Budget Committee Takes Up Reports of Board of Auditors on 2010-2011 Financial Statements for United Nations, Funds, Programmes
Budget Committee Takes Up Reports of Board of Auditors on 2010-2011 Financial Statements for United Nations, Funds, Programmes
|Department of Public Information • News and Media Division • New York|
Sixty-seventh General Assembly
7th Meeting (AM)
Budget Committee Takes Up Reports of Board of Auditors on 2010-2011 Financial
Statements for United Nations, Funds, Programmes
Chair of Audit Operations Committee Introduces Reports
While giving clear auditing opinions for the 2010-2011 biennium to nearly all entities in the United Nations Systems, the Organization’s top auditing watchdog warned the Fifth Committee (Administrative and Budgetary) today of the weaknesses in governance found throughout the Organization.
Liu Yu, Chair of the Audit Operations Committee of the Board of Auditors, introduced the reports of the Board of Auditors relating to the recent financial statements of the United Nations and its funds and programmes. Sixteen of the 18 entities, which include the Secretariat and peacekeeping, received clear audit opinions. That was up from eight entities for the 2008-2009 review. For the more recent cycle, two entities, UN-Women and United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) received opinions with either an “emphasis of matter” or “other matter” paragraph. He noted that UN-Women began its first year of operation in 2011 as it was created with the merger of four entities.
Mr. Yu said the deficiencies found throughout the Organization were linked to weaknesses in its governance. These aspects included weaknesses in a clear and well-understood system of accountability, its internal control framework, as well as an ineffective organizational level of risk management.
Regarding the implementation of International Public Sector Accounting Standards (IPSAS) throughout the Organization, Mr. Yu said the successful implementation within peacekeeping operations by July 2013, and the United Nations Secretariat by January 2014, was at high risk mainly due to the complexity of transactions.
Speaking on behalf of the “Group of 77” developing countries and China, Algeria’s delegate noted the improvement in the number of unmodified opinions and the absence of any qualified audit opinion. He also noted the Organization’s improved record of carrying out Board recommendations.
But, the seriousness of several Board findings related to results-based budgeting and results-based management concerned the Group. It was particularly distressed that the Secretary-General had not designated anyone with the responsibility of ensuring implementation of results-based management. This was despite the General Assembly’s clear mandate to do so. The Group expected a clear explanation as to why the Assembly mandate had been postponed.
The Organization’s current procurement and contract management situation was creating significant reputational risk and could harm transparency and accountability. He noted the discrepancies in accounting for non-expendable property and the Organization’s increased risk of failing to meet obligations on after-service and end-of-service benefits
The United States’ delegate also commended the Organization for a decrease in audits with modified opinions since 2009 and greater implementation of Board recommendations. But, she was concerned with the Board’s remarks about UNRWA and UN-Women, and the Secretariat’s delay in implementing the International Accounting Standards. The United States repeated its long-standing concerns about the management of expendable and non-expendable property, high cash and investment balances maintained by United Nations entities, and deficiencies in procurement and management.
Chandramouli Ramanathan, Deputy Controller, Office of Programme Planning, Budget and Accounts, Department of Management, introduced the reports of the Secretary-General on the implementation of the Board’s recommendations.
Collen Kelapile, Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced the Advisory Committee’s report and noted the overall improvement, which he attributed to the stricter criteria imposed by the use of international accounting standards.
Yet, there were serious problems in implementing results-based budgeting and management, and the Organization had missed an opportunity to introduce improvements into the 2014-15 strategic framework. He also pointed to the weak control over monies provided by third parties to the Office for the Coordination of Humanitarian Affairs and gaps in project oversight.
The Fifth Committee will reconvene at 10 a.m. on Thursday, 18 October, to discuss the financial situation of the United Nations.
The Fifth Committee (Administrative and Budgetary) met today to consider numerous reports of the Board of Auditors regarding the financial statements of the United Nations system.
The first document, Financial report and audited financial statements for the biennium ended 31 December 2011 and report of the Board of Auditors Volume I United Nations (document A/67/5/Vol.I and Corr.1), included the Board’s financial overview of the Organization for the period under review, as well as its findings.
The financial overview noted that for the biennium 2010-2011, total income was $10.45 billion, up $740 million, or 7 per cent, from the previous biennium. Total expenditure amounted to $10.63 billion, up $1.36 billion, or 14 per cent, from the previous biennium. This resulted in a net deficit of $184 million and a net shortfall of income over expenditure of $1.23 billion, when accounting for additional expenses for prior-period adjustments and end-of-service and post-retirement benefits. The increase in the Organization’s total income was due mainly to an increase in assessed and voluntary contributions and the increase in overall expenditure was primarily a result of significant increases in the special political missions and general trust funds. The deficit was mainly due to the $5 billion gross amount assessed to Member States for the biennium 2010-2011, which was lower than the $5.4 billion in total approved budget appropriations.
The Board found the Organization’s financial statements are free from material error, but it noted key deficiencies in such areas as asset management, and procurement and contracts management. A main concern was the weak operation of controls over expenditures reported by non-governmental organizations funded by the Office for the Coordination of Humanitarian Affairs, due to deficiencies in control processes designed to provide management with assurance over the use of funds and late reporting by non-governmental organization, as well as lack of effective management follow up.
It also had before it the Financial report and audited financial statements for the biennium ended 31 December 2011 and report of the Board of Auditors Volume III, International Trade Centre (document A/67/5/Vol.III), Volume IV, United Nations University (document A/67/5/Vol.IV) and Volume V, Capital Master Plan (document A/67/5/Vol.V).
Addenda to the financial reports and audited financial statements, and reports of the Board of Auditors covered the United Nations Development Programme (UNDP) (A/67/5/Add.1), the United Nations Children’s Fund (UNICEF) (A/67/5/Add.2), United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) (A/67/5/Add.3), United Nations Institute for Training and Research (UNITAR) (A/67/5/Add.4), Voluntary funds administered by the United Nations High Commissioner for Refugees (UNHCR) (A/67/5/Add.5), Fund of the United Nations Environment Programme (UNEP) (A/67/5/Add.6), United Nations Population Fund (UNFPA) (A/67/5/Add.7), United Nations Human Settlements Programme (UN-Habitat) (A/67/5/Add.8), United Nations Office on Drugs and Crime (UNODC) (A/67/5/Add.9), United Nations Office for Project Services (UNOPS) (A/67/5/Add.10), International Criminal Tribunal for Rwanda (A/67/5/Add.11), International Tribunal for the Former Yugoslavia (A/67/5/Add.12) and the United Nations Entity for Gender Equality and the Empowerment of Women (UN-Women) (A/67/5/Add.13).
Also before the Committee was a note by the Secretary-General transmitting the Concise summary of the principal findings and conclusions contained in the reports of the Board of Auditors for the biennium 2010-2011 (document A/67/173), which reported in a consolidated fashion on major deficiencies in programme and financial management and cases of inappropriate or fraudulent use of resources together with the measures taken by United Nations organizations in that regard. Findings and conclusions in the present report are addressed to the General Assembly on 17 organizations and the United Nations peacekeeping operations.
The Committee also had before it the report of the Secretary-General on Implementation of the recommendations of the Board of Auditors contained in its reports on the United Nations for the biennium ended 31 December 2011 and on the capital master plan for the year ended 31 December 2011 (document A/67/319) reflects additional comments made by the Administration in response to the recommendations of the Board of Auditors as contained in its report on the United Nations for the biennium ended 31 December 2011 and its report on the capital master plan for the year ended 31 December 2011. It notes the status of implementation, the office responsible, the estimated completion date and the priority for each recommendation contained in the reports of the Board of Auditors and contains updates on implementation of Board recommendations from prior periods, which the Board reported as not having been fully implemented.
Also before the Committee was the addendum to the report of the Secretary-General on implementation of the recommendations of the Board of Auditors contained in its reports on the United Nations funds and programmes for the financial period ended 31 December 2011 (document A/67/319/Add.1), which included responses of the executive heads of various United Nations funds and programmes and which provides information further to the comments already submitted to the Board of Auditors. As the executive heads generally concurred with the Board’s recommendations with any comments reflected in the Board’s reports, the present report provides additional comments from the executive heads only where required, as well as information on the status of implementation, the office responsible, the estimated completion date and the priority for each recommendation contained in the report of the Board of Auditors.
Also before the Committee was the report of the Advisory Committee on Administrative and Budgetary Questions financial reports and audited financial statements and reports of the Board of Auditors for the period ended 31 December 2011 (document A/67/381).
The Advisory Committee notes that the total number of modified opinions for the financial period ended 31 December 2011 declined significantly compared with the 2008-2009 period, when modified audit reports with various emphases of matter were issued for seven entities and a qualified audit opinion was issued for UNFPA. In its concise summary, the Board of Auditors reported that the reduction in the quantity of modified opinions reflected a revision of the International Standards on Auditing intended to provide greater clarity on emphases of matter and requiring stricter application criteria. Meaningful comparisons between the two periods could not, therefore, be made. The Board acknowledged, however, that the Administration had many improvements, particularly in the area of managing and reporting non-expendable property, reflecting the preparations required for the implementation of the International Public Sector Accounting Standards (IPSAS).
The Advisory Committee notes that the Board welcomed the higher rates of implementation of its audit recommendations, but said the Administration needed to establish a dedicated follow-up mechanism to increase accountability for the implementation of recommendations. It has also highlighted the need for management to take greater ownership for implementing recommendations to effectively address the root causes of the problem identified by the Board.
The Advisory Committee believes that the Administration must give priority attention to the most serious problems identified by the Board of Auditors. The Committee also stated that the importance of concurrence between the Secretary-General and the Board on its recommendations.
The Advisory Committee believed the implications of the adoption of IPSAS for the work of the Advisory Committee, the Fifth Committee and the General Assembly required urgent and immediate consideration, since a number of United Nations entities will be adopting the Standards in 2013. The Advisory Committee recommends the Assembly make this issue a priority no later than the main part of the sixty-seventh session.
Regarding procurement, the Advisory Committee emphasizes that, as past experience has demonstrated, procurement activities carry significant reputational risks to the Organization if not managed in accordance with established rules and procedures, including the stipulated provisions of the Procurement Manual. The Committee is concerned by the Administration’s position regarding contract management, which does not correspond to the current provisions of the Procurement Manual. The Committee stresses that this situation could lead to a lack of accountability and transparency in the procurement process. It expects the Administration to rectify the situation report on its actions.
Regarding funds and programmes, the Advisory Committee noted that the Board made no qualified audit opinions for the 2010-2011 biennium. While the Advisory Committee welcomes the unqualified audit opinions now achieved for such entities as UNFPA and the improvement in the management and oversight of its nationally executed projects, the Committee also notes the Board’s finding that UNOPS continues to show progress in its efforts to address previously identified control weaknesses and deficiencies. The Advisory Committee expects all entities across the United Nations system will pay attention to issues of concern that could have an impact on the Board of Auditors’ opinion with regard to their financial statements.
Introduction of Reports
LIU YU, Chair, Audit Operations Committee of the Board of Auditors, introduced the reports of the Board of Auditors related to the financial statements of the United Nations and its funds and programmes.
For the 18 organizations (including peacekeeping) that were audited during this biennium, 16 entities received clear audit opinions. Two entities, UN-Women and UNRWA, as opposed to eight entities in 2008-2009, were given opinions with either an “emphasis of matter” or “other matter” paragraphs. The emphasis of matter” and “other matter” paragraphs regarding UN-Women resulted partly because the entity did not have adequate internal controls during its first year of operation. But, it also reflected that the four entities which merged to create the UN-Women applied inconsistent interpretations of resolution 64/289 regarding the date of asset transfers.
The “other matter” paragraph on UNRWA’s report related to the agency’s financing positions as of 31 December 2011, he said. It highlighted the financial pressure facing the organization, including a deficit of $33.67 million in regular un-earmarked funds, low reserves ($3.86 million) and limited cash ($35 million) as of 31 December 2001. UNRWA’s financial position had impacted its operating activities and its ability to maintain good internal controls.
The Board issued 338 recommendations in the 2010-2011 biennium. Of the 546 recommendations made in 2008-2009, 69 per cent had been fully implemented, 24 per cent were under implementation, and 7 per cent were not implemented. The Board was generally content with the overall rate of implementation.
Mr. Yu then laid out the common themes found throughout the Organization and as a result of its audits. First, there was inadequate transparency and management information to explain the reasons behind the overall level of cash pools, or provide meaningful disclosures on the movements of cash balances for most of the entities. There were inconsistent disclosures of end-of-service liabilities in the financial statements and no clear funding plans to meet these liabilities, he said.
Regarding the implementation of IPSAS throughout the Organization, Mr. Yu said the successful implementation for Peacekeeping Operations by July 2013, and the United Nations by January 2014, remained at high risk mainly due to the complexity of transactions. Another factor was the ongoing changes in implementation strategy, which now was highly reliant, as a transitional measure, on the legacy Integrated Management Information System (IMIS). Even among those entities on track to implement the international standards, the Board highlighted risks relating to property, plant and equipment (previously referred to as non-expendable properties; inventories; and leave balances). “It is the delivery of the intended benefits from IPSAS that is the ultimate test of success, not merely the delivery of IPSAS-complaint financial statements,” he said.
Budget management was a key tool for effective financial management and control and the central component of a process that provided oversight of the finances of an organization’s operations, he said. Among the areas requiring improved budget management was the significant disparities between budget assumptions in several organization’s budget proposals and relevant historical data which could not be fully justified. Other areas were insufficient discipline in budget implementation and the limited consideration of programme performance information against financial performance information.
There were weaknesses in the stewardship of assets, in both expendable and non-expendable properties. The Board’s examinations of programme and project management for the period under review turned up two main deficiencies, he said. One was that outcomes, outputs and indicators did not align clearly with an organization’s overall strategy. Secondly, projects and programmes were not adequately monitored and evaluated to assure management that funding had been used for its intended purpose and expenditures had provided value for the money.
Mr. Yu then noted several common issues found in the Organization’s major business transformation projects, including the Capital Master Plan, Umoja and IPSAS. The Board concluded that senior management needed a more integrated and holistic grip on the direction and delivery of these programmes, which aimed to modernize the organization and keep it relevant.
The Board identified deficiencies in procurement and contract management activities, including a lack of competition for goods and services, across the United Nations and its funds and programmes.
Regarding the funds and programmes, he said there was a particular need to ensure adequate oversight over their decentralized models and ensure their compliance with the financial regulations and rules, and related policies and procedures. Controls over the funds used by implementing partners needed to be adequately monitored. He noted the fundraising activities on behalf of UNICEF by its National Committees had several weaknesses and UNICEF’s oversight of those activities was ineffective.
Concluding, Mr. Lu said the deficiencies identified in the report were linked to weaknesses in governance. These included weaknesses in a clear and well-understood system of accountability and its internal control framework, as well as an ineffective organizational level of risk management.
CHANDRAMOULI RAMANATHAN, Deputy Controller, Office of Programme Planning, Budget and Accounts, Department of Management, introduced the report of the Secretary-General on implementation of the recommendations of the Board of Auditors contained in its reports on the United Nations for the biennium ended 31 December 2011 and on the capital master plan for the year ended 31 December 2011 (document A/67/319 and Add.1) and said every effort to comply with implementation and oversight recommendations had been made. He pointed to an improved implementation rate for recommendations compared to earlier periods. Sixty-five per cent of the recommendations made up to 31 December 2009 had been fully implemented, he said, which marked an increase on the previous biennium when 59 per cent had been implemented. He added that specific reasons had been given for recommendations not implemented by July 2012. While all accepted Board recommendations would be implemented in a timely manner, the “main” recommendations would be prioritized, he said.
COLLEN KELAPILE, Chair of the Advisory Committee on Administrative and Budgetary Questions, introduced the Report of the Advisory Committee on Administrative and Budgetary Questions (document A/67/381), saying that none of the 17 United Nations entities audited by the Board had received a qualified audit opinion and that UNRWA and UN-Women had raised specific areas of concern. Overall, he said, that represented an improvement on the previous biennium, which he put down to stricter criteria under the revised International Standards on Auditing.
He highlighted significant progress in implementing IPSAS. Seven funds were on track, but four (the United Nations Secretariat, the Department of Peacekeeping Operations, UN-Women and the United Nations University) were at risk of failing to meet the target implementation dates, he said. With several large-scale business transformation projects taking place simultaneously, he urged the United Nations to be realistic about its abilityto absorb such fundamental changes and called for a clearly articulated, coherent end-state vision for change and more transparent and complete cost reporting. There were serious problems in implementation of results-based budgeting and management, he said. The Organization had missed an opportunity to introduce improvements into the 2014-15 strategic framework.
There was weak control over monies provided by third parties to the Office for the Coordination of Humanitarian Affairs and gaps in project oversight, he said, while acknowledging improvements by UNFPA and UNHCR on that front. He also raised concerns about the adequacy of internal auditing arrangements at UNHCR, United Nations University and at UNITAR.
MOURAD BENHEMEDI (Algeria), speaking on behalf of the “Group of 77” Developing Countries and China, noted an improved number of unmodified opinions from the Board of Auditors on United Nations entities and that no entity received a qualified audit opinion. He also noted improvement in implementation of recommendations, with 65 per cent of previous recommendations fully implemented. Nonetheless, he wanted more information on the establishment of a dedicated follow-up mechanism to sharpen accountability for implementing the Board’s recommendations, because without it he believed the Board would continue to find weaknesses and deficiencies in internal controls.
He concurred with the Board on the need for assessment of the United Nations’ ability to absorb simultaneously its four major business transformation projects, while continuing to deliver on its mandates. He said he would request detailed information on the concrete proposals to avoid the current cost overruns of $430 million for the Capital Master Plan and to accelerate progress of the new Enterprise Resource Planning System (Umoja).
He noted the seriousness of several findings by the Board relating to results-based budgeting and results-based management. In particular, he said the United Nations Secretary-General had not assigned anyone the responsibility of ensuring implementation of results-based management, despite the clear General Assembly mandate to do so; the United Nations did not effectively align operational work plans with the Organization’s strategic goals; and the indicators of achievement were not focused on outcomes in any of the cases sampled during the Board’s most recent audit. He expected to receive a clear explanation as why that General Assembly mandate had been postponed.
The current procurement and contract management situation was carrying significant reputational risk to the Organization and could harm transparency and accountability, he said, noting also discrepancies in accounting for non-expendable property and the Organization’s increased risk of failing to meet obligations on after-service and end-of-service benefits.
He requested an update on the establishment of an internal audit service for UNHCR and noted that all United Nations entities would begin filing annual instead of biennial reports as of 2013. Given the impact this change would have on the Board of Auditors, the Fifth Committee, the General Assembly, the Advisory Committee on Administrative and Budgetary Questions (ACABQ) and other intergovernmental bodies, he hoped to learn how the Organization had prepared to address the challenges.
CHERITH NORMAN ( United States) commended the Organization for a decrease in audits with modified opinions since 2009 and an increase in recommendation implementation. However, she was concerned that the Board drew attention to particular matters in its audit of UNRWA and UN-Women. She supported the Board’s call for UNRWA to develop a funding strategy to enable it to meet its end-of-service liabilities and noted that UN-Women’s relatively newly-established international control framework did not provide high enough assurances on the robust oversight of its expenditures. She added her concern that UNHCR had not yet implemented an organization-wide approach to risk management.
She commended progress on IPSAS implementation, but noted that peacekeeping operations might not be IPSAS-compliant by the July 2013 deadline. She further noted the risk that the United Nations would not complete implementation by 2014, especially if it was dependent on satisfactory progress on the Umoja project. She urged agencies to complete the work still required to produce IPSAS-compliant statements to increase transparency, provide insight into the cost of operations and drive cost-effective decision-making. Agreeing that IPSAS implementation would result in better, more consistent reporting of end-of-service liabilities, she noted the recent significant increase in those liabilities, as well as the absence of a funding plan to address them. Nonetheless, despite predicting difficulties providing funding for the full amount “for the foreseeable future”, she did not believe that the absence of a funding plan indicated that United Nations entities would fail to meet the current portion of these liabilities.
She reiterated long-standing concerns about management of expendable and non-expendable property, high cash and investment balances maintained by United Nations entities and deficiencies in procurement and management, as well as concerns over the Board’s finding that deficiencies identified in the reporting period stem from weaknesses in the system of rules and regulations by which organizations were operated and controlled.
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