FIFTH COMMITTEE CONSIDERS BOARD OF AUDITORS' REPORTS
FIFTH COMMITTEE CONSIDERS BOARD OF AUDITORS' REPORTS
Fifty-seventh General Assembly
9th Meeting (AM)
FIFTH COMMITTEE CONSIDERS BOARD OF AUDITORS' REPORTS
Speakers Express Concern over Specific Deficiencies
In Audit Reports of Five Organizations, Costs of International Tribunals
Following an introduction of the Board of Auditors’ reports in the Fifth Committee (Administrative and Budgetary) this morning, delegates emphasized the great importance of the Board's external audit function, stressing that its recommendations represented a valuable tool for improving management and performance of the United Nations system.
Introducing the financial reports and statements of the Board, Shauket Fakie, Auditor-General of South Africa and Chairman of the Board, highlighted the level of scrutiny and stewardship that was required of public funds. Also important was a non-profit status for public-sector external auditors, which facilitated maintaining the independence of external auditors. That independence, he stressed, should be preserved at all times.
Speakers in the debate expressed concern over specific deficiencies, which had caused the Board to modify its audit opinion as far as the United Nations Office for Project Services (UNOPS), the United Nations Development Programme (UNDP), the United Nations Population Fund (UNFPA), the Office of the United Nations High Commissioner for Refugees (UNHCR) and the United Nations International Drug Control Programme (UNDCP) were concerned. [Having issued unqualified opinions on the financial statements of 16 organizations of the United Nations system for the biennium ended 31 December 2001, the Board has emphasized specific matters of concern by issuing modified audit opinions in respect of those five.]
In the case of UNOPS, the Project’s deteriorating financial position was a problem, with its operational reserve some $18.1 million below the required level. As nationally executed programmes were at the heart of the UNDP, the UNFPA and the UNHCR activities, those organizations had been relying on the reports of the auditors of their implementing partners. Shortcomings in that regard had resulted in qualified audit opinions in the past. Although significant improvements had been made, controls still remained a cause of concern, and the auditors had had to modify audit opinion for the UNDP, the UNFPA and the UNHCR.
Having modified its audit opinion on the UNDP, the Board of Auditors drew attention to the fact that in its financial statements it had been unable to justify some $94.5 million spent on equipment. In the case of the UNDCP, the
Board drew attention to the lack of procedures ensuring completeness and timeliness in recording field obligations in conjunction with the UNDP. The Board also noted with concern the declining income of the UNHCR, UNEP reserves and fund balances and the decline in contributions to the International Research and Training Institute for the Advancement of Women (INSTRAW).
Also noted by the speakers was the need to introduce standards to measure the financial status of the accused in both International Tribunals, as well as a mechanism to cap overall costs and police the use of fees. In particular, such measures were needed to prevent fee-splitting between counsel and accused. While both Tribunals had, according to the reports before the Committee, complied with previous recommendations, the representative of Denmark (on behalf of the European Union and associated States) said that they appeared to have few apparent controls on rising budgets and alarming inadequacies in many areas of management and regulatory systems. He was particularly struck by the open-ended approach to the costs of the defence counsel there.
Also speaking today were the representatives of the Republic of Korea and China. Other reports before the Committee were introduced by Under-Secretary-General for Management Joseph E. Connor and the Chairman of the ACABQ, Conrad
The Committee will continue its consideration of the Board of Auditors reports at 10 a.m. tomorrow, 17 October.
This morning, the Fifth Committee (Administrative and Budgetary) was expected to begin its consideration of a series of reports and audited financial statements by the Board of Auditors (documents A/57/5, Vols. I, II, III and Adds. 1-12), which cover the activities of the whole United Nations system.
By his note contained in document A/57/201, the Secretary-General transmits a concise summary of principal findings, conclusions and recommendations by the Board of Auditors for the General Assembly at its fifty-seventh session, addressing major deficiencies in programme and financial management within the Organization, cases of inappropriate or fraudulent use of resources and measures taken in that regard. The document also includes comments on previous recommendations of the Board that have not been fully implemented, as well as modified audit opinions, presentation of financial statements, end-of-service benefits, operational reserves, unliquidated obligations, programme management and other issues.
Having issued unqualified opinions on the financial statements of
16 organizations of the United Nations system for the biennium ended 31 December 2001, the Board has emphasized specific matters of concern by issuing modified audit opinions in respect of five of them: the United Nations Office for Project Services (UNOPS), the United Nations Development Programme (UNDP); the United Nations Population Fund (UNFPA), the Office of the United Nations High Commissioner for Refugees (UNHCR) and the United Nations International Drug Control Programme (UNDCP).
In the case of UNOPS, the Board expressed its concern over the deteriorating financial position, which was evident from shortfalls over the last two years and the depletion of the operational reserve to $5 million, some $18.1 million below the required level. The UNDP, UNFPA and UNHCR have been relying on the reports of the auditors of their implementing partners, as nationally executed expenditure is a key modality of their operation. Shortcomings in this regard have resulted in qualified audit opinions in the past. This year, the Board reports that although significant improvements have been made, the controls in this regard remain an area of concern, and the Board has consequently modified its audit opinion for the UNDP, UNFPA and UNHCR.
Having modified its audit opinion on the UNDP, the Board also draws attention to the fact that in its financial statements, that organization has been unable to obtain assurance as to the reasonableness and value of non-expendable equipment in the amount of $94.5 million. In the case of the UNDCP, the Board draws attention to a lack of procedures ensuring completeness and timeliness in recording field obligations in conjunction with the UNDP.
The Board notes with concern the declining income of the UNHCR, the United Nations Environmental Programme (UNEP) reserves and fund balances and the decline in contributions to the International Research and Training Institute for the Advancement of Women (INSTRAW). The steady decline in voluntary contributions by donor countries has been a major contributor to INSTRAW’s low level of performance in terms of its resources and programme implementation. The Board is concerned that such declining trends in this and other United Nations organizations could lead to serious financial difficulties, and it encourages these organizations to intensify their efforts to increase income while containing expenditure within reasonable limits.
Regarding management issues, the Board recommends that UNEP approve projects before they are commenced, establish a reasonable lead time for the review and approval of project documents, and review the causes for non-submission of required reports to facilitate the timely closure of inactive projects. It also expresses concern about the concurrence of a number of costly information and communication technologies systems within the United Nations system and recommends that a comprehensive, United Nations-wide review be undertaken with the aim of coordinating information and communications technology (ICT) efforts in order to ensure that, in terms of cost-effectiveness, the approaches taken are in the best interest of Member States. Furthermore, the Board recommends that the United Nations Compensation Commission take measures to improve its accountability and transparency.
The Board has also found that there have been delays in the closure of trust funds whose purposes had been attained. Moreover, there were still some inactive trust funds and trust funds in deficit. For the United Nations, financial statements of 61 trust funds did not show any expenditure for the biennium
2000-2001, except for transactions pertaining to the investment pool and related accounts. Twenty-four of them showed nil balances; 17, with combined reserves and fund balances of $12 million, are inactive; and 20, with combined reserves and balances of $52 million, are still active. The Board reiterated its previous recommendation that the Office of Programme Planning, Budget and Accounts review trust funds whose objectives have long been attained.
Also according to the documents before the Committee, restrictions and delays, as reported by the Office of Internal Oversight Services (OIOS), have hindered the effective internal audit of the $35.9 billion in United Nations Compensation Commission awards approved from the Commission’s inception to the end of 2001. Meanwhile, with the equivalent of one fourth of an internal auditor per billion United States dollars per year, its audit coverage has been much less than the audit capability provided by the United Nations for its regular budget expenditure.
Turning to the ICT, the Board notes that the general controls of the international management information systems (IMIS) at United Nations Headquarters are satisfactory, and so are the application controls in IMIS and the related database from which the financial statements are generated; areas for improvement have been identified in the finance and human resources modules and non-computerized controls. There is also a lack of coordination of ICT efforts regarding such components as technology management, security, continuity and disaster plans. The Board expresses concern over an increasing number of costly ICT systems within the United Nations, which are being developed at the expense of Member States, covering the same geographical areas, under similar rules and working towards the same ends. It recommends a comprehensive review to coordinate ICT efforts throughout the system.
At the Office of the UNHCR, extrabudgetary resources are increasingly used to fund core and mandated activities of the Office that should remain within the regular budget. The Office is facing difficulties in tracking voluntary contributions and is suffering from delays in the issuance of allotments by the United Nations Office at Geneva for projects funded from extrabudgetary resources.
The Office for the Coordination of Humanitarian Affairs (OCHA) has no internal guidelines on the activities eligible for funding by the Central Emergency Revolving Fund, which is called upon by a very limited number of agencies; no programme evaluation system is in place in the Department of General Assembly Affairs and Conference Services, as the Department believes that some of the activities undertaken could be described as self-evaluation efforts. The Department reported programme performance on its quantifiable outputs, including qualitative analysis, using traditional paper-based reporting.
The process of hiring consultants and experts is sometimes inconsistent with established rules, such as the roster of consultants either not being maintained or not being regularly updated; the selection process is undocumented; full payment is made before the assignment’s deliverables have been evaluated; and consultants are allowed to commence work even without a signed or approved contract or are employed for several years through a series of short-term contracts.
The Board makes recommendations to improve the recording of pledges, inactive trust funds and disclosure of liabilities; to increase accountability at the United Nations Compensation Commission; to enhance the general and application controls surrounding IMIS and other systems at various sites; to address the need for coordinated effort and investments in the ICT; to strengthen the internal oversight capability in ICT audits; to improve the management and documentation of inter-agency services; and to ensure compliance with administrative instructions in respect of consultants and individual contractors.
Regarding the International Trade Centre/United Nations Conference on Trade and Development (UNCTAD)/World Trade Organization (WTO), the Board’s main findings are as follows. The administrative and financial arrangements between the United Nations and the WTO lead to cumbersome, dual-currency procedures. The ITC does not file and update summary financial progress report tables of amounts received and paid during the implementation of a project, and the Corporate Management Information System (CMIS) had yet to be fully implemented.
The United Nations reported 83 cases of fraud and presumptive fraud in nine organizations, involving a total of $0.75 million. One fifth of that amount has been recovered. These cases involved both staff members and non-staff members. Disciplinary action in the form of summary dismissal was taken against some of the staff members, and other cases are still under investigation.
Also before the Committee was the Secretary-General's report on measures taken or to be taken to implement the recommendations of the Board of Auditors for the biennium ended 31 December 2001, including a timetable where appropriate (document A/57/416). The report contains additional information supplementing the views of implementing offices, which have been taken into account during the preparation of the Board’s report. In most cases, the Administration concurs with the auditors’ recommendations, and implementation is therefore proceeding appropriately. Those instances where the Administration does not agree with the recommendations or is unable to begin implementation have also been noted.
The last document before the Committee was a related report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) (document A/57/439), which contains comments and recommendations about the United Nations, International Tribunals, and funds and programmes.
With regard to funds and programmes, there is a need to ensure that resources are used optimally and that the cost of programme implementation is minimized, especially in view of what the Committee has perceived to be the precarious financial situation of those organizations. The Committee also intends to follow up on recommendations with respect to the accounts of funds and programmes in the context of its review of the support budgets of those organizations for the biennium 2004-2005. The Board modified its opinion on UNOPS in view of the financial position of the Office and its ability to fund in full any deficit from the operational reserve.
The Board points out that UNOPS may not cover all its proposed administrative expenditure budget with the projected level of income. This is a matter of serious concern to the Advisory Committee, which has recently submitted its report on the revised UNOPS budget for 2002-2003 to the Executive Boards of the UNDP and the UNFPA. If it is the wish of Member States that UNOPS continue as a separate and identifiable entity providing services to organizations of the United Nations system for the management and delivery of programmes and projects, it is incumbent upon the Secretary-General to take steps to ensure the viability and success of UNOPS.
With respect to UNICEF, the Committee had difficulties reconciling the information included in paragraphs 50 to 54 of the report of the Executive Director of UNICEF on cash assistance to governments (document E/ICEF/2002/AB/L.5) with the Board's finding. The Committee requests the Board to follow up on this matter during the next audit, to ascertain whether the many weaknesses it identified in paragraphs 96 to 134 of its report on UNICEF have been fully resolved to its satisfaction.
Introductions of Reports
SHAUKET FAKIE, Auditor-General of South Africa and Chairman of the United Nations Board of Auditors to the Fifth Committee, introduced the financial reports and audited financial statements and reports of the Board. He highlighted the level of scrutiny and stewardship that was required of public funds, and the importance of a non-profit status for public-sector external auditor facilities maintaining the independence of external auditors. That independence, he stressed, should be preserved at all times.
Overall, progress by organizations in implementing recommendations made by the Board in its previous reports was good, he continued, with 122 of the 212 recommendations fully implemented, 79 in progress and only 11 not implemented at all. Five recommendations for the biennium 1996-1997 or earlier also remained unimplemented. Regarding UNOPS, he said the continued failure to meet projections could result in the need to curtail its operations. At the time of the audit, UNOPS also did not have a contingency plan in the event that such a situation arose.
Although the Board had not modified its opinions on the statements for the financial periods ended 31 December 2001, it had modified its opinion for the UNDP, the UNFPA and the UNHCR to emphasize that further improvement was necessary. One area for improvement was the issue of qualified audit certificates by local auditors of those implementing partners. The Board found that there were a number of locally qualified audit opinions, but, the exact impact of those qualifications was seldom quantified by the organizations.
Two significant transversal matters were worth mentioning, he said. One concerned end-of-service benefits. Organizations were not required to provide for future liabilities, with the result that those liabilities were not funded. There were also common deficiencies in the ICT environment, such as a frequent lack of medium-term ICT strategies, system security, disaster recovery and continuity plans.
Highlighting some of the main findings of the report, he said the Board had confirmed that for the biennium 2000-2001, the United Nations University (UNU) policy to write off long-outstanding pledges was consistent with the United Nations System Accounting Standards, and it had therefore removed the qualification in the Board’s present audit opinion. With regard to UNICEF, he said that the Private Sector Division’s net consolidated income was some
$93 million lower than its target $324 million, and UNEP’s financial reserves had amounted to only $10 million, some 50 per cent below the approved level as at
31 December 2001. He also highlighted findings related to the UNDP, the UNRWA, the UNHCR, the UNFPA, the UNDCP, UNOPS, the United Nations Joint Staff Pension Fund, the International Criminal Tribunal for Rwanda and the International Criminal Tribunal for Yugoslavia.
JOSEPH E. CONNOR, Under-Secretary-General for Management, introduced the report of the Secretary-General on implementation of the recommendations of the Board of Auditors (document A/57/416). The report provided responses to concerns expressed by the Board of Auditors relating to such issues as the United Nations Compensation Commission, the trust funds, voluntary contributions pledges, and the implementation of various internal control mechanisms.
A considerable portion of the report focused on management issues, he said, relating to the efficacy of the United Nations Management Information System and stressing the need for a strategic and organized information technology plan. The Administration wished to emphasize that it continued to give priority to the further development and enhancement of the existing IMIS within the limits of its budget.
While the views of the implementing offices contained in the report had, for the most part, been taken into account during the preparation of the Board’s report, the Secretary-General welcomed that opportunity to present additional information to the General Assembly in his report. In most cases, the Administration concurred with the recommendation of the Board and implementation thereof proceeded or continued to proceed as appropriate. Where the Administration was unable to proceed, the recommendations had been duly noted.
Generally, the progress of implementation had been and would continue to be monitored and reviewed by senior managers and the Administration had taken note of the comments of the ACABQ in its report -- in particular, its request that the report be streamlined to exclude any action or intentions previously communicated to the Board and already included in reports submitted to the General Assembly.
Introducing the Advisory Committee’s report, the Chairman of the ACABQ, CONRAD S.M. MSELLE, said that the late publication of the Board of Auditors and related reports continued to be a serious problem. In connection with the Board’s modified opinion regarding the UNDP, the UNHCR, the UNFPA, the UNDCP and UNOPS, the ACABQ had consulted the Audit Operations Committee on the different types of audit opinions, and the explanatory notes provided by that body were included in an annex to the ACABQ report. The ACABQ had requested the United Nations to complete streamlining of financial statements and schedules in time for the Board to complete its audit for 2004 and 2005.
Regarding the two Tribunals, the Advisory Committee had commented on the legal aid system and the problem of documentation and language services. The ACABQ intended to continue on those matters as far as the budgets of the two Tribunals were concerned. It commended the Board for the audit it had performed on programme implementation by programming partners, particularly in funds and programmes of the United Nations, and on the related issues of accountability and control of resources.
Speaking on behalf of the European Union and associated States, THURE CHRISTIANSEN (Denmark) said the Union attached great importance to the external audit function and the outstanding quality of reports that Member States had come to expect from the Board of Auditors. He was therefore dismayed that, yet again, the Assembly had been presented with those comprehensive reports so late that it had been impossible to give them the full attention they deserved.
The Union was encouraged by indications of an improvement in the implementation of the Board’s previous recommendations and willingness by programme managers to address the points raised in the Board reports. Urging the Secretariat to deal with those cases where recommendations had not been addressed, or those outstanding from 1996-1997 or earlier, he said that detailed explanations in those cases should be demanded from programme managers concerned. He looked forward to the advice of the Audit Operations Committee on establishing criteria for evaluating the results of the implementation of the Board’s recommendations.
He was pleased that this year, none of the Board’s reports had been qualified, although he had carefully noted the modifications made in five out of the 16 programmes. He noted the continuing concerns expressed by the Board regarding the monitoring of nationally executed expenditure by the UNDP, the UNFPA and the UNHCR. Among other commonly occurring themes throughout the reports were numerous instances of lax inventory management and custody of equipment, lack of provision to take account of end-of-service benefit liabilities, and the deteriorating financing position of some of the funds.
As significant as the examination of financial accounts were the recommendations of the Board for managerial improvements and dissemination, he said. The thematic summary in document A/57/201 was particularly helpful in identifying and recommending improvements in a number of cross-cutting issues. On information technology issues, he fully endorsed the Board’s proposals, including the idea that the United Nations needed a coordinated ICT effort involving all concerned entities, regarding management, security, continuity and disaster plans. The Board’s observations on the use of consultants, staffing issues and ethics also contained valuable insights. The problems of recruitment delays and improper use of consultants and temporary staff were closely related.
Since a number of funds and programmes did not draw on regular budget resources and thus did not require budgetary approval by the Assembly, he questioned the need for the Assembly to review Board of Auditors reports on those bodies on the same basis as others. Some rationalization was needed in that area to provide more consistency and produce a clearer picture of the Organization as a whole. The issue was illustrative of a more fundamental question -– that of governance throughout the system. In that respect, he requested a review not only of reporting procedures, but also of governance structures and principles for the Organization.
He proceeded to comment on some of the individual reports, remarking, in particular, that the United Nations Fund for International Partnerships (UNFIP) operated a sunset clause, whereby funding of projects was withdrawn if project documents were not submitted within 180 days of approval. He commended the UNFIP for its firm management, whilst agreeing with the Board that alternative criteria should be available for more complex projects where longer timescales were needed.
Regarding the International Tribunals, he noted that according to the reports before the Committee, they had, for the most part, complied with previous recommendations, but appeared to have few apparent controls on rising budgets and alarming inadequacies in many areas of management and regulatory systems. He was particularly struck by the open-ended approach to the costs of defence counsel for the Tribunals. Standards needed to be introduced to measure the financial status of accused in both Tribunals, and a mechanism was needed to cap the overall costs and police the use of fees. In conclusion, he also went over the Board’s recommendations regarding the UNDP, UNICEF, the UNFPA and UNOPS.
HAM SANG-WOOK (Republic of Korea) said that the report of the Board of Auditors was of very high quality and its recommendations were practical and useful. With regard to information technology, he agreed that there was a lack of medium-term strategy in several United Nations organizations, and a lack of coordination resulting in redundant investments. Expenditure for national executive projects continued to be a concern. In order to ensure receipt of audit certificates from implementing partners, further measures needed to be taken.
He was also concerned with the deteriorating financial situation in several organizations. Those organizations needed to step up efforts to contain expenditure within reasonable limits, and the improvement of financial management and accountability must be a top priority. Further cause for concern was the fact that a number of recommendations had not been implemented by certain organizations. The responsibility and accountability of programme managers also needed to be examined in greater detail.
WANG XINXIA (China) said that external auditing was an important means of evaluating implementation and internal management, and that Member States therefore needed to pay attention to the work of the Board of Auditors. Her delegation was greatly troubled by some of the problems found in the report. For example, there were deficits and over-expenditures in some of the trust funds of the UNDP, and irregularities in some agencies regarding the hiring of consultants and experts. She was also concerned that some of the suggestions put forward by the Board several years ago had still not been implemented, and her delegation would like to know the reasons why.
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