United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on National Security, 

Emerging Threats, and International Relations; 

Committee on Government Reform House of 

Representatives 

UNITED NATIONS 

Oil for Food Program 

Provides Lessons for Future 

Sanctions and Ongoing 

Reform 

Statement of Joseph A. Christoff, Director 

International Affairs and Trade 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Tuesday, May 2, 2006 

 

GAO-06-711T 
Tuesday, May 2, 2006

UNITED NATIONS

Oil for Food Program Provides Lessons 

for Future Sanctions and Ongoing 

Reform 

Highlights of GAO-06-711T, a testimony 

before the Subcommittee on National 

Security, Emerging Threats, and 

International Relations; Committee on 

Government Reform, House of 

Representatives 

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 Recommends

GAO recommends that the

Secretary of State and the 

Permanent Representative of the 

U.S. to the UN work with member

states to (1) ensure that UN 

programs with considerable

financial risk apply internationally 

accepted internal control standards 

and (2) strengthen internal controls 

throughout the UN, based on the 

lessons from Oil for Food program.

The Department of State and the

UN responded that they are taking

steps to strengthen internal

controls at the UN. 

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. 

• Assess the role of internal oversight units and ensure that they have the 

resources and independence needed for effective oversight. 

www.gao.gov/cgi-bin/getrpt?GAO-06-711T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Joseph 

Christoff at (202) 512-8979 or 

christoffj@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the lessons learned from the 

United Nations (UN) Oil for Food program and the implications for future 

sanctions programs and ongoing UN reform efforts. 

In 1996, the UN and Iraq began the Oil for Food program to address 

growing concerns about Iraq’s humanitarian situation after international

sanctions were imposed in 1990. The intent of the program was to allow 

the Iraq government to use the proceeds of its oil sales to pay for food, 

medicine, and infrastructure maintenance and, at the same time, prevent 

the regime from obtaining goods for military purposes. Iraq obtained more 

than $67 billion in oil revenues through the program; as of November 2003, 

about $31 billion in commodities and humanitarian assistance had been 

delivered to Iraq.1

 Four key entities were responsible for most of the 

program’s operations—the Security Council’s Iraq sanctions committee, 

the UN Secretariat’s Office of the Iraq Program, nine UN agencies with 

separate programs in northern Iraq, and the Iraqi government under 

Saddam Hussein. 

The 2005 Defense Authorization Act mandated that GAO review the Oil for 

Food program2

 following allegations of corruption and misconduct. In 

April 2006, we issued a report on the results of our work and our 

recommendations for strengthened internal controls at the UN.3

 We have

also testified numerous times on the Oil for Food program and issued a 

report in May 2002 on the implementation of sanctions against Iraq.4

Today, I will discuss (1) the control environment established by the UN for 

managing the sanctions and Oil for Food program; (2) other key internal

control elements addressed by the UN, including lines of authority and 

 1

The UN allocated 72 percent of Iraq’s oil proceeds to humanitarian assistance for Iraq; it 

also allocated a portion of these proceeds to a compensation fund for paying reparations to 

victims of Iraq’s 1990 invasion of Kuwait and to UN administrative expenses for 

administering the Oil for Food program and international sanctions. 

2

Public Law 108-375, Ronald W. Reagan National Defense Authorization Act for Fiscal Year 

2005, October 2004. 

3

GAO, United Nations: Lessons Learned from Oil for Food Program Indicate the Need to

Strengthen UN Internal Controls and Oversight, GAO-06-330 (Washington, D.C.: Apr. 25, 

2006). 

4

GAO, Weapons of Mass Destruction: U.N. Confronts Significant Challenges in

Implementing Sanctions Against Iraq, GAO-02-625 (Washington, D.C.: May 23, 2002). 

Page 1 GAO-06-711T
responsibility, risk assessment, and monitoring and oversight; and (3) our 

observations on the lessons learned from the Oil for Food program. To 

address these objectives, we used the body of work that GAO has 

completed on Iraq sanctions, the Oil for Food program, and UN oversight 

issues. 

Policymakers and program managers are continually seeking ways to 

better achieve agencies’ missions and program results and improve 

accountability for results. A key factor in helping to achieve such 

outcomes is appropriate internal control, which, if properly designed and

implemented, provide reasonable assurance that objectives are being met.

Internal controls also serve as the first line of defense in safeguarding 

assets and preventing fraud, waste, and abuse.5

 Our April 2006 report used 

this internal control framework to identify the key weaknesses in 

enforcing sanctions against Iraq and implementing the Oil for Food 

program. 

The UN—the Security Council, the Secretariat, and member states—

established weak controls over the Oil for Food program from its 

beginning. Specifically, the UN allowed Iraq to control contract 

negotiations for imported commodities with little oversight, enabling the

regime to obtain illicit funds through contract surcharges and kickbacks. 

The UN also did not take steps to address the economic impact that the 

sanctions had imposed on countries that depended on Iraqi trade. This 

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 or 

dual-use items, but the UN was less rigorous in overseeing economic 

activities related to the Oil for Food program such as monitoring the price 

and value of Iraq’s contracts. The UN’s neglect of Iraq’s illicit revenue 

Summary 

 5

A general framework for internal controls is widely accepted in the international audit

community and has been adopted by leading accountability organizations, including the 

International Organization of Supreme Audit Institutions, the U.S. Office of Management

and Budget, and GAO. These standards use the internationally accepted Internal ControlIntegrated Framework (September 1992) by the Committee of Sponsoring Organizations of 

the Treadway Commission. The first standard within this framework is the control 

environment, which provides the structure, discipline, and ethical tone for implementing an 

internal control system. Other standards focus on employing assessments of the external

and internal risks an organization faces; establishing policies and procedures to enforce

directives (control activities); providing relevant, timely, and reliable information and 

communication; and monitoring performance and adhering to audit findings. 

Page 2 GAO-06-711T
streams from smuggling and kickbacks helped support a sanctioned 

regime and undermined the program’s goal of using oil revenues to benefit 

the Iraqi people. 

As the program was implemented, sanctions and the Oil for Food program 

were further weakened by inadequate attention to internal controls, 

including (1) establishing clear responsibility and authority, (2) identifying 

and addressing program risks, and (3) ensuring adequate monitoring and 

oversight. UN entities and contractors responsible for implementing and

monitoring the program lacked clear lines of authority. 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 was not authorized to evaluate imports for price and quality, 

and there were no provisions to stop imports 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 Iraq’s agriculture, electricity, oil, housing, and 20 other 

economic sectors. Some monitoring activities curtailed the ability of the 

regime to obtain illicit contract surcharges, but smuggling continued 

despite the presence of inspectors. Finally, the UN’s internal audit office

audited some aspects of the Oil for Food program and identified hundreds 

of weaknesses and irregularities. However, it lacked the resources and 

independence needed to provide full and effective oversight of this large,

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 key management, 

oversight, and monitoring activities.

• Continuously assess and mitigate risk as programs and funding expand.

• 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. 

Page 3 GAO-06-711T
In our April 2006 report on the Oil for Food Program, we recommended 

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 (1) 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 

(2) strengthen internal controls throughout the UN system, based in part

on the lessons learned from the Oil for Food program. The Department of 

State and the UN responded that they are taking steps to strengthen 

internal controls at the UN. 

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. Allowing Iraq to obtain revenues outside the Oil 

for Food program undermined the goals of containing the regime and 

using its oil revenues for UN-managed assistance to benefit the Iraqi 

people. 

When the UN first proposed the Oil for Food program in 1991, it 

recognized the vulnerability inherent in allowing Iraq control over the 

contracting process. At that time, the Secretary General proposed that the 

UN, an independent agent, or the Iraqi government be given the 

responsibility to negotiate contracts with oil purchasers and commodity 

suppliers. However, the Secretary General subsequently concluded that it

would be highly unusual or impractical for the UN or an independent 

agent to trade Iraq’s oil or purchase commodities and recommended that

Iraq negotiate the contracts and select the contractors. Nonetheless, he 

stated that the UN and Security Council must ensure that Iraq’s 

The UN Established a 

Weak Control 

Environment for 

Enforcing Sanctions 

and Managing the Oil 

for Food Program 

Early Compromises 

Allowed Iraq to Set the 

Terms for Contracting and 

Monitoring 

Page 4 GAO-06-711T
contracting did not circumvent the sanctions and was not fraudulent. 

Accordingly, the Security Council proposed that UN agents review the 

contracts and compliance at the oil ministry. Iraq refused these conditions. 

By the mid-1990s, the humanitarian conditions had worsened. The UN 

reported that the average Iraqi’s food intake was about 1,275 calories per 

day, compared with the standard requirement of 2,100 calories. In April 

1995, the Security Council passed resolution 986 to permit Iraq to use its 

oil sales to finance humanitarian assistance. Against a backdrop of 

pressure to maintain sanctions while addressing emergency humanitarian 

needs, the UN conceded to Iraq’s demand that it retain independent 

control over contract negotiations. Accordingly, a May 1996 memorandum 

of understanding6

 between the UN and Iraq allowed Iraq to directly tender

and negotiate contracts without UN oversight and to distribute imported 

goods to the intended recipients. 

When the Oil for Food program began, the UN was responsible for 

confirming the equitable distribution of commodities, ensuring the 

effectiveness of program operations, and determining Iraq’s humanitarian 

needs. According to the memorandum of understanding, the Iraqi 

government was to provide UN observers with full cooperation and access 

to distribution activities. However, observers faced intimidation and 

restrictions from Iraqi regime officials in carrying out their duties. 

According to a former UN official, observers could not conduct random 

spot checks and had to rely on distribution information provided by 

ministry officials, who then steered them to specific locations. The 

Independent Inquiry Committee7

 reported that observers were required to

have government escorts and cited various instances of intimidation and 

interference by Iraqi officials. The committee concluded that the limits 

placed on the observers’ ability to ask questions and gather information 

affected the UN Secretariat’s ability to provide complete field reports to 

the sanctions committee.

 6

Memorandum of Understanding between the Secretariat of the United Nations and the 

Government of Iraq on the Implementation of Security Council Resolution 986 (1995), 

May 20, 1996. 

7

In April 2004, the UN established the Independent Inquiry Committee, headed by Paul 

Volcker, the former Chairman of the U.S. Federal Reserve, to investigate the administration 

and management of Oil for Food program. Its scope included investigating allegations of 

fraud and corruption on the part of UN officials, personnel, and agents that entered into

contracts with the UN or with Iraq under the program.

Page 5 GAO-06-711T
Under Security Council resolutions, all member states had the 

responsibility for enforcing sanctions. For Iraq, the UN depended on 

neighboring countries to deter the importation of illicit commodities and 

smuggling. However, concessions to regional trade activity affected the

sanctions environment and allowed the Iraqi regime to obtain revenues 

outside the Oil for Food program. Although oil sales outside the program 

were prohibited, the Security Council’s Iraq sanctions committee did not 

address pre-existing trade between Iraq and other member states, and no 

provisions were made for countries that relied heavily on trade with Iraq.

Illicit oil sales were primarily conducted on the basis of formal trade 

agreements. For example, trade agreements with Iraq allowed Jordan—a 

U.S. ally dependent on Iraqi trade—to purchase heavily discounted oil in

exchange for up to $300 million in Jordanian goods. Members of the 

sanctions committee, including the United States, took note of Iraq’s illicit

oil sales to its neighbors, but took no direct action to halt the sales or take 

steps against the states or entities engaged in them. In addition, successive

U.S. administrations issued annual waivers to Congress exempting Turkey 

and Jordan from unilateral U.S. sanctions for violating the UN sanctions 

against Iraq.

According to U.S. government officials and oil industry experts, Iraq 

smuggled oil through several routes. Oil entered Syria by pipeline, crossed 

the borders of Jordan and Turkey by truck, and was smuggled through the 

Persian Gulf by ship. Syria received up to 200,000 barrels of Iraqi oil a day

in violation of the sanctions. Oil smuggling also occurred through Iran. The 

Security Council authorized the Multinational Interception Force in the 

Persian Gulf, but, according to the Department of Defense, it interdicted 

only about 25 percent of the oil smuggled through the Gulf.8

The UN’s 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. Each member of the Security Council’s Iraq 

sanctions committee had authority to approve, hold, or block any contract

for goods exported to Iraq. The United States, as a member of the 

committee, devoted resources to conducting a review of each commodity 

contract. As a result, the United States was the Security Council member 

that most frequently placed holds on proposed sales to Iraq; as of May 

2002, it was responsible for about 90 percent of the holds placed by the 

UN Did Not Address the 

Economic Impact of 

Sanctions on Member 

Countries

Sanctions Enforcement 

Focused on Military Items, 

but Less Rigorous 

Oversight for Economic 

Activities Facilitated Iraq’s 

Ability to Obtain Illicit 

Revenues

 8

GAO-02-625. 

Page 6 GAO-06-711T
Security Council. U.S. technical experts assessed each item in a contract

to determine its potential military application and whether the item was 

appropriate for the intended end user. These experts also examined the 

end user’s track record with such commodities. An estimated 60 U.S. 

government personnel within the Departments of State, Defense, Energy, 

and other agencies examined all proposed sales of items that could be 

used to assist the Iraqi military or develop weapons of mass destruction. In 

addition, the Department of the Treasury was responsible for issuing U.S. 

export licenses to Iraq. It compiled the results of the review by U.S. 

agencies under the UN approval process and obtained input from the 

Department of Commerce on whether a contract included any items found 

on a list of goods prohibited for export to Iraq for reasons of national 

security or nuclear, chemical, and biological weapons proliferation. 

In addition to screening items imported by Iraq, the UN conducted 

weapons inspections inside Iraq until 1998, when international inspectors 

were forced to withdraw. Sanctions also may have constrained Iraq’s 

purchases of conventional weapons, as we reported in 2002.9

 In 2004, the 

Iraq Survey Group reported that sanctions had curbed Iraq’s ability to 

import weapons and finance its military, intelligence, and security forces. 

The UN’s neglect of Iraq’s illicit revenue streams from smuggling and 

kickbacks facilitated unauthorized revenue for a sanctioned regime and 

undermined the program’s goal of using Iraqi oil revenues to benefit the 

Iraqi people. According to a report by Department of Defense contract 

experts, in a typical contract pricing environment, fair and reasonable 

commodity prices are generally based on prevailing world market 

conditions or competitive bids among multiple suppliers.10 Ensuring a fair 

and reasonable price for goods can mitigate the possibility of overpricing 

and kickbacks. The Security Council’s Iraq sanctions committee and the 

Secretariat’s Office of the Iraq Program (OIP) were responsible for 

reviewing commodity contracts under the Oil for Food program, but 

neither entity conducted sufficient reviews of commodity pricing and

value. As a result, Iraq was able to levy illicit contract commissions and 

kickbacks ranging from about $1.5 billion to about $3.5 billion. 

 9

Ibid. 

10Report on the Pricing Evaluation of Contracts Awarded under the Iraq Oil for Food

Program, submitted by the Joint Defense Contract Audit Agency and Defense Contract 

Management Agency OFF Pricing Evaluation Team (Washington, D.C.: Sept. 12, 2003). 

Page 7 GAO-06-711T
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. UN entities and contractors responsible for 

implementing and monitoring the program lacked clear lines of authority.

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. Finally, the UN’s internal audit office examined some aspects 

of the Oil for Food program and identified hundreds of weaknesses and 

irregularities. However, it lacked the resources and independence to 

provide effective oversight of this ambitious and complex UN effort. 

A good internal control environment requires that the agency clearly 

define and delegate key areas of authority and responsibility. Both OIP, as 

an office in the UN Secretariat, and the Security Council’s Iraq sanctions 

committee were responsible for the management and oversight of the Iraq 

sanctions and Oil for Food program. The Iraq government, other UN 

agencies, UN member states, the interdiction force in the Persian Gulf, 

inspection contractors, and internal and external audit offices also played 

specific roles (see figure 1). However, no single entity was accountable for 

the program in its entirety. In 2005, the Independent Inquiry Committee 

reported that the Security Council had failed to clearly define the 

program’s broad parameters, policies, and administrative responsibilities 

and that neither the Security Council nor the Secretariat had control over 

the entire program. 

Unclear Authority,

Lack of Risk 

Assessment, and 

Inadequate 

Monitoring and 

Oversight Further 

Undermined the 

Sanctions and Oil for 

Food Program 

Oil for Food Program 

Lacked Clear Lines of 

Responsibility and 

Authority 

Page 8 GAO-06-711T
Figure 1: Multiple Organizations Managed the Oil for Food Program and Enforced UN Sanctions

Page 9 GAO-06-711T
The absence of clear lines of authority and responsibility were important 

structural weaknesses that further undermined the management and 

oversight of the Oil for Food program. For example, OIP was to examine 

each commodity contract for price and value before submitting it to the

sanctions committee for approval. However, the Independent Inquiry 

Committee found that OIP lacked clear authority to reject contracts on 

pricing grounds and did not hire customs experts with the requisite 

expertise to conduct thorough pricing evaluations. In addition, UN 

inspectors did not have the authority to inspect goods imported into Iraq 

to verify price and quality. These inspectors mostly verified the arrival of 

goods in the country for the purpose of paying the contractor. 

The Secretariat’s contract for inspecting imports at three entry points in 

Iraq required inspection agents to “authenticate” goods, but the agents’ 

responsibilities fell short of a more rigorous review of the imports’ price 

and quality. Under the Oil for Food program, inspection agents compared 

appropriate documentation, including UN approval letters, with the 

commodities arriving in Iraq; visually inspected about 7 to 10 percent of 

the goods; and tested food items to ensure that they were “fit for human 

consumption.” However, inspection agents were not required to (1) verify

that food items were of the quality contracted, (2) assess the value of 

goods shipped, (3) inspect goods that were not voluntarily presented by 

transporters, or (4) select the items and suppliers or negotiate contracts. 

In addition, no provisions were made to interdict prohibited goods arriving 

at the border. According to Cotecna, the inspections contractor from 1999 

to 2004,11 “authentication” is not a standard customs term or function. The 

UN created the term for the Oil for Food program and did not include 

traditional customs inspection activities, such as price verification and 

quality inspection. In anticipation of an oil for food program, the UN 

selected Cotecna in 1992 for a program that was never implemented. 

Under that proposal, Cotecna would have verified fair pricing and 

inspected the quality of the items to help ensure that they conformed to 

contract requirements. 

Finally, limited authority for contractors overseeing oil exports facilitated 

Iraq’s ability to obtain illicit revenues from smuggling that ranged from 

$5.7 billion to $8.4 billion over the course of the Oil for Food program. In 

 11The Coalition Provisional Authority used Cotecna from November 2003, when it assumed 

responsibility from the UN for remaining Oil for Food contracts, until October 2004, when 

the Iraqis no longer used independent inspection agents. 

Page 10 GAO-06-711T
1996, the Secretariat contracted with Saybolt to oversee the export of oil

from Iraq through selected export points. The inspectors were to monitor 

the amount of oil leaving Iraq under the Oil for Food program at these 

locations and to stop shipments if they found irregularities. The inspectors 

worked at two locations—the Ceyhan-Zakho pipeline between Iraq and

Turkey and the Mina al-Bakr loading platform in southern Iraq. In 2005, a 

Saybolt official testified that its mandate did not include monitoring all oil 

exports leaving Iraq from other locations or acting as a police force.12 As a 

result, the contractors did not monitor oil that was exported outside the 

Oil for Food program. 

Program Risk Was Not 

Continuously Identified 

and Addressed 

Risk assessments can identify and manage the internal and external 

challenges affecting a program’s outcomes and accountability, including 

those risks that emerge as conditions change. The Oil for Food program 

expanded rapidly as it evolved from an emergency 6-month measure to 

provide humanitarian needs to a 6-year program that delivered about 

$31 billion in commodities and services in 24 sectors. Beginning in 1998,

when the international community was not satisfied with Iraq’s 

compliance with weapons inspections, the Security Council continued the 

sanctions and expanded its initial emphasis on food and medicines to 

include infrastructure rehabilitation and activities in 14 sectors. These 

sectors included food, food handling, health, nutrition, electricity, 

agriculture and irrigation, education, transport and telecommunications, 

water and sanitation, housing, settlement rehabilitation for internally 

displaced persons, demining, a special allocation for vulnerable groups, 

and oil industry spare parts and equipment. In June 2002, the Iraqi 

government introduced another 10 sectors, including construction, 

industry, labor and social affairs, youth and sports, information, culture, 

religious affairs, justice, finance, and the Central Bank of Iraq. 

The Security Council and UN Secretariat did not assess the risks posed by 

this expansion, particularly in light of the fact that they had allowed the 

Iraqi government to tender and negotiate its contracts. The UN Office of 

Internal Oversight Services (OIOS) was the only entity that attempted to 

assess the enormous risks in the Oil for Food program, but OIP blocked 

that attempt. In August 2000, the Under Secretary General for OIOS 

 12Testimony of John Denson, General Counsel, Saybolt Group, before the Permanent 

Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate 

(Washington, D.C.: Feb. 15, 2005). 

Page 11 GAO-06-711T
proposed an overall risk assessment to the Deputy Secretary General to 

improve the program by identifying the factors that could prevent 

management from fulfilling the program’s objectives. The proposal noted 

that this assessment could be a model for other UN departments and 

activities. OIOS considered the Oil for Food program a high-risk activity 

and decided to focus on an assessment of OIP’s Program Management 

Division. This unit was responsible for providing policy and management 

advice to OIP’s executive director and for supporting OIP’s field 

implementation and observation duties. In May 2001, OIP’s executive

director refused to fund the risk assessment, citing financial reasons and 

uncertainty over the program’s future. 

In July 2003, OIOS issued an assessment of OIP’s Program Analysis, 

Monitoring, and Support Division—formerly the Program Management 

Division—that identified a number of organizational, management, and 

administrative problems, including poor communication and coordination, 

unclear reporting lines among OIP headquarters units and the field, and 

the lack of approved work plans. However, by this date, the UN was 

preparing for the November 2003 transfer of the program to the Coalition 

Provisional Authority in Iraq, and the report was of limited usefulness for 

addressing high-risk areas. Comprehensive and timely risk assessments 

might have identified the internal control weaknesses—such as inadequate 

contract pricing reviews—that facilitated Iraq’s ability to levy illicit 

contract revenues. These assessments also might have identified the 

structural management weaknesses that led to ineffective communication 

and coordination within the program. 

Oil Export Monitoring 

Activities Did Not Deter 

Smuggling but Did Mitigate 

Contract Surcharges 

Ongoing monitoring and specific control activities should meet the 

management and oversight needs of the agency or program. However, 

during the Oil for Food program, the lack of functioning oil meters enabled 

the Iraqi government to smuggle oil undetected by inspectors. A Saybolt 

employee testified that the company notified UN officials of the problems 

posed by the lack of functioning meters at the beginning of the program.13

He also testified that the lack of metering equipment allowed the two 

“topping off” incidents involving the oil tanker Essex, in which the tanker 

loaded additional oil after the inspectors had certified the loading and left 

 13Testimony of John Denson, General Counsel, Saybolt Group, before the Permanent 

Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate 

(Washington, D.C.: Feb. 15, 2005). 

Page 12 GAO-06-711T
the vessel. In November 2001, a Saybolt representative noted that Iraq’s 

distribution plans for that period provided for the installation of a meter at

the Mina al-Bakr port. A U.S. official called for OIP to develop a plan to

prevent unauthorized oil sales that would include installing a meter at the 

port. However, Iraq did not tender a contract for the meter. As of March 

2006, the Iraqi government has not yet installed oil meters at Mina al-Bakr. 

In addition, the sanctions committee relied on the advice of independent

oil overseers to approve oil sales contracts. The overseers reviewed Iraq’s 

oil sales contracts to determine compliance with program requirements 

and whether the prices that Iraq negotiated for its oil were fair and 

reflected market pricing. However, the inadequate number of overseers 

monitoring Iraq’s oil pricing over a 14-month period may have been a 

factor in Iraq’s ability to levy illicit surcharges on oil contracts. From June 

1999 to August 2000, only one oil overseer was responsible for monitoring

billions in Iraq’s oil transactions, contrary to the sanctions committee’s 

requirements for at least four overseers. Four overseers were hired at the 

beginning of the program but three resigned by June 1999. Political 

disputes among sanctions committee members prevented the committee 

from agreeing on replacements. According to the Independent Inquiry 

Committee, the sanctions committee demonstrated weak program 

oversight in its inability to fill the vacant positions. 

In contrast, in October 2001, the Security Council’s sanctions committee 

imposed a positive control activity—retroactive oil pricing—to prevent 

Iraqi officials from adding illegal oil surcharges to contracts. In November 

2000, UN oil overseers reported that Iraq’s oil prices were low and did not 

reflect the fair market value. The overseers also reported in December 

2000 that Iraq had asked oil purchasers to pay surcharges. In early 2001, 

the United States informed the sanctions committee about its concerns 

regarding allegations that Iraqi government officials were receiving illegal

surcharges on oil contracts. The United States delayed oil pricing until 

after the Iraq government signed contracts with oil purchasers but without 

knowing the price it would have to pay until delivery. Setting the price at 

the time the oil was delivered helped to ensure a fair market price. This 

practice, known as retroactive pricing, curbed the ability of the Iraqi 

government to levy illicit surcharges on its oil sales contracts. Prior to 

retroactive pricing, estimates of Iraq’s illicit revenues from surcharges on 

exported oil ranged from about $230 million to almost $900 million. 

Page 13 GAO-06-711T
Ongoing monitoring of internal control should include activities to help 

ensure that the findings of audits and other evaluations are promptly 

resolved. Although OIOS conducted dozens of audits of the Oil for Food 

program, the office did not review key aspects of the Oil for Food program 

and had insufficient staff. OIOS did not review whether OIP was 

adequately monitoring and coordinating the Oil for Food program, 

including OIP’s role in assessing commodity pricing. OIOS did not examine 

OIP’s oversight of the commodity contracts for central and southern Iraq, 

which accounted for 59 percent of Oil for Food proceeds. According to the 

Independent Inquiry Committee, the internal auditors believed that they

did not have the authority to audit humanitarian contracts because the 

sanctions committee was responsible for contract approval. 

UN Internal Audit Office 

Lacked Sufficient 

Resources and 

Independence to Provide 

Effective Oversight 

OIP management mostly supported OIOS audits for program activities in 

northern Iraq managed by other UN agencies; however, these northern 

programs constituted only 13 percent of the Oil for Food program. 

Because OIOS did not review commodity contracts, it was difficult to 

quantify the extent to which the Iraqi people received the humanitarian 

assistance funded by its government’s oil sales. The Independent Inquiry 

Commission noted that the practice of allowing the heads of programs the 

right to fund internal audit activities led to excluding high-risk areas from 

internal audit examination. We also found that UN funding arrangements 

constrain OIOS’s ability to operate independently as mandated by the 

General Assembly and as required by the international auditing standards 

to which OIOS subscribes.14 The UN must support budgetary 

independence for the internal auditors. 

In addition, the number of OIOS staff assigned to the Oil for Food program 

was low. OIOS had only 2 to 6 auditors assigned to cover the Oil for Food 

program. The UN Board of Auditors indicated that the UN needed 12 

auditors for every $1 billion in expenditures. The Independent Inquiry 

Committee concluded that the Oil for Food program should have had more 

than 160 auditors at its height in 2000. However, the committee found no 

instances in which OIOS communicated broad concerns about insufficient

staff to UN management. 

OIOS also encountered problems in its efforts to widen the distribution of 

its reporting beyond the head of the agency audited. In August 2000, OIOS 

 14GAO, United Nations: Funding Arrangements Impede Independence of Internal 

Auditors, GAO-06-575 (Washington, D.C.: Apr. 25, 2006). 

Page 14 GAO-06-711T
proposed sending its reports to the Security Council. However, the OIP 

director opposed this proposal, stating that it would compromise the 

division of responsibility between internal and external audit. In addition, 

the UN Deputy Secretary General denied the request, and OIOS 

subsequently abandoned any efforts to report directly to the Security 

Council. Timely reporting on audit findings would have assisted the 

Security Council in its oversight of Iraq sanctions and the Oil for Food 

program. 

Our findings on UN management of Iraq sanctions and the Oil for Food 

program reveal a number of lessons that can apply to future sanctions and 

should be considered during the ongoing debate on UN reform. These 

lessons demonstrate the importance of establishing a good control 

environment at the outset. In addition, fundamental internal control 

activities must be applied throughout the life of UN programs. Specifically,

Concluding 

Observations: Lessons 

Learned from the Oil 

for Food Program 

• When establishing the program, assess the roles and authorities of the 

sanctioned country. If political pressures and emergency conditions 

dictate significant authority and responsibilities for the sanctioned 

country, assess the risks posed by these authorities and take steps to 

mitigate potential problems. A comprehensive risk assessment following 

the decision to allow Iraqi control over contracting and monitoring might 

have revealed the need for more rigorous activities to review the prices the 

regime charged and the quality of goods it contracted to prevent or help 

lessen the opportunity for illicit charges. 

• Consider the impact that the loss of trade might have on surrounding 

countries. For example, Jordan, a U.S. ally, was allowed to continue 

buying Iraqi oil outside the Oil for Food program, which facilitated the 

revenue that Iraq could obtain beyond UN control. Other provisions for 

obtaining discounted oil might have prevented this trade. 

• Ensure that monitoring and oversight equally address all program goals. 

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. The Oil for Food program had unclear lines of authority for 

rejecting contracts based on price and value concerns and for inspecting 

imported goods and exported oil. These important structural weaknesses 

allowed the sanctioned Iraq regime significant control over program 

activities. 

Page 15 GAO-06-711T
• As programs and funding expand, continuously assess the risks caused by

this expansion and take steps to ensure that resources are safeguarded.

The UN did not assess risks as the Oil for Food program grew in size and 

complexity, particularly in light of the fact that it had relegated 

responsibility for the contracting process to Iraq. Timely risk assessments 

might have identified the internal control weaknesses that facilitated Iraq’s

ability to levy illicit contract revenues and thereby undermine the UN’s 

goal of using Iraq’s oil proceeds for humanitarian assistance to the Iraqi 

people. 

• 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. 

In our report on the Oil for Food program’s internal controls,15 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. 

Mr. Chairman and Members of the Subcommittee, this concludes my 

prepared statement. I will be happy to answer any questions you may have. 

For questions regarding this testimony, please call Joseph Christoff at 

(202) 512-8979. Other key contributors to this statement were Lynn 

Cothern, Jeanette Espinola, Tetsuo Miyabara, Valérie Nowak, and Audrey 

Solis. 

Recommendation 

Contacts and 

Acknowledgments 

 15GAO-06-330. 

(320431) 

Page 16 GAO-06-711T
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