VZCZCXYZ0020
OO RUEHWEB

DE RUCNDT #0023/01 0130008
ZNY CCCCC ZZH
O 130008Z JAN 07
FM USMISSION USUN NEW YORK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1124
INFO RUEHUL/AMEMBASSY SEOUL IMMEDIATE 0759
RHEHNSC/NSC WASHDC IMMEDIATE

C O N F I D E N T I A L USUN NEW YORK 000023 
 
SIPDIS 
 
SIPDIS 
 
FOR ISN, IO, T, EAP 
 
E.O. 12958: DECL: 01/12/2017 
TAGS: EAID KFPC KN KNNP KUNR PINR PREL UNDP
SUBJECT: UNDP CONFIDENTIAL AUDITS EXPOSE SYSTEMATIC 
PERVERSION OF THE UNDP DPRK COUNTRY PROGRAM. 
 
REF: USUN 00011 
 
¶1. This is an action request. See para 4. 
 
2.(C) Summary. Ambassador Wallace led a USUN MR team to visit 
UNDP on January 11, 2007. At the meeting, UNDP made available 
three internal audits from the years 1999, 2001 and 2004, for 
USUN's on site review. Per reftel, USUN was allowed access to 
the internal audits on site and in person only; no 
photocopies were permitted. During a six hour review by USUN, 
the internal audits revealed long-standing and persistent 
violations of fundamental UN rules. See para 3 for detailed 
audit information obtained from UNDP. Based on this new 
information as well as the information received from a UNDP 
"whistleblower" (reftel), USUN proposes to request 
Administrator Dervis to initiate an independent inquiry to 
investigate the abuses in the DPRK program. See action 
request para 4. 
 
3.(C) The following specific points are drawn directly from 
the Audits during a 6 hour in-person review by USUN MR. Begin 
UNDP internal audit summary: 
 
-Ambassador Mark D. Wallace led a USUN MR team to visit UNDP 
on January 11, 2007.  At the meeting UNDP made available 
three (3) Internal Audits (1999, 2001, 2004) for USUN's on 
site review (no photocopies permitted). The following 
specific points are drawn directly from the Audits during a 
Six (6) hour in person review by USUN MR.  The Audits reveal 
that: 
 
UNDP staff is dominated by DPRK government employees; 
UNDP DPRK government employees have performed financial and 
program managerial core functions in violation of UNDP rules; 
The DPRK government insists upon and UNDP pays cash to local 
DPRK government suppliers in violation of UNDP rules; 
UNDP funds DPRK controlled projects without the (any) 
oversight required by UNDP rules; 
There is no audit review of DPRK controlled programs in 
violation of UNDP rules; 
The DPRK refuses to allow outside audits of any DPRK projects 
and instead either      limits UNDP audits or utilizes "sham" 
DPRK audits in violation of UNDP rules; 
UNDP officials are not permitted to perform site visits to 
many UNDP DPRK projects       in violation of UNDP rules; 
 
-The UNDP program has laudable goals of providing assistance 
to the North Korean peoples.  Unfortunately, because of the 
actions of the DPRK government and the complicity of UNDP, at 
least since 1998 the UNDP DPRK program has been 
systematically perverted for the benefit of the Kim Jong Il 
regime - rather than the people of North Korea. The UNDP DPRK 
program has for years operated in blatant violation of UN 
rules, served as a steady and large source of hard currency 
and other resources for the DPRK government with minimal or 
no assurance that UNDP funds and resources are utilized for 
legitimate development activities. Importantly, UNDP has 
concealed the widespread violation of UNDP rules from the 
UNDP Executive Board. 
 
-Each Audit found that the UNDP DPRK program was only 
Marginally or Partially Sufficient indicating, "timely 
corrective action is required by management." 
 
-As of December 31, 1998, UNDP had three (3) international 
staff  (Resident Representative "RR", Deputy "DRR" and 
Associate "ARR") and fourteen (14) local staff in the DPRK 
program.  1999 Audit  pg. 22 of 50. As of 2001, UNDP had 
sixteen (16) total staff - two (2) International Staff, and 
fourteen (14) local staff in the DPRK.  Of the 14 local 
staff,  three (3) served in program functions and eleven (11) 
served in administration and finance functions.  2001 Audit, 
Annex pg. 4 of 5. As of 2004 the UNDP DPRK program consisted 
of two (2) International staff and twenty-two (22) local 
Staff and one SSA (consultant).  Of the 22 local staff, 
nineteen (19) served as general services staff and three (3) 
served as national program officers. 2004 Audit pg. 14 of 57. 
 
-All UNDP local staff in the DPRK are seconded from and 
controlled by the DPRK government.  Various Citations in all 
Audits, e.g. 2001 Audit pg. 22 of 50.  UNDP pays all local 
staff salaries directly to the DPRK government, as dictated 
by the DPRK, which is to then "pass on" payment to the local 
seconded staff. UNDP pays $120.00 per month in a meal 
allowance directly in cash to the local staff. 2004 Audit pg. 
31 of 57. 
 
-Local DPRK (government) personnel perform most UNDP office 
functions as local staff or under SSA or SC's (consulting 
 
 
contracts) including "core" functions required to be 
performed by international staff. For example apparently a 
local DPRK national working under contract performed the 
following functions: 
 
     Bank Signatory and certifying officer functions 
     Personnel Actions 
     Prepares Contracts and Travel Authorizations 
     Manages Petty Cash and maintains financial records 
     Acts as staff officer to dispose of equipment and 
supplies 
 
-According to UNDP management, "(i)n view of the fact that 
all National Staff are not UNDP staff as the DPRK government 
seconds them and thus they are (DPRK) government employees. 
Therefore in the absence of the regular international staff 
we had no choice but to assign the functions of certifying 
office and bank signatory to the (local staff) Special 
Services Agreement holder." 2001 Audit pg. 26 of 50. UNDP 
management of petty cash is inadequate and without 
appropriate controls. The UNDP check book is not adequately 
controlled or kept in a secure location and no check register 
is kept reflecting checks written.  e.g. 1999 Audit pg. 35-37 
of 45. 
 
-As of 1999 there were 29 ongoing UNDP projects in the DPRK 
with a total budget of $27.86 million. There are two general 
types of projects: 
 
DPRK National Execution programs (NEX), which are "nationally 
executed" by the DPRK government with UNDP, paid funds. Such 
programs constituted 66.7% of all DPRK    programs; 
UNDP directly executed programs, which constituted 28.7% of 
all DPRK programs. 
 
-1999 Audit pg. 7 of 45. The Audits criticize UNDP for 
routinely making direct payments to the DPRK (supposedly for 
disbursement) for DPRK NEX Programs. UNDP pays directly in 
cash for all local expenditures for UNDP executed programs. 
1999 Audit pg. 22 of 45. 
 
-UNDP does not use Local Purchase Order (PO's) forms and all 
local purchases are made with cash. 1999 Audit pg. 4 of 44. 
Even purchases over $1,000.00 are made in cash.  1999 Audit 
pg 38 of 45. There are no local DPRK suppliers other than the 
DPRK government, the DPRK government fixes all prices, and 
the DPRK does not accept PO's. The DPRK government does not 
accept checks - only cash.  There are no annual DPRK 
government contributions (in-kind or otherwise) towards local 
in-country UNDP office costs ("GLOC") - meaning the DPRK 
charges and UNDP pays the DPRK for all local office costs 
including such as rent. 1999 Audit pg 39 of 45. 
 
-KPMG sampled certain program projects during the 1999 and 
2001 Audits. In 2001 KPMG sampled 12 DPRK projects and found 
that UNDP did not maintain financial reports or audits of 7 
of the 12 sampled projects. 2001 Audit pgs. 12-15 of 50. 
"However it should be noted that the NEX audits (performed by 
the DPRK government)  are generally defective and do not 
clearly identify and address issues which require follow-up." 
2001 Audit pg 17 of 50.  There are "serious deficiencies in 
the NEX audits" and "it is not possible to ascertain who is 
actually responsible for carrying out the NEX audits(. (in 
the DPRK government)."  2001 Audit pg 18 of 50. "There are no 
government (DPRK) auditors as such" and each NEX "audit" is 
carried out by the respective DPRK ministry designated as 
government executing agent. 2001 Audit pg. 21 of 50. 
 
-UNDP rules require at east one (1) project field visit per 
year. In 1999 KPMG analyzed a sample of five (5) selected 
projects and concluded that there were no project field 
visits to three (3) of the projects (for many years). UNDP 
cannot fulfill the one (1) project field visit per year rule 
because the DPRK prohibits foreign visitors (including UNDP 
international staff) from visiting various UNDP DPRK project 
sites. 1999 Audit pg. 14 of 50. End UNDP internal audit 
summary. 
 
4.(C) Action request. Given the findings from the three UNDP 
audits and the "whistleblower" information (see reftel), USUN 
proposes immediately: 
To share the UNDP internal audit information with other 
members of the Executive Board; 
To apprise UNDP of the foregoing audit information and our 
specific concerns regarding the DPRK Programs; 
Based upon the facts revealed in the review of the Audits, 
emphasize to UNDP that it must immediately commission a full 
outside audit/investigation of UNDP's DPRK country office and 
programs going back to at least the year 1998, including full 
 
 
and unfettered access to all UNDP personnel and projects in 
the DPRK and UNDP supporting offices of DPRK programs, 
conducted by a respected international audit firm. End action 
request. 
WOLFF