A four-year quarrel between the government of Greece and United Nations officials over a $5 million project to help fight government corruption has turned into a new dispute — between the U.N. officials and their own auditors, who have taken the Greek side in some of the most important aspects of the fight.

The result: a bizarre bureaucratic standoff that, if it lasts, is sure to provide a new challenge to U.N. Secretary General Ban Ki-Moon in his ostensible campaign to restore high ethical standards at the battered world organization. It could also draw new attention from U.S. diplomats, who last December called for a “comprehensive review” of U.N. use of consultants based in part on the Greek project controversy.

On one side of the new battle is the U.N.’s watchdog Office of Internal Oversight Services (OIOS), which has urged top U.N. officials to find out who was responsible for the Greek-funded project’s failure to accomplish its good-government objectives, examine “indications of irregularities” in hiring consultants who failed to deliver promised services, and create a better system for accounting for funds on similar-government-funded work.

On the other side are senior officials of the U.N.’s Department of Economic and Social Affairs (DESA), who are ultimately responsible for the project known as the United Nations Thessaloniki Center (UNTC) for Public Service Professionalism, which was founded in 1999 and came to a ragged close in November 2006. Those U.N. officials have emphatically rejected the OIOS recommendations, leaving it to Ban and his new head of U.N. management, Alicia Barcena Ibarra, to figure out what to do next.

Their strongly opposing positions are exposed in a U.N. audit of the project that was quietly published on Feb. 23, 2007 — nearly two months later than expected — and obtained by FOX News late last week.

Raw Data: PDF file of audit (pdf)

The official who likely has the most to lose in the battle is Guido Bertucci, director of an obscure U.N. body known as the Division of Public Administration and Development Management (DPADM), who has been accused in the past, in secret U.N. documents, of being “fully aware” of the failings of the Greek-funded project, and doing little about it. It was Berrtucci’s extensive and unusual use of consultants on a variety of projects, as revealed by FOX News, that caused last December’s expression of concern by the U.S.

But the new standoff also involves Bertucci’s boss at DESA, Under Secretary-General Jose Antonio Ocampo, who has run the U.N. department since September 2003 and who had to approve DESA’s intransigent position in the most recent audit. Ocampo, a Colombian native, was slated to leave the U.N. in March, but his successor, a Chinese diplomat, does not arrive until July 1, and Ocampo is remaining in place until the end of June. In effect, it is Ocampo who is refusing to accept the most recent audit recommendations.

In all the years since it was first envisaged by the Greek government and the U.N. in 1999, the UNTC project has produced almost nothing but controversy. It was originally intended to strengthen public administration in various Balkan countries, and help to combat corruption.

The U.N.-Greek agreement was not ratified for three years. By 2003, the Greeks were already demanding an investigation of the way that the first $1.1 million of their money was being spent.

In response to those demands, a previous audit of UNTC, obtained last December by FOX News, seemed to think that the Greeks had a point. Along with a variety of unauthorized junkets and costly consulting arrangements, the investigators noted that “80 percent of the Project’s financial and staffing resources were spent on activities, publications, training materials and presentations related to the spread of e-government,” which was never part of the UNTC objectives.

In a draft version of their report, the auditors cited Bertucci in particular for failing to take account of internal complaints about how badly the project was going, and asserted that the U.N. could have known about the irregularities at an early stage.

A few months later they urged a fraud investigation of the project, though Bertucci was not accused of doing anything fraudulent. That investigation, carried out in 2004, failed to find evidence of outright fraud.

By that time, a “finalized” version of the auditors’ findings had removed Bertucci’s name from its pages, and solved the problem of UNTC’s spending on e-government by simply adding that topic to the project’s objectives. DESA itself successfully rejected a recommendation that Greek government officials be allowed some oversight into how their own money was spent.

The latest U.N. audit essentially takes up the battle where the previous audit left off. And it found that things had not much improved at UNTC. During the years 2004 and 2005, and despite the lengthy previous examination of non-performance, the auditors discovered that there were few “substantive outputs” by UNTC, though it had a lengthy list of training sessions, studies, meetings, and an “anti-corruption initiative” that were supposed to take place.

By the end of 2005, some $2.5 million had been spent. The reasons, according to the auditors, were inadequate planning and oversight, along with inadequate human resources management — devastating indictments of a project devoted to promoting good government.

Their foremost recommendation was that DESA seek accountability for the failings. At the same time, a number of unauthorized contracts for consulting services were let for the project, including one that explicitly duplicated work that project employees themselves should have done.

The auditors noted that starting in 2003, DESA (specifically Bertucci’s unit) had established another center for administrative innovation, known as CAIMED, in Italy, and even lured nations that had jointed the Greek-funded project to join in. The Greek government complained about the competition with their own project, and the latest U.N. audit observes that a comprehensive evaluation of UNTC, required in the agreement between Greece and the U.N., might have settled that issue.

But the evaluation was not carried out. During all this time, the auditors note, DESA was ignoring repeated requests from the Greeks for bi-annual reports on UNTC’s progress, as required by their agreement. DESA’s claims to have complied, the auditors noted, were inadequate.

Eventually, the Greek government and the U.N. agreed to let the UNCT project die, with the funeral slated for March, 2006. But it took until November 2006 for the project to finally expire, at a total cost of nearly $3 million.

In essence, the latest OIOS audit calls for a critical post-mortem on the failure, which, among other things, would “establish accountability for its inadequate management,” find out who conducted the “irregular sign-off” on a consulting contract where nothing was delivered, and “clarify” the “exact format of financial reporting” in the future.

In all cases, DESA pushed back, arguing, among other things, that when it came to management accountability, since UNTC had collapsed, “this recommendation should be dropped.” Even in the case of the controversial consultancies, DESA argued, they “provided valuable outputs which were of material importance.” And on the touchy issue of better financial reporting in the future for such projects where governments voluntarily contribute funds, DESA argues haughtily that “donors should be prepared to rely on the competence of the organization and the efficiency of its internal procedures.”

Anything other than standard U.N. arrangements “would give rise to individual donors requesting separate reporting formats, which could not be accommodated.” DESA’s argument underlines that the new battle between bureaucrats and auditors is possibly about much more than a small project funded by a government trying to use the U.N. system to do good. Such voluntary “trust funds” as they are known, make up the budgets of huge portions of the U.N. system, including agencies which do not make public their auditors’ reports in the fashion that the U.N. Secretariat only began to do last year.

In a covering letter attached to the audit, the acting head of the U.N. auditing unit, Dagfinn Knutsen, notified DESA chief Ocampo that he had until March 23 to make any final comments on the audit. After that, it may well be up to Secretary General Ban, who acknowledges that the U.N. has a long way to go before it can assume that its operations are unquestionably competent and efficient, to side with his own watchdogs — or with the bureaucrats they are supposed to watch over.