	The UN Established a Weak Control Environment for Enforcing Sanctions and Managing the Oil for Food Program

Although the sanctions curbed the Iraq regime’s ability to advance its  military and weapons of mass destruction programs, the UN established a  weak control environment for the Oil for Food program at its beginning  due to compromises it made with the Iraq government and neighboring  states. For example, the UN allowed Iraq to control contract negotiations  for imported commodities with little oversight, allowing the regime to  obtain illicit funds through contract surcharges and kickbacks. Several  countries in the region depended on Iraqi trade, but no provisions were  made to address the economic impact of the sanctions on these countries. This undermined international support for sanctions and allowed Iraq to  smuggle oil outside the Oil for Food program. The sanctions helped  prevent the Iraq regime from obtaining prohibited military and dual-use  items, but little attention was given to oversight of the economic activities  related to the Oil for Food program, such as monitoring the price and  value of Iraq’s contracts. Unclear Authority, Lack of Risk Assessment, and Inadequate Monitoring and Oversight Further Undermined the Sanctions and Oil for Food Program

The UN did not adequately address other key internal control elements as  it implemented the Oil for Food program: (1) establishing clear authorities,  (2) identifying and addressing program risks, and (3) ensuring adequate  monitoring and oversight. For example, the Office of the Iraq Program lacked clear authority to  reject commodity contracts based on pricing concerns. In addition, the UN  contractor at Iraq’s border did not have the authority to evaluate imports  for price and quality, and no provisions were made to stop imports that  were not purchased through the Oil for Food program. Moreover, the UN  did not assess emerging risks as the Oil for Food program expanded from  a 6-month emergency measure to deliver food and medicine to a 6-year  program that provided more than $31 billion to 24 economic sectors. Some  monitoring activities constrained the ability of the regime to obtain illicit  contract surcharges, but smuggling continued despite the presence of  inspectors. Although the UN focus on screening military and dual-use items was  largely effective in constraining Iraq’s ability to import these goods  through the Oil for Food program, the UN’s neglect of Iraq’s illicit revenue  streams from smuggling and kickbacks undermined the program’s goal of  using Iraqi oil revenues to benefit the Iraqi people. Establish clear authorities for key management, oversight, and monitoring  activities. Assess the role of internal audit and evaluation units and take steps to  ensure that these entities have the resources and independence needed for  effective oversight. Although the UN’s internal audit office audited some  aspects of the Oil for Food program and identified hundreds of  irregularities, it lacked the resources and independence to provide  effective oversight of this costly and complex UN effort. Recommendation

In our report on the Oil for Food program’s internal controls, we  recommend that the Secretary of State and the Permanent Representative  of the United States to the UN work with other member states to  encourage the Secretary General to    ensure that UN programs with considerable financial risks establish,  apply, and enforce the principles of internationally accepted internal  control standards, with particular attention to comprehensive and timely  risk assessments; and    strengthen internal controls throughout the UN system, based in part on  the lessons learned from the Oil for Food program.
Why GAO Did This Study

In 1996, the United Nations (UN) and Iraq began the Oil for Food program after sanctions were imposed in 1990. The program was intended to allow the Iraqi government to sell oil to pay for humanitarian goods and prevent it from obtaining goods for military purposes. More than $67 billion in oil revenue was obtained through the program, with $31 billion in assistance delivered to Iraq. Internal controls serve as the first line of defense in preventing fraud, waste, and abuse and in helping agencies achieve desired outcomes. GAO assesses (1) the control environment the UN established for managing the sanctions and Oil for Food program and (2) other key internal control elements. In addition, we provide observations on the lessons learned from the program.

What GAO Found

The UN--the Security Council, the Secretariat, and member states--established a weak control environment for the Oil for Food program at the beginning. The UN allowed Iraq to control contract negotiations for imported commodities with little oversight, enabling the regime to obtain illicit funds through surcharges and kickbacks. The UN did not take steps to address the economic impact that the sanctions had on countries that depended on Iraqi trade, which undermined international support for sanctions and allowed Iraq to smuggle oil outside the Oil for Food program. Overall, the sanctions were effective in helping to prevent the Iraq regime from obtaining military items, but the UN was less rigorous in overseeing economic activities such as monitoring the price and value of Iraq's contracts. The UN's neglect of Iraq's illicit revenue streams helped support a sanctioned regime and undermined the goals of using oil revenues to benefit the Iraqi people. The UN did not adequately address key internal control elements as it implemented the Oil for Food program. First, UN entities lacked clear lines of authority. For example, the Office of the Iraq Program lacked clear authority for rejecting commodity contracts based on pricing concerns. In addition, the customs contractor at Iraq's border was not authorized to evaluate imports for price and quality. Second, the UN did not assess emerging risks as the Oil for Food program expanded from a 6-month emergency measure to deliver food and medicine to a 6-year program providing more than $31 billion to 24 economic sectors. Third, some monitoring activities constrained Iraq's ability to obtain illicit oil surcharges, but smuggling continued despite the presence of inspectors. In addition, the UN's internal audit office identified hundreds of weaknesses and irregularities in its reports. However, it lacked the resources and independence to provide effective oversight of this costly and complex UN effort. The Oil for Food program offers several lessons for designing future sanctions and strengthening existing UN programs: assess whether the sanctions program gives undue control to the sanctioned country; consider the economic impact that sanctions have on neighboring countries; ensure that all aspects of sanctions are equally enforced; establish clear authority and responsibility for management, oversight, and monitoring activities; assess and mitigate risk as programs and funding expand; and assess the role of internal oversight units and ensure that they have the resources and independence needed for effective oversight.