial situation of the United Nations.
Board of Auditors’ Reports and Audited Financial Statements
SALHINA MKUMBA (United Republic of Tanzania), Chair, Audit Operations Committee, Board of Auditors, introduced the main findings from the Board’s Concise Summary and the reports for audits conducted on financial statements for the period ended 31 December 2014. This was the first year in which all entities had adopted the International Public Sector Accounting Standards (IPSAS) and produced their financial statements on an annual accruals accounting basis.
The financial reports and audited financial statements included the United Nations (document A/70/5(Vol.I)), International Trade Centre (document A/70/5(Vol.III)), United Nations University (document A/70/5(Vol.IV)), United Nations Development Programme (UNDP) (documents A/70/5/Add.1 and A/70/5/Add.1/Corr.1), United Nations Capital Development Fund (document A/70/5/Add.2), United Nations Children’s Fund (UNICEF) (document A/70/5/Add.3), United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) (document A/70/5/Add.4), United Nations Institute for Training and Research (UNITAR)(document A/70/5/Add.5), Voluntary funds administered by the United Nations High Commissioner for Refugees (document A/70/5/Add.6), Fund of the United Nations Environment Programme (UNEP) (document A/70/5/Add.7), United Nations Population Fund (UNFPA) (document A/70/5/Add.8), United Nations Human Settlements Programme (UN-Habitat) (document A/70/5/Add.9), United Nations Office on Drugs and Crime (UNODC) (document A/70/5/Add.10), United Nations Office for Project Services (UNOPS) (documents A/70/5/Add.11 and A/69/5/Add.11/Corr.1), United Nations Entity for Gender Equality and the Empowerment of Women (UN-Women) (document A/70/5/Add.12), International Criminal Tribunal for Rwanda (document A/70/5/Add.13), International Criminal Tribunal for the Former Yugoslavia (document A/70/5/Add.14) and International Residual Mechanism for Criminal Tribunals (document A/70/5/Add.15), and the Note by the Secretary-General transmitting a Concise summary of the principal findings and conclusions in the reports of the Board of Auditors for the financial period 2014 (documents A/70/322, A/70/322/Corr.1 and A/70/322/Corr.2).
There were no qualified opinions for the 20 entities, including the United Nations peacekeeping operations, audited during the period. “This was a commendable achievement, but was not achieved smoothly in some cases as some challenges were experienced in the preparation of the financial statements,” Mr. Mkumba said. The Board noted that 70 per cent of the 20 audited entities reported surpluses and that factors such as late receipts of donations and delays in implementing projects contributed to surpluses in some cases. The remaining 30 per cent reported deficits and showed declining reserves, compared to the 2013 balances. The Board noted that all entities, except for the International Criminal Tribunal for Rwanda, could demonstrate a basically sound financial position and sustainability as their total assets exceeded liabilities. The financial ratios of all entities, except the United Nations Office for Project Services, showed the ability to meet short-term obligations from current assets.
Overall, the Board noted the trend of continuing improvement in the preparation process related to the financial statements closure and presentation, despite some challenges faced by all entities now adopting the IPSAS, she said. Turning to governance accountability and risk management, the Board noted mixed results as entities tried to achieve the right balance between sufficient flexibility and delegating authority to the field, versus the right level of monitoring, intervention and oversight by headquarters. UNDP, UNRWA and UN-Women reported clear accountability of resources and the delegation of authority at their respective headquarters. While it had improved its field-based financial system over time, the UNODC still faced limitations in collating timely information from field operations in an efficient, effective manner.
During 2014, there was still variable progress among organizations in implementing approaches to enterprise risk management and the Board reported a range of issues related to implementing partners, including some progress in improving the consistency of selection, monitoring and closed out projects delivered by these partners.
Turning to fraud awareness, the Board noted that agencies defined fraud and presumptive fraud differently, which made comparisons challenging. In general, levels of fraud and presumptive fraud reported in 2014 had declined and he pointed to the examples of the UNOPS, UNEP, UNDP, UNODC, UNRWA and the Office of the United Nations High Commissioner for Refugees (UNHCR). There were some cases where levels of fraud and presumptive fraud disclosed had increased and pointed to the UNFPA, UNICEF and United Nations peacekeeping operations. In the previous report, only one entity was noted to have established an integrated counter-fraud strategy focusing on both the internal (staff members and other personnel), and external fraud (vendors and contractors).
In 2014, 16 entities had developed policies, though some did not have adequate strategies for implementation and placed a greater focus on internal employee fraud, she said. They were paying limited attention to proactively managing risk arising from external factors, such as frauds committed by suppliers or implementing partners. United Nations entities operated in inherently high-risk environments and most work with third parties and were exposed to the high risk of fraud. The Board considered such entities with a global presence, including, for example, UNDP, UNFPA, UN-Women, UNHCR, UNICEF and UNOPS. They needed to consider their risk appetite and develop fraud response plans. In 2014, the Board worked with United Nations entities to develop a consistent approach to reporting fraud and would continue to work with the United Nations organizations to ensure that goal was achieved.
Regarding the status of the implementation of previous recommendations, the Board noted that 49.6 per cent of the recommendations made up to 31 December 2013 (or in the case of peacekeeping operations until June 2014), had been fully implemented. That represented a decrease in the rate of implementation, compared to the previous reporting period, in which 56 per cent of the past recommendations were implemented. While noting the progress achieved, the Board emphasized the need for the Administration to address unimplemented recommendations.
CHANDRAMOULI RAMANATHAN, Deputy Controller, Office of Programme Planning, Budget and Accounts, Department of Management, introduced the Secretary-General’s report on the implementation of the recommendations of the Board of Auditors contained in its reports for the year ended 31 December 2014 on the United Nations and on the Capital Master Plan (document A/70/338), as well as its related documents (documents A/70/338/Corr.1 and A/70/338/Add.1).
The present report included the Administration’s comments, as well as information on the status of implementation, the department responsible, the estimated completion date and the priority of each recommendation of the Board. In addition, the present report contained updated information on the status of implementation of the Board’s recommendations for prior periods that were reported by the Board as not having been fully implemented. The Executive Heads of the United Nations had concurred with most of the Board’s recommendations, making every effort to ensure compliance with the General Assembly’s request to implement them. As for the recommendations contained in the Board’s report on the United Nations for the year ended 31 December 2014 (document A/70/5 (Vol.I)), the Administration had accepted all of the Board’s recommendations, he said.
Citing the Secretary-General’s note transmitting a concise summary of the principal findings and conclusions contained in the reports of the Board of Auditors for the annual financial period 2014 (document A/70/322), he noted that, as of 30 March 2015, 261, or 49.6 per cent, of the extant 526 recommendations made to the United Nations and its funds and programmes for the period up to 2013 (up to June 2014 for peacekeeping operations) had been fully implemented and 206, or 39.2 per cent, had been under implementation, with 29, or 5.5 per cent, yet to be implemented.
CARLOS RUIZ MASSIEU, Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced the body’s related report (document A/70/380), which examined the observations, comments and recommendations of the Board of Auditors for 2014.
On the Board’s observation that the rate of implementation of its recommendations decreased from the previous years, he noted that those statistics might not be directly compared because the annual IPSAS-mandated reporting cycle only started with the current period. The Advisory Committee concurred with the Board that the Administration should enhance its capability to coordinate business transformation projects and could consider reviewing lessons learned about workforce planning from other United Nations entities, such as UNHCR and UNOPS.
Citing the Board’s observation that a number of departments and offices at the United Nations Secretariat had failed to report the details of fraud cases during the period, he expressed concern that the Board could not provide assurance that the numbers of fraud cases reported and disclosed by management were either complete or accurate. The Advisory Committee emphasized the essential role of the Office of Internal Oversight Services in all stages of the investigative process. A single definition of what constituted fraud was essential for the development of effective counter-fraud policies in the United Nations system. The United Nations System Chief Executive Board for Coordination would be best placed to develop guidance on that matter.
KAREN LINGENFELDER (South Africa), speaking for the “Group of 77” developing countries and China, said that the observations, comments and recommendations of the Board were crucial for Member States to ensure that the principles pertaining to proper procedures and practices and full disclosure of financial statements were being adhered to. The Group noted that all 20 entities, including the peacekeeping operations, audited in the reporting period submitted their financial statements under the International Public Sector Accounting Standards (IPSAS) for the first time. They each had received an unqualified opinion — a statement issued when the independent auditor believes that the entity's financial statements are sound — from the Board. The Group stressed the need for the Organization to enhance oversight, accountability and governance in the management of globally dispersed operations, as it sought to strike the right balance between sufficient flexibility and delegated authority in the field, and monitoring, intervention and oversight by the headquarters.
While progress had been made in business transformation projects, including IPSAS, Umoja, mobility, global service delivery model and real estate-related initiatives, such as the Capital Master Plan, the Strategic Heritage Plan and flexible workspace, more needed to be done to ensure those initiatives were properly managed, she said. While many recommendations had been implemented, the Group urged the Administration to address unimplemented recommendations as a matter of priority. Regarding the issue of managing implementing partners, there was a need to develop mechanisms to share information on those partners. The Group was interested in finding out more about the Board’s and ACABQ’s key observations on the management of financial performance, workforce, enterprise risk, fraud risk, procurement and contracts. Addressing anomalies indicated in the annex of the Board’s report on the United Nations Joint Staff Pension Fund was also a priority in the current session.
JAN DE PRETER (European Union), expressed regret at the late issuance of the ACABQ’s report. The Union concurred with the Board’s assessment that a comprehensive set of managerial tools and methodological frameworks was crucial for the Organization to identify opportunities to reduce costs. While the Union welcomed joint efforts by the Board and the United Nations to develop a consistent approach to defining and reporting cases of fraud, the Organization failed to make progress in the implementation of previous recommendations on that issue. The Organization must take real steps to strengthen counter-fraud measures and develop a comprehensive strategy. He noted with concern the Board’s observation that the Organization apparently lacked financial expertise and structures to fully use the benefits of IPSAS. It was regrettable that progress on enterprise risk management was insufficient, and there was a need to devise a comprehensive plan for its full implementation. The Organization must also improve the efficiency and strategic focus of its human resource management.
BRIAN CONROY (United States) said the Board’s expert oversight of the United Nations operations and finance was crucial to ensure the Organization met Member States’ expectation. While the external audit findings and recommendations were crucial to good governance, steps by Member States and the Secretariat to address the recommendations were even more important. Without acting on the implementations, Member States would not succeed in equipping the Organization to deliver its vital mission effectively and efficiently. The Board had found the United Nations was in a stable and healthy financial situation. He welcomed the Board’s conclusions, especially its emphasis on changing the United Nations culture related to financial management practices, and agreed that the Organization must undergo a fundamental shift regarding financial resources from a focus on transactional work to strategic planning and carrying out priorities.
The United Nations unenviable task of implementing new and expanded mandates under continued fiscal constraints should motivate the Organization to embrace the report’s findings and recommendations, he said. The United States was particularly concerned with the finding that the Organization was not taking appropriate steps to maximize the benefits from IPSAS, Umoja and other systems, such as Enterprise Risk Management. The Board clearly indicated the approach needed to implement new systems and develop methodologies for measuring, analysing and reporting the full costs of activities. It also recognized the need to engage managers and staff in all aspects of the transformation, including training programmes to enhance finance literacy and management across the United Nations.
DMITRY PODLESNYKH (Russian Federation) stressed his country’s support for the Board’s work and its efforts to improve the Organization’s accountability and transparency in a time of limited budget resources. He called attention to the Board’s observation regarding the International Criminal Tribunal for Rwanda and the transfer of its assets to the Residual Mechanism. He hoped the Board would follow up on the issue and tell the General Assembly of the results. He welcomed the transfer of the Organization’s accounting system to IPSAS. It was a process that had taken many years and the shift was a significant achievement. The Board could shed light on gaps that were to occur in the future. The success of any reform process had to be carefully calibrated to produce careful results.
Mr. MKUMBA said the Board was very thankful for the delegates’ feedback on its reports and their comments and that reflections helped the Board improve future reports. The Board would be available during the informal consultations for discussions.
Mr. RUIZ MASSIEU also thanked delegates for their comments. Regarding the European Union’s comment on the Advisory Committee’s late presentation of reports, he said the reports were published on time in accordance with the agreed timetables. The Advisory Committee understood the need for delegations to have their information well in advance.