Federal News Service [Cong. Hearing], June 20, 2006, Tuesday

Copyright 2006
The Federal News Service, Inc.
Federal News Service
June 20, 2006 Tuesday
SECTION: CAPITOL HILL HEARING

LENGTH: 14905 words

HEADLINE: HEARING OF THE FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY SUBCOMMITTEE OF THE SENATE HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS COMMITTEE

SUBJECT: UNITED NATIONS HEADQUARTERS RENOVATION: NO ACCOUNTABILITY WITHOUT TRANSPARENCY

CHAIRED BY: SENATOR TOM COBURN (R-OK)
WITNESSES PANEL I: JOHN BOLTON, PERMANENT U.S. REPRESENTATIVE TO THE UNITED NATIONS;
PANEL II: CLAUDIO ROSETT, JOURNALIST-IN-RESIDENCE, FOUNDATION FOR THE DEFENSE OF DEMOCRACIES;
ANNE BAYEFSKY, SENIOR FELLOW, HUDSON INSTITUTE; THOMAS MELITO, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE
LOCATION: 342 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

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MR. BOLTON: Well, I certainly hope they hear you in New York, Mr. Chairman. SEN. COBURN: Well, I assure you it's going to be on an appropriate bill.Mr. Ambassador, thank you. We have a vote on, which I have to take. We will take it very quickly. I'll come back. We have actually two votes. I'll get there and hopefully be back here in about 15 minutes and we'll resume the hear-ing.The hearing is in recess until that time.(Recess.)The committee will come to order. Because of some flight delays and prob-lems, I am going to introduce in the order in which I am going to ask for testi-mony.Dr. Ann Bayefsky is a senior fellow with Hudson Institute, professor of the Touro Law Center, and editor of the U.N. watchdog, EYEontheUN.org. Before join-ing Hudson, she was an adjunct professor and associate research scholar at Co-lumbia University Law School and has done extensive human rights work for many years.Ms. Claudia Rosett is a journalist-in-residence at the Foundation for the De-fense of Democracies. She writes on international affairs with a focus on de-mocratic movements and despotic regimes. She has been widely credited with breaking the oil-for-food scandal and other aspects of waste, abuse and corrup-tion at the United Nations. Currently based in New York, Ms. Rosett has reported from Asia, the former Soviet Union, Latin America and the Middle East.

Dr. Thomas Melito is a director in the international affairs and trade team at the U.S. Government Accountability Office. He is responsible for GAO's re-view of international finance, multilateral institutions, including the United Nations, World Bank and International Monetary Fund. His education includes a B.S. in industrial and labor relations from Cornell University, an M.A. and Ph.D. in economics from Columbia University.

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Dr. Melito?
MR. THOMAS MELITO: Mr. Chairman, I am pleased to be here today to discuss the United Nations' internal oversight unit and procurement process in the con-text of the U.N. Capital Management Plan, or CMP.The U.N. headquarters buildings are in need of renovation, since they no longer conform to current safety, fire and building codes and do not meet U.N. technology or security requirements. However, effective implementation of the CMP is vulnerable due to a range of weaknesses in existing internal oversight and procurement practices. Today I will share with you the findings of two re-ports that we released on these topics in April 2006.First I will focus on the need to strengthen the budgetary independence of the U.N.'s internal oversight unit, OIOS. We found that current funding ar-rangements adversely affect OIOS's budgetary independence and compromise its ability to investigate high-risk areas. Second, I will also focus on our as-sessment of the U.N.'s procurement processes according to key standards for in-ternal controls. We found that to the extent that the CMP relies on current U.N. processes, implementation of the planned renovation is vulnerable to the procurement weaknesses that we have identified.I will now highlight our main findings. First, U.N. funding arrangements constrain OIOS's ability to operate independently as mandated by the general as-sembly and required by international auditing standards. OIOS is funded by the U.N.'s regular budget and 12 extra budgetary revenue streams. U.N. financial regulations severely limit OIOS's ability to respond to changing circumstances by reallocating resources among these various revenue streams.As a result, OIOS cannot always deploy the resources necessary to address high-risk areas that emerge after its budget is approved. In addition, OIOS is depending on U.N. funding programs for resources as compensation for the ser-vices it provides. This is a conflict of interest, because while OIOS has over-sight authority over these entities, it must obtain their permission to examine their operations and receive payment for its services. Moreover, the heads of these entities have the right to deny funding for the oversight work OIOS pro-poses.By denying OIOS funding, U.N. entities have avoided OIOS audits, including high-risk areas. For example, OIOS was prevented from examining high-risk areas in the U.N. oil-for-food program, where billions of dollars were subsequently found to have been misused. OIOS funding concerns are potentially relevant to the CMP since the ultimate number of auditors who will work on the CMP and their funding sources have yet to be determined.OIOS reported that it had extra budgetary funds from the CMP for one auditor on a short-term basis, but that level of funding was not sufficient to provide the oversight coverage intended by the general assembly. To increase oversight coverage OIOS assigned an additional auditor exclusively to the CMP, using funds from its regular budget.We may now turn to our second finding: addressing weaknesses in the U.N.'s procurement system. To the extent the CMP will rely on the current U.N. pro-curement process, it is vulnerable to weaknesses that we identified in our April report. For example, the U.N. has not established an independent process to consider vendor protests. The lack of an independent bid protest process limits the transparency of procurement by not providing a means for a vendor to protest the outcome of a contract decision. Such a process could alert senior U.N. of-ficials of failures by procurement staff to comply with policies and procedures.In addition, the U.N. has not demonstrated a commitment to improving the ca-pabilities of its professional procurement staff, despite long-standing short-comings. Furthermore, it is yet to complete action on specific ethics guidance for procurement officers. Due to significant control weaknesses in the U.N.'s procurement process, the U.N. has relied disproportionately on the actions of its staff to safeguard its resources. However, recent studies indicate that procurement staff lack sufficient knowledge of procurement policies, and the U.N. has made only limited progress towards adopting ethics guidance for its procurement staff.We also found that the U.N. has yet to incorporate guidance for construction in its procurement manual. In June 2005, a U.N. consultant recommended that the U.N. develop separate guidelines in the manual for the planning and execution of construction projects. These guidelines could be useful in planning and execut-ing CMP procurements.In conclusion, the weaknesses in internal oversight and procurement we iden-tified could adversely impact implementation of the CMP. However, these con-cerns should be considered within the context of the pressing need for renova-tion of the U.N. headquarters complex.Mr. Chairman, this completes my prepared statement. I'll be happy to address any questions.SEN. COBURN: Thank you. I'm somewhat taken aback by your last statement. So, regardless of how sloppy it is, go on and do it?MR. MELITO: The issue is, because of the age of the building and the state of some of the systems in the building, there is a threat of catastrophic fail-ures. Last fall, they had a failure in the electrical system which caused their system to have part of it fuse, and it had a great threat of a fire and they had to evacuate the building. If the electrical system was to fail catastrophi-cally, if the heating and air-conditioning system was to fail catastrophically, we would be facing a situation where we have to do a very rapid renovation, a very rapid procurement on the fly. So that just needs to be weighed up, weighed against the issues of the system.SEN. COBURN: I understand, but that's asking the wrong question. You can do both.MR. MELITO: Yes.SEN. COBURN: And you don't do one without the -- if construction was started today, it'd still take five years to finish it.MR. MELITO: Yes.

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MS. ROSETT: Exactly. And on that, if you could see -- yeah, probably, it would make some difference. And the difficulty is this: The U.N. will promise you transparency. In fact, they describe themselves as -- they described oil-for-food as transparent; they described the Procurement Department to myself and a col-league in the media, George Russell of Fox News -- it was our story that brought the name of Alexander Yakovlev into the press as somebody clearly engaged in funny business in the Procurement Department.When we first went to see the Procurement Department, as we began reporting that story, they assured us that the Procurement Department had been through a reform, that they were transparent, their website was transparent, they had no major concerns about corruption at all.SEN. COBURN: Which is totally opposite of the testimony of Dr. Melito?MS. ROSETT: Yes, that's correct. In fact, they -- they sent us off us say-ing -- we did not ask at that point about Alexander Yakovlev, per se. We went to ask: Are there are concerns about corruption scams. So, no, we were told, it's all airtight; it's all been cleaned up; it's all fine. This is the pat-tern over and over. So the test is real transparency, and I'd suggest that that doesn't consist of promises. We've had promises for years. It consists of the actual documents. Thank you.SEN. COBURN: Dr. Melito, your comments on that?MR. MELITO: Increased transparency is definitely a worthy goal. In the con-text of the CMP, it would definitely benefit CMP to be more transparent. I do want to give just two caveats of that. Certain security arrangements of the CMP would have to remain non-public.SEN. COBURN: That's understood. That happens in our government.MR. MELITO: And also certain businesses who are party to information would probably also have to be assured.SEN. COBURN: Give me a good example, because when I was U.N. in New York, I did proprietary information. Give me an example of proprietary information that somebody would have who is going to do asbestos removal in U.N., or somebody that's going to do the new plumbing, or somebody that's going to put the new air-conditioning units. What's the proprietary information that would allow them to black out the whole contract so that the people could not see what we're spending and what we're getting for what we're spending?MR. MELITO: It usually comes down to issues of the individual firm's pricing structure and keeping that hidden from its own competitors. It doesn't neces-sarily get into their techniques, although it could, but it's usually about how much they're charging for very individual micro things. But you could defi-nitely bring to the public the total costs. Total costs should be brought up.SEN. COBURN: And the cost of their subcontracts?MR. MELITO: Again with some caveat --SEN. COBURN: Well, with caveats of security.MR. MELITO: Yes.SEN. COBURN: So what I hear all the time is "proprietary." That's the excuse to not tell you anything, because we have something proprietary. And there is no rule within the U.N. today, other than their own rule, that says they have to have that. There's no bylaw of the U.N. that says they have to say.MR. MELITO: The risk, though, is that if you actually were telling bidders in advance that their information would be public, they wouldn't bid, which would then greatly inflate the price of the contract because you'd have a very narrow set of bidders, potentially.SEN. COBURN: And by saying that, you're assuming that the price of the con-tract isn't inflated today?MR. MELITO: I'm saying we haven't made any analysis of that, but if it's a competitive system, you want more bidders.MS. BAYEFSKY: If I might add, what we do know is that the G77, for example, thinks that they're entitled to some of these contracts by the fact of their ge-ography. So that entitlements here are, according to the majority of the U.N. members -- is not on the basis of anything remotely resembling the ability to do the job, but, in fact --SEN. COBURN: Who you're friends with.MS. BAYEFSKY: Correct.SEN. COBURN: And that's why subcontracts, and that's why transparency on contracting, and that's why an ability to challenge a contract, as you men-tioned, in terms of, I think you call it, a vendor protest is so critical in the contracting.MS. BAYEFSKY: Indeed.

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SEN. COBURN: Any comment? Go ahead. MR. MELITO: It's the GAO's position that the U.N. procurement system, in general, has serious problems, and it's a systemic problem in terms of lack of investment in training. There's a real breakdown in terms of the management's responsibility; who has to do what, when. We reported on these deficiencies in April. I do want to say, though, it's possible for the CMP to be sort of fire-walled from these problems, since it's a relatively focused unique procurement. And I do think the U.N. should explore ways of isolating itself from these larger procurement problems, which will probably take several years at least to fix.SEN. COBURN: Well, I want to assure you that the money that this country's going to spend is going to request that type of isolation, that type of control, or each year we'll be fighting it on the floor and we just probably won't appro-priate it unless we get that kind of assurance. Dr. Bayefsky?

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MS. ROSETT: It's called an ethics office. It's a cover up for not having an ethics office.SEN. COBURN: All right. Any final comments?MR. MELITO: I'd like to just reiterate that the issues the OIOS have deter-mined really do make the CMP vulnerable. The U.N. should consider ways of mak-ing sure that OIOS has the independence to at least oversee that project, and that can be done, because in the case of peacekeeping, there is an assured source of funding for oversight of peacekeeping. They can create the same thing for CMP.And, similarly, for the procurement process, they should firewall, create some kind of process or strategy which mitigates or eliminates whatever risk CMP procurement will have.SEN. COBURN: All right. Thank you.You each will receive some questions from the committee. If you wouldn't mind answering those to us within two weeks of the time you receive them, we would very much appreciate it. We do appreciate you preparing the testimony, testifying before us and the work that you've done. The hearing is adjourned.