Perhaps Paul Volcker (search), head of the United Nations-authorized inquiry into the U.N. Oil-for-Food program, was speaking solely of graft when he said recently that the internal audits of Oil-for-Food contained “no flaming red flags.” But if he meant anything beyond outright criminality, he was surely wrong.

On that score, previously secret U.N. internal audits of the multi-billion dollar program, finally released last week by Volcker’s own investigating commission, are packed with bombshells enough to shatter any normal business – let alone a U.N. program supplied with $1.4 billion to cover its administrative costs in monitoring $111 billion worth of deals done under UN sanctions by Saddam Hussein (search).

The problems unveiled go well beyond those in the already much-discussed audits of the Oil-for-Food (search) inspectors hired by the U.N. Secretariat to oversee Saddam’s oil exports and relief imports, who according to the United Nations' own auditors too often charged too much and inspected too little.

One audit report that has so far received little attention describes at length the spectacular failures of Oil-for-Food’s executive director, Benon Sevan (search), to adequately run even his own office and budget, let alone monitor what the program was doing in Iraq. Sevan is the one U.N. official who has been publicly accused of taking bribes in the form of oil vouchers from the Saddam Hussein regime, though Sevan denies this.

The United Nation’s auditors, in a lengthy post-mortem done months after the U.S. invasion of Iraq in 2003, record that during the final two years of the program, from July 31, 2001 on, Sevan abruptly stopped holding regular weekly staff meetings — basically leaving the program in chaos.

Apart from a small flurry of staff gatherings in late 2002, Sevan apparently closed his door to sessions with personnel charged with headquarters oversight of the activities and finances of the nine U.N. agencies, 900 international staff, 3,500 Iraqis, assorted contractors and various accounts involved in the program.

Sevan failed to approve procedures to monitor big chunks of his enormous budget, never got around to confirming vital work plans or defining some key areas of responsibility for his on-the-ground overseers, and often did not even answer written messages or policy papers from his staff. This, the auditors plaintively noted, ”exposes the executive director to the risk of not receiving appropriate advice from [the field overseers] and left the [project management] staff feeling ‘left out’ and de-motivated.”

These findings are part of an audit report dated July 28, 2003, looking back post-Saddam on the final years of Oil-for-Food, and burdened with the deceptively dull title: “Review of the Programme Analysis, Monitoring and Support Division of the Office of the Iraq Programme.” To read the audit, click here (pdf required).

That particular division, referred to by the auditors as PAMSD, had responsibility for ensuring the massive Oil-for-Food program developed coherent policies and operated under clear and effective rules on the ground. It was also responsible for framing how well the United Nations was discharging the Oil-for-Food responsibilities given the organization by the U.N. Security council.

The auditors judge that PAMSD “made substantial efforts to discharge its responsibilities.” But according to the auditors, Sevan clearly didn’t.

In the report’s executive summary, the auditors note, with a tone of turgidly bureaucratic despair, that “the lack of an approved work plan, organizational structure and key performance indicators” as well as “inadequate communication” between Sevan, the field and PAMSD resulted in PAMSD “not being able to adequately fulfill its functions.”

That translates into an alarming observation, since PAMSD’s “functions” were to engender critical oversight policies within Oil-for-Food. In doleful detail, running to 26 sections, this particular audit report (#21 of the 55 released by Volcker) recounts that as of 2003, “While the Programme is in its seventh year of operations, major policy directives had not been finalized on a timely basis.” This, suggest the auditors, had the effect of “leaving the program open to criticism.”

PAMSD’s work plans for the previous three years had been sent to Sevan for review and approval; “However, they had not been formally approved nor were comments provided to PAMSD.” That meant Oil-for-Food ran without even a medium-term strategic plan.

The auditors level a litany of other complaints, some of which suggest that Sevan bypassed his headquarters oversight staff to deal more directly with other parts of the U.N. bureaucracy. Many of the complaints had to do with Sevan’s administration of some $8 billion in Oil for Food funding earmarked for the three northern provinces of Iraq, which are heavily Kurdish.

Given the date on the report, the auditors were clearly involved in a murky U.N. exercise that attempted internally to assign blame for the program’s shortcomings, since by that time accusations of corruption and incompetence had been aired in the press for years.

But that in turn raises the biggest question of all: how did Secretary-General Kofi Annan (search) fail to notice that Sevan’s office, entrusted with the biggest relief program in U.N. history, had become such a site of managerial mayhem?

It was Annan who handpicked Sevan in 1997 to run Oil-for-Food. It was Annan whose office received many of these audit reports, had access to all of them and until last week refused to release any of them even to Congress. And it was Annan, who in closing out the United Nations role in Oil-for-Food in Nov. 2003 made a point of praising Sevan as a man who had served the world body “far beyond the call of duty.”

Did Annan simply not care? Or is he himself so inept that he truly had no clue about the many internal signs that Sevan’s office was an organizational disaster?

Claudia Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies. George Russell is Executive Editor of Fox News.