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In 1996, the United Nations (UN) Security Council and Iraq began the Oil for Food program to address Iraq's humanitarian situation after sanctions were imposed in 1990. More than $67 billion in oil revenue was obtained through the program, with $31 billion in humanitarian assistance delivered to Iraq. The 2005 Defense Authorization Act mandated that GAO review the Oil for Food program. GAO reviewed how the UN adhered to five key internal control standards in its stewardship of the program. GAO assessed (1) the program's control environment and (2) key elements of the other internal control standards. GAO also reported on the UN Compensation Commission's progress in paying reparations from Iraq's invasion of Kuwait. The UN Oil for Food program would have benefited from an internationally accepted internal control framework to provide reasonable assurance in safeguarding assets and meeting program objectives. Although the program averted a humanitarian crisis while limiting Iraq's ability to purchase military-related items, internal control problems allowed the former Iraqi regime to manipulate the program and circumvent sanctions to obtain billions of dollars in illicit payments. In particular, weaknesses in the control environment of the Oil for Food program compromised oversight and made it vulnerable to fraud and abuse. For example, Iraq negotiated contracts directly with companies purchasing its oil and selling commodities. In the absence of UN oversight, Iraq manipulated contract terms and obtained kickbacks. Moreover, the program had a complex structure with unclear lines of responsibility and authority. This diffusion among various entities meant that no single entity was accountable for the program in its entirety. The Oil for Food program also had weaknesses in the four key internal control standards--risk assessment, control activities, information and communication, and monitoring--that facilitated Iraq's ability to obtain illicit revenues ranging from $7.4 billion to $12.8 billion. In particular, the UN did not provide for timely assessments to address the risks posed by Iraq's control over contracting and the program's expansion from emergency assistance to commodities for 24 sectors. The UN Security Council established the UN Compensation Commission (UNCC) in 1991 to process claims and pay victims of Iraq's invasion of Kuwait. Security Council resolution 986 provided that a portion of proceeds from Iraq oil sales would go to the compensation fund. The commission approved awards of $52.5 billion to more than 1.5 million claimants and has paid more than $20 billion of this amount; however, Iraq still owes almost $32.2 billion in unpaid awards. Future payments for these awards could extend through 2020. These unpaid awards are in addition to the $51 billion that Iraq owes to international creditors. [ABSTRACT FROM AUTHOR]

In 1996, the United Nations (UN) and Iraq began the Oil for Food program after sanctions were imposed in 1990. The program was intended to allow the Iraqi government to sell oil to pay for humanitarian goods and prevent it from obtaining goods for military purposes. More than $67 billion in oil revenue was obtained through the program, with $31 billion in assistance delivered to Iraq. Internal controls serve as the first line of defense in preventing fraud, waste, and abuse and in helping agencies achieve desired outcomes. GAO assesses (1) the control environment the UN established for managing the sanctions and Oil for Food program and (2) other key internal control elements. In addition, we provide observations on the lessons learned from the program. The UN--the Security Council, the Secretariat, and member states--established a weak control environment for the Oil for Food program at the beginning. The UN allowed Iraq to control contract negotiations for imported commodities with little oversight, enabling the regime to obtain illicit funds through surcharges and kickbacks. The UN did not take steps to address the economic impact that the sanctions had on countries that depended on Iraqi trade, which undermined international support for sanctions and allowed Iraq to smuggle oil outside the Oil for Food program. Overall, the sanctions were effective in helping to prevent the Iraq regime from obtaining military items, but the UN was less rigorous in overseeing economic activities such as monitoring the price and value of Iraq's contracts. The UN's neglect of Iraq's illicit revenue streams helped support a sanctioned regime and undermined the goals of using oil revenues to benefit the Iraqi people. The UN did not adequately address key internal control elements as it implemented the Oil for Food program. First, UN entities lacked clear lines of authority. For example, the Office of the Iraq Program lacked clear authority for rejecting commodity contracts based on pricing concerns. In addition, the customs contractor at Iraq's border was not authorized to evaluate imports for price and quality. Second, the UN did not assess emerging risks as the Oil for Food program expanded from a 6-month emergency measure to deliver food and medicine to a 6-year program providing more than $31 billion to 24 economic sectors. Third, some monitoring activities constrained Iraq's ability to obtain illicit oil surcharges, but smuggling continued despite the presence of inspectors. In addition, the UN's internal audit office identified hundreds of weaknesses and irregularities in its reports. However, it lacked the resources and independence to provide effective oversight of this costly and complex UN effort. The Oil for Food program offers several lessons for designing future sanctions and strengthening existing UN programs: assess whether the sanctions program gives undue control to the sanctioned country; consider the economic impact that... [ABSTRACT FROM AUTHOR]