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U.N. Audit Found Early 'Oil-for-Food' Problems

An internal United Nations audit from 2003 found significant problems with the international organization's Iraqi oil-for-food program, revealing that millions of dollars went unaccounted for.

The 23-page audit by the U.N. Office of Internal Oversight Services (search) into the program — now the subject of an independent probe looking into allegations of abuse — also revealed problems with the oil-for-food program's administration, specifically with a company that employed Secretary General Kofi Annan's son as it prepared to bid for an oil-for-food contract.

Click to read the U.N. internal audit of the oil-for-food program.

The audit devotes almost 20 pages to the U.N.’s dealings with Cotecna (search), a Swiss-based company that was awarded a $4.8 million dollar contract for the oil-for-food program just months after Annan’s son, Kojo, ended a consulting assignment with the firm.

It is not clear if Annan himself ever read the audit. He has insisted in the past that he was unaware of any problems with the oil-for-food program while it was in operation. He has also denied any conflict of interest with his son’s involvement with Cotecna.

The April 8, 2003 report was addressed to Benon Sevan (search), former head of the oil-for-food program. Sevan has refused to talk to Fox News about the program or his role in the matter, except to say that he has done nothing wrong.

The document was obtained by Mineweb.com, an international mining publication based in South Africa that focuses on mining finance and corporate news.

The overall conclusion of the report is "that management of the Contract has not been adequate and certain provisions of the Contract have not been adhered to." The incorporation of additional costs was deemed "uneconomical" and the Contract was "amended prior to its commencement, which was inappropriate."

The Office of Iraq Programs needs to "strengthen its management of contracts and the Procurement Division should ensure that the basis of payment is appropriate in order to avoid additional costs to the Organization," the audit found.

Several references in the audit are damning to Cotecna and seem to openly question the relationship between the company and its U.N. client. Among the specific charges listed in the report:

— U.N. officials approved $356,000 in “additional costs” to the contract just four days after the proposal was signed.

— Within a year of the contract’s signing, it was amended to add other charges far above those originally approved. This included a hike in the "per man day fee" to $600 from an initial $499. This higher fee "was exactly equal to the offer of the second lowest bidder."

— Cotecna and U.N. officials understaffed inspection stations at entry points into Iraq, which “affects the performance of services."

— In northern Iraq, where Kurdish officials have said they were cheated out of billions of dollars in oil-for-food aid, there were no inspectors on the job. The result was "huge differences between the figures for goods reported to have arrived by the U.N. agencies and the contractor."

The audit found the oil-for-food administration had "been aware" of problems for years but had failed to adequately address them. And it determined no one from the United Nations monitored Cotecna agents operating in Iraq.

“In absence of a contract manager, there can be no assurance that the services provided were in consonance with the spirit and letter of the Contract,” the audit stated.

But after the report's April 2003 submission — and just three months before handing over control of the oil-for-food program to the Coalition Provisional Authority (search) in Iraq — the United Nations signed a new $9.8 million contract for Cotenca.

Cotenca officials declined to answer individual questions about the the company's participation in the program or the role of Kojo Annan. In the past, they've issued statements denying any wrongdoing and maintaining they properly followed all U.N. regulations

U.N. officials have said the internal audits and other relevant documents have been handed over to Paul Volcker, who was named by Annan last month to investigate the growing scandal. Volcker has declined requests for interviews, but is expected to make an appearance at a U.N. press briefing on Thursday.

Fox News' Jonathan Hunt contributed to this report.