How Much Discretion? U.N.'s Anti-Poverty Program Wants Unlimited Spending Power

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The United Nations Development Program, the U.N.’s anti-poverty agency, which systematically ignored its own financial rules and regulations while funneling millions of dollars to North Korea, wants to give its chief operating officer the right to make out discretionary checks of unlimited amounts, without normal budgetary approval.

That’s up from the current limit of $50,000 which can be dispersed without regulatory oversight.

UNDP argues that the new ability to write such checks without normal authorization would only bring its discretionary powers into line with those currently exercised by other U.N. programs, like UNICEF and the World Food Program (WFP).

The problem is that at the Rome-based WFP, the use of the same unlimited discretionary authority to pay off job-eliminated contract employees was condemned just last year as a $90 million abuse of authority and a violation both of U.N. payment rules for contractors, and of fairness to longer-term employees.

The condemnation was issued by the only budget oversight committee that includes the entire membership of the U.N. It was ignored both by WFP bureaucrats and by the WFP’s 36-nation governing executive board.

UNDP’s desire to have the same unlimited discretionary power for its No. 2 bureaucrat, Associate Administrator Ad Melkert, is contained in support documents for the next meeting of its own, similarly-sized executive board, which meets in New York City from September 8 to 12.

(EDITOR’S NOTE: This story incorrectly declared that UNDP seeks discretionary authority to make unlimited ex gratia payments on behalf of “its No. 2 bureaucrat, Associate Administrator Ad Melkert.” In fact, UNDP seeks the authorization for its No. 1 bureaucrat, Administrator Kemal Dervis.)

The discretionary money is known in technical parlance as “ex gratia” funds, which UNDP describes as “payments which are made where there is no legal liability to UNDP, but the moral obligation justifies making such payments, which are in the interest of UNDP.” The question of what defines that interest is left to top administrators to decide.

• Click here to see the UNDP submission on ex gratia payments.

The case UNDP cites in asking for the approval for sweeping new check-writing powers is humanitarian: payments to families of staffers killed in the bombing of the U.N.’s headquarters in Algiers last December. In all, 17 U.N. employees were killed in the blast, including seven affiliated with UNDP.

According to the submission, UNDP says it was unable to make “ex gratia” payments to some of the Algiers victims’ families due to the current $50,000 limit. “UNDP should be able to show compassion when addressing such cases,” the submission argues.

(Although UNDP does not say so in the papers it has presented to its executive board, the organization’s insurance policy provides only $180,000 in death benefits for full time staffers and $80,000 for local consultants.)

Few would disagree with the impulse to compensate victims of such a tragedy. But the UNDP document does not state why an unlimited spending power is appropriate, even under those circumstances.

Nor does it state that the same discretionary spending power could also be used in a wide variety of other circumstances. Among them: settling lawsuits by aggrieved contractors or employees without resorting to U.N. arbitration, or a variety of other legal cases where misdeeds or mismanagement might be attributed, rightly or wrongly, to management, and where management might prefer to avoid seeing the claim become public.

The possibility of just such liabilities was revealed in a confidential UNDP draft audit of its own procurement operations, obtained by FOX News last May, which described the operation as awash in shoddy paperwork and faulty bidding processes, and lacking the expertise to evaluate its most expensive technology purchases, while procurement ballooned to more than $2.6 billion.

The same document described the organization as afflicted with “apparent conflict of interest” at the top procurement levels, where the people charged with vetting the process for flaws were also members of the procurement staff.

• Click here to see the draft audit.

Another circumstance where ex gratia payments can be used, apparently, is the funding of unauthorized severance packages to contract U.N. employees who are not entitled to such payments under U.N. rules and regulations.

Just such payments were examined and condemned at length little more than a year ago, in documents submitted to the World Food Program’s executive board by the U.N.’s Advisory Committee on Administrative and Budgetary Questions (ACABQ), a body made up of representatives of all U.N. nation states.

The ACABQ offers opinions on U.N. financial matters on behalf of the entire General Assembly, while each U.N. program’s executive board is made up of a much smaller number of nations.

In a scathing review of one aspect of the World Food Program’s ex gratia spending, the ACABQ noted that the emergency food aid provider had used its discretionary power to make unauthorized severance payments to 417 contract employees, at sites ranging from Bangkok to Johannesburg to Panama.

The payments totaled “in the range of $90 million,” but the amount could have been larger; the ACABQ noted that the World Food Program itself had provided the numbers as estimates, but without “the benefit of actuarial evaluation,” meaning an outside cross-check.

Short-term U.N. employee contracts do not provide for severance or other benefits when they expire, the advisory committee noted. It observed that WFP management appeared to be using the “inappropriate” severance payments to compensate employees where short-term contracts had been repeatedly renewed to avoid handing out the security of longer-term arrangements.

The ACABQ noted that the unauthorized ex gratia payment practice “has significant system-wide implications” — meaning that other U.N. agencies or programs might imitate WFP’s alleged abuse of the ex gratia check-writing power.

The U.N. advisory committee urged that WFP’s executive board should “urgently” take up the issue of unauthorized ex gratia termination payments, and also look at WFP’s staffing policies.

Click here to see the ACABQ report.

That didn’t happen. Instead, the executive board “took note” of the advisory committee’s report and recommendations, a course of action that did not require doing anything the ACABQ suggested. It also “took note” of WFP management’s explanation that the huge unauthorized severance deal was part of a downsizing of the organization that was expected to end in 2009.

Whether the downsizing is still considered a good idea is an open question. In May, 2008, WFP suddenly declared that a “silent tsunami” of rising food prices had placed an additional 100 million people around the world at risk of starvation. WFP has since boosted its biennial budget request from donor nations to more than $6 billion.

The WFP severance debacle has already created one important precedent for the sprawling U.N. system of funds, programs and agencies: the argument that unlimited ex gratia spending power should exist for other parts of the U.N. system too.

That is the core argument in UNDP’s submission for its upcoming executive board meeting: “With the proposed amendment [to its rules], UNDP seeks to harmonize its approach with those of the other Funds and Programmes,” the organization declares.

UNDP also notes that yet another U.N. organization, the United Nations Population Fund — which shares an executive board with UNDP — is asking the same unlimited authority.

In its submission, UNDP refrains from saying that it will disclose the purposes to which it puts the ex gratia money it intends to spend. Instead, the organization says that it will put the 12-month total in its budget statement.

At the same time, UNDP assures its board that the cost of the change, though potentially unlimited, will be small. “UNDP does not expect the proposed change to result in a significant financial impact for UNDP over a period of time, given the low number of such payments that UNDP has had to address to date,” it says.

Why, then, is UNDP seeking an unlimited ceiling on the payments?

FOX News asked UNDP that question, among others, in a detailed query about the ex gratia request on August 12. UNDP acknowledged receipt of the questions but had provided no answers by the time this article was published.

FOX News also asked UNDP about another change in its rules surrounding the ex gratia payments, which has the effect of removing Secretary General Ban Ki-moon’s office from any role in the process.

Under UNDP’s previous rules, an opinion regarding the lack of a legal liability for any ex gratia payment was required of the Secretary General’s Office of Legal Affairs before the payment could be made. Under new rules, that authority will be transferred to UNDP’s Legal Support Office — which reports to the top executives who will hold the newly unlimited check-writing power.

Neither Ban’s office nor UNDP replied to FOX News' questions about the possibilities for conflict of interest in this arrangement, and about the possible loss of centralized oversight over the U.N. in the process.

In its submission, UNDP argues that the involvement of Ban’s lawyers in the ex gratia procedure is a “remnant” of days prior to 2000, when the UNDP’s legal support office didn’t exist.

But in 2004, UNDP got a $10,000 increase in its ex gratia limit without requesting removal of the “remnant” of outside involvement.

UNDP’s other argument for using its own hand-picked lawyers is — once again — that the World Food Program is already doing it.

Despite its frequent references to WFP, the UNDP submission contains no reference to the food program’s $90 million ex gratia boondoggle, which in the opinion of the General Assembly’s financial overseers had involved an abuse of that authority to paper over a major distortion of its hiring and firing practices.

And in fact, the ACABQ itself is making no reference to its previous dismay over WFP’s ex gratia caper. In its own submission to UNDP’s executive board, the ACABQ notes that UNDP’s internal and external auditors have raised no objection, and recommends that the board adopt UNDP’s unlimited funding request at its upcoming session.

George Russell is executive editor of FOX News.