Audits show oil-for-food program poorly managed by U.N.

Monday, January 10, 2005

NEW YORK -- Internal audits sent to the director of the Iraq oil-for-food program uncovered extensive mismanagement of multimillion-dollar deals with contractors and fraudulent paperwork by its employees, according to copies of some of the reports.

But because the United Nations had released the 56 audits carried out during the course of the $60 billion program to only a small number of U.N. employees, they have become a source of contention between the United Nations and members of Congress examining allegations of corruption in the program. The audit reports have achieved a wider circulation as investigations of the program have become public.

The oil-for-food program was created as a humanitarian exemption to sanctions imposed on Iraq after the 1990 invasion of Kuwait, which led to the 1991 Gulf War. Beginning in 1996, it allowed Saddam Hussein's government to sell oil and use the proceeds to buy food, medicine and other items.

An independent panel led by former Federal Reserve chairman Paul Volcker, who was appointed in April by U.N. Secretary-General Kofi Annan to investigate corruption in the oil-for-food program, was given access to the files and planned to release 400 pages of the audits today.

But the United Nations had refused access to congressional investigators until Volcker's panel sent them copies on Friday. A congressional aide provided the AP with copies of three of the 56 audits, including one that found that the United Nations was billed over several years for 31 days of work in June, which only has 30 days.

The contention over access led some congressional investigators to accuse the United Nations of stonewalling outside investigations of alleged corruption at the program. At least five congressional probes are running separately from Volcker's.

In November, Sen. Norm Coleman, R-Minn., accused Annan of trying to cover up the extent of fraud at the program and called for his resignation.

Now that the internal audits are being released, the two sides disagree about what they show.

Though investigators from Volcker's panel told congressional aides the audits would not reveal any bombshells, some of those aides now say that the reports show systemic problems in the administration of the program.

Though the audits detail negligent U.N. management of contracts, a U.N. spokesman said they also show that the United Nations was monitoring itself during the course of the oil-for-food program.

Two of the audits examined irregularities that included overcharging by two companies that were hired to monitor Iraqi oil sales and the country's purchase of humanitarian goods under the program. Another audit detailed financial mismanagement by a U.N. agency administering humanitarian aid under the program.

"These audits do show that this was a program that was highly audited with a great level of oversight by the U.N.," spokesman Stephane Dujarric said Saturday.

In an interview with The New York Times published Friday, Volcker downplayed the importance of the audits. "There's no flaming red flags in this stuff," he said.

But investigators from two of the congressional panels working in parallel to Volcker disagreed.

The audits of the two companies hired by the United Nations reveal "overpayments, a total lack of U.N. verification of contractor duties performed, and no-bid procedures for additional contracts and extensions," a spokesman for the House International Relations Committee said on condition of anonymity.

It was unclear what steps the United Nations took to correct the mismanagement uncovered in the reports and to demand repayment from the companies recommended by the auditors. Some of the reports were commissioned by program executive director Benon Sevan, Dujarric said.

"Some of these audits were done by U.N. internal auditors at the request of the program director," said Dujarric. "The reports are management tools."

One audit dated July 3, 2002, and addressed to Sevan examined contracts with Saybolt International BV, a Dutch company that was hired to monitor oil exports from Iraq under the humanitarian program.

The report detailed billing by the company exceeding $2 million. The company inflated invoices, charged for accommodation of workers provided by the Iraqi government and exaggerated staffing and other expenses. For example, the report found that the United Nations was billed several years for 31 days of work in June, which only has 30 days.

Another report from July 21, 1999, detailed possible overpayments of more than $3 million to London-based Lloyd's Register Inspection Ltd., which was hired to inspect and monitor humanitarian goods as they were imported into Iraq.

The audit noted that the company billed the United Nations for agents deployed in December 1996, two months before the first contracts for the import of humanitarian supplies were issued.

"The contractor without consultation took the decision to deploy all the agents," the report states, costing the United Nations an estimated $1.97 million.

The company also was able to renegotiate inflated renewals of its contract because U.N. administrators neglected to consider competitors in time.

"It appears that the contractor was fully aware that the [United Nations] was unprepared or unwilling to undertake fresh bidding for the service," the report stated. "Negotiations with Lloyd's were always conducted just before the expiry of the contract."

In 1998 Lloyd's Register pulled out of the contract and was a replaced by another company, Cotecna Inspection S.A., a Swiss company, which has also been the subject of investigations of the U.N. program.

Telephone messages left at offices of Saybolt and Lloyd's Register on Saturday were not immediately returned.

A third audit on April 20, 1999, of the U.N. Office of the Humanitarian Coordinator for Iraq, the agency responsible for the implementation of humanitarian aid under the program, also revealed discrepancies in the procurement of equipment including cars, computers and furniture.

In one instance, the agency submitted invoices totaling $42,518 for furniture from a company in Jordan. The auditors determined that the "purchases had actually been made from a local vendor in contravention of sanctions," and that the price had been exorbitant.

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