by Colum Lynch, Shabtai Gold at devex.com
An independent review found a breathtaking breakdown of financial oversight at a United Nations agency whose rapid expansion created a risky business model, a culture of fear, and “indications of fraud” in one of its marquee investment projects.
The auditing giant KPMG’s Finland office painted a damning portrait of dysfunction by top managers at the little-known U.N. contracting agency known as the U.N. Office for Project Services, or UNOPS, as it expanded its role into the high-stakes, and lucrative, world of impact investing, according to a pair of draft reports released.
The two KPMG reports detail how the management concentrated power at the top and dove into the riskier financing model despite a lack of know-how, accountability, and a slew of “red flags” about its questionable choice of investment partners. The reports also describe an intimidating atmosphere among UNOPS staffers, who fretted that dissent could result in their dismissal, and the complete breakdown of the U.N. whistleblower process.
“A culture of fear created an environment that allowed for management override of controls,” according to one of the reports. “The way of working by top management further indicates an abuse of power.”
“Interviews indicate that the whistleblowing mechanism was not functioning due to a lack of trust in the confidentiality of processing the complaints and fear of retaliation among staff,” the report added.
The revelations — which come in advance of a special session on Wednesday of the U.N. Development Programme, or UNDP, the U.N. Population Fund, or UNFPA, and UNOPS — are being disclosed several months after Devex first reported in April on irregularities in a UNOPS initiative called Sustainable Investments in Infrastructure and Innovation, known as S3i.
One KPMG review focuses on the failings of S3i, which was established by UNOPS to provide seed financing for private investments in affordable housing, and promote renewable energy and health infrastructure. The second review proposes structural reforms at UNOPS aimed at better managing risk.
“This is a positive step and I welcome the findings,” Acting UNOPS Executive Director Jens Wandel told Devex. “It is a necessary part of our commitment to a rigorous and comprehensive process to address any possible misconduct and mismanagement claims.”
After news broke out about the problems at UNOPS earlier this year, the United Nations said it would review the matter for any disciplinary action, including possible legal referrals “to relevant criminal authorities of one or more jurisdictions.”
High-risk expansion
The S3i program was the result of a new risk-taking strategy that UNOPS adopted.
UNOPS was established in 1973 and for years acted as a general contractor, managing and implementing infrastructure and procurement projects for the U.N. system, international financial institutions, and governments. The Copenhagen-based contractor had $1.2 billion in revenue in 2021, and carried out operations valued at $3.4 billion.
Unlike other U.N. agencies though, UNOPS’ funding did not come from donors; its income depended on fees from the customers who hired it.
The agency built up reserves from the fees, and while some reserves were clearly vital for a self-funding agency, the size of the money pile raised questions among U.N. member states and auditors.
In 2014, the mandate shifted so that in addition to performing practical services like building roads and buying office equipment, it began dabbling in investments.
“The changes were primarily driven by senior management’s ambition to increase the visibility of UNOPS and pursue a role in impact investing,” the KPMG report said.
“It is a necessary part of our commitment to a rigorous and comprehensive process to address any possible misconduct and mismanagement claims.”— Jens Wandel, acting executive director, UNOPS
Under the leadership of Grete Faremo, who was appointed executive director of the agency in 2014, UNOPS’ investment portfolio grew from $159 million in 2017 to $360 million in 2021, an increase of 126%.