How to Beat an Audit

North Korea will not extend "cooperation" to any U.N. review.

Wall Street Journal
Monday, June 4, 2007 12:01 a.m.

The case of U.N. hard currency for Kim Jong Il took its latest turn Friday with the release of the much-awaited audit on United Nations operations in North Korea. The investigation confirms and elaborates on irregularities in United Nations Development Program's activities in North Korea, first reported on these pages in January. It fails, however, to examine the central question of this scandal: Whether U.S. cash in North Korea was diverted from its intended recipients and instead used to prop up Kim's totalitarian regime?

Let us stipulate that any investigation having to do with North Korea is bound to have its share of, shall we say, frustrations. Just ask the U.S. State Department, which, nearly two months after the first nuclear-disarmament deadline, still can't get Pyongyang to live up to the initial round of its commitments no matter how many times it sweetens the deal.

The first thing to know about the U.N. probe is that it was an internal affair--conducted by the organization's own Board of Auditors, a monitoring group that in U.N. doublespeak is said to conduct "external" inquiries. The second salient point is that it was conducted entirely in New York City. The longest journey the auditors undertook was to cross First Avenue from the U.N. Secretariat to the offices of the UNDP. To their credit, they tried to go to North Korea but were rebuffed.


In refusing to let the auditors into North Korea, Kim Jong Il displayed his disrespect for Secretary-General Ban Ki Moon. The Board of Auditors had asked Mr. Ban's office to intercede on its behalf with help on travel arrangements. "In an email dated 11 April 2007," the audit report reads, "the Board was informed that on 20 March 2007, the Deputy Permanent Representative of DPRK [North Korea] advised [Mr. Ban's chief of staff] that his government was not going to extend any cooperation to UNDP's audit."

Even given the limited scope of their investigations, however, the auditors were able to confirm the massive irregularities in the UNDP's operations in North Korea. The auditors also found violations at three other agencies--Unicef, the U.N. Population Fund and the U.N. Office for Project Services. The infractions covered three areas:

Staffing: In violation of U.N. rules, local staffers were hand-picked by the North Korean government and allowed to work in "general service" jobs that, for example, allowed them access to the UNDP checkbook and other sensitive documents. Salaries were paid in euros directly to the government, and the auditors could not confirm whether the staffers actually received their pay.

Foreign-currency transactions: Also in violation of regulations, U.N. agencies in North Korea made large-scale disbursements in foreign currency, including payments for salaries, allowances and rent. The auditors could not verify controls over the disbursements. UNDP, Unicef and the U.N. Population Fund spent a total of $72.5 million on programs between 2002 and 2006, though the auditors caution that "the information supplied was not verified and no source documents were examined."

Program oversight: Visits to U.N. projects, while permitted, were controlled by the North Korean government. Authorization took a week, and government officials accompanied the U.N. inspectors. Most revealing of all, it's unclear whether the inspectors were international officials or the North Korean government officials on loan to the U.N. organizations whose first loyalty, it's safe to say, would have been to Pyongyang.


UNDP says it provided evidence to the auditors of 38 field visits during 2002-2006. According to the auditors' report, UNDP had a total of 172 projects over that five-year period. Do the arithmetic and it seems that only one in five UNDP projects was visited annually. Some "oversight"--especially if the inspectors were government factotums.

The auditors say that this is a "preliminary review." That's an understatement. Most glaringly, they failed to investigate the broader role UNDP is said to have had as a kind of money manager for other U.N. programs and, possibly, for countries sending aid to the North. UNDP is trumpeting the auditors' finding that it spent only an average of $2.6 million a year during 2002-2006. But if it was making disbursements on behalf of other entities, the actual sums under its control--which presumably were subject to the same shoddy financial controls criticized by the auditors--could be far higher.

The UNDP suspended operations in North Korea in March when Pyongyang refused to abide by conditions laid down by the UNDP executive board after the irregularities came to light (but years after the UNDP itself knew but ignored them). To the extent that it sheds light on the corruption, the just-released audit is a useful exercise. But there's a long way to go before we get to the bottom of the Cash for Kim scandal.