United Nations: Oil for Food Program Provides Lessons for Future Sanctions and Ongoing Reform
Published: 2006-05-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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 program 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. 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.  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  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. 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.
subsections: section_title: The UN Established a Weak Control Environment for Enforcing Sanctions and Managing the Oil for Food Program
paragraphs: 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.
subsections: section_title: Early Compromises Allowed Iraq to Set the Terms for Contracting and Monitoring
paragraphs: 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  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 understanding 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 Committee 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.
section_title: UN Did Not Address the Economic Impact of Sanctions on Member Countries
paragraphs: 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.
section_title: Sanctions Enforcement Focused on Military Items, but Less Rigorous Oversight for Economic Activities Facilitated Iraq’s Ability to Obtain Illicit Revenues
paragraphs: 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  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. 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. 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.
section_title: Unclear Authority, Lack of Risk Assessment, and Inadequate Monitoring and Oversight Further Undermined the Sanctions and Oil for Food Program
paragraphs: 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.
subsections: section_title: Oil for Food Program Lacked Clear Lines of Responsibility and Authority
paragraphs: 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.
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, “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  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. As a  result, the contractors did not monitor oil that was exported outside the  Oil for Food program.
section_title: Program Risk Was Not Continuously Identified and Addressed
paragraphs: 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  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.
section_title: Oil Export Monitoring Activities Did Not Deter Smuggling but Did Mitigate Contract Surcharges
paragraphs: 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.  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  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.
section_title: UN Internal Audit Office Lacked Sufficient Resources and Independence to Provide Effective Oversight
paragraphs: 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.
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. 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  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.
section_title: Concluding Observations: Lessons Learned from the Oil for Food Program
paragraphs: 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,    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.
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.
section_title: Recommendation
paragraphs: 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.
Mr. Chairman and Members of the Subcommittee, this concludes my  prepared statement. I will be happy to answer any questions you may have.
section_title: Contacts and Acknowledgments
paragraphs: 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.
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