Donors demand accountability in UNOPS scandal

The United States and other wealthy donors called for further investigation into allegations of fraud and mismanagement in a multimillion-dollar, United Nations-backed investment project, and demanded the United Nations hold current or former U.N. officials accountable for wrongdoing and recover millions of dollars in lost funds.

The demands were made at a special U.N. session dealing with the United Nations Office for Project Services, or UNOPS, a contracting agency that has faced allegations of possible fraud in a program, dubbed the Sustainable Investments in Infrastructure and Innovation, or S3i, initiative, designed to provide affordable housing, renewable energy, and health infrastructure in lower-income countries.

Wednesday’s meeting of the executive board responsible for oversight of the United Nations Development Programme, the United Nations Population Fund, and UNOPS — which all fall under the same oversight umbrella — was reviewing two draft reports by the Finnish branch of the accounting giant, KPMG, that found “indications of fraud” and a massive breakdown of financial oversight in S3i.

The reports painted a particularly damning portrait of UNOPS leadership, contending that it abused its power and created a “culture of fear” that dissuaded staff from challenging management to override the agency’s lax oversight policies. It alleged that UNOPS ignored numerous “red flags” about S3i, including a complaint by a whistleblower who claimed that contracts were overwhelmingly going to a single partner without competitive bidding or a proper vetting system.

“We demand full accountability, including individual accountability,” said New Zealand’s U.N. ambassador, Carolyn Schwalger, speaking on behalf of more than 20 donor countries, including France, Germany, Japan, and the United States.

“It must be made absolutely clear that within the U.N. there is zero tolerance for inaction towards fraud,” she noted.

Schwalger added that the “resignation of any staff member should not prevent a full investigation into their action during employment at UNOPS, and if criminal activity is suspected, we expect UNOPS to pass on information to the appropriate law enforcement authorities.”

S3i was UNOPS’ first foray into the potentially rewarding but risky world of impact investing. The once-sleepy agency was essentially a general contractor to its fellow agencies, national governments, and international institutions providing infrastructure, project management, and other practical services.

As a self-funding agency that made its money off fees from its customers, UNOPS was able to accumulate a large pot of reserves, which donors had criticized as excessive. In 2014, its leadership decided to switch gears to dabble in investments in an effort to do more with less by leveraging private dollars and, according to one of the KPMG reports, raise the profile of the agency. It plowed more than $60 million into S3i as part of that effort despite what the report says was a lack of experience and a multitude of red flags. The entire project stalled and UNOPS found itself owed millions of dollars.

Jens Wandel, the acting executive director of UNOPS, was appointed by U.N. Secretary-General António Guterres in May to lead the reform of the organization after the allegations. In opening remarks to the executive board, Wandel pledged to implement most of KPMG’s reform recommendations and acknowledged the need to oversee a “cultural change” at UNOPS. He also vowed to overhaul the agency’s whistleblower protection.

The United Nations Office of Legal Affairs, which is spearheading the effort to recoup lost funds, has brought in outside counsel with expertise in the field to help recover money. Wandel noted that only Guterres had the authority to lift the diplomatic immunity of U.N. personnel to face prosecution. But he expressed optimism that the U.N. chief would do what was necessary to get to the bottom of it.

Abdoul Dieng, who was appointed UNOPS’ new director for internal audit and investigation in May, was noncommittal about any plans for an additional investigation into wrongdoing, noting that he planned to travel to Finland to meet with the authors of the KPMG reports and determine if they have further evidence of wrongdoing.

“The question is ‘will I consider any forensic audit in the future?’” he said, noting that he has read the KPMG reports five times and found no hard evidence of “financial misconduct flagged in this report.” If the KPMG auditors can provide only “hearsay” that misconduct has occurred, “I might take the decision not to go forward and hopefully you would accept my independence.”

Dieng added that in addition to his mandate to carry out audits and investigations, he is also charged with advising UNOPS. He suggested he may end up advising UNOPS on how to avoid a further financial misconduct crisis than going for a “vague investigation with vague result.”

The troubles at UNOPS came to light earlier this year, after former U.N. official and blogger Mukesh Kapila and Devex exposed allegations of wrongdoing in the program.

The former head of UNOPS, Grete Faremo, resigned on May 8, acknowledging that failures “occurred under my watch and I acknowledge my responsibility and have decided to step down.” Her deputy, Vitaly Vanshelboim, who also served as chief executive of the S3i initiative, was placed on “administrative leave due to an investigation into possible misconduct” by the United Nations Office of Internal Oversight, or OIOS.

While delegates expressed appreciation for Wandel’s efforts to try to rebuild donor trust in UNOPS, noting the decision to remove most of the agency’s top management team, they made it clear they expected the U.N. to go further.

Sweden’s U.N. ambassador, Anna Karin Eneström, highlighted “the importance of retrieving the missing funds to show that the U.N. system will go the extra mile, and beyond, to secure and safeguard public funding.”

Chris Lu, the U.S. ambassador for U.N. management and reform, reiterated his call for the U.N. leadership to release the investigative report into the case by OIOS to member states. “More than six months after the OIOS report went to the [U.N.] secretariat it is absurd that we are still in the dark about what is in the report and what action has been taken in response to the report.”

“Without access to this report [to] member states in our respective capitals, we cannot be assured that full accountability is being proactively pursued by the U.N. System.”

Some low- and middle-income countries expressed concern that the findings would result in a withdrawal of donor assistance to other UNOPS programs, which they believe are beneficial.

The executive board, said Kenyan U.N. Ambassador Martin Kimani, must “desist” from the temptation to trigger a “systematic withdrawal of funds” from the U.N. agency.

While he acknowledged that the S3i program had “brought reputational and financial harm” to the United Nations, he added that “UNOPS is not synonymous with corruption.”

“We cannot afford to hypercorrect or overreact,” he said.

Correction, Dec. 1, 2022: This article has been updated to clarify that the S3i initiative received $60 million, not $60 billion.