Monday, July 23, 2018

Internal (OIOS) governance audit: Time for UN Pension Board members to step up to ensure accountability, integrity and ethical values, 23 July 2018

At the upcoming meeting in Rome from 26 July to 3 August, UN Pension Board members will be chewing over the OIOS (UN Office of Internal Oversight Services) comprehensive governance audit called for by the General Assembly under para. 8 of its res. 72/262  (now in provisional format pending editing and publishing --see summary of some of the audit's findings below).

The members of various Board factions must dig deep, access their higher selves,  move beyond self interest,  and work toward unified positions that place the collective interests of members above their own self interest.  

It'll be a challenge, not least in considering the composition of the Board, which the audit notes needs to be “fair and equitable …to reflect the actual distribution of active participants in the Fund”. Currently the UN family has 68 per cent  of active participants and only 36 per cent of voting members, while other members including Specialized Agencies, have 32 per cent of active participants and 64 per cent of voting members.

The Specialized Agency representatives must consider that having a majority of voices and a minority of Fund members works against the overall interests of the Fund and rise above any tendency toward illogic in thinking of the audit as a plot to deprive them of their surfeit of seats and influence on the Board.

FAFICS, the retiree representative organization, must find a way to move beyond its contentious and fallacious position that OIOS has “exceeded its mandate in attempting to interfere in the internal workings of an autonomous body” as well as the fiction that “it is not within the authority of the Pension Board or the General Assembly to establish requirements for retirees to select its own retiree representatives” which is the “sole prerogative of FAFICS”. The some 50,000 retirees and beneficiaries who are not members of, or may never have heard of, FAFICS, might tend to disagree.

The Board, including its Audit Committee, will have to face up to the fact that the audit corroborates and sets out the various findings of oversight bodies and internal audits over the past four years, concerning the myriad ways in which the CEO has used his dual position as Secretary to the Board to manipulate the Board and Audit Committee and try to make changes including to the structure of the Fund without consultation, and against the interests, of stakeholders, and the equal number of ways that the Board and the Audit Committee have failed to hold him accountable.  

The Audit Committee will have to own up to its failure to hold the CEO to account when he underreported the extent of the backlog; and when it accepted and submitted to the GA a report from a consulting company that gave a positive report on IPAS (the Fund's IT system) implementation, which was reflected in GA resolution 72/265, and which findings were subsequently contradicted by the Board of Auditors.

The Board must also accept the audit’s findings, and related recommendations, among others:

- that the Board  used the CEO’s s own self-evaluation as a basis for trying to push through his reappointment in 2016, and again in 2017;

 -  a lack of basic competency requirements or restrictions of conflict of interest in the Board members themselves;

- that the Fund failed to report, and abdicated all responsibility for, 15,000 cases in the backlog, because of missing documentation, on which it failed to follow up despite that task being among its responsibilities under the UN Staff Pension Committee;

- a lack of transparency and accountability on the part of the Board, and unnecessary control of information to Fund stakeholders;

- a lack of independence and impartiality on the part of the CEO when he accepted an award from a vendor that had previously employed him, and insisted on that vendor being contracted, incurring an additional commitment of $1 million beyond the lowest bidder;

- a  lack of integrity and ethical values represented by conflicts of interest in the selection and activities of senior Fund staff and three cases of verified retaliation against Fund staff;

 -  that there was deviation and arbitrariness in the process to select a replacement DCEO and that it needs to be redone;

- a lack of performance evaluation and succession planning for both the DCEO and the CEO.

We can expect the UN participant representatives to do their utmost to advocate for action, in response to the governance audit, that is in the interests of active staff and retirees and beneficiaries alike. But we should not underestimate the challenge they’re facing.

This is the moment for the Board to show that it’s capable of self-reflection and change, and get on board the effort to increase oversight and effective management of our Fund.

The General Assembly and its Advisory Committee on Administrative and Budgetary Actions (ACABQ), and the Secretary-General, who has ultimate fiduciary responsibility for the Fund, will get their turn. The findings of the governance audit are yet another indication that the tide of change is gaining momentum and will be ever more difficult to turn back. 

Summary of some audit findings

“The audit showed that the Board needs to strengthen its governance in critical areas such as: (i) fair and equitable representation of member organizations on the Board; (ii) entrusting its Standing Committee to provide more effective oversight of the United Nations Joint Staff Pension Fund’s operations; (ii) separation of functions of its Secretary and the Fund’s Chief Executive Officer (CEO) to ensure the Board’s independence from the Fund’s management; (iv) effective performance management to promote a culture of accountability; and (v) setting the appropriate tone with regard to integrity and ethical values.

The Board also needs to take additional steps including: (i) facilitating transparent and democratic representation of beneficiaries; (ii) retiring its Assets and Liabilities Monitoring Committee which duplicated the work of the Investments Committee and the Committee of Actuaries; (iii) ensuring that the Fund’s Secretariat utilizes resources in accordance with legislative decisions; and (iv) proper succession planning for the positions of CEO and Deputy CEO to allow adequate time for their competitive selection.”

Board competency

There are no terms of reference, competencies, and no limitations or restrictions to avoid conflicts of interest.

Board composition

Although the Board membership is 33 and decisions are to be taken by a majority of members present, the Board operates on consensus among a bloated number of almost 100 members and alternates.

The Board composition bears to resemblance to its actual membership. UN Specialized Agencies have one-third of active participants and two-thirds of board seats; the UN family has two-thirds of active participants and one-third of board seats.

Retiree representation and role of FAFICS

Among the audit’s findings are "FAFICS only represents 18,500 beneficiaries (approximately 25 per cent) out of a total beneficiary population of 74,788 as of 31 December 2016;  conflicts of interest between FAFICS representatives to the Board and the Fund management; a discrepancy (for the last two biennia) in the absorption by the Fund of the cost of six retiree representatives to attend each Board session instead of three as approved by the GA and the Board; the dissemination of erroneous information by the FAFICS president, including about the backlog in pension payments; electronic circulation to beneficiaries (including the vast majority who were not FAFICS members) by the Fund Secretariat of a letter from the FAFICS president of January 2018 that “gave the appearance of “collusion between FAFICS and the Fund’s Secretariat to challenge the authority of the Secretary-General and the General Assembly in governance matters of the Fund…”; and attendance of two retiree representatives to the meetings of Staff Pension Committees “which are essentially a forum for participants…. further increase[ing] the influence of FAFICS in the Fund’s governance structure.”

Frequency of Board meetings

The Board meets once a year for a week. It’s standing committee which is set up to meet while the Board is not in session, has a practice of meeting for a day while the Board is in session.  A lack of attention to governance issues has contributed to the problems which the audit was set up to address.

Role of the UN Appeals Tribunal

The CEO has pushed to assert primacy of Board decisions over those of the UN Administrative Tribunal, in contravention of Fund regulations.

Staff Pension Committee – the backlog

The Fund Secretariat receives $20 million each biennium for tasks that include follow up on missing documentation for UN family cases.  The percentage of cases with missing documentation for the UN SPC is 39 per cent compared to 13 per cent for the Specialized Agency Secretariats. Yet, in the face of a backlog of 15,000 cases,  the Fund continues to insist that follow up on missing documentation is the responsibility of member organizations.

Audit Committee

The Audit Committee needs to use a “higher standard in managing perceived conflict of interest situations” and ensure “adherence to higher ethical standards” including when the CEO accepted an award in contravention of the relevant UN administrative instruction; and when the Fund engaged an accounting firm to the tune of more than $100, 000 to produce a risk register which was never produced; and when it accepted the Fund’s management assertions that its non-implementation of OIOS recommendations was because it “had lost confidence in OIOS”.

Checks and balances between the Board and Fund Management- dual role of the CEO

The CEO’s dual role as Board Secretary and CEO allowed him to control the Board’s self-evaluation and information presented for his own performance evaluation;  to abolish the quality management policy set up to hold him accountable to the Board; to present proposals to alter the Fund’s governance by “ending the bifurcated structure” and “empower himself to amend the Fund’s administrative rules”; to attempt to empower himself to restrict the authority of the Board of Auditors; to present incomplete information by which the Fund’s Executive Office was dissolved, with payment of salary to two staff members ($2.4 million over almost three years) although they were no longer working for the Fund, without disclosing this information to the Board; to fail to recover renovation costs on unutilized office space for more tan two years, leading to a financial loss for the Fund of between $100,000 to 220,000 as of May 2018.

In 2016 the CEO presented to the Board a positive report on IPAS implementation prepared by a consulting firm improperly hired using a contract for accounting services, at a cost of $291,200.  The Board “reported the project’s success, which the Assembly welcomed (res. 71/265). A subsequent audit by the Board of Auditors found several problems with IPAS, including incorrect data provided to the actuaries “which led to unreliable actuarial valuation.”

The audit concludes that there is an excess of authority concentrated in the hands of a single individual, as CEO and Secretary to the Board, who controls the accuracy and content of information submitted to the Board and “significantly compromises checks and balances”.

Performance reporting

The Fund failed to report 15,000 cases in the backlog claiming that it “wasn’t responsible for them until all three documents were received”, while it was also failing to follow up on the missing documentation.

Performance evaluation of the CEO and Deputy CEO

In 2016, prior to its push for early reappointment of the CEO, the Board’s “bureau” did  a performance evaluation of the CEO based on the 2014-2015 cycle, which either excluded or failed to prioritize “clear deliverables and indicators…quality of core services, operational efficiency or implementation of critical projects” and his performance as Secretary of the UN Staff Pension Committee. “The evaluation relied significantly on a self-appraisal submitted by the CEO which understated performance issues such as delays in benefit processing and overstated achievements such as implementation of IPAS.” The performance of the Deputy CEO was never evaluated.

Culture, tone, and attitude of the organization

Under the heading of “culture, tone and attitude” of the organization, the audit found a lack of transparency and accountability, including unnecessary restriction against the sharing of documentation from the Fund’s stakeholders “who may not be assured of accountability if the required transparency and access to information is absent”.

Independence and impartiality

On “independence and impartiality”, the CEO accepted in 2016 an award from a vendor where he had previously been employed, which in 2012, the then CEO, i (when Arvizu was Deputy CEO) had contracted against the advice of the Headquarters Committee on Contracts, “which resulted in rejecting the lowest acceptable proposal and incurring an additional commitment of $1 million (OIOS report 2016/136).”

Integrity and ethical values

Under “integrity and ethical values”, the audit cites a number of cases of conflicts of interest in selection of staff, and actions by senior staff, and three cases of Fund staff where the Ethics Office had established that retaliation had taken place.

Resource distribution

Under “resource distribution” the Fund systematically used more resources for support functions than for its programme of work; Fund reorganization took place that prioritizes a legalistic rather than managerial approach toward risk and control;  there is a disproportionate number of senior level posts; and questionable use of temporary resources to fund senior-level posts.

Shortcomings of the search process

The audit cites “shortcomings of the search process” for replacing the Deputy CEO, Regarding a lack of succession planning,  “in light of deviations and apparent arbitrariness in the process” the audit recommends that the process be restarted. Under “succession planning” the audit cites a lack of timely and adequate performance evaluation of both the CEO and DCEO and succession planning despite adequate notice of the DCEO’s planned retirement, and the fact that the CEO was on extended sick leave. It calls on the Board to “ensure proper succession planning [for both positions] to allow adequate time for their competitive selection based on pre-established procedures.” 

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