Oil-for-Food Audits Ignite Debate

NEW YORK – Internal U.N. audits sent to the director of the Iraqi Oil-for-Food program (search) uncovered extensive mismanagement of multimillion-dollar deals with contractors and fraudulent paperwork by its employees, according to copies of some of the reports obtained by The Associated Press.

More than 50 audits, which were carried out from 1996 to 2003 by the U.N. watchdog, the Office of Internal Oversight Services, have been a source of contention between the United Nations and members of Congress examining allegations of corruption in the humanitarian program.

An independent panel led by former Federal Reserve Chairman Paul Volcker (search), who was appointed in April by U.N. Secretary-General Kofi Annan (search) to investigate the allegations in the Oil-for-Food program, was given access to the files.

But the reports achieved a wider circulation in recent days after they were distributed to congressional investigators by Volcker's panel and released to the media. The panel posted the pages on its Web site on Sunday, a day earlier than originally planned.

Five of the reports, including an audit of a U.N. program that was working to help secure humanitarian goods purchased under the Oil-for-Food program in the Kurdish-controlled Northern Iraq, showed widespread mismanagement.

The oversight agency blasted the U.N. Habitat Settlement Rehabilitation Program for mishandling contracts and failing to implement the urgent recommendations of earlier audits. The report said that the problems resulted in a possible loss of $12 million through flawed contracts that exposed the agency to drastic currency fluctuations.

UN-Habitat was one of nine U.N. agencies that helped implement humanitarian aid in Iraq under the $60 billion Oil-for-Food program that was created as a humanitarian exemption to sanctions imposed on Iraq after the 1990 invasion of Kuwait, which led to the 1991 Gulf War. Beginning in 1996, it allowed Saddam Hussein's government to sell oil and use the proceeds to buy food, medicine and other items.

Two other audits examined irregularities that included overcharging by two companies that were hired to monitor Iraqi oil sales and the country's purchase of humanitarian goods under the program. Another audit detailed financial mismanagement by a U.N. agency administering humanitarian aid under the program.

The United Nations conceded that the audits illustrate negligent management of contracts but said they also show that the world body was monitoring itself during the Oil-for-Food program.

"These audits do show that this was a program that was highly audited with a great level of oversight by the U.N.," spokesman Stephane Dujarric said Saturday.

In an interview with The New York Times published Friday, Volcker downplayed the importance of the audits. "There's no flaming red flags in this stuff," he said.

But investigators from two of the congressional panels working in parallel to Volcker disagreed.

The audits of the two companies hired by the United Nations reveal "overpayments, a total lack of U.N. verification of contractor duties performed, and no-bid procedures for additional contracts and extensions," a spokesman for the House International Relations Committee told the AP on condition of anonymity.

In most of the reports, it was unclear what steps the United Nations took to correct the mismanagement uncovered in the reports and to demand repayment from the companies recommended by the auditors. Some of the reports were commissioned by program executive director Benon Sevan, Dujarric said.

"Some of these audits were done by U.N. internal auditors at the request of the program director," said Dujarric. "The reports are management tools."

But in the case of UN-Habitat, the auditors specifically took the agency to task for failing to implement earlier recommendations.

"The audit found a situation of mismanagement, which requires urgent attention," the audit report, dated June 30, 2003, stated. "Of particular worry is the blatant neglect of UN-Habitat to implement previous audit recommendation (sic) made by the OIOS and the Board of Auditors, even though UN-Habitat senior management had accepted them."

According to the United Nations, the problems at the agency arose because its involvement with the Oil-for-Food program more than doubled its operations.

"There were obvious growing pains working in a politically difficult environment," Dujarric said Sunday. "Through the years, as the program evolved, better coordination mechanisms in terms of oversight were implemented."

Another audit dated July 3, 2002, and addressed to Sevan examined contracts with Saybolt International BV, a Dutch company that was hired to monitor oil exports from Iraq under the humanitarian program.

The report detailed billing by the company exceeding $2 million. The company inflated invoices, charged for accommodation of workers provided by the Iraqi government and exaggerated staffing and other expenses. For example, the report found that the United Nations was billed several years for 31 days of work in June, which only has 30 days.

Telephone messages left at offices of Saybolt were not returned.

The contention over access to the audits led some congressional investigators to accuse the United Nations of stonewalling outside investigations of alleged corruption at the program. At least five congressional probes are running separately from Volcker's.

In November, Sen. Norm Coleman, R-Minn., accused Annan of trying to cover up the extent of fraud at the program and called for his resignation.