Auditors: U.N. agencies paid North Korean staff, suppliers in hard currency without approval

Auditors: U.N. agencies paid North Korean staff, suppliers in hard currency without approval

The Associated Press
Published: June 1, 2007

UNITED NATIONS: U.N. agencies paid North Korean staff and suppliers in hard currency without approval and hired only government-approved staff in violation of U.N. procedures, U.N. auditors said.

Secretary-General Ban Ki-moon ordered the external audit following U.S. accusations that the U.N. Development Program had funneled millions of dollars in hard currency to North Korea with little assurance that Kim Jong Il used the money to help his people instead of diverting it to "illicit purposes," including developing nuclear weapons.

"Even though this was only a preliminary review, the audit did confirm our concerns," U.S. deputy ambassador Mark Wallace told The Associated Press on Friday.

But David Morrison, spokesman for UNDP, said the audit confirmed what the agency has been saying since the U.S. allegations were made — that it had "a relatively small program" in North Korea, "certainly much smaller than the huge figures that have been circulating."

The audit, covering a five-year period from 2002 through 2006, was limited to U.N. staff and documents made available in New York — not in North Korea. It examined compliance with U.N. financial regulations and rules, and other directives aimed at ensuring that money spent in the reclusive communist nation went to the intended recipients.

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Because of the limited scope of the audit, the U.N. Board of Auditors said it "does not express any opinion on the financial results" of activities carried out in North Korea by UNDP, the U.N. children's agency UNICEF, the U.N. Population Fund and the U.N. Office for Project Services.

Over the five years, the report said the four U.N. agencies spent $72.5 million on programs in North Korea — including $55.2 million by UNICEF and $13.2 million by UNDP.

U.N. spokeswoman Michele Montas said the report points to some of the difficulties the U.N. agencies have had in operating in North Korea and "identifies practices not in keeping with how the U.N. operates elsewhere in the world."

"It should be noted that the report does not indicate that large-scale U.N. funding has been systematically diverted, as has been alleged," she said. "However, the secretary-general does expect the agencies to act upon the findings in the audit as quickly and transparently as possible."

According to the board's 32-page report, all four U.N. agencies made payments at different times in foreign currency, in North Korean won which can only be used locally, and in North Korean won which can be converted to hard currency.

The auditors said all payments in euros, won, and convertible won were made by checks, but they could not determine whether the checks were made out to suppliers or to cash. That prohibited them from determining what payments may have been made to local suppliers or staff, the report said.

In its findings, the auditors said that local payments made in foreign currencies were "without requisite authority" in the case of UNDP, the U.N. Population Fund and the U.N. Office for Project Services.

Jehane Sedky, spokeswoman for UNICEF, said "we're authorized to use foreign currency in our programs" by the UNICEF board. But rather than paying in euros in North Korea, she said, "we did shift to the convertible won a few months ago."

While UNICEF is still operating in North Korea, UNDP suspended operations on March 1 because North Korea failed to meet conditions set by its board following the U.S. allegations. North Korea asked the last two UNDP staffers to leave Pyongyang on May 3.

Morrison said the future of its North Korea program is "in the hands of the executive board."

"In our view, the relevant financial rules and regulations are in fact silent on the issue of use of currency for UNDP," he said.

As for local staff hiring, the auditors said UNDP, UNICEF and the U.N. Population Fund hired personnel "through a government agency ... contrary to relevant instructions and procedures." The board said it also "obtained evidence that project visits had taken place, but were done under the supervision" of North Korean authorities except for one UNICEF project.

Morrison said UNDP's hiring practices in North Korea existed for 27 years and "when concerns were raised, we changed them."