U.N. chief announces N.Korea fund audit

Secretary-General Ban Ki-moon announced Monday that an external audit would be conducted of the U.N. Development Program in North Korea after the U.S. alleged the program had funneled millions of dollars to Kim Jong Il's regime.

The audit will initially focus on UNDP spending in North Korea and then be expanded to other U.N. agencies, though details have yet to be finalized, said Ban's spokeswoman, Michele Montas, who made the announcement his behalf.

The audit will be conducted by the U.N.'s Board of Auditors, which is comprised of accountants from eight U.N. members, she said.

U.S. deputy ambassador Mark Wallace alleged Friday that the UNDP's North Korea operation had been run "in blatant violation of U.N. rules" for years. He demanded an outside audit focusing on concerns that development funds had been used by Pyongyang for "its own illicit purposes."

UNDP Administrator Kemal Dervis said Monday there is "no justification for the extreme allegations" made by Wallace, adding that UNDP is "doing its best in very difficult circumstances."

The agency said it welcomed the external audit, stressing it is committed to operating in a transparent manner.

"The external auditors can come in anytime they want and look at anything they want," said UNDP spokesman David Morrison.

U.S. officials said they first received indications there might be irregularities in UNDP's North Korea program last year. They raised concerns the cash might be misused, possibly for Pyongyang's nuclear program.

Wallace has made several allegations in letters to senior UNDP officials, which were first reported by The Wall Street Journal. He has said that UNDP's local staff is dominated by North Korean government employees who managed the agency's programs and finances in violation of UNDP rules.

The U.S. cited three other violations of U.N. rules _ the government's insistence that UNDP pay cash to North Korean government suppliers, and UNDP's failure to oversee projects it funds in the country or to audit its programs.

On Monday, the agency sought to refute the allegations, insisting the North Korean program followed UNDP financial rules.

Morrison said the agency has spent about $3 million annually over the last 10 years on programs in North Korea, in addition to about $600,000 in office costs, which include local salaries and supplies. The programs focus on food production, rural and environmental sector management, economic management and social sector management.

Morrison rejected the assertion that UNDP "has been doling out buckets of cash," saying the agency does the vast majority of its spending in euros through checks and bank transfers, using cash only for travel purposes and minor expenses.

He also said UNDP international staff have visited nearly all their project sites in the past two years to ensure funds are being used appropriately.

The UNDP has conducted three internal audits of its North Korean program in the last eight years, the last in 2004. Another internal audit was scheduled for this year, Morrison said.

The agency's executive board was expected to meet Thursday to discuss the program's mandate over the next three years. The agency is working with board members to find a compromise that would allow the program to continue operating in the country, said a UNDP staff member, who spoke on condition of anonymity because talks were ongoing.