30 March 2006
Procurement has been at the centre of corruption allegations at the United Nations, with one senior official admitting to fraud and millions of dollars worth of contracts under investigation. So what is going on? Anusha Bradley reports from New York
United Nations procurement is in trouble. One senior officer has admitted to charges of fraud, money laundering and conspiracy amounting to "hundreds of thousands of dollars". Two recent audits of the function cite "lack of internal controls" and management oversight as causes of potential waste, fraud and corruption. Eight staff are on "special leave" pending ongoing investigations and the UN and US authorities are looking into more than 200 cases of alleged fraud.
And the new acting head of procurement says that, until he took up his post in September, the United Nations Procurement Service (UNPS) did not have in place "any systems to detect fraud and corruption".
Behind the scenes, procurement officers work in stressful and often dangerous environments to ensure the organisation continues to help the world's poorest and most desperate people in times of conflict and hunger.
For them, the pressure of accusations of wrongdoing over the past six months is taking its toll. Procurement is now considered the "rotten apple of the UN", a former UN chief procurement officer confided to SM
. Morale is at rock bottom and staff are reportedly falling sick under the strain.
The climate of fear in which staff work stops them from speaking out. Sources close to procurement say there is now "extreme fear of being accused of any wrongdoing".
One ex-employee says: "Procurement is between a rock and a hard place. Everyone is paranoid about everything they do. This is paralysing the system as everyone is looking to someone else to make a decision."
Furthermore, a recent probe into peacekeeping procurement by the UN's watchdog, the Office of Internal Oversight Services (OIOS) found staff were under-resourced and overworked.
And this has come as spending has quadrupled from $400 million to $1.6 billion over the past nine years and is expected to top $2 billion this year. Eighty-five per cent of the global procurement budget is spent on peacekeeping activities, but there is a 50 per cent vacancy rate in field procurement posts.
But pressure on staff is not only from within. The department's transactions over the past two years will be subject to a forensic audit by Deloitte due to begin this month. Staff have also been asked to co-operate with US attorney investigations. The UN says it will provide lawyers for any staff called in for questioning.
Martin Buxey, a retired chief procurement officer who has worked on peacekeeping missions in Croatia, Kosovo and the Democratic Republic of Congo, says the situation has put even more strain on already overworked staff.
"Morale is so far down," he warns. "And if they're not careful, it will continue in a downward spiral and no one will want to work in procurement."
Eight staff - four from the UNPS in New York and four from the Department of Peacekeeping Operations (DPKO) - have been on "special leave" with full pay since mid-January, while the OIOS continues its investigation. The UN has emphasised the special leave is only an administrative measure, not a disciplinary one. While buying colleagues consider this treatment unjustified, they worry it further dents the service's image.
Christian Saunders, former procurement chief of the UNPS, is one of the eight. He denies any wrongdoing and is convinced procurement is the victim of internal politics. Because of outside pressure following the oil-for-food scandal in Iraq, he believes the UN must "be seen to be doing something to tackle the alleged procurement problems".
He says an OIOS review that was "quite complimentary" of UNPS activities landed on his desk in June 2005. Two months later, senior UN procurement official Alexander Yakovlev owned up to wrongdoing and the report was never published.
UN officials deny this is the case. "The OIOS began a review of procurement then the information ended up in the audit that was recently published," a UN spokesman told SM
Others on leave include Andrew Toh, assistant secretary-general, who had responsibility for procurement, and Sanjaya Bahel, ex-field procurement section chief at the UNPS.
What went wrong?
In the wake of the oil-for-food scandal and Yakovlev's resignation in 2005, Kofi Annan, secretary-general of the UN, ordered Deloitte to carry out a review of procurement processes. The report, published last November, found that "internal control deficiencies" and poor IT systems left the UN "open to corruption".
The general assembly also ordered the OIOS to conduct an audit of peacekeeping procurement operations. The four-month investigation, Comprehensive Management Review of the Department of Peacekeeping Operations - Procurement, conducted late last year and published in January, found "substantial evidence of abuse in procurement for peacekeeping operations".
The OIOS report concludes there is a "systematic failure" by management to take corrective action, leading to a "culture of impunity".
A censored version of the report - which omitted names of places, suppliers and staff - seen by SM
found instances of waste, overestimated budgets and "possible fraudulent activities".
It reviewed 27 major contracts totalling $1 billion over the past five years covering common items such as food, fuel and transport. Of the 24 peacekeeping missions currently in operation around the world, the report found procurement irregularities in seven of them.
Examining 27 major contracts, the OIOS found $110 million-worth of expenditure was "insufficient or lacking" justification; $61 million bypassed financial rules and procurement procedures, while mismanagement of vehicle parts resulted in losses of a further $46 million. And mismanagement of suppliers' performance bonds - a percentage of the contract value held in case the supplier does not perform - had potential losses of $36 million.
The report found indications of "bid rigging" and "favouritism" in five contracts worth $48.6 million awarded to a single supplier by one purchasing officer.
Lastly, it noted unclear payment terms in contracts resulted in overpayment of $7 million in a further two missions.
Furthermore, OIOS investigators found procurement officers failed to verify company documents, in accordance with UN rules, before awarding contracts to some suppliers.
The inside view
However, there is "strong disagreement" within the UN about the OIOS audit claims. Presenting the report to the security council last month, Mark Malloch Brown, who becomes deputy secretary-general from 1 April, said only a "small percentage" of the findings could be considered as leading to possible fraudulent activity.
He explained that "a big proportion" of the $300 million of waste and alleged abuse or fraud identified in the report was just "overbudgeting of resources".
"Not a penny was lost from the organisation," he added. "There is a much smaller percentage that, on the face of it, is extremely alarming and may at the end of investigations lead to charges against individual colleagues."
He warned the security council that officials "must not let politics get in the way of the difficult management task we have before us".
This is something Buxey believes may be particularly difficult for the UN.
"It must be seen to be working in an efficient and businesslike manner."
But, he cautions UN buyers face unique issues: "A chief procurement officer needs to make on-the-spot decisions every day to meet mission requirements. There are bad people in any organisation. I don't think the UN has any more than anyone else."
Insiders speaking to SM
under condition of anonymity admit that procurement, like any public organisation department, has its problems but they insist it is not corrupt.
Deloitte's survey of procurement staff found that lack of trust of the organisation's leadership and understaffing were their two greatest concerns.
A third of those surveyed by Deloitte did not feel confident in reporting a problem, complaint or ethical issue without suffering retaliation. And 85 per cent said procurement processes were not well understood across the organisation.
"Since Saunders left, procurement has been without leadership," a source says.
But even the investigation is treated cautiously. Saunders, along with other insiders, says that Deloitte's work lacked basic benchmarking or spend analysis and did not talk to purchasers outside headquarters.
He explains: "Most of Deloitte's suggestions for change were things that we had already identified and were in the process of implementing."
He says the issue of "lack of internal control" was not brought up either by internal or external reviews until the Deloitte report.
A source close to UN procurement says the Deloitte report did not accurately reflect comments made by people interviewed.
"Staff now distrust them and any future work they are undertaking," a reference to Deloitte's contract to undertake a forensic audit of procurement transactions carried out over the past two years.
And staff point to external endorsements of procurement in the past.
The Washington-based National Institute of Government Purchasing (NIGP) conducted a review of procurement's processes in June 2005.
It found that the department, in most cases, used best practice and had improved its standards over the previous five years.
In addition, the procurement department was internally audited roughly 50 times in the year ending August 2005. None of these audits raised any irregularities.
Damned either way
Peacekeeping staff often work in trying conditions. In the field, purchasers have to make difficult decisions, sometimes without any support from headquarters.
"Damned if you do, damned if you don't" is the golden rule of field procurement, according to Dominique Alhéritière, director of administrative services, which oversees procurement at the UN Food and Agriculture Organisation.
He cites an example of when he had to procure seed in a dangerous environment.
"None of the suppliers were willing to deliver seed in an unsafe area unless they had part of the payment upfront. The rules say you cannot pay in advance, so what can you do?
"You can respect the rules but then there will be no crop the next year, or you can take a risk and go ahead and, if you get it wrong, then take the flak.
"This kind of thing happens all the time in the field. And you very often don't have time to e-mail your boss to cover your back. Sometimes you are left alone and have to make a decision using your best judgment. In my experience management has been understanding of that."
And, according to Buxey, the rules written in headquarters don't always work for field situations. He explains: "If you map the headquarter manual over activities in the field it doesn't match up. This is where CPOs earn their keep, by making decisions that are in accordance as much as possible with the rules."
It is a problem that has been recognised by external auditors in the past. Saunders believes the existing rules and procedures, for the most part, allow officers to undertake good procurement in the field.
"There are certain rules that could be made more flexible but before you change these the UN needs to make a number of critical investments in staff.
"We also need to do more to empower our staff and keep pushing to improve the profile of procurement."
He believes procurement professionals are paid to make decisions based not only on the rulebook but also using their knowledge, experience and judgment, "otherwise you won't get best value for money".
He adds: "However, it is incredibly important to look at the context in which the decision was made."
Alhéritière says sometimes the UN operates in environments where "good governance may not be a priority or even encouraged".
Robert Hyland, anti-corruption policy adviser at the UK's Department for International Development (DFID), says governments and suppliers in some developing countries, particularly in post-communist nations, are often unfamiliar with tendering and other competitive western business practices.
DFID works to improve accountability and transparency in government and build up local business practice in 66 countries.
A former peacekeeping purchaser says procurement is often "forgotten" for inclusion in a mission start-up team, which is critical to the success of the operation.
To counter this, Saunders says he suggested the establishment of a "flying squad" of procurement experts who would be on standby to begin missions straight away. The idea did not win senior management approval because it was thought to be too expensive and it wouldn't receive political support from member states, he says.
In a drive to improve peacekeeping, Annan this month outlined plans to improve procurement services. They include the creation of a team, including procurement experts, able to deploy quickly to meet urgent peacekeeping needs and political missions.
History of warnings
This is not the first time that UN procurement has been the subject of criticism. Lack of formalised training and professional development of procurement staff has been a constant concern. A string of independent expert reports since 1994 have highlighted the need for more improvements in these areas.
In 2001, the European Union said it was concerned, as the second largest contributor to the UN, at the "lack of procurement planning and inadequate staff training".
Last October the US Government Accountability Office urged the UN to increase its procurement training budget.
Donna McCarthy, director of research and technical resource at the NIGP, says the review last June found that (despite its positive conclusions - see above) only three members of staff had professional procurement qualifications.
Hyland says the UN is not alone in its problems. It is imperative to have professionally qualified competent staff on the ground, especially in emergencies.
"Field procurement tends to be done by an administrator with a procurement manual. This is not a problem unique to the UN. Under pressure, unqualified staff often do not keep a paper trail of their processes. This causes problems when the auditors come in."
Jayantilal Karia, who is acting officer in charge of the UNPS and spent five of his 33 years at the UN on its Headquarters Committee on Contracts, says the department does not keep a record of professionally qualified procurement staff but aims to in the future.
He says training has been a "challenge" but a new in-house procurement certification scheme will begin in May. The programme will take five years to complete.
Figures from the NIGP show procurement has a $20,000 training budget for more than 70 people - or less than $300 per head.
The UN's disjointed e-procurement, IT systems and training problems are a microcosm of how the organisation functions and interacts as a whole, says Tony Gardner, head of procurement at DFID. He has worked closely with UN procurement, both at its headquarters and in the field, and is now working with Unicef on a global vaccine procurement project. Following the oil-for-food scandal, Gardner says DFID introduced new terms of reference and checks into the programme to ensure any signs of trouble were identified early and the UK taxpayer was getting value for money.
"The UN thanked us, because it made them review and scrutinise their processes."
Gardner adds: "It's time for the UN to take an inward look, and for procurement to be the subject of that."
He hopes the UN's procurement troubles will force management to focus resources on procurement so the function becomes, and is seen as, a credible, value-adding business process. "If that is the result, then all this may have been worth it."
And the secretary-general's review included a restructuring package for the whole of the organisation to make it more efficient. It proposes to outsource some administrative functions to save money, and cut procurement costs by 20 per cent through "better information sharing".
A report detailing the procurement reforms is expected in June. But change is already under way. Since September, the procurement department has been under interim management. Karia says changes are taking place to improve the service and ensure it operates transparently and gets value for money.
It has plans to instal integrated IT and e-procurement systems; to bring staff up to a professionally qualified level and review headquarters and field procurement procedures and rules.
"What the Deloitte study found is that the IT systems were not robust enough," says Karia. Until now, he adds, there were no "systems to detect fraud and corruption".
The study found that the current technology used by headquarters, field missions and finance often differ and are not fully integrated. In some cases, they act in isolation.
"The UN has known about the problem for 12 years," says Buxey, "but there was a lack of political will to do anything about it."
Karia says diagnostic programmes have now been installed to detect any "abnormal behaviour" in the procurement department.
But he claims the tendering process used by officers is very transparent.
"We have a secure bid room. We have technical bids and financial bids which are both in separate envelopes."
The technical bid is given to the requisitioner to evaluate and procurement staff assess the financial bids after the technical evaluation is completed.
The UN is now recruiting a permanent procurement chief to take on the unenviable task of leading the function as it embarks on a programme of reform. It is also recruiting up to 15 more staff to cope with the growing workload.
Karia says he is trying to reassure staff who, he acknowledges, are going through a difficult "change programme".
"We continue to communicate with them and pass on all messages to make sure they are all aware of the actions management is taking," he adds.
The UN has a long way to go to repair its image. Planned reforms may go some way towards that. But behind the headlines procurement staff continue to work under intense pressure to find goods and services to help those most in need. According to the UN's own buyers, the real scandal would be if the organisation again failed to heed past warnings and did not give the procurement the resources it deserves.