by Loraine Rickard-Martin. This article originally appeared on PassBlue.
The United Nations Pension Board’s recent meeting in Rome ended with a record number of disagreements and much acrimony. The chief cause of distress was the results of the internal governance audit requested last December by the General Assembly.
At the meeting, held July 29 to Aug. 3, board members directed much of their angst against recommendations to adjust the makeup of the board of the $65 billion fund to comply with General Assembly resolutions. The resolutions called for fairer and more equitable representation of member organizations, given that the UN secretariat, funds and programs control only a third of board seats despite accounting for two-thirds of pension fund members.
One effect of the imbalanced representation has been to skew board decisions away from resolving issues affecting a majority of the fund’s members.
Board members, including the retiree representative organization (the Federation of Associations of International Civil Servants, or Fafics, which, the audit notes, has as members only 25 per cent of the total body of retirees and beneficiaries), also rebelled against the recommendation that retirees be accorded more transparent and democratic representation by directly electing their representatives. That is the case for active staff members.
The board rejected other recommendations, including to separate the functions of the chief executive officer and secretary of the board to address conflicts of interest and the lack of independence of the board from the pension fund’s management. The audit noted that Sergio Arvizu’s dual role as chief executive and board secretary allowed him to control information received by the board, including his own performance evaluations.
Arvizu had also abolished the quality-management policy set up to hold him accountable to the board; tried to alter the fund’s bifurcated structure, which keeps the fund’s investments out of the board’s control; amended the fund’s administrative and financial rules; and restricted the authority of the board of auditors.
Moreover, the audit found no terms of reference, competencies, limits or restrictions to avoid conflicts of interest for board members themselves; a lack of transparency and accountability in board procedures; a practice of consensus decisions by a bloated number of 93 members and alternates; and no succession planning for fund management.
Most alarmingly, the board moved to discredit the internal auditors (the UN Office of Internal Oversight Management) and decided to report OIOS, as it is known, to the UN’s Independent Audit Advisory Committee, apparently for unprofessionalism.
The governance audit was not the only issue of contention in Rome. The board was due to consider numerous operational audits done during the previous year, focusing on problems implementing the IT system in 2015 and irregularities in procurement management. However, it appears that the board’s audit committee did not share the studies with the board, so no accountability ensued.
The audit confirmed that Arvizu prematurely launched the fund’s new IT system despite existing critical problems, and failed to report, until January 2018, the 15,000 cases of backlogged pension payments.
In 2016, Arvizu presented the board with a positive evaluation of the IT system, prepared by PriceWaterhouseCoopers for $291,220. A later study by the UN board of auditors confirmed there were several problems with the system, including incorrect data provided to the actuaries.
The audit notes that in 2017 “an accounting firm” received $101,810 to review and update the fund’s risk register, yet there were no known deliverables on a risk register produced by the firm.
In fact, according to a previous audit on procurement mismanagement (OIOS 2017/110), the same vendor (identified as Vendor A) was contracted in 2016 for “accounting consultancy services” for $2.2 million.
The review of the IT system and review/update of the risk register were both done by the vendor outside the scope of the contract, as was an “end to end review” of pension administration for $1,396,633, or 61 percent of the total contract. (Only 21.8 percent of the total work, for “advice on statement of internal control,” fell within the scope of the contract.)
Moreover, the steps recommended by the end-to-end study, aimed at expediting benefit processing, reportedly coincided with suggestions made by fund staff members in 2012 and was rejected by the fund’s management before the new IT system was launched.
The board was also asked to select a new deputy chief executive, after the incumbent decided not to seek a second term. In the governance audit, OIOS had already noted “deviations” and “arbitrariness” of the search process. This included the salary and benefits advertised with the job vacancy being grossly understated, which may have affected the number and stature of applicants.
OIOS had therefore recommended that the search process be restarted. Perhaps uncomfortable with a looming management vacuum left by its own lack of succession planning and with Arvizu on sick leave for the past year, the board ignored the suggestion and chose a candidate to be approved by the UN secretary-general, António Guterres. The candidate, however, appears to fall far short of the 15 years of experience in a pension fund or social security system required by the UN job vacancy.
The board also took decisions that seem to provide no benefit to the fund’s members.
For example, it reportedly rejected a proposal to speed up benefit-processing time; voted to remove some of its actions from the purview of the UN appeals tribunal, apparently to disallow two fund staff members — who have been whistleblowers regarding fund mismanagement and won their appeal case last year — from sitting on the board as UN participant (active staff) representatives.
After the Rome meeting, board members have continued to push back against the audit recommendations and forged ahead with contrary actions.
The head of UN management, for example, has reportedly moved to prevent the UN participant representatives (with almost 85,000 active staff constituents) from using the UN internal broadcast system to inform their constituents about issues pertaining to the board meeting.
At the same time, the board chair described on Facebook that some of his fellow members were “in cahoots with nutcases.”
The next stop for the audit is the General Assembly, which has taken action, including calling for this latest audit, based on information from previous reports of UN oversight bodies and internal audits.
Guterres did so as well last October, when he replaced his representative for investments because of chronic underperformance in the fund. Last December, he also reappointed Arvizu for three years, instead of five, with his reappointment subject to oversight and evaluation of his performance after the first year — placing him on probation.
Fund stakeholders will be carefully watching the next moves of Guterres and the General Assembly regarding the audit.
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Originally published at www.passblue.com on August 27, 2018.