United Nations:

Observations on the Oil for Food Program and Iraq's Food Security

GAO-04-880T: Published: Jun 16, 2004. Publicly Released: Jun 16, 2004.

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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.

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.

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