MANAGEMENT MATTERS

Implementation of the “Oil for Food” Programme

Objectives, Scope and Method of the Audit

45. – As announced in my previous report [para. 91], my staff visited the FAOR in Iraq from 26 March to 14 April 2001 in order, especially, to review the implementation of the “Oil for Food” Programme. They carried out a regularity audit of the FAOR in Iraq and a management review in order to assess the HR management. As far as the implementation of the SCR 986 Programme was concerned, the three northern sub-offices located in Dohuk, Erbil and Suleimaniyah were reviewed, as well as the Erbil coordination office. My staff met with the UN Humanitarian Coordinator for Iraq and with senior officials of the Government of Iraq (GOI). Since an audit of the World Food Programme (WFP) Country Office was jointly carried out, comparisons were also made, whenever relevant. After the FAOR visit, additional information was obtained from Headquarters services in Rome. A follow up review of the procurement was, in particular, conducted. Whenever applicable, special attention was given to the follow-up of the Internal Audit (AUD) observations made in the reports issued in December 1999 (AUD. 5399) and March 2000 (AUD. 5699) and reviewed in February 2001 (AUD 2201).

Background Information

46. – In August 1990 the SCR 661 imposed comprehensive sanctions in Iraq exempting food and medicine and established the 661 Committee to oversee the implementation of the sanctions. Throughout 1991 the UN expressed grave concern over the humanitarian situation and proposed various measures, which would permit Iraq to sell limited quantities of oil in return for humanitarian supplies. In April 1995, the Security Council adopted Resolution 986 as a “temporary measure to provide for the humanitarian needs of the Iraqi people”. The SCR 986 authorised Member States, for a period of 180 days, to permit the import of petroleum and petroleum products originating in Iraq sufficient to produce a sum not exceeding a total of US$2 billion. The funds generated were to be credited to an escrow account, called the Iraq Account, to be used to meet the humanitarian needs of the Iraqi population as well as other purposes. After extended negotiations, a Memorandum of Understanding (MOU) was signed on 20 May 1996, between the UN and the GOI.

47. – Under the terms of SCR 986, the revenues raised were divided as follows:

• 30% to the UN Compensation Commission in Geneva;
• 66% to finance the import of humanitarian supplies to Iraq; this component, which was referred to as the “Oil for Food” Programme, was devoted to the 15 central and southern Governorates for 53%, and to the three northern Governorates for 13%. While the GOI was responsible for implementation of the programme in the former, the UN implemented the programme in the northern Governorates of Dohuk, Erbil and Suleimaniyah on behalf of the GOI “with due regard to the sovereignty and territorial integrity of Iraq and to the principle of equitable distribution of humanitarian supplies throughout the country “;
• 2.2% for the UN costs in administering the programme; this amount was designed to cover, on the one hand, the implementation of the 13% account and, on the other hand, the supervision of the GOI’s implementation of the 53% account;
• 0.8% for the administrative costs of the UN Special Commission (UNSCOM);
• 1% to the escrow Iraq Account.

48. – The Programme was initially implemented in December 1996 for a six-month period as per SCR 986. Subsequent resolutions extended it for an additional six-month phase each. On 17 December 1999, the SCR 1284 removed the ceiling on Iraqi oil export, established the UN Monitoring, Verification and Inspection Commission (UNMOVIC) to replace the former UNSCOM and suspended the 1% allocation to the escrow Iraq Account. With the adoption of SCR 1330, the breakdown of the oil revenue was modified as follows:

• 25 % to the UN Compensation Commission;
• 72% to the “Oil for Food” Programme in Iraq (59% for the central and southern Governorates and 13% for the three northern Governorates);
• 2.2% for the UN costs in administering the programme;
• 0.8% for the administration of the UNMOVIC.

49. – As detailed in Section II of the MOU concluded between the UN and the GOI, the Programme worked through Distribution Plans (DPs) prepared by the GOI and approved by the UN Secretary-General. Once approved, the DP, which included a categorised list of the supplies and goods intended for purchase and import, became the basis for Iraq’s use of the revenue raised during the approved phase. All contracts signed by the GOI (or by the UN organisations acting on its behalf for the three northern Governorates) were sent to the UN Office of the Iraq Programme (OIP) in New York for processing and, in most cases, circulation to the 661 Committee for its approval. As of 1 March 2000, some contracts were, however, approved by the UN Secretary-General on the basis of lists of standard supplies approved by the 661 Committee as per the “fast track procedure” established by SCR 1284 (1999). A second significant change was introduced by SCR 1409 of 14 May 2002 with the Goods Review List (GRL) and a new set of procedures for the processing of contracts.

50. – Under the above-mentioned framework, the FAO was in charge of the implementation of the programme regarding its agricultural component. Like other UN entities, the Organization supervised the GOI’s implementation of the Programme in the central and southern Governorates and directly implemented the Programme in the three northern Governorates. The terms and conditions of FAO’s intervention were defined by an MOU concluded with the UN on 14 and 16 October 1997. Both parties signed a revised MOU on 19 October and 9 November 1998. According to the revised MOU, allocations of funds were made to biannually FAO:

• under the 13% account to meet the direct costs of implementing the Programme in the three northern Governorates for the value of the applications approved by the 661 Committee to be executed by the FAO plus the cash component (if any);
• under the 2.2% account to cover administrative and operational costs, including the costs related to observation activities, in central and southern Iraq.

51. – The FAO was allowed to charge support costs at the rate of 3% of the actual disbursements made from the funding provided. This reduced rate (compared to the standard one of 5% for emergency activities) was accepted by the Organization in consideration of the volume and value of the assistance to be provided. According to Article 3.3 of the revised MOU, these support costs were paid out of the 13% account and 2.2% account, respectively. After taking into consideration advances already transferred, funds were made available to the FAO on the basis of the monthly estimated cash requirements submitted to the OIP. They were deposited into the interest bearing bank account opened for such, while a Trust Fund was established to account for them.

Regularity audit

Existing Bank Accounts and Replenishment of Funds

52. – At the time of my staff’s visit, three bank accounts were operated by the FAOR in Iraq: one US Dollar current account opened at a private bank in Amman, Jordan and two current accounts (one in Iraqi Dinars - ID, the other in US Dollar) opened at the same bank in Baghdad. Because of the sanctions, none of the Iraqi banks were allowed to receive funds directly from Headquarters. Furthermore, foreign banks were not allowed to open branches in the country. The bank account in Amman was operated, therefore, as an intermediary between the FAO and the Iraqi national banking system. It was replenished by Headquarters on the basis of the FAOR’s requests. Funds were then subsequently transferred:

• either to the US Dollar account in Baghdad (through the bank’s branch in Amman) for payments to be made in Baghdad;
• or to the brokers who, in the absence of a banking infrastructure in the North, had been contracted to provide cash at designated offices given a seven-day notice (or a three-day one in emergency cases). They advanced the funds to be provided and were subsequently reimbursed with a 1% commission through bank transfers to their respective accounts in Amman. Since the WFP was only charged a 0.8% commission provided that funds were reimbursed within eight days, my staff recommended that the FAOR try to negotiate the same terms with the brokers. The recommendation was implemented and the commission was now charged at the rate of 0.8%.

53. – My staff reviewed the replenishments requested and granted in 2000 and 2001 up to date and observed the following:

• For the account in Amman, replenishment was requested when the account balance was under US$1 million. A replenishment of US$3 million at a time was usually requested. Five to ten days elapsed between the date of request and the actual transfer of the funds.
• For the US Dollar account in Baghdad, transfer from the Amman account was initiated when the account balance was below US$50,000. An amount of US$300,000 at a time was usually transferred. My staff were told that the time lapse between the transfer request and the actual transfer was three weeks on average because of the delays encountered with the Iraqi Central Bank.
• For the northern offices, the number of cash deliveries per month varied from five for Erbil (for both the coordination office and the sub-office) to three for Dohuk sub-office (Suleimaniyah was in the middle with an average of 4.5 cash deliveries per month). Replenishments varied ranging from US$50,000 to US$450,000. My staff concurred with Internal Audit recommendation that the “frequency of cash delivery instalments for each office should be increased to at least six per month with a maximum limit of US$250,000 per instalment”.

Security of Cash and Valuables

54. – The security of cash and valuables was an area where many shortcomings were noted, especially in view of the high amount of cash kept on a continuing basis. At the time of my staff’s visit, the equivalent of US$5.4 million was kept in total with, in particular, the equivalent of US$2.6 million for the Suleimaniyah sub-office alone. The following was recommended by my staff:

• A safe content register should be maintained for all the safes, which did not contain cash only, and statements of personal responsibility for private belongings placed in the FAOR safe should be completed.
• All the accountants and cashiers, who were given the custody of the keys to the safes, were national staff. As already pointed out by AUD, they were more susceptible to extortion than international staff who did not have any relatives in the country. The feasibility of making some international staff the custodian of one of the keys to the safes should be looked into.
• Duplicates of the keys to the safes were usually in the custody of the Head of the sub-office, which made him particularly vulnerable. The rule whereby no individual should have the custody of both the keys should be strictly adhered to. Duplicate keys should also be kept in sealed envelopes in the main office in Baghdad.
• The combination lock, available on some safes, should be put into use and combinations should be changed on a regular basis.

55. – My staff were subsequently informed that all of their recommendations had been implemented with one exception. The second recommendation regarding custody of the safe keys by international staff would be implemented once the international fixed-term staff would be recruited. My staff also recommended that the security level be strengthened (camera, alarm bell, separate cashiers rooms, etc.) and was subsequently informed that a series of measures had been taken including the installation of surveillance cameras.

56. –The deficiencies noted above were partly due to the absence of detailed rules and regulations in both the FAO Manual and the Financial and Administrative Manual for FAO Representatives (FAOR Manual). In its report issued in December 1999 (AUD 5399), AUD recommended that AFF should provide the Iraqi FAOR with specific guidelines over movement, handling and safekeeping of cash. These guidelines had not been issued at the time of my staff’s visit and were still outstanding at the time of writing this report. Only a “Procedure for Cash Handling at the time of an Evacuation in Iraq” was prepared by the FAOR in Iraq and cleared by AFF in May 2002. I recommend that detailed rules and guidelines on the safe handling of cash and valuables be issued as soon as possible for all FAORs and that the specific case of Iraq also be addressed.

Management and Control of Inventory

57. – My staff reviewed existing systems and procedures in the management and control of inventory, in order to determine their compliance with Section 503 of the FAO Manual as well as relevant Sections of the FAOR Manual. As far as disposal of equipment was concerned, they noted the following:

• In January 2001 the Erbil coordination office disposed of some tyres and wheels acquired with the SCR 986 funds. Some of them were brand new: 13 out of 125 tyres and 41 out of 51 wheels in total. My staff were told that the new ones, which had been sent by the main office in Baghdad, had to be sold as well because they could not be used for the northern vehicle fleet. Sealed bids were obtained from three different tyre stores and the items were sold to the highest bidder at US$2,045.
• In February 2001 the main office in Baghdad disposed of some computer spare parts acquired for the SCR 986 Programme. Sealed bids were obtained from three different electronic or office equipment stores and the items were sold to the highest bidder at US$410.

58. – In both cases, my staff found that clearance from the UN had not been obtained prior to the sale of the equipment in question. In the absence of a written procedure (cleared by the UN Office of the Humanitarian Coordinator for Iraq - UNOHCI - or by the OIP) giving the FAOR the authority to sell, or hand over to anyone in Iraq, any SCR 986 Programme equipment, my staff recommended that the matter be investigated with UNOHCI/OIP. They were subsequently informed that, in future, any disposal of items would be referred to UNOHCI for approval from the 661 Committee.

Vehicles Lent to the Local Authorities

59. – Vehicles financed on the 13% account were usually lent to the Local Authorities (LAs). My staff reviewed the files for the ones lent to the LAs in Erbil (144 vehicles), Dohuk (78 vehicles) and Suleimaniyah (125 vehicles). Agreements, concluded for a six-month period and subsequently renewed, determined the terms of such loans. My staff noted, however, that some vehicles had been handed over to the LAs without any agreements being concluded (for instance 35 motorcycles for Suleimaniyah). They also noted that not all the pages of the agreements and the lists of the annex attached thereto were duly signed and dated by both parties. Furthermore, the intended use was not always mentioned in the annex. The extension agreements stipulated that its provisions would “further apply to all motor vehicles subsequently loaned by the first party to the second party and not listed in the schedule to this agreement”.

60. – In view of the above, my staff recommended the following:

• No vehicles should be handed over without the conclusion of a formal agreement duly signed, stamped and dated by both parties.
• The provision included in the current agreements whereby it would “further apply to all motor vehicles subsequently loaned by the first party to the second party and not listed in the schedule to this agreement”, should be eliminated and no vehicles lent without a formal agreement concluded.
• The intended use of the vehicles should always be included in the annex attached to the agreement in order to enable subsequent verifications.

My staff were subsequently informed that their recommendations had been accepted and that field officers had been instructed to act accordingly.

Human resources management

Scope of the Human Resources Management Review

61. – My staff reviewed the organisation in terms of HR management and the staffing situation at the time of their visit. They also reviewed the recruitment procedures for both international and national staff and the different types of contracts used. They did some random checking of personnel files and overtime paid. In addition to comparisons made with the WFP, the results of the UNOHCI survey on conditions of employment in the UN system in Iraq issued on 10 December 2000 were examined for further comparisons with other UN organisations.

62. – Special attention was also given to the follow-up on the decisions taken by the Director-General on 13 October 2000 for the strengthening of the management of the “Oil for Food” Programme. In the area of human resources these decisions, which were to be implemented by 31 December 2000, were as follows:

• reinforce the Headquarters AFF Division and Procurement Service (AFSP) by establishing one Finance Officer (P-4) post and one Accounting Clerk field post in the former and six additional general service field posts in the latter;
• establish in Iraq a core team of 14 international professional field staff recruited on a fixed-term contract basis and also appoint a Resident Auditor; and
• establish a core team of 10 National Professional Officers (NPOs) and 50 key general service recruited on field fixed-term contracts, and employ the remaining staff as National Project Professional Personnel (NPPP) with Service Contract (SC) or under SSA for the general service staff.

Staffing Authorisations and Situation

63. – Only the following 11 posts of the FAOR were financed by the RP:

• one director (D-2) for the position of the FAO Representative;
• one professional (P-2) for the position of Administrative Officer and one NPO;
• eight general service posts filled by nationals.

All the positions were filled at the time of the review. All incumbents were on fixed-term contracts expiring on 31 December 2001. Apart from the FAO Representative himself, other staff members financed by the RP, were devoting a substantial amount of their working time to the implementation of the SCR 986 Programme. Such was especially the case of the Administrative Officer, the Administrative Clerk and the FAO Representative’s Secretary. In the case of the Secretary, apart from her RP remuneration as G-3, she was also getting a monthly “allowance for special service rendered to the 986 Programme” of around US$400 paid on the 2.2% account. Such an allowance also applied to the Customs Clerk who handled the clearance of the agricultural inputs. My staff were, however, subsequently informed that, following their observations, the payment of these allowances would be discontinued.

64. – As far as the SCR 986 Programme was concerned, the current phase at the time of my staff’s visit was Phase IX, which covered the period 12 December 2000 to 8 June 2001. However, for budgetary and accounting purposes, OIP’s approval of funds/posts and reporting of expenditure was done from 1 January to 30 June and from 1 July to 31 December. As far as the number of posts was concerned, the approval was made per location (posts at Headquarters on the one hand and posts in Iraq on the other hand with a breakdown per zone - Centre/South and North) and per nationality (international staff on the one hand, national staff on the other hand). Table 3 that follows recapitulates for the period 1 January to 30 June 2001, the requested staffing, approved one and the number of posts encumbered at the time of the review.

65. – As far as the Headquarters posts were concerned, the only vacancy for international professional staff was related to the post of the Finance Officer (P-4) whose establishment was decided by the Director-General on 13 October 2000 to reinforce the AFF Division. The other professional posts were based in the Special Relief Operations Service - TCOR (four Operations Officer: one P-2 and three P-3) and in AFSP (one P-4 Purchasing Officer). For the general service staff, the total number of approved posts amounted to 15. This included the seven additional general service posts, whose establishment was approved by the Director-General on 13 October 2000. At the time of the review, two posts had not been filled yet: one Accounting Clerk (G-4) in AFF and one Filing Clerk (G-2) in AFSP.

66. – At the time of the review, the total number of staff employed at the FAOR for the implementation of the SCR 986 Programme amounted to 408, as broken-down by location and type of contracts in table 4 that follows. Compared to the approved staffing for Phase IX, there were 88 vacancies. As far as professional posts were concerned, there were two vacant posts of observers in the main office in Baghdad, but the candidates were due to arrive soon. In the North, the three apparent vacant posts were due to the mandatory break of service of the incumbents on short-term consulting contracts. For the general service staff, my staff were told that the recruitment of the vacant 24 posts in the Centre/South was delayed intentionally because of the lack of office space. Following the completion of the works in the new premises on 15 June 2001, staff had been recruited.

Contracts Used for the SCR 986 Programme International Staff

67. – At the time of my staff’s visit, the 43 international staff recruited for the implementation of the SCR 986 Programme were all still on short-term consulting contracts. As provided for by Section 317.24 (ii) of the FAO Manual, their appointment for short or intermittent periods of less than one year was for a series of specific assignments within a given period of time (When Actually Employed – WAE basis). In its report dated February 2001 (AUD 2201) AUD recalled the previously reported difficulties in this area, which included a high turnover rate, inadequate technical expertise and delays in the recruitment process. It recommended that “more generous employment and contractual arrangements [...] to attract and retain skilled international personnel for longer periods”. It noted, however, the decision dated 13 October 2000 to establish a core management team of 14 international professional field staff recruited on a fixed-term contract basis.

68. – At the time of my staff’s visit, however, such a decision had received only partial implementation. Out of the 14 international professional established field posts, seven posts were occupied, but none of the incumbents were on fixed-term contracts yet (still on short-term consultancy). For six of the vacant posts, candidates had been recently selected but the offers were still being finalised. For the last remaining post (Programme Manager), the vacancy announcement to be published in a number of international specialised publications was only sent to the Assistant Director-General (ADG), Technical Cooperation Department (TC) for approval on 7 May 2001. The Programme Manager took up his duty in March 2002. At the time of writing this report, two of the 14 posts were still vacant (one Finance Officer and one Head of Sub-Office) but candidates had been recently selected.

Contracts Used for the SCR 986 Programme Locally Recruited Staff

Different Types of Contracts Used

69. – As pointed out by the survey mentioned above on conditions of employment in the UN System in Iraq, various types of contracts were used by the different organisations for the locally recruited staff. They were namely the Appointment of Limited Duration (ALD), Casual Labour Contract (CLC), Service Contract (SC) and SSA. Out of the 1,900 nationals employed altogether by the UN system at the time of the survey, the breakdown was as follows: 44% SC, 22% SSA, 21% ALD and 2% CLC, the balance (11%) being represented by fixed term contracts. It should be further pointed out, however, that out of the 11% of fixed term contracts, the UN Children’s Fund (UNICEF) accounted for more than 7% because of the use of a Temporary Fixed Term (TFT) contract granted for a period of 11 months and renewable after a break of service of one month.

70. – Out of the various types of contracts in use within the UN system in Iraq, the only one not used by the FAO was the ALD. This contract was intended to be a flexible hiring tool for appointments limited in duration (minimum of six months but lasting no more than three or, exceptionally, four years). Although it was generally perceived as a better type of contract for the employee, carrying staff member status and benefits (medical insurance, maternity, sick and annual leave and entitlement to pension fund), the time limit was considered by several organisations as a serious cause of concern. In fact, it was only used by four organisations, namely the UN Centre for Human Settlements (UNCHS or HABITAT), UNOHCI, UNDP, and WFP at the time of the survey.

71. – The adoption of the ALD type of contract had been strongly recommended by the FAO Representative in February 1999 in order to harmonise the FAO contractual arrangements for the national staff with those of other UN organisations in Iraq. A recommendation for such harmonisation had been made by AUD in its first audit report (IAR 6097) issued in November 1997 and reiterated in its September 1998 report (AUD 4698). Based on the correspondence between the FAOR and Headquarters, it appeared that positions on the ALD issue fluctuated over time. However, at the end of lengthy discussions (nearly 20 months elapsed between the initial FAO Representative recommendation and the decision taken on 13 October 2000) it was decided not to adopt this type of contract mainly because of its time limitations. Instead, all national staff in Iraq would be employed on the basis of the four different types of contracts:

• two for the professionals with a core team of 10 NPOs and NPPP SC for the remaining;
• two for the general service with a core team of 50 field fixed term contracts and SSA for the remaining.

At the time of my staff’s visit this decision had not been fully implemented as detailed in the paragraphs that follow.

Contracts for the National Professionals

72. – For the professional staff, none of the NPOs had been recruited at the time of the review. All the national professionals but one were in fact on SC. Use of the SC had been initiated by the FAOR as of July 2000. Its duration and its provision for certain elements of social security distinguished the SC from the SSA. However, SC holders were not considered as staff members. In Iraq, the SC was used by half of the organisations surveyed but the WFP accounted for more than three-quarters of the contracts at the time. It should, however, be pointed out that the standard UNDP SC used by other organisations differed from the FAO one on the duration aspect. While, as per the UNDP SC “user’s handbook” the SC was the indicated form of contract “for 11 months or beyond”, Section 375 of the FAO Manual indicated that it should be a one year maximum contract renewable for a further maximum period not exceeding one year. With its present limitations, the FAO SC could not be considered suitable for the specific needs of the SCR 986 Programme.

73. – My staff were told that, within the current streamlining process of different contractual arrangements, the SC would be redesigned and incorporated into the future “Personnel Service Agreement” (PSA). Since this new contract had still to be approved, my staff were unable to ascertain if it would be more suitable to the specific needs of the SCR 986 Programme. At the time of writing this report, my staff were informed that 11 NPOs fixed term contracts have been implemented. Since the PSA type of contract was still not finalised, the other SCs would be converted into fixed term contracts of a one-year duration before the end of 2002.

Contracts for the National General Service Staff

74. – For the general service staff, none of the 50 field fixed term contracts had been concluded yet at the time of the review. As a result all the general service nationals were either under CLC or SSA (with the exception of one Finance Clerk on an STA).

• The FAOR was the only one using the CLC. As per Appendix D to Section 374 of the FAO Manual, such a contract could be offered for “periods not exceeding three months [and] be given repeatedly to the same individual, provided there [was] a reasonable interruption between periods, and that the total period of employment [did] not exceed six months in any 12-month period”. However, in the case of Iraq, the Director-General granted a waiver to the FAOR to hire casual workers for a consecutive period not exceeding 11 months. The CLC was in fact the first contract concluded for a newly recruited local employee usually for a period of six months. In terms of benefits, the contract carried absolutely nothing except remuneration.
• According to Section 319.21 of the FAO Manual, the SSA was to be used only with respect to individuals when it was not possible or advisable to obtain their services on a regular employment basis or through the used of another type of contract. It was, however, the form of contracts most used in Iraq at the time of the review with 271 SSA subscribers, who accounted for 65% of the total staff employed. No other UN organisation, with the exception of the World Health Organization (WHO), had such an extensive use of the SSA since they preferred the SC. The basic SSA was only marginally better than the CLC, the SSA subscriber being in no way considered to be a staff member of the Organization and having very few benefits besides the remuneration.

75. – At the time of writing this report, my staff were informed that 47 national general service staff had fixed term contracts. Since the PSA was still not finalised, fixed-term contracts of a one-year duration were being prepared for the rest of the CLC and SSA and were expected to be finalised by the end of 2002.

Organisation in Terms of Personnel Management

76. – As detailed in the previous paragraphs, the decision taken on 13 October 2000 had still to be fully implemented at the time of my staff’s review. If the initial 31 December 2000 deadline was, in my opinion, unrealistic considering the irreducible time of the Organization’s recruitment process, the delays encountered raised notably the issue of the organisation adopted in terms of personnel management. In the past all the contracts for the locally recruited staff were prepared by the FAOR. With the decision to establish some field posts, an additional workload fell on Headquarters, notably on the Management Support Service (MSS) now in charge of preparing all the related fixed-term contracts. The staffing of the MSS Group concerned (the one servicing the TC and the Fisheries Departments) could not be considered adequate and my staff recommended that it be reviewed. A new G-5 post of Personnel Clerk to service the SCR 986 Programme under the 2.2% account was subsequently established and an internal candidate recruited.

Overtime

77. – According to Staff Rule 302.133 “normal working hours for regional, country and field offices shall be established, taking into account local custom, climatic conditions, the practice of other agencies in the area and the practical requirements of the office”. For the FAOR in Iraq, the official working hours were set as follows: from 8.30 a.m. to 4.00 p.m. Sunday through Thursday and from 9.00 a.m. to 2.00 p.m. on Saturdays. According to Staff Rule 302.303 “staff members who are required to work a number of hours in excess of their established working week and who are otherwise eligible receive compensation as set out in the FAO Manual”. For the FAOR in Iraq, all RP general service staff were eligible. For the SCR 986 Programme staff, the memorandum addressed on 1 April 2001 by the FAO Representative to the North Coordinator stated that overtime only applied to general service staff employed either under SSA or CLC, with the exception, though, of drivers since they were paid a monthly lump sum of US$100 included in their salary to cover for this purpose.

78. – My staff reviewed the overtime rules, procedures and payments for the main office in Baghdad. According to the most recent instructions issued by the FAO Representative on 5 November 2000, “to avoid any misuse of overtime work, all staff required to work must first obtain from their immediate supervision the instruction to stay in office beyond the working hours”. My staff were told that such prior authorisations were duly obtained in all cases. They could not be provided, though, with written proof of such since no formal overtime request forms (ADM. 47 or 48 as specified by Section 325.42 of the FAO Manual) were filled in. The only written document, which served as a basis for the overtime computation and the subsequent payment, was the register kept at the reception where the staff indicated, on a daily basis, their working time. My staff noted, however, that the overtime as reported by the individuals concerned was readjusted (in fact reduced in all cases) by the FAO Representative himself at the end of the month. In spite of these adjustments, the number of overtime hours worked exceeded, in most cases, the limit of 25 hours per month set by Section 325.221 of the FAO Manual.

79. – In view of the above, my staff recommended the following:

• The above-mentioned memorandum dated 1 April 2001, which stated the overtime directive applicable to the SCR 986 Programme staff in the North, should also apply to the Baghdad based personnel (whether RP or SCR 986 Programme) and be strictly adhered to. As stated in paragraph 2 of the memorandum, “all overtime work [should] be authorised in advance by the immediate supervisor”. The approval should be documented in writing by using the prescribed FAO forms.
• Although the FAOR did not consider the present amount of overtime hours worked in the main office in Baghdad as excessive in monetary terms, my staff were of the opinion that having several staff members working more than 25 hours of overtime in one month, on a continuous basis, did not conform to the interest of the staff and to the efficiency of the FAOR. Should the present staffing and/or organisation be found inadequate, the situation should be reviewed.

My staff were subsequently informed that their recommendations would be implemented.

Implementation of the SCR 986 Programme in the North

Background Information on the Programme in Three Northern Governorates

80. – The three northern Governorates of Erbil, Dohuk and Suleimaniyah are predominately agricultural. They are endowed with fertile soil and climatic conditions suitable for agricultural production. However, because of the instability and civil strife that the region has suffered for the past decade, the agricultural sector has significantly deteriorated. Damages to basic rural infrastructure, shortages in basic agricultural inputs and lack of efficient support services have led to significant decreases of yields and productivity, while livestock health has declined and deforestation intensified. Prior to its involvement in the “Oil for Food” Programme, the FAO was involved in a relief programme in the early 1990s, which mainly focused on the provision of basic agricultural inputs as well as plant and animal disease control activities.

81. – With the implementation of the SCR 986 Programme, the FAO, as part of the UN Inter-Agency Humanitarian Programme, was given the responsibility of the following for the agricultural sector in the three northern Governorates as set in the MOU concluded between the UN and GOI:

• “collect and analyse pertinent information on humanitarian needs”;
• “determine on that basis the requirements” for discussion with the GOI and subsequent incorporation in the DP;
• procure the humanitarian materials and supplies required, “should they be more suitably procured through the United Nations system in view of technical aspects related to their proper use”;
• carry out the “storage, handling, internal transportation [and] distribution” of the materials and supplies by using, whenever possible and cost-effective, the “appropriate local distribution mechanisms comparable to those existing in the rest of Iraq in order to reach the population”;
• confirm the “equitable distribution”, and “observe that humanitarian supplies are used for their intended purposes, through visits to sites and by collecting data”.

82. – While the “Oil for Food” Programme was initially designed as a temporary measure, its subsequent numerous renewals have changed the nature of the operations. From the simple distribution of seeds and fertilisers, the FAO has moved on, as of Phase IV, to implementing short term humanitarian rehabilitation programmes, such as agricultural irrigation, drought relief, livestock production, extension services, agro-meteorology and agro-industries rehabilitation. Furthermore, the FAO was also allocated funds out of other sectors besides the agricultural one (Education sector in Phase IV and Nutrition sector in Phases IV to VI). Moreover, the combination of the surging oil prices and the removal of the ceiling on Iraqi oil export made the allocations under the 13% account reach unprecedented financial importance as shown in table 5 that recapitulates the funds allocated to the FAO by phase.

Shift in the Programme as of Phase IV

83. – The shift in the Programme focus as of Phase IV required a more formal and well-defined approach to ensure proper planning for each sector, as well as appropriate measures to strengthen the technical, administrative and financial management in the field and at Headquarters. A first multi-disciplinary mission was fielded in February 2000 to assess the status of rehabilitation of agriculture in the North and to identify ways, in the medium term, to lead towards achieving a sustainable rural economy. However, it was only in 2000 that more time and attention was devoted to the SCR 986 Programme implementation. Apart from the previously mentioned decisions taken by the Director-General on 13 October 2000, the most significant action was the fielding of an important multidisciplinary reconnaissance mission to Iraq in November/December 2000. Its main objective was to make recommendations regarding an overall integrated sectoral approach. Since the report of the mission entitled “Towards a strategic framework for sustainable agricultural rehabilitation in the three northern Governorates of Iraq” was not finalised prior to my staff’s visit to Iraq, they reviewed it upon their return.

84. – According to the November/December 2000 mission, the main objectives were to support a sustainable and equitable rehabilitation of the agricultural sector in the three northern Governorates with an integrated and highly participatory approach that would draw on FAO’s experience with the SPFS by enhancing food security and nutritional improvement; reducing rural poverty; and improving environmental protection. In order to do so, the priority actions were identified as follows:

• further elaboration of the strategic framework elements through carrying out a Comprehensive Needs Assessment (CNA);
• improving institutional structure for FAO Programme management and technical assistance;
• supporting local capacity restoration;
• establishing a comprehensive Monitoring and Evaluation System (M&E).

A follow-up mission was fielded in 2001. At the time of writing this report, my staff were informed that the FAO was taking the necessary steps to finalise a fully costed three-year rehabilitation programme, which would be ready by the end of 2002.

85. – While I regret that such a framework was not designed much earlier since it would have been a useful tool to have in late 1998/early 1999 when the Programme went beyond the sole delivery of humanitarian supplies, I commend the approach that was finally taken. I found the objectives and main elements of the framework in line with paragraph 2 of annex I to the MOU that stipulates that “specific rehabilitation needs in the three northern Governorates shall receive the necessary attention”. The fact that the FAO, as other UN organisations, acts on behalf of the GOI “with due regard to the sovereignty and territorial integrity of Iraq” should, however, not be overlooked. In this regard, I am of the opinion that the role of the GOI should have been defined in the framework. Likewise, emphasis should also be placed on “the principle of equitable distribution of humanitarian supplies throughout the country”, as also prescribed by Annex I to the MOU, in order to prevent disparities between the North and the rest of the country.

86. – I also consider that actual implementation of the framework would involve, inevitably, a re-examination of the basic documents that founded the “Oil for Food” Programme. Presently, the FAO, as other UN organisations, had to carry out its tasks in the North in full compliance with the SCR 986 and other subsequent resolutions and the letter and spirit of the MOU concluded between the UN and the GOI. The problem was, however, that all these documents did not always provide precise terms of reference for the actual implementation of the SCR 986 Programme. As detailed in the paragraphs that follow, some of the “grey areas” were related to the relationship with the northern LAs and the management of the Locally Generated Funds (LGFs).

Relationship with the Local Authorities in the North

87. – As pointed out by the Executive Director of the Iraq Programme on 8 March 2001 while presenting the Phase IX “90-day Report”, the UN organisations were faced with a difficult and sensitive environment in implementing the Programme in the North, which placed them “in a bind”. According to him, “on the one hand, [they] are to implement the Programme on behalf of the Government of Iraq and, on the other, [they] have no alternative but to deal with the Local Authorities in the three northern Governorates, which is being increasingly resented by the Government of Iraq”.

88. – The fact that the Programme has to be implemented by the UN organisations “on behalf of” the GOI was pretty clear from the wording of the SCR 986 and the MOU concluded with the GOI. As stated by the UNOHCI’s legal opinion dated 15 January 2001, the UN organisations in fact “hold on trust power belonging to the Government of Iraq for the purpose of administering the Inter-Agency Programme in the three northern Governorates”. However, it was also a fact that since the GOI withdrawal of its services and support to the region in 1991, the only administration present was the one of the Local Authorities. For the agricultural sector, the administration was composed, under the responsibility of the “Ministry of Agriculture”, of seven sectoral Directorates General coupled with three Directorates General (one in each of the Governorates), which regrouped sub-offices in the districts and sub-districts.

89. – Since the LAs did not constitute a recognised government, their existence was not acknowledged in any of the official Programme documents (SCR and MOU). Furthermore, the above-mentioned legal opinion did not give any clear-cut answer on their status. The only recommendation made was on the “nature of the partnership with the Local Authorities that requires joint effort or concerted action in all cases”. On the one hand, “continued collaboration or consultation and cooperation with the authorities” was defined as “imperative and definitely indispensable in the circumstances” (the LAs “must be encouraged to suggest what programmes and projects are necessary”). On the other hand, though, it was stressed that the “critical decisions” and the “overall and ultimate control” should reside in the UN organisations to ensure adherence to the SCR 986. For this reason, the necessity to “put in place adequate mechanisms/procedures in their dealings with the Local Authorities” was emphasised.

90. – The precise nature of these “mechanisms/procedures” to be put in place was not defined in the legal opinion, which was regrettable. It was only indicated that “the Legal Office [would] assist the Agencies in this process of creating adequate safeguards for programme management if so requested”. It was also regrettable that the issue of the relationship with the LAs was only addressed in a legal opinion dated 15 January 2001, that was four years after the start of the SCR 986 Programme implementation. As in other areas, the lack of precise guidelines from the UNOHCI to actually coordinate the actions of the different UN organisations was found to be detrimental to the SCR 986 Programme implementation. In this absence, each UN organisation was left to devise its own approach and procedures. In the case of the FAO, various committees were set up to ensure the participation of the LAs. As illustrated in the case of the LGFs, such participation, which went beyond mere consultation and cooperation, had to be re-examined so that the LAs would be treated as only “partners” and not as “co-managers” of the Programme.

Management of the Locally Generated Funds

91. – The LGFs are the proceeds of the fees paid by the recipients of materials and supplies in the three northern Governorates for internal transportation, handling and distribution. The legal basis for such payments was provided for in paragraph 7 of Annex I of the MOU concluded with the GOI in 1996. No guidelines were ever issued by the UNOHCI on the LGFs and regrettably the MOU concluded between the UN and the FAO did not address the issue. The only documents that gave some information were some of the Secretary-General’s reports. The one dated 4 September 1997 (S/1997/685) indicated that “input such as spare parts, machinery and pesticides for non-endemic disease [would] be sold to support further agricultural investments”. In the one dated 4 June 1998 (S/1998/477), it was further mentioned that “nominal prices [were] levied on some inputs, such as irrigation pumps and pipes, agricultural machinery spare parts, pesticides and drugs for non-epidemic disease, seed and fertilisers to enhance equitable distribution. The funds generated [were] used to support further investments that will benefit small farmers.”

92. – In the absence of UN-wide guidelines, the FAOR prepared its own on the basis of the decisions taken by Headquarters in October 1997. Apart from several memoranda on specific LGF related issues, the first guidelines were sent by the FAO Representative on 21 July 1998 to the North Coordinator. This brief document did not address all the issues at stake. A more comprehensive one entitled “Management of locally generated funds from the sale of UN SCR 986 commodities” was then prepared by the North Coordinator in 1999 (no precise date mentioned). According to these two documents, the LGFs were generated, kept and used as follows:

• A nominal price, set by the FAO, was charged for the following SCR 986 Programme inputs: spare parts for tractors and combine harvesters; agricultural sprayers and equipment; pesticides for non-endemic diseases; vegetable seeds for cultivating more than two donums (half an hectare); poultry concentrates needed for more than ten layers and veterinary drugs.
• The funds were kept in the custody of each FAO sub-office. They could be converted into US Dollars to enhance their safekeeping.
• LGFs were “pooled together to form a unique source of financing primarily for the Governorate’s inputs distribution costs to end-users with regard to logistics support, payments of incentives to LA technical staff and Local Authority Support teams involved in the implementation of the Action Plan for Agricultural Season distribution of inputs; conducting situation surveys that will enhance the usage of the equitable distribution of the inputs and miscellaneous expenses. Any balance shall be used to fund projects, submitted by the Governorate’s Local Authority that will improve the livelihood of the small farmers in that Governorate.”

93. – The following structure of various committees, all chaired by the FAO, was set up in each Governorate to play “an active role in the management” of the LGFs:

• The High Agricultural Committee was composed of “representatives of the High Agricultural Authority in the Governorates, Governors of Dohuk, Erbil and Suleimaniyah, Farmers Union, Directorate General of Agriculture and Directorate General of Animal Resources and Veterinary Services”.
• The Fund Management Committee was composed of the UNOHCI field delegate and representatives from the Governor, Farmers’ Union and General Directorate of Agriculture.
• The Steering Committee was composed of representatives from the Farmers’ Union, the Agricultural Department, the Animal Service and Veterinary Department, the Irrigation Department, Agricultural Research and College of Agriculture.
• The Project Implementation and Procurement Committee was composed of representatives from the following institutions: Ministry of Agriculture, Humanitarian Aid Association, Farmers Association, Governor, plus one independent professional person appointed by the FAO.

94. – All these different committees were in fact involved in the decision process as demonstrated by the specific responsibilities assigned to them.

• The High Agricultural Committee would for instance “approve the Action Plan and expenditures for a particular agricultural season”, “appoint Local Authority members of the Steering Committees and Fund Management Committees”.
• The Fund Management Committee would “review projects submitted by the High Agricultural Committee and approve their funding, through saving from the Local Generated Funds”.
• The Project Implementation and Procurement Committee would prepare the project details and technical specifications required, issue the tenders, evaluate the bids and award the contracts. Actual payments would be made by the FAO directly to the successful bidders/suppliers (and not to the LAs).

95. – In its report dated March 2001 (AUD 3401), internal audit indicated the following, with which my staff concurred: “Over the years too generous an interpretation, to accommodate the requests of local authorities, has been given to the usage of these funds thus deviating from the original intent and purpose. [...] Analysis revealed that these funds have been used to pay some 4000-5000 casual labour or other staff, some 400-500 vehicles have been rented for long periods and in addition, funds have been used for transport of water (some US$3.5 million over the years) in the drought-stricken areas. Although these payments were made following the established procedures applicable for the usage of these funds, the strict criteria about usage has not been observed. Moreover, FAO staff confirmed that it was difficult to monitor and keep track that the approved manpower and other resources were actually being used for the intended purposes.”

96. – In fact, the AUD recommendations “to put an end to this practice [...], to re-focus the usage of these funds and to develop revised procedures to ensure full transparency” had been initiated, in December 2000, by the new FAO Coordinator and were in the process of being implemented at the time of my staff’s visit. They reviewed the draft of the revised procedures and recommended the following:

• Section D related to the criteria for utilising LGF should be further developed. It should include, as much as possible, a limited and detailed list of costs, which could be covered by LGFs. The issue of the emoluments to be made to various personnel should be specifically addressed and incorporate the “Policy guidelines on emoluments to public sector personnel” issued by the UNOHCI once finalised.
• Section E, which dealt with procedure for approval should be re-examined since the fact that “approvals will continue to be made, as in the past, by the Agricultural High Committee after clearance by the Steering Committee and Fund Management Committee and, if required, the Project Implementation and Procurement Committee” was questionable in view of the nature of the relationship to be maintained with the LAs (partnership not co-management).

97. – Last but not least, my staff recommended that the opportunity be taken to determine, in cooperation with the UNOHCI, the exact nature of the LGFs. They could be considered as a “by-product” of the 13% account and treated accordingly. It would mean that they would be included in the six-month phase DP. Such an inclusion would ensure that due regard would indeed be given to the “sovereignty and territorial integrity of Iraq” as stressed by SCR 986 and the MOU, since the DP was discussed with the GOI prior to its approval by the UN Secretary-General. The conclusion of a Trust Fund agreement would also be appropriate so that the FAO be officially given the custody of the LGFs. Receipts and expenditures would be reported in the same way as regular 13% account disbursements and reported in the Organization’s financial statements. It should be noted that, based on local records, which were being verified by Headquarters at the time of writing this report, LGF income amounted to US$17.7 million as at 31 December 2001 and US$19.5 million as at 30 June 2002, while expenditures amounted to US$12.2 million and US$13.4 million, respectively. Since the Organization declared being in agreement with my staff’s recommendations and appropriate actions were being taken, I recommend that the Organization continue to make the necessary efforts to solve all pending matters regarding LGF procedures and that LGF income and expenditure be duly included in the FAO’s financial statements for the 2002-03 biennium.

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⁴ In addition to the 13 international posts for the Centre/South approved as of January 2001, five additional posts were approved as of April 2001.

⁵ In addition to the 35 international posts for the North approved as of January 2001, two additional posts were approved as of May 2001