U.N. Audits Cite Lax Oversight

Internal United Nations audits released Sunday show that lax oversight in the Iraqi “oil-for-food” program allowed overcharging by contractors, theft by U.N. workers and laziness among inspectors who seldom checked the imports they were supposed to monitor.

The documents, detailing 58 audits from 1996 to 2003, were made public by an investigative commission headed by former Federal Reserve Chairman Paul Volcker.

U.N. Secretary-General Kofi Annan has asked Volcker to take an independent look at charges of corruption and mismanagement in the $64-billion oil-for-food program, which was set up in the 1990s to allow Iraqi President Saddam Hussein’s regime -- then under U.N. sanctions -- to sell oil and use the revenue to import food and other humanitarian goods for the Iraqi people. Volcker’s report is expected by the end of the month.

In addition to Volcker’s review, the oil-for-food program is the target of seven other investigations, most of them commissioned by Congress. For months, the other investigators had pressed Annan and Volcker to share the internal U.N. audits, to which Volcker’s team had exclusive access.

Now that the reports are public, competition among the various inquiries is likely to intensify, as each group offers its own assessment and interpretation.

U.N. officials say the 58 internal examinations in seven years show that the program was closely watched.

“This is the U.N. looking at itself,” Stefan Dujarric, a U.N. spokesman, said Sunday. Some of the audits were commissioned by the head of the program, Benon V. Sevan; others were initiated by the U.N.’s internal oversight office, he said.

“Whether or not the follow-up was proper is an issue Volcker was looking at,” Dujarric added. “That’s his judgment to make.”

Volcker said he found nothing too alarming in the reports. “There’s no red flaming flags in this stuff,” he told the New York Times.

Mismanagement, corruption and manipulation of the oil-for-food program by Hussein, along with rampant smuggling, allowed him to amass $11 billion while under U.N. sanctions, according to a recent estimate by the CIA’s Iraq Survey Group, a weapons-hunting team.

Volcker’s group noted, however, that U.N. auditors didn’t seriously examine the contracts Hussein’s government handed out. “There was no examination” by U.N. auditors even though “the potential use of oil and humanitarian contracts by the former regime to gather illicit payments was a major concern.”

Volcker plans to make a preliminary report at the end of the month, focusing largely on management and procurement issues, he said.

But some congressional investigators say that the large number of audits -- and persistent abuse and mismanagement in the program -- shows that the U.N. was incapable of overseeing such a huge undertaking and correcting problems.

One of the most problematic areas was the performance of firms hired to monitor oil exports and humanitarian imports. Incoming goods were supposed to be checked for materials that had possible military use; such items were banned.

But one of the monitoring contractors, Lloyd’s Register Group, sent inspectors to Iraq three months before any goods were due to come in, racking up $1.97 million in unjustifiable fees, one audit said. Auditors also found that Lloyd’s didn’t have inspectors at designated posts for 1,800 days but charged the U.N. $1.38 million for their services anyway. Those at the posts often did not independently verify the cargos and only checked the paperwork.

In spite of such problems, the U.N. Headquarters Contracts Committee evaluated the company’s performance as satisfactory and renewed its contract without competition.

A company called Cotecna Inspection SA replaced Lloyd’s in 1998. But a January 2002 audit said that Cotecna’s increase of its per-man fee from $499 a day as specified in the original contract to $600 was “inappropriate” and that the company often had fewer inspectors than required. It concluded that the U.N. should recover money from the company for its underperformance. But there was no follow-up, Volcker’s team noted.

Cotecna’s contract has been the subject of much attention because the company employed Annan’s son, Kojo. He did not work on the Iraq project, but continued to receive payments from the company for five years after leaving the firm in 1998. There is no evidence that his family name was instrumental in securing the contract for Cotecna, but the secretary-general has conceded that “it looks bad.”

Another inspection firm, Saybolt Eastern Hemisphere BV, overcharged the U.N. by about $1 million, including $471,000 for transportation and housing that was provided free by the government of Iraq, auditors found.

A separate audit of the U.N. humanitarian aid office in Iraq revealed that staffers allegedly stole about $100,000 in office equipment.

A briefing paper from the Volcker panel that accompanied the release of the audits noted that U.N. auditors were faced with an extraordinary challenge: dissecting a program that involved billions of dollars and thousands of employees operating in an area where politics were sensitive and corruption was rife.

The paper said the “broadest and ultimately most important” question was whether the auditors kept the program honest, or were inappropriately influenced by senior U.N. officials into brushing problems under the rug.

The answer will make up the bulk of the Volcker team’s month-end report. But hints of its conclusion are scattered through the briefing paper released Sunday.

It notes a “lack of examination” of Sevan’s office, which ran the program, and says that “management responses to [auditors’] recommendations were often contentious and suggested a reluctance to impose the controls and constraints on the contractors that the auditors believed were necessary.”

The paper also notes that humanitarian and oil contracts were not scrutinized to prevent surcharge schemes or kickbacks, and when they became known, responsibility lobbed back and forth between Sevan’s office and the U.N. Security Council.

Of 559 recommendations by auditors to rectify the program, 157 of the 179 deemed crucial were implemented. One audit report stated that only 11 of the 45 previous audit recommendations had been implemented and noted that senior management reported that 12 recommendations had been implemented when they had not.