INTERNAL AUDIT DIVISION

AUDIT REPORT
UNEP project delivery arrangements via partnerships
Enhancing the regulatory framework for management of partnerships, centralization of partner selection, and financial monitoring of projects are key to successful partnerships

30 December 2010 Assignment No. AA2010/220/03

United Nations
INTEROFFICE OFFICE OF INTERNAL OVERSIGHT AUDIT MEMORANDUM SERVICES DIVISION INTERNAL

<I) Nations Unies
MEMORANDUM BUREAU DIVISION DES DE SERVICES l'AUDIT INTERIEUR DE INTERNE CONTRClE INTERNE DATE

TO A

Mr. Achim Steiner, Executive Director United Nations Environment Programme

30 December 20 I0
lAD: 10-

REFERET\CE

0 II 58

FRt>

Fatoumata Ndiaye, Director

I'-Y" Internal Audit Division, OIOS
SUBJECT OBJET

Assignment No. AA20101220/03 - Audit ofUNEP project delivery arrangements partnerships I. I am pleased to present the report on the above-mentioned audit.

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2. In order for us to close the recommendations, we request that you provide us with the additional information as discussed in the text of the report and also summarized in Annex 1. 3. Please note that OIOS will report on the progress made to implement its recommendations, particularly those designated as high risk (i.e., recommendations 8, 9 and 11) in its annual report to the General Assembly and semi-annual report to the Secretary-General. cc: Ms. Angela Cropper, Deputy Executive Director, UNEP Mr. Chris Kirkcaldy, Audit Focal Point, UNEP Mr. Swatantra Goolsarran, Executive Secretary, UN Board of Auditors Mr. Rohan Wijeratne, Board of Auditors Ms. Susanne Frueh, Executive Secretary, Joint Inspection Unit Mr. Jonathan ChilderIey, Chief, Oversight Support Unit, Department of Management Mr. Byung-Kun Min, Special Assistant to the USG-OIOS Ms. Corazon C. Chavez, Chief, Nairobi Audit Service, OIOS Ms. Amy Wong, Programme Officer, Internal Audit Division, OIOS

Form AUD·) 8 (2 Jaruary 2009)

INTERNAL AUDIT DIVISION

FUNCTION

'The Office shall, in accordance with the relevant provisions of the Financial Regulations and Rules of the United Nations examine, review and appraise the use offinancial resources of the United Nations in order to guarantee the implementation of programmes and legislative mandates, ascertain compliance of programme managers with the financial and administrative regulations and rules, as well as with the approved recommendations of external oversight bodies, undertake management audits, reviews and surveys to improve the structure of the Organization and its responsiveness to the requirements of programmes and legislative mandates, and monitor the effectiveness of the systems of internal control of the Organization" (General Assembly Resolution 481218 B).

CONTACT INFORMATION

DIRECTOR:

Fatoumata Ndiaye: Tel: +1.212.963.5648, Fax: +1.212.963.3388, e-mail: ndiaye@un.org
DEPUTY DIRECTOR:

Gurpur Kumar: Tel: + 1.212.963.5920, Fax: + 1.212.963.3388, e-mail: kumarg({vun.org

CHIEF, NAIROBI AlJDIT SERVICE:

Corazon C. Chavez: Tel: +254.20.762.5391, Fax: +254.20.762.4125, e-mail: Corazon.Chavez({l)ullon.org

EXECUTIVE SUMMARY
Audit of UNEP project delivery arrangements via partnerships
The Office of Internal Oversight Services (OrOS) conducted an audit of the United Nations Environment Programme (UNEP) project delivery arrangements via partnerships. The overall objective of the audit was to assess the adequacy and effectiveness of the policies and procedures for entering into partnerships. The audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing. UNEP engaged in a significant number of successful partnerships, including with Governments, national and international institutions, nongovernmental organizations and businesses in the private sector, enabling effective programme delivery. However, during the period under review, partnership arrangements were managed in a decentralized manner with inadequate controls to ensure compliance with existing policies and procedures and consistent reporting. An organization-wide corporate strategic approach for the identification of partners did not exist and a due diligence process for partner selection was not established. There were no controls to prevent from entering into unacceptable partnership, for example, for a commercial purpose or with a commercial entity. In several cases, the relationship was not a partnership but a consultancy, and should have been subject to a competitive process. Reports submitted by partners on the use of funds were not verified by Fund Management Officers, while disbursements to projects by UNEP were substantially made before commencement of project implementation. Furthermore, in some instances donor funds were not accounted for completely in the United Nations accounting system and were channeled directly to the partners, vendors or other beneficiaries. OIOS also identified the following issues which need to be addressed: • Delegation partnership of authority to Divisional and Regional agreements needs to be clarified; Director to sign

Criteria for determining the level of initial advances need to be established and documented; Financial reports on projects above an established be verified by independent auditors;

to partners

threshold need to

The requirement to file the Financial Disclosure and Declaration Interest Statements needs to be strictly complied with; and

of

A centralized database for management of partnerships needs to be established to enable sharing of best practices, lessons learned and other important information pertaining to partners between divisions and regional offices.

TABLE OF CONTENTS
Chapter Paragraphs

I. II. III. IV.

INTRODUCTION AUDIT OBJECTIVES AUDIT SCOPE AND METHODOLOGY AUDIT FINDINGS A. Regulatory B. Identification C. D. Implementation Information AND RECOMMENDATIONS

1-8 9 10

framework and selection of implementing and monitoring partners arrangements

11-33 34-43 44-60 61-66 67-68

of partnership

sharing and knowledge

management

E. Use of UNEP name and logo V. ACKNOWLEDGEMENT ANNEX 1 - Status of audit recommendations

69

I. INTRODUCTION
I. The Office of Internal Oversight Services (OIOS) conducted an audit of the United Nations Environment Programme (UNEP) project delivery arrangements via partnerships. The audit was conducted in accordance with the International Standards for the Professional Practice of Internal Auditing. 2. General Assembly resolution 60/2 I 5 defines partnership as voluntary and collaborative relationship between various parties and United Nations Agencies, which should be undertaken in a manner that upholds the integrity, impartiality and independence of the United Nations. The main purpose of partnership is to encourage participants to work together to achieve a common objective as mutually agreed and embodied in the United Nations Charter. United Nations agencies enter into partnerships to make concrete contributions in the realization of the Millennium Development Goals and other major goals contained in the Millennium Declaration as well as UN conferences and summits, particularly in development and eradication of poverty. 3. Given the limited physical presence of UNEP at the national and subregional levels, partnership is key to the delivery of its programme of work (Po W). Partnership contributes to capacity building and creating policy frameworks at national levels to share information. UNEP has eight functional categories of partners as follows: (i) scientific networks and institutions; (ii) policy advisory bodies, including national level institutions; (iii) out- and upscaling partners, including national level institutions; (iv) institutions skilled in capacity development; (v) development partners; (vi) investment partners; (vii) private sector; and (viii) civil society organizations. 4. In its quarterly programme performance reports for the biennium 20082009, UNEP consistently reported a significant performance for each of its six sub-programmes, with results often varying from 80 to 100 per cent of the expected accomplishments. UNEP has been working with a wide range of partners. Over the past several years, UNEP has engaged in a significant number of successful partnerships, including national and international institutions, universities, government agencies, Non-Governmental Organizations (NGO) and private sector entities, and contributed to enhancing institutional and technological capacity of developing and transitioning countries. 5. For the biennium 2008-2009, UNEP reported that "4000 companies introduced sustainable business and finance initiatives, policies and practices, based on principles promoted by UNEP and over 300 companies have committed to targeted action on climate change." It was also reported that the "Green Economy Initiative (GEl) has significantly raised the recognition of environmental investments' contributions to economic growth, decent jobs creation, and poverty reduction, including particular opportunities during the financial crises."

6. UNEP has seven divisions as follows: Division of Early Warning and Assessment (DEW A), Division of Environmental Law and Conventions (DELC), Division of Technology, Industry and Economics (DTIE), Division of Regional Cooperation (DRC), Division of Environmental Policy Implementation (DEP!), Division of Communications and Public Information (DCPI) and Division of Global Environment Facility (DGEF). From 2008 to June 2010, UNEP has entered into partnerships with over 750 partners (private sectors, NGO, Government) contributing to the project budgets over $65 million, according to the data compiled by each of its divisions. 7. Comments made by UNEP are shown in italics.

II. AUDIT OBJECTIVES
8. The main objective of the audit was to assess the adequacy and effectiveness of the policies and procedures for entering into partnerships.

III. AUDIT SCOPE AND METHODOLOGY
9. The audit covered partnership arrangements with the private sector and NGOs during the period from January 2008 to April 2010 and focused on the internal controls related to the identification and selection of implementing partners, project financial monitoring, and legal arrangement aspects of partnership agreements. The audit methodology comprised reviewing the relevant policies, guidelines and processes, interviewing UNEP staff, and reviewing partnership documentation for selected samples totaling $26 million (40 percent of all partnerships).

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IV. AUDIT FINDINGS AND RECOMMENDATIONS
A. Regulatory framework
Need to comply with the Guidelines and the Business Sector on Cooperation between the United Nations

10. The Guidelines on Cooperation between the United Nations and the Business Sector issued in November 2009 define key principles regardless of the "situation-specific nature of cooperative agreements". The general principles prescribe that: (a) the partners selected are not of a commercial nature and should carry out no commercial activities; (b) the private sector should not bestow unfair advantage and/or exclusivity to private business partner; (c) the Organization should not endorse any products, goods and services of the private sectors; and (d) the Organization should not accept any pro bono goods and services from the business sector, other than those provided for in the partnership agreements. II. However, the above principles were not adhered to consistently. In the selected samples, the partnership agreements included partners such as QM Consult, Emirates Airlines, Volvo, Canon, Microsoft, PUMA, Beijing Vantone Real Estate Co, Bayer, LG Electronics and others whose activities were of a commercial nature (though the project activities under the partnerships were not of a commercial nature). In case of LG Electronics, the agreement signed on 30 June 2009, included a clause of "exclusivity" in Annex I, stating that LG Electronics would be "the exclusive strategic partner of UNEP", which was not in line with the UN Guidelines on Cooperation with the Business. 12. The guidelines are too broad as they are intended for general use by the UN entities. There are no guidelines formulated specifically for use by UNEP. There is also a need to further clarify what constitutes a commercial contract as opposed to a partnership arrangement. The current guidelines do not outline key information to consider when determining whether the prospective partner should be identified as a "private sector" and hence treated in accordance with the commercial contractual procedures. At OTIE some Programme Officers stated that they could not define a partnership because most of their partnership agreements were of a contractual nature (paying for services). In addition, sometimes partnership agreements were used instead of commercial contracts to avoid the lengthy UN procurement process. 13. Given the significant reputation and financial risks associated with the selection of partners, it is critical to ensure that the proposed partnership arrangements meet the criteria and definition of a partnership established by the UN and UNEP.

3

Recommendation 1 (1) UNEP Administration should establish a review committee responsible for screening all proposed agreements with the private sector in order to determine whether the proposed activities satisfy the definition of a partnership. 14. was UNEP Administration accepted recommendation 1 and stated that there need for a more objective/independent screening mechanism.

a

Recommendation I remains open pending receipt of documentation showing that a review committee responsible for screening all proposed partnership agreements has been established. Need to update the project implementation manual

15. UNEP introduced seven types of legal implementing instruments for use in specific situations: the Letter of Intent (LOI), Exchange of Letters (EOL), Letter of Agreement (LOA), Memorandum of Understanding (MOU), Project Cooperation Agreement (PCA), Small-Scale Funding Agreement (SSF A), and Donation Agreement (DA). Most of these instruments were not included in the UNEP project implementation manual.

Recommendation 2 (2) UNEP Administration should update the project implementation manual to include all legal implementing instruments used by UNEP. 16. UNEP Administration accepted recommendation 2 and indicated that it would implement the recommendation by the end of the second quarter of 2011.
Recommendation 2 remains open pending receipt of evidence that the UNEP project implementation manual has been updated to reflect the legal instruments used by UNEP. Need to monitor use of small-scale funding agreements

17. The Small-Scale Funding Agreement (SSFA) is a simplified version of the PCA, and used when UNEP enters into partnership with NGO, local authorities, and transfers less than $200,000 to the partner/project. Under the current delegation of authority, Divisional and Regional Directors can sign SSF A not exceeding $200,000. For projects exceeding the established threshold, a PCA or MOU must be used. PCA is signed by the Chief of Corporate Services Section (CSS) and cleared by the Project Review Committee (PRC). 18. There was no guidance on cases where the cumulative amount of two or more SSF A signed with one partner during the same year for the same set of objectives exceeds $200,000. Therefore, there was a risk that the funding for the same partner may be split into several SSF A below the established threshold to avoid submission of a PCA for projects above $200,000. The sample testing for DTIE covered 27 per cent of SSFA and showed that during the year 2009, four

4

individual SSF A in the amounts of $25,000, $124,000, $41,680, and $90,000 totaling $280,680 were signed with the same partner and for the same set of objectives. The sample testing for DEPI covered 22 per cent of the SSF A and showed that two SSF A were signed with the same partner totaling $239,090. The sample testing for DELC covered 70 per cent of SSF A and showed that two SSF A were signed within a month with the same partner for the same objectives and activities for $56,772 and $166,790. While these situations could be exceptions dictated by specific circumstances, appropriate internal controls and guidance on how to handle such situations should be put in place to mitigate the risk of fraud. Recommendation 3

(3) UNEP Administration should ensure that all Small Scale Funding Agreements (SSFA) are approved by the Quality Assurance Section when the cumulative amount of SSFA with the same partner during the year exceeds $200,000.

19. UNEP Administration accepted recommendation 3 and indicated that the recommendation would be implemented by the end of the second quarter 0/2011.
Recommendation 3 remains open pending receipt of documentation showing that UNEP established a procedure for approval of SSF A by the Quality Assurance Section when the cumulative amount of SSF A with the same partner during the year exceeds $200,000. Need to clarify authority for signing project cooperation agreements

20. PCA are used when UNEP enters into partnership with NGO, local authorities and transfers more than $200,000 to the partner/project. Under the current delegation of authority, Divisional and Regional Directors can sign PCA, subject to prior clearance by the Chief of CSS. However, at the time of the audit, Divisional Directors could still not sign DA. Also, some PCA signed by Directors were returned to them because they did not have the authority to sign. Additionally, the current policy does not specify a maximum amount for PCA. This could mean that the full budget of a project may be allocated to a single partner. Recommendation 4

(4) UNEP Administration should revise the policy on partnerships and authorize Divisional and Regional Directors to sign Project Cooperation Agreements within the established limits, above which clearance of the Corporate Services Section should be sought. 21 . UNEP Administration accepted recommendation 4 but indicated that the appropriate body may be the Office 0/ Operations and not CSS alone. Recommendation 4 remains open pending receipt of evidence that UNEP policy on partnerships has been revised to include delegation of authority to Divisional 5

and Regional Directors to sign PCA, subject to an established ceiling above which clearance should be sought from the appropriate body, in accordance with UNEP programme accountability framework issued in April 2010. Essential information was missing in legal instruments

22. Agreements were missing essential information such as bank signatories, dates and signature of authorized officers. In a sample of 30 legal documents reviewed at DEP!, four legal instruments did not indicate the names of the bank signatories. At DTIE, seven out of 17 agreements signed in 2010 were not dated either by the partner or by UNEP. Similarly, ten out of 30 agreements signed in 2009 were not dated; and nine out of 30 instruments signed in 2008 were not dated. At DELC, three legal instruments did not indicate the bank signatories. 23. Additionally, in one partner agreement, where $112,500 (75 per cent) has been advanced, the names of the bank signatories were missing and the bank account details had been altered by hand. According to the Programme Officer, the implementing partner initially provided a Kenyan shilling account instead of a US dollar account, and the hand writing was a correction to that effect. Subsequent alterations, which are not verified and confirmed by both parties in an amendment to the legal instrument, increase the risk of fraud and may lead to misappropriation of funds. 24. Furthermore, in December 2008 one of the Divisional Directors signed a financial agreement with the United Nations Office for Partnerships (UNOPS) in the amount of $858,600. However, it is not clear whether the UNOPS financial agreement was signed by the appropriate official since per existing guidelines, Divisional Directors have the delegation of authority to sign SSF A not exceeding $200,000. Also, this type of agreement, which has been in effect since 2008, was not included among the list of legal instruments in the UNEP Policy on Partnerships and Guideline for Implementation approved in August 2009. 25. In addition, the delegation of authority for signing legal instruments gives Divisional and Regional Directors equal rights to sign SSF A. However, in situations where resources are received by the division as a result of fund raising activities by a regional office, there is a potential for disputes as to which Director has the authority to sign the agreement. For example, at DEWA, funds were received from the Government of Libya for activities to be implemented by the Regional Office for Africa (ROA). Under the circumstance, both Directors claimed authority for signing SSF A.

Recommendations 5 and 6 UNEP Administration should clarify the delegation of authority to Divisional and Regional Directors for signing legal instruments with respect to the use of funds raised by regional offices.
(5)

6

(6) UNEP Administration should issue a Standard Operating Procedure requiring that all subsequent amendments to legal implementing instruments are cleared by the Quality Assurance Section and signed by both parties. 26. UNEP Administration accepted recommendation 5 and indicated that the recommendation would be implemented by the end of the second quarter of 20 11.
Recommendation 5 remains open pending receipt of evidence that the delegated authority given to Divisional and Regional Directors for signing legal instruments has been clarified with respect to the use of funds raised by regional offices.

27. UNEP Administration accepted recommendation 6 and stated that the recommendation would be implemented by the end of the second quarter of2011. UNEP Administration further stated that there may be circumstances where central clearance is not necessary (i.e. simple extensions or non-substantive corrections - where rights and obligations are not affected by the revision in question). This point notwithstanding. the Quality Assurance Section (QAS) clearance should be secured prior to signature. Recommendation 6 remains
open pending receipt of a Standard Operating Procedure requiring that all subsequent alterations to legal implementing instruments are cleared by QAS, prior to signing by both parties. Contributions by partners need to be specified in the legal instruments

28. A typical partnership agreement should clearly identify contributions to the project by both parties to achieve the common goal. However, most of the legal implementing instruments signed by UNEP, especially those with NGO, institutions, and private businesses only indicate budgetary contributions made by UNEP but do not specify in-kind contributions expected from the partners. According to the Programme Officers, the objectives, deliverables and expected outputs are defined at the formulation of the project, and the assumption is that partners make in-kind contributions. However, this is not documented in the implementing instruments. Partners may therefore not feel legally bound to fulfill their commitment to the project objectives by making in-kind or financial contributions.

Recommendation

7

(7) UNEP Administration should revise the Policy and Guidelines on Partnerships and require that contributions by partners are specified in the legal implementing instruments and verified by substantive officers during progress monitoring. 29. UNEP Administration accepted recommendation 7 and indicated that the recommendation would be implemented by the end of the second quarter of2011.
Recommendation 9 remains open pending receipt of a copy of the revised UNEP Policy and Guidelines on partnership, requiring that contributions by partners are

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specified in the legal implementing officers during progress monitoring. Need to comply Statements with the Financial

instruments

and verified

by substantive

Disclosure

and Declaration

of Interest

30. The Secretary-General's bulletin ST/SGB/2006/6 on financial disclosure and declaration of interest statements requires staff members to file a financial disclosure or declaration of interest statements annually. The financial disclosure program is an important component of the mission of the Secretary General to maintain and enhance public trust in the integrity of the UN. The primary purpose of requesting staff members to submit financial disclosure statements is to identify and propose ways to resolve conflict of interest situations arising from their holdings (i.e. assets, investments) and/or activities. The reporting requirement was broadened by the Ethics Office to include staff members' spouses and dependent children, and those with access to confidential procurement or investment information. 31. In two instances the financial disclosure and declaration of interest statements requirements were not complied with. In one case, the declaration of interest form was not submitted by a UNEP partner employing the spouse of a senior staff member. In another instance, a staff member was a bank signatory of a partner. Potential conflict of interests, if undisclosed, could damage the reputation ofUNEP and lead to possible financial losses.

Recommendation 8 UNEP Administration should ensure that the requirements to file the Financial Disclosure and Declaration of Interest Statements are strictly complied with.
(8)

32. UNEP Administration accepted recommendation 8 and indicated that the recommendation would be immediately implemented. UNEP Administration also pointed out the need to request changes to, and clarifications from, the UN financial disclosure and ethics programme, because these policies do not directly address partnerships. Recommendation 8 remains open pending receipt of
evidence that all Divisional and Regional Directors have been requested to strictly comply with the requirement to file the declaration of financial disclosure and the dec! aration of interest statements.

B. Identification and selection of implementing partners
Need to document the identification of partners

33. An organization-wide corporate strategic approach for the identification of partners did not exist. This area was left to the discretion of the divisions, which in tum have often overly relied on individual substantive/programme officers. This approach bears the risk of selecting inappropriate partners, and ultimately may lead to poor project implementation and financial losses. At DTIE Paris and its Chemical Branch in Geneva, some programme officers 8

selected implementing partners based on their prior working experience. Calls for proposals from NGO are not used in most cases. The tendering process is done for technical competence only. 34. Programme officers in other divisions explained that they identify their prospective partners through informal communication with colleagues, internet searching and calls for expression of interest. However, these processes were not documented. According to DTIE, considerations such as geographical distribution of partners for capacity building are not always taken into account given the small number of potential organizations in the highly specialized network. According to programme officers in other divisions, partnership proposals are also initiated by prospective partners often seeking funding from UNEP (which sometimes made UNEP appear as a donor as opposed to a partner), or proposed by governments, and in few instances imposed by donors or governments. Due diligence for the selection of partners needs to be documented 35. According to the Guidelines on Cooperation between the United Nations and the Business Sector issued in November 2009, "partner selection will be subject to due diligence processes established by the UN entity considering the partnership." However, UNEP has not yet established a due diligence processes for the selection of its partners, especially those in the private sector. While its current policy and guidelines incorporate criteria for the selection and approval of partners, these were broad and general, and were meant to be used by the Programme Approval Group (PAG) and Project Review Committee (PRC). 36. However, currently PRC is only involved at the project design phase, at which time partners have either not been identified, or if identified, are different from those actually selected for project implementation. In fact, the project is reviewed by PRC at a stage where the budget is often not available but approved in advance pending the receipt of funding arising from fund raising activities. Moreover, the guidelines do not require that once the funds are secured, the proposed partnerships must be submitted to and reviewed by PRC. Consequently, the actual and final selection of partners is made at the division level. 37. The selection of partners and the due diligence process was not documented. The selection criteria and actual selections are often decided by the substantive officers, and the criteria used vary from division to division. In the absence of a UNEP-wide policy and practical guidance, programme officers/managers mostly rely on their own knowledge of the partner or on informal communication and internet searching. 38. In addition, appropriateness of the decisions to select certain implementing partners was not clearly justified. For example, Copenhagen Resource Institute, a non-profit consultancy firm, was engaged to conduct studies and analyses within the field of sustainable consumption and production. The partnership agreement in the amount of $32,060 was signed with this firm. However, it was unclear why a commercial contract was not used to procure this 9

type of services. In addition, an agreement was signed with QM Consult for the amount of $72,000. Although this entity was registered as an NGO, the activities undertaken by the partner were of a consultancy nature and as such the selection should have been made through the normal procurement process, including competitive bidding. 39. Further, the basis for the selection of ZOI Environment Network, an NGO which was founded by a former UNEP Centre staff was not documented. The firm was formed in 2009 as an NGO with no prior experience. Also, the nature of its work is essentially consultancy services for UNEP. The firm's physical location is on the same premises as UNEP/DTIE in Geneva. This combination of factors could raise concerns over the transparency of the selection decision, which could be viewed as preferential treatment. 40. SSFA was signed with an NGO, PROSUD-K for $130,000. Although this NGO was incorporated in Kenya with activities limited to Kenya only, the agreement called for activities to be undertaken in the Democratic Republic of Congo. The actual arrangements consisted of providing the funds to this partner, which would in tum provide funding to a UNEP project representative in Congo for direct implementation of the activities. This blurred the distinction between partnership and project self-implementation by UNEP. 41. The lack of a documented due diligence process for selecting implementing partners not only increases reputation risk, but may result in the selection of inappropriate partners and poor programme or project implementation. Furthermore, the selection of an implementing partner should be a transparent process resulting from a concerted analysis by a committee established at the division level.

Recommendation 9 (9) UNEP Administration should develop a UNEP-wide corporate strategic approach for the identification of partners and establish a due diligence process for partner selection. 42. UNEP Administration accepted recommendation 9 and indicated that the recommendation would be implemented by the end of the second quarter of 2011.
Recommendation 9 remains open pending receipt of documentation showing that UNEP-wide corporate strategic approach for the identification of partners has been developed and that a due diligence process for partner selection has been established.

C. Implementation and monitoring of partnership arrangements
All deviations from the legal templates need prior approval

43. The guidelines require that all legal instruments that deviate from the standard agreement templates must be submitted to QAS for prior review and 10

clearance. Further, all legal instruments with strategic or corporate level implications must be referred to the Executive Director or Deputy Executive Director through QAS. Deviations in exceptional circumstances are permissible subject to review and approval by QAS. However, in the selected sample exceptions noted in the agreements with Bayer, LG Electronics and Thomson Reuters Foundation were not justified. Thus, approval and sound legal advice on deviations was not always sought or provided as required. 44. At DCPI, agreement with Thomson Reuters Foundation was referred to as "License", which was not part of the UNEP standard legal instruments. The agreement, which expires in 2012, licenses Thomson Reuters Foundation to directly publicize products consisting of UNEP news stories on its humanitarian website, AlertNet. It was not clear why a standard legal instrument was not used instead. Furthermore, agreement with LG Electronics, in addition to the clause of exclusivity, stated that LG Electronics could issue a joint press release using UNEP letterhead. According to DCPI, this was an error and that an amendment was being prepared. In both instances, there was no evidence of prior consultation with QAS. 45. Unauthorized deviations from standard legal templates may result in legal issues for .UNEP and may lead to significant financial losses. In view, there is a need to further strengthen the control functions by QAS. Also, accountability by divisions needs to be established for non-compliance with legal advice regarding regulations, rules and related policies and procedures.

oros

Recommendation

10

(10) UNEP Administration should ensure full compliance with the use of legal templates and to seek advice from the Quality Assurance Section on any deviations, which should be documented and kept in file. 46. UNEP Administration accepted recommendation 10 and indicated that the recommendation would be implemented by the end of the second quarter of 2011. Recommendation 10 remains open pending receipt of evidence that
Divisional Directors have been requested to strictly comply with the use of legal templates and to seek advice from QAS on any intended deviations. Fund raising activities need to be better monitored 47. At DCPI, the selection process of partners such as Bayer, PUMA and Volvo was not documented. Also, in the case of Volvo, the benefits to UNEP were not evident. For Bayer, the funding arrangements and the financial implementation of the activities were ambiguous and not in line with other standard funding arrangements. Under the first MOU, Bayer was to provide Euro 1 million per annum, commencing in 2004, whereas UNEP was to provide in-kind contributions to the project. Also, ajoint Steering Committee comprising of an equal number of representatives of UNEP and Bayer was to be established to oversee the agreement implementation. However, the Steering Committee was not formed and its membership was not established. Moreover, neither the MOU 11

nor any other document specifies allocation of funds and distribution of activities between the organizations implementing the project. In addition, the receipts and disbursements of the funds provided by Bayer were made outside the UN accounting system. 48. Bayer provided Euro 1 million annually from 2004 and raised this amount to Euro 1.2 million annually starting from 2008. The funds were channeled directly to the various partners/vendors or beneficiaries, upon instruction by OCPI staff, and in some instances included travel costs of OCP! staff. According to the Chief of Outreach Unit, the rationale for sending the funds directly to partners and suppliers was to avoid the cumbersome UN process. A written communication from Bayer, dated 3 May 20 I 0 addressed to the OCP! Chief of Outreach Unit, confirmed the understanding between the two parties that the purpose of the scheme was to "enable UNEP to focus on the substantive work" and to "help reduce the number of administrative processes." Further, there was no evidence that such practice was cleared by QAS or approved by the Executive Office. These arrangements were not in compliance with UNEP policy and the relevant UN rules and regulations. Such arrangements may negatively affect UNEP reputation in its ability to manage donor funds and should be discontinued immediately. 49. OCP! could not substantiate the overall amount disbursed for the activities either led by UNEP or Bayer. However, out of the total funds provided by Bayer, only Euro 297,000 was recorded by UNEP. The funds were allocated to OCP! regional offices upon instructions from OCP! staff. According to the Chief of Outreach Unit, the funds were allocated to cover activities in the regional offices, but two out of six regional offices did not undertake the activities. There were, however, no records from the regional offices to account for the utilization of these funds.

Recommendation 11 (11) UNEP Administration should immediately discontinue channeling donor funds outside the United Nations accounting system directly to the partners, vendors or other beneficiaries. Division of Communication and Public Information should provide a detailed account of the total funds received from Bayer and their actual utilization; and accountability should be established if part of the funds were used for unauthorized purposes. 50. UNEP Administration accepted recommendation 11 and stated that the revised partnership agreement with Bayer clearly states that all funds for UNEPled activities will be credited to UNEP accounts. In respect of the second sentence of this recommendation, UNEP is fully cooperating with the ongoing OIOS investigation. It is hoped that this investigation will address this requirement. Recommendation II remains open pending receipt of the revised
agreement with Bayer clearly stating that all funds for UNEP-Ied be credited to UNEP accounts. activities will

12

Need for independent verification of project financial reports 51. The UNEP Policy on Partnerships and Guidelines for Implementation require that UNEP reviews its progress in working with partners bi-annually based on the information contained in the organization's six-monthly progress reports at both project and programme framework level. However, expectations in terms of progress and financial monitoring at the division level were not outlined. This resulted in each division having its own practice in this area. In most cases the monitoring of financial and performance was not documented. 52. Implementing instruments have a clause requiring submission of financial reports. However, financial reports submitted by the partners were often a copy of the budget provided by UNEP with unspent balances or overdisbursements. According to the fund management officers (FMO), the financial reports are not always verified. The reports are often accepted "as is" and deemed satisfactory, so long as the substantive officers made the requests for payment, certifying that the project outputs are satisfactory. 53. Lack of proper financial monitoring increases the risk that the financial statements may not reflect the actual project expenditures and possible misuse or misappropriation of funding by the partner may go undetected. While financial checks on each and every financial report may not be feasible, UNEP may benefit from requiring external audits of agreements above $200,000, which would be funded by the project. Such practice has been successful in other agencies working with implementing partners, such as UNHCR. Recommendation 12 UNEP Administration should include a clause in legal instruments requiring external audits of all projects above an established threshold.
(12)

54. UNEP Administration accepted recommendation 12 and indicated that the recommendation has been implemented. Recommendation 12 remains open pending receipt of documentation showing that a clause has been included in UNEP legal instruments, which requires external audits of all projects above an established threshold. Level of operational advances to partners should be based on prescribed criteria 55. Installments to implementing partners is a working advance and should be made on the basis of key factors, such as satisfactory prior working experience with the partner, type of activities, etc. However, the decision on the initial advance was left to the discretion of substantive officers, in the absence of any specific guidelines in this area. In many of the divisions reviewed, the initial advance was almost always 75 per cent of the agreed budget, regardless of whether the partnership was new or not. Also, there was no documentation justifying the need for significant initial advances. In some instances, the total budget amount of $200,000 was advanced to the partner upon signing the agreement. For example, the full budget of $200,000 was advanced in one
13

installment on the SSF A signed on 28 August 2008 with the Ministry of Environment of Mali. Not only was this amount above the authorized threshold for SSF A, but also it was not clear how the division would ascertain whether the project achieved its objectives, since the money was just an initial contribution to a bigger fund raising that the Ministry was seeking to implement its project. 56. This practice bears considerable risks of loss of funds in the event of poor performance by the partner. For example, at DEWA, funds were provided to the Ministry of Environment in Gabon, but the activities never took place and no outputs were delivered. At DTIE, an SSF A was signed in December 2009 with the Energy Research Institute, a partner located in South Africa, with an initial advance of $40,431 made in February 2009. However, more than a year later the project implementation had not started. As a result, no further installments were made to the partner but there was no documentation supporting the reasons why the project was not progressing as expected. According to DTIE, despite the significant delay caused by the partner the project was going to resume.

Recommendation

13

(13) UNEP Administration should issue a guideline on the criteria to be used by divisions when determining the level of initial advances to partners and require that any exceptions are documented. 57. UNEP Administration accepted recommendation 13 and indicated that the recommendation would be implemented by the end of the second quarter of 2011. Recommendation 13 remains open pending receipt of a copy of the
guidelines on the criteria to be used by divisions initial advances to partners. Expired projects and agreements need to be closed when determining the level of

58. UNEP has several expired projects and agreements, which were not yet closed because their respective balances were still held in the books pending receipt of the final reports. Outstanding obligations for the expired projects and agreements ranged from approximately $30,500 to $] ,023,890 with some dating as far back as 2004. The above balances were re-obligated from year to year to hold the funds. This is contrary to the UN Financial Regulations 5.2 - 5.4 and UN Financial Rule 105.8, which states that appropriations shall be available for obligation for the financial period to which they relate and shall remain available for twelve months following the end of the financial period, after which such obligations should be surrendered. Long outstanding receivables may increase the risk that the funds disbursed to implementing partner may be lost due to poor or non-implementation of the project. Also, delays in closing expired projects and agreements may negatively impact ability of UNEP to manage donor funds and successfully and timely complete project implementation.

14

Recommendation

14

(14) UNEP Administration should review the status of the outstanding project balances and take appropriate steps to close expired projects.
59. UNEP Administration accepted recommendation 14 and indicated that the recommendation would be immediately implemented. Recommendation 14 remains open pending the receipt of documentation showing actions taken to close expired projects.

D. Information sharing and knowledge management
Need for a centralized project database for management of partnerships

60. In its sixtieth session, the General Assembly adopted a Resolution in which it "encourages the relevant United Nations organizations and agencies, as well as the Global Compact Office, to share relevant lessons learned and positive experiences from partnerships, including with the business community, as a contribution to the development of more effective United Nations partnerships." UNEP Policy on Partnerships and Guidelines for Implementation also stressed on its needs for information sharing and knowledge management through an integrated project database that feature partnership as well. 61. However, UNEP does not have a centralized database for management of partnerships. Currently, the divisions manage their partnerships without any guidance and consultation with other divisions. In most cases, individual project staff/substantive officers had their own filing and archiving system, making it difficult and time consuming to obtain consolidated data on partnership. Lack of a consolidated and comprehensive database prevents UNEP divisions and regional offices from sharing best practices, lessons learned as well as important information pertaining to partners like prior working experience with other divisions, types of activities, and quality of work. Also, there is a risk that divisions might use partners who had prior unsatisfactory performance. 62. In addition, there is no UNEP-wide archiving policy and system. OCP! has its own archival system but no specific staff is assigned for the system maintenance. According to OCPI, it is not mandated to carry out archival duties for UNEP as a whole. Lack of information retention policy increases the risk of institutional memory loss.

Recommendation

15

(15) UNEP Administration should develop a centralized database for management of partnerships and issue a UNEPwide archiving policy and procedures clearly identifying the overall responsibility and custody for information management.

IS

63. UNEP Administration accepted recommendation 15 and indicated that the recommendation would be implemented by the end of the second quarter of
2011. Recommendation 15 remains open pending receipt of documentation showing the establishment of a centralized project database and the UNEP-wide archiving policy and procedures clearly identifying the overall responsibility and custody for information management. Lack of mechanisms to obtain feedback on project performance

64. UNEP does not currently have a mechanism for obtaining information from its partners on their satisfaction, successes, challenges and wishes, to capture best practices. Also, there is no forum for partners to provide collective feedback on their operations and experiences in carrying out and helping UNEP fulfill its mandate. As part of good practices, partnership satisfaction surveys should be conducted with key partners periodically to assess the quality of the partnership arrangements. This will help UNEP to better align itself with best practices and boost its reputation as the leader in environmental matters.

Recommendation 16 (16) UNEP Administration should establish a mechanism for obtaining collective feedback from partners on project performance. 65. UNEP Administration accepted recommendation 16 and indicated that its implementation is ongoing. Recommendation 16 remains open pending
confirmation by UNEP that mechanisms have been established. for collective feedback from partners

E. Use of UNEP name and logo
66. There is no policy governing the use of the name and logo of UNEP by partners. Moreover, there is no officially designated authority with the power to grant authorization for the use of the name and logo. In practice, DCP! has been receiving approval requests from other divisions. DCP! explained that they inherited this approving authority about 15 years ago from the Department of Public Information and it was intended for the publishing activities. However, this arrangement is not documented. In OIOS view, lack of oversight on the use of the name and logo of UNEP may lead to inappropriate and unauthorized use and negatively affect the reputation of the organization.

Recommendation 17 (17) UNEP Administration should formally designate an appropriate division with the power to grant authorization for the use of the name and logo of UNEP. 67. UNEP Administration accepted recommendation 17 and indicated that the recommendation would be implemented by the end of the second quarter of
2011. Recommendation 17 remains open pending receipt of documentation 16

showing that an appropriate division has been formally designated with the power to grant authorization for the use of the name and logo ofUNEP.

V. ACKNOWLEDGEMENT
68. We wish to express our appreciation to the Management and staff of UNEP for the assistance and cooperation extended to the auditors during this assignment.

17

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