The multibillion-dollar procurement business of the United Nations Development Program (UNDP), the U.N.’s flagship anti-poverty agency, is a gigantic shambles, according to UNDP’s own investigators.

Moreover, UNDP’s management has privately acknowledged that fact and is scrambling to fix the mess — even as it loudly denied concerns of a procurement scandal that have been raised by FOX News, among others.

In a confidential report obtained by FOX News, UNDP’s auditors have described the UNDP procurement organization that is spending well over $2 billion annually as:

— overwhelmed by its caseload at headquarters and in the field, while procurement ballooned from $800 million in 2003 to $2.5 billion in 2006 and $2.2 billion last year;

— often failing to provide plans to support its buying activities, which the report says causes many purchases of goods and services to be carried out on an "ad hoc basis" (in fact, more than $595 million worth of non-existent purchases were recorded, although the audit notes that they were not paid for);

— wallowing in shoddy paperwork and faulty bidding processes, which contributed to a "high number of waivers of the competitive process and to quality problems in the procurement process in general";

— lacking the expertise to evaluate hundreds of millions of dollars worth of its most expensive and important purchases in civic construction and high-tech communications;

— drastically unqualified: Fully half of the organization’s procurement staff around the world were not certified for the basic requirements of their jobs, while the auditors also found the six-hour course for those who were certified to be "inadequate." Additionally, the auditors noted, "there are entire offices without a single certified buyer";

— suffering from an "apparent" conflict of interest at the top, where the people charged with vetting the procurement process for flaws are also members of the procurement office staff.

The same potentials for conflict of interest apparently dog local staffers, who, the report says, had not received official guidelines for disclosing their finances and interests, even though a policy demanding those declarations had been issued a year earlier.

Even more ominously, the same auditors point out that UNDP:

— has no sure way of knowing whether it is doing business with organizations that the U.N. itself has condemned for terrorist ties and says UNDP country offices find the current manual system of cross-checking with U.N. terrorist sanctions lists to be "cumbersome and inefficient";

— has no formal policy for suspending or removing vendors for poor performance or corruption;

— and doesn’t ask new vendors for the identity of their owners or other corporate ties. This raises the possibility that vendors caught out for corruption or poor performance could simply switch names and reapply for approved status.

The auditors also declare that at the time of their report, a staggering 260,000 vendors registered with UNDP were considered "inactive," meaning that the names existed, but the vendors were not seeking UNDP business — at least under those names.

Nor does UNDP policy, the auditors say, require detailed background checks on vendors unless "the contract amount is expected to exceed $1 million."

All of those observations, and many more almost as damning, are contained in a confidential draft audit report prepared by UNDP’s own Office of Audit and Investigations, or OAI, and embellished with comments by UNDP’s top management as of April 18. A redacted version of the draft report was obtained by FOX News.

Click here to see the draft audit.

According to its authors, the report contains some 21 "high priority" recommendations, where action is "imperative" and "failure to take action could result in major consequences and issues." All of these and other, less "imperative" recommendations were blacked out in the copy obtained by FOX News.

In several cases, where disagreement existed, it mainly appeared that top managers did not think UNDP could afford the changes or cited bureaucratic obstacles to full compliance.

The gaping holes and lack of competencies revealed by the report in the safeguards surrounding UNDP procurement have implications not only for the flagship anti-poverty agency but conceivably for many other U.N. agencies.

UNDP does business in 160 countries, where it designs all kinds of development programs in close collaboration with local governments, including a variety of radical dictatorships and many nations with abysmal corruption records.

UNDP has touted itself as a safeguard for the honesty and transparency of procurement exercises carried out on behalf of those governments — a view of UNDP probity and efficiency that the audit report essentially explodes.

Moreover, UNDP often conducts its procurement exercises to further the programs of other U.N. agencies among its far-flung constituencies, and the UNDP resident representative in each country is empowered as the U.N. secretary-general’s envoy.

UNDP is also taking the lead in an eight-country U.N. experiment known as "One U.N.," which will make the anti-poverty agency even more a conduit of all U.N. business in each nation, especially as "One U.N." rolls out further in the years ahead.

Among other things, the audit report gives grounds for questioning the wisdom of that process as it has been practiced.

The report includes a mini-digest of procurement cases with suspicious, unsatisfactory or unjustified results ranging from Ukraine ("the procurement process was unfair and non-transparent") to Colombia ("the soundness and effectiveness of the procurement process were questionable") to Somalia ("donor had requested a specific international company to be considered even though the solicitation process was local").

The importance of UNDP in the U.N. scheme of things and the controversy that has surrounded some of its recent actions are likely reasons for the apparent management scramble to meet its auditors’ concerns, especially as a key meeting of UNDP’s 36-nation supervisory executive board is scheduled to take place mid-June in Geneva.

On some issues examined in the report — notably, on the need to run background checks on vendors — management declares it will have a new system in place in June. Terrorist cross-checks, however, will take at least until July. So will the need to demonstrate planning along with "demonstrated capacity and performance," especially at the level of individual countries.

(Among other things, the audit report notes that some countries "have a rejection of 50 percent or more" on their first attempts at procurement submissions, while the overall rejection rates for Africa as a whole are "more than 40 percent.")

In April, UNDP took strong exception to a FOX News report that cited the development organization's own internal documents to show that over the past three years, UNDP had waived competitive bidding procedures for goods and services worth $879 million, roughly 58 percent of the total disbursed by UNDP headquarters during that time.

Some of the largest volumes of waivers went to countries such as the Democratic Republic of Congo, where official corruption has reached shocking levels.

In its response to the FOX report, UNDP claimed that procurement during the three-year period was $6.96 billion and claimed that waivers of competition amounted to only 7 percent of the total. That percentage, however, amounted to a redefinition of the term "waiver of competitive bidding" as used on the UNDP documents obtained by FOX.

The same month, after FOX questioned the existence of a $2.3 million UNDP procurement of U.S.-made airport scanners on behalf of the radical Chavez government in Venezuela, UNDP posted a purchase order whose date and number did not match earlier documents that the agency had said were used to ship the equipment — three weeks before the later documents attested that the deal had been done.

International anti-corruption watchdogs rank Venezuela as being on the same level as the Democratic Republic of Congo.

UNDP practices in its client countries have been controversial since January 2007, when then-U.S. ambassador to the U.N. Mark Wallace raised questions about the agency’s use of cash payments to North Koreans who were employees of the Kim Jong-Il regime and who also occupied sensitive UNDP local posts. Subsequent investigation revealed that the Kim regime had also used UNDP bank accounts to funnel money to its nuclear weapons program.

UNDP subsequently fired a member of its staff who blew the whistle on the North Korean practices and declared it was not bound by U.N. rules when the U.N.'s newly appointed ethics officer declared he had found "prima facie evidence" of retaliation against the whistleblower. An ostensibly independent report on the whistleblower’s status, written by three panelists chosen by UNDP, is expected shortly.

How successful UNDP will be at fixing the mess described in the April draft audit report remains to be seen.

Among other things, top management agreed with the auditors that greater regional supervision of UNDP country procurement decisions is required. (The auditors suggested that for waivers of competition where "exigency for the requirement" is cited as justification, "the Regional Bureau concerned should be requested to confirm that there is indeed a ‘genuine exigency.’")

But management also said that the changes in supervision would not be implemented before the end of this year.

George Russell is executive editor of FOX News.