U.S. Ignored U.N. Aid Agency's Fraud and Mismanagement

Monday , January 11, 2010

By George Russell

Between 2004 and 2008, the U.S. Agency for International Development (USAID) showered more than $330 million on an obscure United Nations agency known as UNOPS — United Nations Office for Project Services — to carry out development aid projects in Afghanistan. What happened next wasn’t pretty.

Among other things, USAID apparently overlooked a growing stack of U.N. audits and investigations that pointed to fraud, mismanagement and lack of internal financial controls by UNOPS in Afghanistan, even as the U.S. agency continued to shovel money in UNOPS’s direction. So did other branches of the U.S. government, to the tune of an additional $100 million.

In a stunning number of cases, however, USAID also ignored its own oversight procedures and did not even insist that contracts with UNOPS enshrine the agency’s uncontested right to access financial records that would tell how the U.S. government money was spent. Consequently those records were never examined.

In other cases, it looked like legal loopholes were created to make sure UNOPS got to keep its financial records out of USAID’s reach.

Worse, the oversight disaster may still not be fixed—even as UNOPS, claiming that it has changed its ways, may get a bigger role in Afghanistan, financed with dollops of U.S. money, in the months and years ahead. .

U.S. government inspectors who did a 17-month study of the fiasco, however, have reported that they can’t fully assess whether the problems with UNOPS have been solved — partially due to a continuing lack of full cooperation on the part of UNOPS officials, who refused to let the inspectors question UNOPS managers thoroughly about the operations of the U.N. agency’s financial management system.

Along with refusing to allow the inspectors access to significant information about its financial management system, the study reveals that UNOPS had not even begun investigating some aspects of alleged fraud by its employees that has already been uncovered in Afghanistan, and, more importantly for future operations, still does not systematically review the accuracy of the data on its electronic books.

All of those distressing conclusions, and more, are contained in a dense, 68-page report by the Government Accountability Office (GAO), an investigative arm of Congress that examines how U.S. federal public funds are spent, and suggests a few remedies for the administrative lapses it uncovers.

Click here to read the entire report

In the case of UNOPS, GAO has been remarkably discreet. Its report was presented on Nov. 19 to the U.S. Senate Subcommittee on Investigations that originally commissioned it, then kept out of the public eye for another month.

The GAO findings only became public on Dec. 17, just in time to languish without much notice over the Christmas break. They were, however, hailed by UNOPS four days later, as the organization pledged “to continue to implement reforms that strengthen the organization’s management and financial controls.”

Both U.N. Secretary-General Ban Ki-moon and the Obama administration have their own reasons to applaud UNOPS’s attitude, however much it may or may not be grounded in fact. Both have big plans for upping U.S. spending in Afghanistan via the U.N., as part of an expanded military and civilian effort that President Obama inaugurated on Dec. 1, with the announcement that 30,000 additional U.S. troops would go to Afghanistan.

Alongside the military buildup, Secretary-General Ban on Dec. 4 began to tout a “civilian surge” in Afghanistan that would include mammoth infusions of additional development aid, under U.N. supervision, which would likely point to an increased role for UNOPS.

As part of that increase the U.N.’s requested spending this year for its peacekeeping mission in Afghanistan, known as UNAMA, is nearly $242 million, making it one of the fastest-growing — and contentious — big-ticket items in the U.N.’s 2010 budget. The U.S. share of that total would be about $63 million. (The U.S. pays about 22 percent of regular U.N budgets, and about 26 percent of peacekeeping tallies.)

But far more money than that will likely be involved. On Jan. 28, for example, Ban and British Prime Minister Gordon Brown will host a major international conference on Afghanistan that will include a significant pitch for more development aid — much of which will likely also be filtered through U.N. agencies, including UNOPS.

All of which could result in hundreds of millions of dollars worth of contracts churning through UNOPS, a little-known U.N. agency based in Copenhagen, which is the world organization’s chief on-the-ground manager for development projects, as well as a provider of procurement, human resources management, and financial management, services both for the U.N. and for other governments and private organizations.

It is also another U.N. organization swathed in diplomatic immunity and secrecy that has been stained in a series of scandals and administrative lapses in past years. The fallout from those lapses is continuing.

Last April, for example, the Inspector General of USAID issued a separate report on $25 million worth of projects sub-contracted to UNOPS between 2003 and 2006 to build small-scale infrastructure projects throughout Afghanistan. It revealed, among other things, that $10 million of the money was spent on UNOPS work in Haiti, Sudan, Sri Lanka and Dubai; that some of the projects actually completed in Afghanistan were built shoddily or to the wrong specifications and were on the verge of falling apart; that UNOPS officials saw at least one of the projects as a “cash cow,” and that UNOPS officials stonewalled when U.S. inspectors tried to find out what happened.

According to the report, UNOPS also drew down $6.7 million worth of U.S. funds from a line of credit months after the project ended, with no apparent justification. One whistleblowing U.N. employee cited in the Inspector General’s report reported that the local director of UNOPS spent about $200,000 of U.S. money on renovating his guesthouse.

At the same time, the agency’s oversight was further hampered by the fact that its 36-nation supervisory Executive Board did not have direct access to the internal audit reports documenting UNOPS’s failings — just as the same Executive Board, which also supervises the United Nations Development Program (UNDP), did not have access to internal audit reports from the same period that pointed to UNDP violations of its own rules in North Korea.

(In September 2008, the GAO report notes, UNOPS rules were altered to give Executive Board members “limited access” to the audits, if formally requested. The same change went into effect for UNDP.)

U.S. prosecutors subsequently were unable to bring civil or criminal charges against anyone involved with misappropriation of funds at UNOPS, because those officials operate under U.N. diplomatic immunity. The USAID Inspector General, however, vowed to set collection agencies on UNOPS to retrieve some of the money. UNOPS has since reported on its own website that it “has reimbursed money owed to its clients as a result of errors or misuse, and will address any new issues if they come to light.”

Click here for the Inspector General's report

The U.S. funds involved in the $25 million scandal are not even part of the bigger ocean of cash examined in the just-released GAO report.

Instead, the document observes in a footnote that UNOPS pulled down $97.8 million in U.S. subcontracting work between 2004 and 2008, over and above the money it received to undertake projects directly.

The litany of management sins uncovered in the U.N.’s own internal audits of UNOPS are the major focus of GAO concern—along with the fact that most of the documentation of those lapses was unavailable to the U.S., even as it funneled huge sums to the U.N. agency.

Since the inception of U.N. peacekeeping in Afghanistan in 2002, the GAO report says, regularly scheduled U.N. internal audits and investigations discovered that UNOPS was spending money it did not have (2002); lacked “valid information” on some of its costs and did not have an “independently validated internal control network” (2004); had “recurring expenditures” beyond its budget, along with inadequate or non-existent supervision by managers (2006), and along with continuing cost overruns, had “deficiencies in managing project budgets and expenditures in the field” (2007)

Some of the undocumented information on costs and spending increased the cost of projects dramatically. The GAO report says that the price-tag on the biggest USAID project in Afghanistan, building secondary roads, increased by a factor of ten through a series of modifications and add-ons—without supporting documentation.

In addition, an external U.N. Board of Auditors report on UNOPS, published in June, 2008, noted “significant weaknesses in the accounting and internal control system,” “inadequate cost control of projects” and other failings. At the same time the auditors declared that UNOPS “has made good progress” in “addressing various weaknesses in its internal control accounting and imprest functions.”

Click here to see a timeline of audit reports against USAID projects carried out by UNOPS

Indeed, during much of that period, UNOPS was in such bad shape that the U.N. comptroller declared in 2005 that the agency was “in a precarious situation,” and it subsequently underwent a substantial management overhaul. On its website, UNOPS claims that the new management (headed by current executive director Jan Mattson) was in the forefront of identifying the organization’s failings.

Significantly, however, the GAO study says that as far as it can determine, UNOPS financial documentation systems are still not up to the task of discovering bad management or wrongdoing. “Without a system in place that can document timely, accurate, and complete information, management’s capacity to ensure effective internal audits is limited.”

The GAO inspectors say that UNOPS’s own director of internal oversight has said that “the accuracy and completeness of data entry remain a concern.” The inspectors added their own important observation that UNOPS management “does not know the extent to which data reliability is a problem because UNOPS has not sought any systematic check on data reliability.”

Nor did UNOPS management apparently want the GAO inspectors to find out certain things on their own. As part of their investigation, the inspectors prepared a questionnaire for UNOPS managers world wide, asking them to assess how well the UNOPS financial management system, known as Atlas, captured data and strengthened internal financial controls.

The report says that UNOPS top management demanded that the inspectors cut out “almost half” of the proposed survey questions, including ones the U.S. officials felt “were important” to discovering the capabilities of Atlas.

The failings found by the inspectors on the part of USAID itself in the UNOPS case are equally grave, starting with the inexplicable lack of concern by the agency in following its own rules regarding oversight.

In dealing with organizations like UNAPS, the report says, USAID can demand a right to audit financial documentation in any contract where it is the sole donor to a project, as it was in five of 11 of the major grants made to UNOPS during the 2004-2008 period. UNAID did not demand the inclusion of that right in the contracts, the report says.

Even when the aid agency is not the sole contributor, it can negotiate for the same rights, and in four cases chose not to. In three of the four cases, the only other contributor turned out to be UNOPS itself, often in token ways, like adding in-kind landscaping services. Top UNOPS officials told the GAO inspectors that the U.N. agency’s actions were “strange,” because UNOPS is not normally a donor to anything it works on.

Says the report: “They told us these in-kind contributions might have been made to avoid USAID’s regulations.”

When it came to recommendations arising from their work, the GAO inspectors confined themselves to generalities, including the tightening up of USAID procedures to demand audits when the agency’s contributions gave it the right to do so, better training of USAID officials in those rights, and creation of some kind of system to check that the audit rights were actually asked for. All of these were apparently embraced by the State Department, of which USAID is a part.

When it came to UNOPS, the inspectors didn’t say much — presumably because the U.N. agency is immune to strong medicine administered from outside its diplomatic immunity envelope.

Instead, the GAO officials vaguely urged that Secretary of State Hillary Clinton work with other member states to “support” UNOPS’s “continued management reforms,” and to “encourage UNOPS management to assess the effectiveness of the reform effort.”

On the first GAO suggestion, UNOPS on its website has said it “takes note of these comments, and is committed to further strengthening data quality, to completing investigative processes and to implementing necessary reforms.”

But then it added, on the point of assessing the effectiveness of its reforms, that “UNOPS believes reforms have already produced tangible results.” Among other things, the agency said, its external auditors had approved its accounts without qualifications, and UNOPS has been able to sign new operating agreements with various U.N. agencies, the European Commission and the World Bank.

As a result, the agencies revenues and new business have “almost doubled,” the agency reported.

With fresh gushers of cash about to pour into Afghanistan in the near future, those revenues could be on a path to skyrocket much further — regardless how much improvement is actually registered with the way that UNOPS handles the money under its care.

George Russell is executive editor of Fox News