ACTION REQUEST:USUN PROPOSED COMMENTS TO UNDP ON

UNCLAS USUN NEW YORK 000055

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EAID KFPC KN KNNP KUNC PINR PREL UNDP
SUBJECT: ACTION REQUEST:USUN PROPOSED COMMENTS TO UNDP ON
THE DPRK PROGRAM

REF: A. 00050

B. 00051


1. Per reftels, UNDP has delivered correspondence to USUN
and made public statements on the UNDP DPRK country program.
USUN proposes to respond with the letter below from
Ambassador Mark Wallace to UNDP Associate Administrator Ad
Melkert at opening of business on January 25, prior to the
UNDP Executive Board discussion of the DPRK country program.
USUN seeks Department concurrence with this action request.


2. Text of proposed letter from Ambassador Qk Wallace to
UNDP Associate Administrator Ad Melkert:

Begin Text: Dear Mr. Melkert,

Thank you for your letter of January 21, 2007. Ambassadors
Wolff, Miller and I also appreciate the opportunity to
discuss with you and Administrator Dervis the necessity of a
serious, transparent, and reasoned approach resulting from
the UNDP Executive Board's consideration of the DPRK country
program to deal with the serious revelations about the
conduct of that program.

While the issue of whether or not the UNDP continues its
country program in the DPRK is ultimately a matter for UNDP
member states to decide through the Executive Board, it
remains UNDP's responsibility to ensure that UNDP country
programs are implemented under the terms of UNDP rules.

The concern expressed by UNDP Executive Board members about
the management of DPRK country program stem in part from
their lack of information regarding potential weaknesses of
the program. We are not aware, of any effort by UNDP to
bring concerns regarding the DPRK country program to the
Executive Board's attention. Importantly, you indicate that
the UN's Board of Auditors annual report would reflect any
and all country concerns in the DPRK to member states. We
are not aware of any case in which the Board of Auditors
annual report referred to any such concerns identified in
your internal audits about the DPRK, and would certainly
welcome your reference to any Executive Board meeting(s)
wherein UNDP raised concerns regarding UNDP's violation of
its rules in implementing the DPRK country program.

We welcome UNDP's decision to enforce its rules to no longer
make hard "currency payment to the (DPRK) government,
national partners, local staff and local vendors, " and to no
longer sub-contract the recruitment of local national staff
to the DPRK government.

We also welcome the "practical arrangements" that you advise
have been made that now preclude local DPRK government staff
from performing financial and core functions. We look
forward to learning more about these arrangements and how
they will help ensure adequate controls on the functions of
local DPRK government staff.

The claim in your letter that "UNDP in DPRK does not pay
government suppliers in cash by cheque or bank transfer" is
inconsistent with both your audit reports and your previous
statements (and your decision to stop making cash payments
effective March 1, 2007). Under existing rules, UNDP should
not be making direct cash payments (cash, check or wire) or
"advance payments" to the DPRK government for any (including
NEX) programs, because as all parties agree the potential for
abuse is too great. Therefore, we welcome your decision to
cease making advance payments directly to the DPRK government
as of January of this year.

Your letter notes that the Country office maintains on record
the Evaluation of Audit of NEX annual letters. This
presupposes that DPRK government audits are reliable or
credible in the absence of any international role in the
auditing of these projects.

Nonetheless, we would welcome reviewing the DPRK government
audits that you and OAPR maintain provide reasonable
assurance of the efficacy of DPRK NEX projects.

As you know, previous UNDP audits and your staff have
indicated that the DPRK limited or precluded site visits to
UNDP DPRK projects. Therefore, while it may be inconsistent
with this previous information, we do welcome your assurances
that recent site visits to projects have been allowed. We
remain concerned, however, by your recent statement that UNDP
failed to maintain required records of the site visits and
urge you to ensure that adequate record keeping is taken in
accordance with UNDP rules.

As you also know, we have previously received information


from your staff that UNDP pays rent to the DPRK for at least
some of its country office expenses. We remain concerned
about this practice, and seek more information regarding the
DPRK's GLOC contributions, which you state amount to only 45%
of its obligation - another apparent violation of UNDP rules.

Finally given the limited scope of the 1999, 2001, and 2004
audits, we greatly appreciate your decision to support a full
independent and external audit of DPRK country going back to

1998. You indicate that the UN Board of Auditors annual
reports were intended to flag your concerns with the DPRK
country program to member states. Yet, no annual report of
the Board since 1998 reflects such concerns, nor do they
contain any reference to the UNDP DPRK country program.

For that reason, we believe it important that a fresh set of
eyes in the form of outside independent private sector
auditors be directly involved in conducting a real and
comprehensive investigative audit of UNDP's DPRK country
program. The examination should cover compliance with
applicable rules, and regulations, management systems,
operations, internal controls, and the effectiveness of
accountability mechanisms. It should include a complete
review of the decision-making processes that translate
policies and rules into operational activities in the field.
Accordingly, the external auditor should have expertise in
these areas. Such an audit will provide a basis for
addressing the weaknesses in the DPRK country program about
which we all have a shared concern.

I appreciate all of your help and thank you for your
attention to this matter. END TEXT.
WOLFF