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UN in North Korea: Four years after office reopens, auditors warn of old problems

EXCLUSIVE: Four years after the United Nations Development Program (UNDP) reopened an office in North Korea that had been closed in the wake of  revelations of millions in hard currency transfers and of “dual-use” technology handed over to the communist regime, it has been given a top rating by UNDP auditors, despite their concerns about lax oversight, dubious record-keeping and erratic financial controls.

The same audit warns that failure to quickly fix some of those “high (critical) priority” problems “could result in major negative consequences for UNDP and may affect the organization at the global level,” –which clearly happened in the scandal that blossomed in 2007 and kept UNDP’s office closed until 2009.  

Despite that dire warning,  the latest audit  gives the U.N. agency’s North Korea office its highest “satisfactory” rating.  That green-light designation supposedly means that UNDP’s internal procedures are “adequately established and functioning well,” and that “no issues were identified that would significantly affect the achievement of the objectives of the audited entity.”

An explanation of the rating system at the end of the audit declares that such a top rating is supposed to be something of a rarity, saying that while all UNDP offices “strive at continuously enhancing their controls, governance and risk management,  it is expected that this top rating will only be achieved by a limited number of  business units.”

(In fact, of 21 country office audits revealed on a  UNDP website, 13—or about 62 percent—get the top ranking. The only red-light rating goes to Afghanistan.  

The North Korea auditors carried out their examination in late February and early March of this year, covering activities between April 2011 and the end of 2012. The audit document itself was only finalized in October.

“Although couched in bureaucratic language, the audit report raises serious questions about the adequacy of UNDP's control over and knowledge of activities in North Korea theoretically under its responsibility,” notes John Bolton, a former U.S. Ambassador to the U.N. during the Bush Administration (and also a Fox News contributor). “Member governments, and particularly the United States,  should not take this report at face value.”

Among the high-priority issues that the auditors found was the fact that UNDP was carrying out only sporadic supervision of the handful of development projects that the U.N. agency currently has ongoing in North Korea, which date from 2010. According to the audit, a designated project supervisor failed to undertake “regular quarterly project site visits to monitor project activities”  as required by a detailed monitoring and  evaluation plan that ostensibly applied to all U.N. projects in the country.

CLICK HERE FOR THE MONITORING PLAN

Indeed, according to the audit the supervisor conducted no site visits at all during the second half of 2011 and the first quarter of 2012, and “was unable to provide documented justification for not conducting the site visits,”  statements not included in the audit’s executive summary. The full text of the audit says that the UNDP office provided some evidence that other officials did at least part of the work, but refrains from declaring that all the missing visits had been covered.

CLICK HERE FOR THE AUDIT

As described on the UNDP website, the projects involve innocuous activities, such as providing wind-powered electricity for local factories, improved seed production, and solar-powered tree nurseries for  reforestation—the same sorts of projects that existed before the earlier scandal.

But the auditors also found that documents outlining what the projects were expected to accomplish were let unacceptably vague—that “output baselines, indicators and targets” were not measurable, specific or attainable.”

In the case of a couple of other projects, which involved the maintenance of “databases for collection and analysis of socio-economic data and for the establishment of a comprehensive food and agricultural information system” the audit noted in passing that they included “plans for procurement of computers”—another issue of high controversy for U.N. organizations, including UNDP, involved in North Korea

Anywhere else but North Korea, perhaps, the inspection of development projects as innocuous and down-to-earth as UNDP describes would be fairly routine—but not here.

Instead, the inability to oversee the projects has lingered for years, despite the earlier scandals. According to the audit report, an earlier team of auditors had “raised a similar issue regarding inadequate oversight” in 2011. UNDP declined to provide a copy of the earlier audit to Fox News, saying that under its transparency policies the agency was only authorized to release audits produced after Dec. 1, 2012.

Compounding the uncertainty, the most recent audits discovered that UNDP was failing to upload monitoring schedules and logs of the results learned from whatever visits did take place into the U.N.’s financial and project management software, known as ATLAS—which means that knowledge of whatever discrepancies existed weren’t readily accessible outside the country.

UNDP told Fox News  in response to questions that the information was “included in the hard-file project documents” in UNDP’s possession –though the detailed monitoring plan for North Korea specifically calls for the ATLAS updates on a quarterly basis. In any case, a UNDP spokesperson reported, the North Korea office had now uploaded the required logs.

The audit also found inadequate reporting on the use of  so-called “cash cheques,” meaning hard-currency checks that could be converted to cash, as opposed to being strictly deposited into bank accounts, as a means of controlling the dispersal of hard currency.

The inspectors said that during the period covered by their work, about $870,000 went for cash checks—a practice expressly excluded by the financial controls supposedly in effect in the office. Some of the money, the audit says, went to pay unspecified “local contractors.”

Two months before the auditors issued their report, the U.N. Resident Representative in North Korea—who is also the U.N.’s highest representative in the country—apparently issued his own report that the audit document says “showed improvement in the completeness and clarity of information regarding cash-checks. But that report still did not clearly describe “the purpose and frequency of cash check transactions.”

In its defense, UNDP apparently said that in North Korea, “opening a bank account required approval from government authorities”—not exactly a revelation-- and that “approval was not granted in most cases except for UNDP national staff.”

In other words, the Kim regime did not cooperate with the financial hygiene measures that UNDP and the nation states supporting it had deemed necessary to meet concerns about the leakage of hard currency to the regime. The audit says that UNDP has also asked other U.N. agencies to make the pitch for more local bank accounts.  A UNDP spokesperson said that the agency “continues to pursue this dialogue with the national banking authorities.”  

The audit document also noted that UNDP had also been paying off  unspecified “pre-existing” international contractors working on U.N. projects in North Korea with U.S. currency, which is forbidden by UNDP financial rules in effect in the country. Ever since the previous scandal, all hard currency transfers in North Korea, if they had to take place, are supposed to be in euros.

The issue is especially sensitive because of North Korea’s reputation as a prolific and highly skilled counterfeiter of U.S. currency—especially of U.S. $100 bills, which the Treasury updated only in mid-October in order to stay ahead of the counterfeiting curve.

The audit says UNDP officials in New York approved the dollar transfers in July 2012, but that after the audit inspection, payments have been made in euros. According to a UNDP spokesperson, the payments were made because pre-existing contracts with eight “temporary international contractors” had been denominated in dollars, leading to the “one-time exceptional post facto” decision to honor the deals.

Thus, UNDP told Fox News, the U.S.-dollar payouts were “an oversight” that had been “corrected.”

The audit findings come at an especially sensitive time for UNDP, which functions as the chief coordinator for all U.N. activity in the country, and which had essentially been treading water with development projects that were underway before its office closed down in 2007, then reopened in 2009.

The U.N. aims to ramp up additional  projects in North Korea, under the terms of a four-year strategic plan that goes through 2015, with the longer term objective  of establishing what, in project documents, it has called “actual joint programming” with its “national partners” --even though UNDP financial operations, as well as those of five other U.N. agencies operating under the same roof, are more constrained than ever.

That austere environment is in large measure due to tough U.S. sanctions –and more watery U.N. ones--that were ratcheted up again last spring. The latest turn of the financial screws, after the Kim dictatorship illegally conducted its third nuclear explosion last February specifically targeted North Korea’s Foreign Trade Bank, which was the mainstay of U.N. finances in the country

It is also a sensitive time for the erratic and possibly unstable regime of Kim Jong Un, which along with its menacing nuclear weapons ambitions is also one of the world’s most gross human rights violators. It has recently been going through a Byzantine round of high-level executions and purges of top level figures associated with the young dictator’s uncle, Jang Song Thaek.

What that upheaval means for a bellicose nation with a full-blown nuclear weapons program and a habit of threatening—and shooting at—its neighbors, is still unknown.

But it surely counts as a bright-red warning signal about the risks and uncertainties of operating in what the UNDP audit calls North Korea’s  “unique and challenging environment.”