From 1997 to 2003, the Oil for Food program was responsible for more  than $67 billion of Iraq's oil revenue. 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 Acquired an Estimated $10.1 Billion in Illicit Revenue

We estimate that, from 1997 through 2002, the former Iraqi regime  acquired $10.1 billion in illegal revenues—$5.7 billion through oil smuggled  out of Iraq 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. United Nations and Security Council Had Responsibility for Oversight of Program, but Iraq Contracted Directly with Purchasers and Suppliers

Both OIP, as an office within the U.N. Secretariat, and the Security  Council’s sanctions committee were responsible for overseeing the Oil for  Food Program. 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 purchases, but it is  unclear what actions it took to respond to commissions on commodity  contracts. Ongoing investigations of the Oil for Food program may wish to  consider further examining how the structure of the program enabled the  Iraqi government to obtain illegal revenues, the role of member states in  monitoring and enforcing the sanctions, actions taken to reduce oil  smuggling, and the responsibilities and procedures for assessing price  reasonableness in commodity contracts. Iraqi  control over contract negotiations was an important factor in allowing Iraq  to levy illegal surcharges and commissions. The reports stated that OIP was generally responsive to  external audit recommendations. U.N. external audit reports contained no  findings of fraud during the program. 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. Challenges in Addressing Iraq’s Food Security

Evolving policy and implementation decisions on the food distribution  system and the worsening security situation have affected the movement  of food commodities within Iraq. As a result, warehouse stocks are low,  and Iraq has less than a month’s supply of several food items, including  staple grains, and no buffer stock. The  government will have to decide whether to continue, reform, or eliminate  the current system. In addition, inadequate oversight and corruption in the  Oil for Food program raise concerns about the Iraqi government’s ability  to manage the food distribution system and absorb donor reconstruction  funds under existing structures. The CPA has taken steps, such as  appointing inspectors general, to strengthen accountability measures in  Iraq’s ministries. Appendix I: Scope and Methodology

We used the following methodology to estimate the former Iraqi  regime’s illicit revenues from oil smuggling, surcharges on oil, and  commissions from commodity contracts from 1997 through 2002:
To estimate the amount of oil the Iraqi regime smuggled, we used  Energy Information Administration (EIA) estimates of Iraqi oil  production and subtracted oil sold under the Oil for Food program and  domestic consumption. Signed a memorandum of understanding allowing Iraq’s export of oil to pay for  food, medicine, and essential civilian supplies.
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. However, over the years numerous allegations have surfaced concerning potential fraud and program mismanagement. GAO (1) reports on its estimates of the illegal revenue acquired by the former Iraqi regime in violation of U.N. sanctions, (2) provides observations on program administration; and (3) describes the current and future challenges in achieving food security.

What GAO Found

GAO estimates that from 1997- 2002, the former Iraqi regime acquired $10.1 billion in illegal revenues, 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 through the Oil for Food program. 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. The United Nations, through the Office of the Iraq Program (OIP) and the Security Council's Iraq sanctions committee, were both responsible for overseeing the Oil for Food Program. However, the Security Council allowed the Iraq government, as a sovereign entity, to negotiate contracts directly with purchasers of Iraqi oil and suppliers of commodities. This structure was an important factor in allowing Iraq to levy illegal surcharges and commissions. OIP was responsible for examining Iraqi contracts for price and value, but 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. The sanctions committee took action to stop illegal oil surcharges, but it is unclear what actions it took on contract commissions. U.N. external audit reports contained no findings of program fraud. Summaries of internal audit reports pointed to some concerns regarding procurement, coordination, monitoring, and oversight and concluded that OIP had generally responded to audit recommendations. Ongoing investigations of the Oil for Food program may wish to further examine how the structure of the program enabled the Iraqi government to obtain illegal revenues, the role of member states in monitoring and enforcing the sanctions, actions taken to reduce oil smuggling, and the responsibilities and procedures for assessing price reasonableness in commodity contracts. Evolving policy and implementation decisions on the food distribution system and the worsening security situation have affected the movement of food commodities within Iraq. As a result, as of June 2004, food warehouse stocks are low and Iraq has less than a month's supply of essential food items, according to U.S. and World Food Program officials. In addition to these current food security challenges, the new government will have to balance the need to reform a costly food subsidy program with the need to maintain food stability and protect the poorest populations. Also, inadequate oversight and corruption in the Oil for Food program raise concerns about the Iraqi government's ability to manage the food distribution system and absorb $32 billion in expected donor funds for reconstruction. The coalition authority has taken steps, such as appointing inspectors general, to build internal controls and accountability measures in Iraq's ministries.