Audit finds U.N. violates own rules in North Korea

Audit finds U.N. violates own rules in North Korea
Fri Jun 1, 2007 8:29pm EDT

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By Evelyn Leopold

UNITED NATIONS (Reuters) - U.N. agencies violated their own rules in North Korea by employing national staff handpicked by the government and paying them in hard currency, according to a report by a U.N. board of auditors.

But the report, an interim survey, did not find that large-scale U.N. funding had been diverted systematically.

U.N. Secretary-General Ban Ki-moon, who ordered the audit, said preliminary findings needed to be followed up with a visit to North Korea by the auditors, drawn from France, South Africa and the Philippines.

The report said numerous items were not in their auditors possession, such as a checkbook kept in Pyongyang by the U.N. Development Fund, or UNDP, which was investigated along with the U.N. Children's Fund and the smaller U.N. Population Fund.

"The board was thus unable to determine whether the checks were made out in the name of the vendor or for cash, and therefore unable to determine what actual cash payments may have been made to local suppliers or staff," the report said.

Because of such limitations, the auditors said they could not yet "express any opinion on the financial results" of the U.N. agencies reviewed.

David Morrison, spokesman for UNDP, said all the checks, receipts and purchase orders were in Pyongyang. UNDP had supplied electronic records but was not asked to bring support documentation, which was voluminous, he said.

The controversy began last year when the United States, a member of the UNDP board, charged the agency violated rules by hiring staff vetted by the government and paid salaries in hard currency through the government.

SECRETIVE STATE

Mark Wallace, a U.S. deputy ambassador, has said millions of dollars may have been diverted to benefit the communist leadership of the secretive state. Asked why that was not evident in the report, a U.S. official said, "Stay tuned."

On Friday, Wallace, in a telephone conference, said, "The audit certainly validates some of our concerns in three areas" such as currency payments, violation of U.N. rules, the hiring of staff seconded by the government and a restriction on visits to sites where the program was being conducted.

Morrison, however, told a news conference, "There is nothing in the preliminary report to substantiate the central allegations that UNDP has been a 'steady and larger source of hard currency for the government.'"

The audit was conducted over a five-year period and said four U.N. agencies spent $72.5 million in North Korea, mainly $55.2 million by UNICEF and $13.2 million by UNDP.

UNDP said that over the last 10 years it spent a total of $30 million, some $3 million a year. It also handled an average of another $1 million a year in expenditures by other U.N. agencies, which did not have a regular presence.

UNDP suspended operations in North Korea on March 1 after the Pyongyang government refused to accept changes ordered by its board of directors, including that the agency not pay in hard currency and narrow the focus of its programs.

The U.N. agencies said many of the practices in North Korea, such as engaging a local work force through the government, had been common for years because there was little other choice.

For UNDP, Morris said practice has existed for the past 27 years and its board was aware of it.

((Editing by Vicki Allen; Reuters messaging: Evelyn.Leopold.reuters.com@reuters.net; 1-212-355-7424)