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OO RUEHWEB

DE RUCNDT #0050/01 0241614
ZNR UUUUU ZZH
O 241614Z JAN 07
FM USMISSION USUN NEW YORK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1168
INFO RUEHUL/AMEMBASSY SEOUL IMMEDIATE 0767
RHEHNSC/NSC WASHDC IMMEDIATE

UNCLAS USUN NEW YORK 000050 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID KFPC KN KNNP KUNR PINR PREL UNDP
SUBJECT: UNDP ASSOCIATE ADMINISTRATOR AD MELKERT PROVIDES 
RESPONSE TO USUN AMBASSADOR MARK WALLACE 
 
REF: A. USUN 00011 
     ¶B. USUN 00023 
     ¶C. USUN 00034 
     ¶D. USUN 00035 
     ¶E. USUN 00038 
 
¶1.  In a letter dated January 21, 2007, UNDP Associate 
Administrator Ad Melkert responded to Ambassador Mark 
Wallace's letter of January 16, 2007. In this letter, the 
latest in a string of formal communication between USUN and 
UNDP, Associate Administrator Melkert attempts to explain 
away USG concerns regarding the UNDP DPRK country program 
while acknowledging violations of UNDP rules. 
 
¶2.  Text of Associate Administrator Ad Melkert letter follows: 
 
Begin Text:  Dear Mr. Ambassador, 
 
Thank you for your letter of 16 January 2007 - I also 
appreciated our breakfast conversation.  As with your 
previous letters we have looked carefully into the questions 
raised in your letter of 16 January 2007. 
 
Before responding in detail, allow me to share some general 
observations. 
 
As you know UNDP is implementing the DPRK programme in 
accordance with the decisions of the entire Executive Board. 
There are a number of formal safeguards in place to ensure 
that implementation is in compliance with existing rules and 
regulations, including the opportunity for the UN Member 
States to raise audit issues on country programme 
implementation on the basis of the annual report by the UN 
Board of Auditors.  These procedures Qrve both as an 
oversight mechanism and as a safeguard for UN country staff, 
particularly staff that are performing duties in the most 
difficult of circumstances. 
 
As we both know circumstances in countries vary tremendously. 
 Yet there is, and should continue to be, a single set of 
procedures that our operations adhere to.  I want to 
reiterate the position of the Administrator and myself that 
in our country programme implementation we do not tolerate 
exceptions to the standard norms.  Since the country 
programme is owned by the programme country this requires 
full compliance from the latter's side in order to enable 
agencies, funds and programmes to do their work.  In the 
particular circumstances that define the options for 
implementation of the DPRK country programme by UNDP, the 
fundamental question is whether there is a role at all for 
UNDP, or for that matter other UN agencies.  Whilst this is a 
decision for the Executive Board, I would like to emphasize 
that UNDP staff are in North Korea because, to date, the 
entire Executive Board has expressed the wish for us to be 
there. 
 
It is important to clarify this matter as the pertinent 
questions you have raised have spilled into the public domain 
which is no problem as long as there is respect for the facts. 
 
We are deeply disheartened by your assertion - which we 
cannot accept - over UNDP's alleged "complicity" with the 
DPRK programme that "has been systematically perverted for 
the benefit of the Kim Jong II regime - rather than the 
people of North Korea (...) in blatant violation of UN rules 
(...)".  Equally we firmly take exception with your statement 
that "UNDP apparently has failed to bring the widespread 
violation of UNDP rules in the DPRK country program to the 
attention of the UNDP Executive Board".  We would be grateful 
if you would reconsider both the assertion and conclusion, 
taking into account the responses provided below. 
 
With reference to the questions and assertions that you have 
derived from the in-person review of the 1999, 2001 and 2004 
internal audit reports I note that you have not referred to 
the noticeable improvement in the implementation of audit 
recommendations between 1999 and 2004.  The internal 
auditor's count shows that meaningful follow-up was given to 
the many audit recommendations, with a remarkable decrease in 
the apparent need for recommendations in 2004 as opposed to 
the high numbers in 1999 and 2001 (see specifications in 
Annex 1a).  While this does not indicate that everything is 
perfect, it underscores the serious effort made to ensure 
effective oversight, despite a less than conducive 
environment.  Moreover the recommendations have identified 
fundamental issues that needed to be addressed beyond the 
existing framework of cooperation with DPRK, i.e. direct 
payments in hard currency to government, national partners, 
local staff and local vendors and sub-contracting of national 
staff via government recruitment.  As you know we have 
decided to discontinue both practices. 
 
 
 
I would like to respond to your seven "points and 
conclusions": 
 
¶1. U.S. Conclusion: "UNDP local staff is dominated by DPRK 
government employees" 
 
With reference to the above conclusion this should be no 
surprise to anyone familiar with the local situation in DPRK. 
 Indeed diplomatic missions, international organizations and 
NGOs in DPRK are subject to service agreements with the 
government on national staff provision.  The pertinent point 
is whether we would want to continue this situation.  As you 
know for the Administrator and I the answer is clear: we do 
not want this practice to continue and we have informed the 
DPRK government of this decision. 
 
¶2.  U.S. Conclusion: "UNDP DPRK government employees have 
performed financial and program managerial core functions in 
violation of UNDP rules." 
 
I have been informed about the following practical 
arrangements that in recent years do not confirm your point. 
UNDP DPRK assigns job functions to its national staff in DPRK 
similar to its national staff in any other UNDP country 
office - and this includes operational and programme 
functions.  All national staff members are closely supervised 
by international personnel (four staff), and no national 
staff has the authority to make resource allocations 
decisions or commitments on behalf of UNDP.  Please find as 
annex 1b) a more detailed breakdown of different functions 
and assignments of responsibilities. 
 
¶3.  U.S. Conclusion: "The DPRK government insists upon and 
UNDP pays cash to local DPRK government suppliers in 
violation of UNDP rules." 
 
You may wish to review this conclusion as UNDP in DPRK does 
not pay government suppliers in cash but by cheque or bank 
transfer.  Also your later reference to the DPRK government 
accepting only cash is not supported by the fact that all 
UNDP payments to the government are by cheque or bank 
transfer. 
 
¶4.  U.S. Conclusion: "UNDP funds DPRK controlled projects 
without the oversight required by UNDP rules." 
 
The facts provide a different picture of the reality on the 
ground.  Out of eleven ongoing projects that are nationally 
executed, nine are, de facto, directly executed by UNDP in 
the form of country office support to NEX.  Accordingly, UNDP 
financial, procurement and personnel policies have been 
applied to their implementation, including a review by the 
Local Contracts, Assets and Procurement Committee as 
necessary.  For two NEX projects, advances have been given on 
a quarterly basis, and reporting has been received from 
project authorities on the amounts spent as per UNDP 
programme procedures.  No advances have been made for any 
other amounts spent as per UNDP programme procedures.  No 
advances have been made for any other ongoing NEX project. 
All advances to the government have been discontinued as of 
January 2007.  Importantly the total of transfer payments for 
2005/06 is, to be precise, US$337,701.28. 
¶5.  U.S. Conclusion: "There is no audit review of DPRK 
controlled programs in violation of UNDP rules." 
 
This statement stands to be corrected in view of the fact 
that in accordance with standing procedures on NEX audits for 
every year since 2001 the Country Office in DPRK has the 
required "Evaluation of Audit of NEX Projects" annual letters 
on record.  Since the first letter in 2001, which had an 
overall rating of "deficient", the letters in 2002, 2003, 
2004 and 2005 had a rating of "satisfactory" from the Office 
of Audit Performance and Review.  Indeed the overall OAPR 
Audit ratings improved from "marginally deficient" in 1999 
and 2001 to "partially satisfactory" in 2004, which is reason 
for further corrective action along the upward trend that has 
become visible in more recent years.  These facts do not 
sustain your conclusion on "violation" of UNDP Rules. 
However I do appreciate your concern whether the general 
rules, following from the General Assembly's call to support 
national capacity building in development programme 
implementation, provide sufficient conditions for effective 
oversight in the specific context of DPRK.  I see this as a 
common objective for the Executive Board and UNDP management 
to address such concern in the appropriate manner. 
 
¶6. and 7. U.S. Conclusion: "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" and that "UNDP officials are not permitted to perform 
 
 
site visits to many UNDP DPRK projects in violation of UNDP 
rules." 
 
On the facts I have established that in 1999 the Country 
Office contended that project visits were made without being 
duly recorded.  Furthermore, I have been informed that since 
2000 requests to visit projects have been allowed, including 
by Headquarters' staff and project review teams. 
 
In addition, as stated before, there have been supportive 
OAPR assessments of NEX audits according to the standing 
procedures.  In Annex 1c) please see the account by our staff 
on a number of initiatives that have been taken in recent 
years to meet demands for adequate monitoring.  However, as 
stated before, it is not the only observation of formal 
requirements that we must look at as what counts most is 
whether procedures help us to ensure effective oversight over 
the substantive part of the programme.  We will follow this 
up accordingly. 
 
U.S. reference to the 1999 Audit concerning UNDP "routinely 
making direct payments to the DPRK" 
 
I would like to draw your attention to the fact that the 
Audit recommended that the "Office should consider 
discontinuing the practice of making direct payments for 
routine matters", because it was for purely practical 
consideration seen as an unnecessary burden to the Country 
Office daily management. 
 
U.S. reference to the 1999 Audit on the absence of annual 
"DPRK government contributions (in-kind or otherwise) towards 
local in-country UNDP office costs ("GLOC")" 
 
I can inform you that since 1999 this is no longer the case, 
although the country,s record is still insufficient.  DPRK 
has paid about 45% of its GLOC target in the period 
2000-2006. (See Annex 1d) for breakdown of annual 
contributions.) 
 
In conclusion we have shown ongoing commitment to improve the 
day-to-day management of operations in DPRK.  However the 
fundamental issue concerns the way and the extent to which UN 
agencies, funds and programmes are able to contribute or not 
the implementation of Executive Board approved country 
programmes in DPRK. 
 
As you know Secretary-General Ban Ki-moon has decided to have 
an overall review, worldwide of the activities of Funds and 
Programmes.  Within that framework and with close guidance 
from the Executive Board we would welcome a more specific 
audit of the operations of funds and programmes in the DPRK. 
We hope all these efforts will allow us to continue to work 
within a professional relationship of trust and mutual 
support. 
 
Yours sincerely, 
/s/ 
Ad Melkert 
 
ANNEX I 
 
a) Implementation of audit recommendations 
 
Status             Implementation of Recommendations for 
Summary                     Audit Report RCM0018* 
 
               (issued Aug   (issued Jul  (issued Sept 
               1999) as at   2001) as at  2004) as at 
               30 June 2000  Dec 2006     Dec 2006 
 
Implemented         17           27           8 
In progress         11            7           4 
Not Implemented      3            3           1 
Unclear            N/A            0           0 
Not applicable     N/A            1           1 
Total No. 
Recommendations     31           38           14 
 
* the audits conducted in 1999 and 2001 were carried out by 
the audit firm KPMG (based in Malaysia) 
 
b) Segregation of duties for functional areas in the DPRK 
Country Office, consistent with the internal control 
framework of UNDP 
 
- Bank Signatory and certifying officer functions - The 
national staff (Finance Officer) acted, and continues to act, 
as alternate bank signatory and certifying officer due to the 
limited number of international staff at the DPRK country 
office.  This, of course, is communicated as per normal 
 
 
procedures to headquarters. 
- Personnel actions - National staff do not perform personnel 
actions.  They assist the Operations Manager in personnel 
administration, but all personnel actions and decisions are 
taken by internationals. 
- Prepare Contracts and Travel Authorizations - Preparation 
of contracts and their approval is carried out by 
international staff.  Travel authorizations are prepared by 
national staff, but approved and signed only by international 
staff. 
- Manages Petty Cash and maintains financial records - The 
national Finance Officer has acted, and continues to be, the 
petty cash custodian as delegated. 
- Acts as staff officer to dispose of equipment and supplies 
- No national staff has acted as an officer disposing of 
equipment and supplies.  Requests for disposal of equipment 
are reviewed and recommended by the LCAP, and submitted for 
approval to the Resident Representative. 
 
The 1999 internal audit concern on handling of petty cash has 
been addressed satisfactorily in the following way with the 
office strictly implementation the Petty Cash guidelines 
issued by UNDP Headquarters.  This includes maintaining the 
imprest level within the US$500 limit, designating a petty 
cash custodian, keeping all single petty cash payments within 
$50 and approving all petty cash expenditures.  Cheque books 
are adequately controlled and kept in the office safe.  A 
cheque register is also maintained in the safe. 
 
Since the past several years the office raises Purchasing 
Orders for all travel and for all procurement of stationery, 
office supplies and equipment above $2,500.  for agency 
executed projects, the office raises PO,s based on 
requisitions from the agencies.  Purchase are made by checks 
or bank transfers, not cash.  The only payments in cash are 
petty cash payments. 
 
c) Initiatives to strengthen program monitoring 
 
UNDP country office management in DPRK places great 
importance on the need to continually monitor the relevance, 
performance and effectiveness of its programmes and projects, 
and to assure funding agencies and donors that resources 
provided through UNDP re used for their intended purpose.  To 
this end, the country office is taking proactive steps to 
ensure that its support is provided in an effective, 
accountable and transparent manner.  These include: 
development and implementation of an M&E Strategy for the 
DPRK programme in 2006; more rigorous and systematic project 
level M&E activities (tripartite reviews for all projects 
once a year, project monitoring visits); strengthened 
controls on the acquisition and use of project equipment 
including physical verification of equipment on delivery at 
the project site, maintenance of project inventories, and 
periodic physical verification of project assets against 
inventories, and the recruitment of an ARR (Programme) with 
specific experience and enhanced responsibilities for M&E 
plan implementation.  It should be stressed that UNDP adheres 
to the UN principle of "no access-no assistance" in the 
implementation of its programme in DPRK.  In addition, the 
predominant use of Direct Execution by the Country Office or 
DEX or agency implementation (such) as by UNOPS) in DPRK and 
not National Execution (NEX), though not ideal for fostering 
national ownership, provides UNDP with greater leverage and 
control over the use of funds. 
 
d) Gloc performance over the years is as follows (in USD): 
 
Year   Received 
 
2000   37,559 
2001   37,209 
2002   29,765 
2003   61,547 
2004   43,532 
2005   78,144 
2006   11,348 
 
Total  299,104 
 
UNDP has been using GLOC balances since early 2006 to pay for 
rent and utilities for the office.  In addition, DPRK has 
also made available, free of rent, a two floor building near 
the UNDP office in which several project offices and staff 
are accommodated.  End Text. 
 
WOLFF