An introduction to financing the United Nations

An introduction to financing the United Nations

The United Nations must be held to the same standards as other organizations of its size. These are legal, accounting, regulatory and transparency standards. It is problematic that at the United Nations, almost two decades into the twenty-first century, is not yet operating to the standards that the rest of us are required to. But I believe that the United Nations can change, and that it will do so.

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By Matthew Parish

This is an unusual article about finance, because it begins with the rider that every figure contained in it is almost certainly wrong. That is because nobody understands precisely how the United Nations is financed: absolutely nobody. If you do not believe me, consider that within barely three months at the end of 2017 / beginning of 2018, two highly-regarded Washington, DC NGO’s published papers calculating the size of the US’s annual contributions as within a 40% divergence of one-another.

There are many reasons why nobody can agree how much money the United Nations actually consumes each year. I shall begin by listing some. They are important. That is because there is now a focus upon making the United Nations more accountable, and ensuring the money contributed towards it is better spent. That includes tackling the UN’s acknowledged corruption problem. We cannot address these issues unless we understand better the finances of the United Nations.

There are two types of contribution to the United Nations Organization that any member state may pay. One is variously called “core”, “assessed” or “mandatory” contributions. These are assessed on a “percentage of a whole” basis for each member state. The percentage for each member state is based upon a complex formula which takes into account Gross National Income and population. But the matter is confused by the fact that the calculation for each member state of its Gross National Income and population size is set by the United Nations based upon information provided by the governments of each member state, who do not use the same assumptions as one-another in providing these figures.

The formulae are then applied to a series of figures set every other year by the various branches of the United Nations Organization (its Secretariat, its General Assembly and its Economic and Social Council). A number of details of the application of the GNI/population formulae are hidden from view to the greatest possible extent from the general public. So even if a relentless squirrel were to discover the amount that each member state pays in core contributions to the United Nations, they would not be able to work out how these sums were calculated.

On top of this, there are a series of so-called “voluntary” contributions to the United Nations, also sometimes referred to as “earmarked” or “tied” contributions, although even then these terms elide are more complex reality. These are contributions that the United Nations Charter does not itself oblige member states to pay for the operation of the United Nations Organization. Instead these are contributions that member states have agreed to pay into the organization through collateral legal instruments of various kinds. Typically it has been agreed that these would be paid for specific purposes, hence their being regarded as “earmarked”. But earmarking comes in degrees.

Some so-called voluntary funds are not truly earmarked at all. In practice the terms upon which these funds are contributed are so ambiguous as to amount to just another form of core funding, albeit paid pursuant to a distinct legal instrument. On the other hand, some funds are subject to such intense earmarking that rules may be set about matters as strict as procurement origins. In other words, funds may be donated to the United Nations by a member state A on the terms that much or all of the procurement for a UN-managed project that the funds are intended to fund must be tied to companies with various types of relationship of ownership, incorporation and the like with state A. Moreover as a practical matter, even if the funding instrument does not say so explicitly then the key management staff on the project administering the tied funds may need to be subject to the approval of state A. The discretion of the United Nations may be so limited that the United Nations serves as little more than a bank plus human resources facility.

The foregoing are all observations about the United Nations Organization, which itself is a single legal entity albeit one with many subdivisions. Consider for example the various Economic Commissions. For example there is one for Europe based in Geneva, and another one for Africa based in Nairobi. These are good examples of institutions subject heavily to tied funding. These institutions are often treated as though they were separate legal entities, but in fact they are no such thing and instead they are part of the United Nations Organization. Then there is a horde of other UN specialised agencies, each of which do have their own separate legal identities. These include the “United Nations Office of the High Commissioner for Refugees”. This is a separate legal entity, even though its title sounds as though it is named after a single individual office-holder, and hence it might actually be part of the United Nations Organization. Then there is the World Intellectual Property Organization, which collects the majority of its budget from private patent applicants. The Food and Agriculture Organization of the United Nations is another UN entity with a separate legal entity. There are a multitude of others.

Each of these organizations, in their founding documents, likewise contains provisions for core funding by each of their member states. In some cases these organizations follow the same formula as does the United Nations Organization for their core funding requirements. In other cases they follow quite different ones. One top of this, each such organization receives so-called voluntary contributions (i.e. contributions made by individual member states) as well, which may be ear-marked to a greater or lesser degree just as may voluntary contributions to the United Nations Organization.

The confusion does not stop here. On top of all of this, there are a series of arrangements often called “partnerships”. An example of this is the International Trade Centre, an UN agency based in Geneva that is putatively a partnership between the United Nations Conference on Trade and Development (a UN agency without separate legal personality) and the World Trade Organization (a UN agency with separate legal personality). Hence in legal terms, the ITC is a partnership between the United Nations Organization and the World Trade Organization. By the term “partnership” it is meant that the ITC receives funds from both the United Nations Organization and the World Trade Organization, for whatever the ITC does. However it is also possible for states to make more specific (core or voluntary) contributions to such partnerships, and partnerships may pass funds to their partners. In other words, partnerships serve at least in part as a means of redistributing funds between different UN agencies where those funds might otherwise be somehow tied.

Then we should make the following observations. UN agencies do not habitually publish anything close to what might be described as management accounts. Individual agencies’ accounting practices may differ from one-another and may differ from international standards. Specific UN institutions may or may not have their accounts subject to external audit. In the vast majority of cases there is almost no method whatsoever for legal or regulatory challenge or review of expenditures. Nor are there freedom of information mechanisms enabling members of government (or anyone else) to access information about how funds are spent. External regulation of UN accounting mechanisms is non-existent, as a corollary of the legal immunities of the United Nations and its agencies. One of the very few UN agencies that is subject to legal regulation is the United Nations Federal Credit Union – the UN’s own internal bank – which is subject to the regulatory standards applicable in New York State. It is virtually unique in this regard.

Finally, several branches of the United Nations receive funding from private agencies, by far the largest of which is the Bill and Melinda Gates Foundation that donates some USD 880 million per annum. However this is not so much. According to the Brookings Institution, a mere four nations contribute 50% of the UN’s total annual budget: the United States (US$14.1 billion); the United Kingdom (US$7.6 billion); Japan (US$5.4 billion); and Germany (US$4.4 billion). Some 190 other countries contribute the other 50%. Hence there is substantial pressure, particularly from the biggest two donors the United States and the United Kingdom (who together contribute some 34%), for reform. What is the United Nations Organisation and its legally separate specialised agencies doing for them, given the disproportionate sums of money they are paying? That is the question currently under review in both Washington, DC and London. The sense in both capitals is that they are paying too much for what they receive.

Critics of the current US / UK approach might cite the per capita contributions to the United Nations by its member states as a riposte. The most generous member state, assessed on this basis, is Norway at US$399 per person per year, whereas the United Kingdom stands at US$116 and the United States at US$44. Nevertheless that criticism can only go so far. If Norwegian citizens are comfortable that they are receiving adequate returns on their contributions of US$399 per person per annum, then this will presumably be reflected in their electoral decisions. The electoral decisions of the Americans and British have resulted in a political conclusion that the funds being spent are too high given the returns involved. Moreover those shareholders in the United Nations are (with no disrespect intended to Norway – it is a far smaller country, with a different political dynamic from either the United States or the United Kingdom) more important because they are larger countries and the threat of their withholding funds is potentially far more critical to the future of the United Nations.

How large is the United Nations Organization by global standards, on the assumption of a gross budget of US$64 billion per annum? It is equivalent to a very large company indeed, but not one of the world’s top 30 companies for example. Total, the world’s 30th largest company by turnover in 2016 (of companies that report their figures), reported a gross turnover of US$128 billion. The United Nations is perhaps better compared to one of the world’s largest banks, HSBC, which has an annual turnover of US$51 billion. Is HSBC doing a good job? The answer is to ask its shareholders. Given its five-year share price history, the answer is probably that it is. But the question is much more difficult to answer for the shareholders in the United Nations. Indeed the problem may be more fundamental. The UN’s shareholders – that is to say, its member states – do not even know whether it is doing a good job, because the accounts of the United Nations are inadequate.

Given the complications and opacity in the way the United Nations manages its finances, it is currently virtually impossible to put in place metrics for quantifying the success of the United Nations’ outputs. This in turn may lead into a sense of unaccountability. If the managers and staff of the United Nations do not feel that what they are doing can be measured, then they may lose incentives to do their jobs well. That is because there is nobody assessing with any accuracy the difference between their operating effectively and their not doing so. All of these considerations come before we approach the problem of corruption. With so nontransparent a system, it becomes easier to misappropriate a proportion of UN funds. We do not know what proportion of the UN’s annual budget is misspent. But anecdotal evidence suggested that a significant percentage of the budget of the United Nations Office in Geneva is spent on travel – far more than for any other organization of equivalent size. This is just one example of an issue that needs to be subject to external audit.

The Secretary General of the United Nations has undertaken an initiative to tackle UN reform across three pillars of the UN’s core activity. These are: development and humanitarian reform; peace and security architecture reform; and management reform. Measuring success in these three areas is not a matter just of looking at a share price. There is no share price. Effective measurement of success involves starting by establishing transparent mechanisms so we know what to measure. We need to start by knowing how much money is spent, and on what, and where it comes from. Only then can we assess whether, in each case, the money is well spent: whether the same results could have been achieved with a smaller budget, or whether the results are unsatisfactory given how much has been spent. This will all require a series of reforms.

Firstly, common accounting standards must be applied across the United Nations. Those standards must be published. Management accounts must be made available as a matter of course. Financial and accounting queries must subject to routine and clear response. External audit must be made available upon request. Publicity of expenditures should be rendered routine and standardised across every agency. For the qualified external accountant (who may be accountable as a government official to a domestic taxpayer), it must be possible to trace the origins of each US Dollar (or equivalent) spent and where it goes to. Until a comprehensive programme of transparent financial rigour is applied to the United Nations’ accounting procedures, no member state will be in a position to assess whether the Secretary General’s admirable initiatives will be achieved having regard to value for money.

Secondly, there must a stronger means for financial oversight. Where someone has a query or concern about mis-expenditure, there must be a method by which those concerns are addressed. This must not be a UN hush body. It must be an independent, external review organization that can look at specific documents evidencing expenditures internal to the United Nations, and be satisfied (or not) that money was spent both lawfully and efficiently. Every government in civilised nations has to undergo this type of regulatory and audit process. The United Nations should undergo it as well. The United Nations is predominantly funded by taxpayers’ money. The same standards of audit oversight should apply to expenditure of UN funds as apply to domestic government funds.

Thirdly, a freedom of information process should be in place. Governments across the world are subject to a requirement that upon an interested person’s request, they release documentation (not subject to national security concerns) that reveals what they have been doing and how they have been spending their money. The United Nations is not subject to those standards, but it should be. Where document disclosure is requested of the United Nations, but is not provided, then a freedom of information tribunal ought to rule upon the matter in accordance with transparent legal standards. It is by methods of this sort that public officials of the United Nations inspire confidence in the work they are doing, when they are doing it well; and are held accountable, when they are not.

These matters are urgent. The United Nations needs to address them straight away. Member states are impatient. They are prepared and insistent upon undertaking reviews of the UN’s effectiveness promptly. If the United Nations does not act immediately, it cannot possibly hope to meet the standards that its member states demand of it. The consequences of that may be dramatic cuts across the board. Even if substantial cuts are to an extent inevitable, it is better for the United Nations as a whole that those cuts are applied with care and discrimination. This entails the United Nations being open about its accounts. The United Nations must be held to the same standards as other organizations of its size. These are legal, accounting, regulatory and transparency standards. It is problematic that at the United Nations, almost two decades into the twenty-first century, is not yet operating to the standards that the rest of us are required to. But I believe that the United Nations can change, and that it will do so.

Matthew Parish is an international lawyer based in Geneva and a former UN peacekeeper. He is a candidate to be appointed as an Under Secretary General of the United Nations. In 2013 he was elected as a Young Global Leader of the World Economic Forum and was named as one of the 300 most influential people in Switzerland.

The views expressed in this article do not necessarily reflect the views of TransConflict.

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