THE MANAGEMENT OF THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME Volume IV - Report of Investigation United Nations Administration, Part II The Cost of Administering the Programme Assessment of Programme Oversight Management of Programme Funds Performance of the UN-Related Agencies Programme Financial Statistics Major Recommendations with Proposals for Implementation Glossary Paul A. Volcker, Chairman Richard J. Goldstone, Member Mark Pieth, Member September 7, 2005 www.iic-offp.org INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME MANAGEMENT OF THE OIL-FOR-FOOD PROGRAMME VOLUME IV - TABLE OF CONTENTS CHAPTER 1 – THE COST OF ADMINISTERING THE PROGRAMME ...............1 I. INTRODUCTION AND SUMMARY.................................................................... 1 II. METHODOLOGY .................................................................................................. 4 III. BUDGETING FOR PROGRAMME ADMINISTRATIVE COSTS.................. 5 A. PROGRAMME BUDGETING PROCESS...................................................................... 5 B. THE ROLE OF ACABQ.......................................................................................... 6 IV. PROGRAMME ADMINISTRATIVE COSTS..................................................... 9 A. ADMINISTRATIVE COSTS RELATING TO RESOLUTION 986 .................................... 9 B. ADMINISTRATIVE COSTS RELATING TO RESOLUTIONS 1472 AND 1476 ............. 17 C. ADMINISTRATIVE COSTS RELATING TO RESOLUTION 1483 ................................ 20 D. SUMMARY OF ADMINISTRATIVE COSTS AND FEES.............................................. 25 V. FUNDING SOURCES FOR ADMINISTRATIVE COSTS AND FEES.......... 27 A. PROGRAMME SUPPORT COSTS ............................................................................ 27 B. IMPLEMENTATION COSTS.................................................................................... 29 C. FEES PAID UNDER RESOLUTIONS 1472, 1476, AND 1483.................................... 33 D. SUMMARY OF FUNDING SOURCES....................................................................... 34 VI. FINDINGS AND CONCLUSIONS...................................................................... 35 VII. ANNEX: LETTER RELATING TO RESOLUTION 1483 COSTS................. 37 CHAPTER 2 – ASSESSMENT OF PROGRAMME OVERSIGHT ..........................41 I. INTRODUCTION AND SUMMARY.................................................................. 41 II. OVERSIGHT FUNCTIONS OF THE UNITED NATIONS SYSTEM............ 43 A. INTERNAL OVERSIGHT ........................................................................................ 43 B. EXTERNAL OVERSIGHT ....................................................................................... 44 III. INTERNAL AUDITS OF THE AGENCIES ...................................................... 46 A. COVERAGE AND TIMING ..................................................................................... 46 B. PLANNING AND SCOPE ........................................................................................ 47 C. FUNDING AND STAFFING..................................................................................... 48 D. INTERNAL AUDIT FINDINGS AND RECOMMENDATIONS ....................................... 50 E. CONFLICT RESOLUTION AND REPORTING ........................................................... 51 F. OVERSIGHT COORDINATION ............................................................................... 53 i INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME MANAGEMENT OF THE OIL-FOR-FOOD PROGRAMME VOLUME IV - TABLE OF CONTENTS IV. EXTERNAL AUDITS........................................................................................... 55 A. INTRODUCTION TO THE BOARD OF AUDITORS..................................................... 55 B. STANDARDS ........................................................................................................ 56 C. EXTERNAL AUDITS OF THE IRAQ ACCOUNT ........................................................ 57 D. EXTERNAL AUDITS OF THE AGENCIES ................................................................ 61 V. INVESTIGATIONS............................................................................................... 64 A. INTRODUCTION TO OIOS INVESTIGATIONS DIVISION ......................................... 64 B. INVESTIGATIVE PROCESS .................................................................................... 65 C. FUNDING AND STAFFING..................................................................................... 67 D. PROGRAMME-RELATED INVESTIGATIONS ........................................................... 69 VI. OTHER OVERSIGHT FUNCTIONS ................................................................. 74 A. MONITORING EVALUATION AND CONSULTING ................................................... 74 B. JOINT INSPECTION UNIT...................................................................................... 74 VII. FINDINGS AND CONCLUSIONS...................................................................... 75 VIII. ANNEX 1: INTERNAL AUDIT REPORTS OF THE AGENCIES ................. 79 IX. ANNEX 2: EXTERNAL AUDITS OF THE IRAQ ACCOUNT....................... 81 X. ANNEX 3: EXTERNAL AUDITS OF THE AGENCIES.................................. 82 CHAPTER 3 – MANAGEMENT OF PROGRAMME FUNDS .................................85 I. INTRODUCTION AND SUMMARY.................................................................. 85 II. PROGRAMME BANKING.................................................................................. 87 A. COMMON PRINCIPLES AND POLICIES FOR INVESTMENTS..................................... 87 B. ACCOUNT ARRANGEMENTS ................................................................................ 90 C. PROGRAMME INVESTMENTS................................................................................ 92 III. TREASURY’S CONCERNS REGARDING THE MANAGEMENT OF PROGRAMME FUNDS ....................................................................................... 94 A. CREDIT RISK ....................................................................................................... 94 B. SHIFT TO TRANSACTING OIL SALES IN EUROS .................................................... 98 IV. RETURNS ON PROGRAMME FUNDS .......................................................... 100 A. ACCOUNTING FOR PROGRAMME INTEREST AND EARNINGS .............................. 100 B. ANALYSIS OF RETURNS..................................................................................... 101 C. INTEREST REMITTED BY THE UN-RELATED AGENCIES..................................... 104 V. FINDINGS AND CONCLUSIONS.................................................................... 107 ii INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME MANAGEMENT OF THE OIL-FOR-FOOD PROGRAMME VOLUME IV - TABLE OF CONTENTS CHAPTER 4 – PERFORMANCE OF THE UN-RELATED AGENCIES ..............109 I. INTRODUCTION AND SUMMARY................................................................ 109 II. THE THREE NORTHERN GOVERNORATES............................................. 111 A. SADDAM HUSSEIN AND THE THREE NORTHERN GOVERNORATES..................... 111 B. THE PROGRAMME IN THE THREE NORTHERN GOVERNORATES ......................... 112 C. FUNDING........................................................................................................... 114 III. PROGRAMME-RELATED RESPONSIBILITIES OF THE AGENCIES........................................................................................................... 116 A. FOOD AND AGRICULTURE ORGANIZATION........................................................ 116 B. INTERNATIONAL TELECOMMUNICATION UNION ............................................... 116 C. UNITED NATIONS DEVELOPMENT PROGRAMME ............................................... 117 D. UNITED NATIONS EDUCATIONAL, SCIENTIFIC AND CULTURAL ORGANIZATION................................................................................................. 117 E. UNITED NATIONS HUMAN SETTLEMENTS PROGRAMME ................................... 118 F. UNITED NATIONS CHILDREN’S FUND................................................................ 118 G. UNITED NATIONS OFFICE FOR PROJECT SERVICES............................................ 119 H. WORLD FOOD PROGRAMME.............................................................................. 119 I. WORLD HEALTH ORGANIZATION...................................................................... 120 IV. PROJECTS OUTSIDE THE AGENCIES’ CORE COMPETENCIES......... 122 A. UNESCO’S CHALK FACTORY CONSTRUCTION PROJECT ................................. 122 B. UN-HABITAT’S CONSTRUCTION OF RESIDENCES.............................................. 126 C. WHO’S HOSPITAL CONSTRUCTION PROJECTS .................................................. 130 D. ITU’S TELECOMMUNICATION REHABILITATION PROJECT................................. 137 V. INSUFFICIENT MANAGEMENT, COORDINATION, AND OVERSIGHT ............................................................................................. 140 A. INEFFECTIVE COORDINATION............................................................................ 140 B. UNCLEAR LINES OF AUTHORITY ....................................................................... 142 C. SHORTAGE OF QUALIFIED STAFF ...................................................................... 148 D. MANIPULATION BY THE GOVERNMENT OF IRAQ AND LOCAL AUTHORITIES ...................................................................................................