PRESS BRIEFING BY UNITED NATIONS DEVELOPMENT PROGRAMME

7 March 1997

Press Briefing

PRESS BRIEFING BY UNITED NATIONS DEVELOPMENT PROGRAMME

19970307 FOR INFORMATION OF UNITED NATIONS SECRETARIAT ONLY

At a Headquarters press briefing this morning, the Administrator of the United Nations Development Programme (UNDP), James Gustave Speth -- accompanied by the Programme's Director of Office of Human Resources, Robin Kinloch; Director of the Division for Audit and Management Review, James Currie; and Associate Administrator Rafeeuddin Ahmed -- briefed correspondents on the Programme's investigation of overpayments for the agency's office premises and housing construction in some countries.

In opening remarks, Mr. Speth said that the UNDP and other United Nations bodies have to be held to a high standard of accountability and openness in their relations with the public. The UNDP operated in over 150 countries and, every year, managed over $2 billion and engaged in hundreds of financial transactions involving thousands of people. Misconduct in the management of the organization's financial resources was quite rare. He stressed: "If they do occur, it is also our responsibility to discover them and take corrective actions, to act decisively, to learn from the experience and to make the matter public." Mr. Speth said that, following investigations he had began after gathering evidence that accounting and financial improprieties might have occurred in the construction of UNDP premises in developing countries, the first major report was presented to him this week by its Division for Audit and Management Review. The Division had concluded that during an eight-year period, the UNDP had overpaid as much as $6 million from its reserve for field accommodations, a special account set up for the construction of UNDP housing and United Nations housing in selected countries. As a result, it had ended up with some properties that were now worth less than it had paid for them.

While the UNDP had originally thought that the overpayments were the result of cost escalations associated with the difficult task of carrying out such projects in countries that lacked the infrastructure to aid the work, he said that closer scrutiny revealed that overspending had also resulted from irregularities in contracting with outside parties, repeated failures in the organization's financial controls and management oversight. Unauthorized expenditures had been incurred in violation of UNDP's financial rules and regulations, and as a result of the inquiry so far, the conduct or performance of 16 present and former staff members of the UNDP was at issue.

He told correspondents that: subject to due process, swift and appropriate corrective actions would be taken; sanctions would be applied to staff members wherever required, ranging from dismissal to reprimand, as well as recovery of funds; and two members of staff had already been suspended.

The Office of Internal Oversight Services was cooperating in the "external phase" of the investigation, he pointed out, a phase now gathering evidence regarding contractual services provided to the UNDP, including apparent billing irregularities. It would examine the possibility of liabilities outside of the UNDP, and while he had kept the Executive Board abreast of developments, Mr. Speth said he would be presenting a summary of the findings to the Board when it met to begin its second regular session of 1997 on Monday, 10 March.

Mr. Speth said that in the interest of due process and of the success of the external investigation, details of the review and the identities of those involved could not be made available yet, but the organization was taking steps to prevent similar actions from happening again, one of them being the changing of the management structures and staffing of the unit that handles the reserve for field accommodations. Administrative structures and functions were also being reorganized and streamlined, including the establishment of a financial and policy control unit to strengthen overall management and accountability. "I have put in place stricter monitoring and control procedures over the assets of the reserves; I have made it clear that no deviation from these procedures will be tolerated; the UNDP will not construct or purchase any further housing premises", he stressed.

He further told correspondents that the investigation had spanned three continents, expressing confidence that all those involved in wrongdoing on the matter would be identified and held accountable, adding that everyone in the UNDP was "deeply disturbed" by the findings.

Mr. Speth emphasized: "I speak for everyone in UNDP when I say that we are very upset by these findings, and we are committed to correcting the mistakes that have been made, to recovering as much as we can from the funds that have been lost, and to ensuring that something like this never happens again."

A correspondent asked if the phrase "irregularities in contracts and numerous failures in the organization's financial controls and management oversight" simply meant "thieving". Mr. Speth replied that UNDP's internal rules and regulations had been violated, and it was looking into the exact way that the external parties in the matter had conducted themselves. He pointed out that it would be premature and might jeopardize the investigations if he went further into the exact nature of the behaviour of the external parties under review. Pressed further, he answered that he could not say at this time if the issue was "thieving or incompetence", but they were certainly issues under consideration.

Mr. Speth was also asked how much of the funds in question might have belonged to such organizations as the United Nations Children's Fund (UNICEF) and the United Nations Population Fund (UNFPA), since the issue involved United Nations common premises. In addition, was it true that the total cost

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of the project was about $60 million? Mr. Speth answered that the estimate of $6 million that was believed to have been overpaid was about 13 per cent of the total amount of the construction payments as of the end of last year in the reserve for field accommodations.

Mr. Currie, responding to the same question, said that the figure involved in the total construction cost for the field housing and common premises was "slightly over $15 million". Continuing, Mr. Speth said there were some common premises being constructed as part of the exercise; the UNDP was responsible for it, and was responsible for any mistakes. He added that the Programme had undertaken the task on behalf of the United Nations system, and had accepted responsibility.

On the subject of funds that might have belonged to other agencies, he answered that one of the reasons why the UNDP was uncertain as to the exact nature of the loss had to do with whether other agencies would compensate the agency for its own expenditures in the exercise, reiterating that the UNDP took full responsibility.

Nine African countries were principally involved in the matter, he said, in answer to another question, including Cape Verde, Sao Tome and Principe, Guinea-Bissau and others.

What made him suspicious enough to have asked for the investigations last year? a correspondent asked. Mr. Speth replied that, in 1995, UNDP's Bureau of Finance and Administration became concerned about information coming to their attention on the matter. As a result, external consulting firms, including Erst & Young, were retained to conduct preliminary investigations. Last spring, the results were brought to his attention, and they were sufficiently disturbing for him to ask the Audit Division to undertake the review.

In reply to another question, Mr. Speth said that he had no knowledge of similar overpayments or irregularities going on in other areas of the UNDP. "This was a unique endeavour for UNDP", he noted, "it is not something that UNDP normally does -- this issue of constructing houses or common premises -- it was new to UNDP and we think that, in retrospect, it was a mistake."

A correspondent asked for the full list of countries that were involved. Mr. Speth replied: "The list of countries where office premises or housing were constructed included Zambia, Uganda, Maldives, Ghana, Mozambique, Comoros, Sao Tome and Principe, Cape Verde, and Guinea-Bissau." While that might be of interest to some correspondents, he stressed that nothing was implied negatively about those countries.

Although it was clear that Mr. Speth could not reveal the identities of individuals for obvious reasons, a correspondent stated, did it look as though the money had disappeared as a result of the coordination of one rather smart

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individual, given the spread of this over a number of countries? Could it have been a conspiracy? he asked.

It would be prejudicial to the investigation, Mr. Speth replied, to characterize matters any further than he had already done. Both within the UNDP in the cases to which he had referred, and outside the Programme, with the large number of people engaged in the exercise, there was certainly a wide gap between people who had very high degrees of responsibility for what happened and those who had lesser degrees for it. Everyone being investigated had different degrees of responsibility or culpability.

A correspondent asked what the implications were for the countries involved, and for the African continent -- in terms of UNDP programmes -- in view of the fact that most of the countries involved were from Africa. None, whatsoever, Mr. Speth replied. The initiative began a long time ago, and the current issue had nothing to do with UNDP's development assistance programmes. It was simply an effort to ensure housing, and later, common premises for the United Nations in those places. There were now no problems with premises and housing for United Nations personnel there. It was peripheral and had no correlation to UNDP's work to assist those countries with their development efforts.

Was there any construction work going on now, and were the premises involved in the investigations now being used by the United Nations? a correspondent asked. Mr. Ahmed answered that one construction programme in Sao Tome and Principe had not been completed yet. Some of the housing was vacant in Cape Verde, Sao Tome and Principe, and Guinea-Bissau.

Mr. Speth was further asked whether he was in a position to tell why it took so long to discover the overpayments, given the time lag of about eight years. He replied that the seeds of that problem were planted a long time ago. The flow of funds during the period was not continuous as projects were on the drawing boards in the early stages, with the real expenditures coming later. Another factor concerned the original, mistaken assumption that the cost escalations were associated with the nature of the tasks. "When we began to get good information about this at senior levels in the organization, we began to take decisive action", he added.

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