Despite concerns that sanctions may have worsened the humanitarian  situation, the Oil for Food program appears to have helped the Iraqi  people. According to the United Nations, the average daily food intake  increased from around 1,275 calories per person per day in 1996 to about  2,229 calories at the end of 2001. Former Iraqi Regime Diverted an Estimated $10.1 Billion from the Oil for Food Program

We estimate that, from 1997 through 2002, the former Iraqi regime  acquired $10.1 billion in illegal revenues related to the Oil for Food  program—$5.7 billion through oil smuggling and $4.4 billion through  surcharges against oil sales and illicit commissions from commodity  suppliers. We updated our estimate to include (1) oil  revenue and contract amounts for 2002, (2) updated letters of credit from  prior years, and (3) newer estimates of illicit commissions from  commodity suppliers. However, the Iraqi government negotiated contracts  directly with purchasers of Iraqi oil and suppliers of commodities. While  OIP was to examine each contract for price and value, it is unclear how it  performed this function. The sanctions  committee responded to illegal surcharges on oil, but it is unclear what  actions it took to respond to commissions on commodity contracts. Iraqi  control over contract negotiations may have been one important factor in  allowing Iraq to levy illegal surcharges and commissions. As provided in Security Council resolution 986 of 1995  and a memorandum of understanding between the United Nations and the  Iraqi government, OIP was responsible for monitoring the sale of Iraq’s oil,  monitoring Iraq’s purchase of commodities and the delivery of goods, and  accounting for the program’s finances. The Sanctions Committee Had a Key Role in Enforcing Sanctions and Approving Contracts

The sanctions committee was responsible for three key elements of the Oil  for Food Program: (1) monitoring implementation of the sanctions, (2)  screening contracts to prevent the purchase of items that could have  military uses, and (3) approving Iraq’s oil and commodity contracts. CPA’s Administration of the Oil for Food Program

In November 2003, the United Nations transferred to the CPA  responsibility for 3,059 Oil for Food contracts totaling about $6.2 billion  and decided not to transfer a remaining 2,199 contracts for a variety of  reasons. In addition, poor planning and coordination are affecting the  execution of food contracts. U.N. resolution 1483 requested the Secretary General, through  OIP, to transfer to the CPA all relevant documentation on Oil for Food  contracts. The CPA received few source documents such as the original contracts,  amendments, and letters of credit needed to identify the status of  commodities, prepare shipment schedules, and contact suppliers. The CPA and WFP addressed these problems with emergency  procurements from nearby countries. CPA and Transitional Government Face Challenges in Preventing Corruption and Reforming the Food Distribution System

The history of inadequate oversight and corruption in the Oil for Food  program raises questions about the Iraqi government’s ability to manage  the import and distribution of Oil for Food commodities and the billions in  international assistance expected to flow into the country. CPA’s coordination center continues to provide on-the-job training for  ministry staff who will assume responsibility for Oil for Food contracts  after July 2004.
Why GAO Did This Study

The Oil for Food program was established by the United Nations and Iraq in 1996 to address concerns about the humanitarian situation after international sanctions were imposed in 1990. The program allowed the Iraqi government to use the proceeds of its oil sales to pay for food, medicine, and infrastructure maintenance. The program appears to have helped the Iraqi people. From 1996 through 2001, the average daily food intake increased from 1,300 to 2,300 calories. From 1997-2002, Iraq sold more than $67 billion of oil through the program and issued $38 billion in letters of credit to purchase commodities. GAO (1) reports on its estimates of the revenue diverted from the program, (2) provides preliminary observations on the program's administration, (3) describes some challenges in its transfer to the CPA, and (4) discusses the challenges Iraq faces as it assumes program responsibility.

What GAO Found

GAO estimates that from 1997-2002, the former Iraqi regime attained $10.1 billion in illegal revenues from the Oil for Food program, including $5.7 billion in oil smuggled out of Iraq and $4.4 billion through surcharges on oil sales and illicit commissions from suppliers exporting goods to Iraq. This estimate includes oil revenue and contract amounts for 2002, updated letters of credit from prior years, and newer estimates of illicit commissions from commodity suppliers. Both the U.N. Secretary General, through the Office of the Iraq Program (OIP) and the Security Council, through its sanctions committee for Iraq, were responsible for overseeing the Oil for Food Program. However, the Iraq government negotiated contracts directly with purchasers of Iraqi oil and suppliers of commodities, which may have been one important factor that allowed Iraq to levy illegal surcharges and commissions. While OIP was responsible for examining Iraqi contracts for price and value, it is unclear how it performed this function. The sanctions committee was responsible for monitoring oil smuggling, screening contracts for items that could have military uses, and approving oil and commodity contracts. While the sanctions committee responded to illegal surcharges on oil, it is unclear what actions it took to respond to illicit commissions on commodity contracts. OIP transferred 3,059 Oil for Food contracts--with pending shipments valued at $6.2 billion--to the CPA on November 22, 2003. However, the CPA stated that it has not received all the original contracts, amendments, and letters of credit it needs to manage the program. These problems, along with inadequate CPA staffing during the transfer, hampered the efforts of CPA's Oil for Food coordination center in Baghdad to ensure continued delivery of commodities. Poor planning, coordination, and the security environment in Iraq continue to affect the execution of these contracts. Inadequate oversight and corruption in the Oil for Food program raise concerns about the Iraqi government's ability to import and distribute Oil for Food commodities and manage at least $32 billion in expected donor reconstruction funds. The CPA has taken steps, such as appointing inspectors general, to build internal control and accountability measures at Iraq's ministries. The CPA and the World Food Program (WFP) are also training ministry staff to help them assume responsibility for Oil for Food contracts in July 2004. The new government will have to balance the reform of its costly food subsidy program with the need to maintain food stability and protect the poorest populations.