U.S. Watchdog: U.N. Misspent Hundreds of Millions of Dollars in Afghanistan

This story has been updated

The congressionally created watchdog responsible for monitoring U.S. reconstruction funds in Afghanistan blasted the United Nations’ chief development agency for exercising a "baffling" lack of oversight of a fraud-tainted, multibillion-dollar program that funds the payroll of the Afghan police.

The Office of the Special Inspector General for Afghanistan Reconstruction, or SIGAR, on Monday disclosed a series of letter exchanges with Helen Clark, the administrator of the U.N. Development Program (UNDP), detailing the allegations.

The accusations could prove particularly awkward for Clark, a former prime minister of New Zealand who is believed to be a likely candidate to succeed Ban Ki-moon as U.N. secretary-general when the former South Korean foreign minister steps down in December 2016.

Clark has sought to cultivate a reputation in recent months as a reformer, with a series of budget-cutting measures that threatened layoffs at the U.N.’s chief development agency. In July, UNDP announced a plan to eliminate 10 percent of its 1,700 staffers at its New York headquarters and regional hubs in order to "produce a leaner organization, eliminating areas of duplication and relocating more staff" to the field. The charges leveled by the American watchdog, however, could tarnish that record.

John Sopko, the special inspector general, is investigating whether the UNDP-administered Law and Order Trust Fund for Afghanistan may have misspent hundreds of millions of dollars. The fund, also known as LOTFA, has received about $3.17 billion in donations from foreign donors, including $1.2 billion from the United States, since its establishment in 2002. The money pays the salaries and pensions of Afghan national police and other officials.

In a Sept. 12 letter to Clark, Sopko said he is looking into allegations that the Afghan interior ministry may have pocketed more than $200 million in so-called "deductions" over the past decade. He also voiced concern about the Afghan government’s payment of inflated salaries, and payments to "ghost employees" who never worked. Sopko said international concern about the possible misuse of funds was running particularly high among European donors, who told him during a recent visit to Afghanistan that the European Union intends to condition more than 30 percent of its future financial contributions to LOTFA to a commitment by Afghan authorities to step up "cooperation and transparency." That could potentially hold up tens of millions of dollars in funding.

A separate audit by the Pentagon’s inspector general also uncovered irregularities in the program, including allegations that Afghanistan’s interior ministry could not account for $17.4 million in pension withholdings and nearly $10 million in additional payroll deductions during 2013.

But when the Defense Department auditors pressed officials in the Afghan defense ministry to explain the irregularities, "they were warned that if they continued" the inquiry, "their lives may be in jeopardy."

Efforts to reach the Afghan mission to the United Nations by email and phone were unsuccessful. Monday is a Muslim holiday and the U.N. and most diplomatic offices are closed.

The U.N. development agency, which administers the trust fund, acknowledged in a series of letters to SIGAR that its own internal review turned up a number of irregularities, including $23 million in unsupported claims for expenditures by Afghanistan’s interior ministry as well as $15 million in "ineligible expenses" by the Afghan government. Sopko complained to Clark last May in a letter that there was "insufficient oversight and controls" to ensure the funds were used properly.

UNDP also claimed that it identified "possible fraud" in the program, including a 2.5 percent "cooperative" tax levied on Afghan employees. The tax was abolished last December after UNDP raised questions about how the funds were being used. But UNDP said it has no authority to investigate how Afghan authorities deduct their employees’ salaries, including a separate 5 percent deduction for retirement.

"It is important to stress that determination and application of pension deductions pertains to the sovereignty of the government of Afghanistan as related to taxation and fiscal policies," UNDP told the inspector in a fact sheet. The trust fund, the agency added, "has no institutional mandate to conduct auditing and investigation of [the Afghan interior ministry’s] internal processes including tax deduction and pension payment."

In a June 6 letter to Sopko, Clark assured that UNDP had taken "significant" oversight measures to "mitigate fraud" and ensure that only those who work get paid a salary. UNDP is "committed to managing LOTFA as efficiently, constructively, and transparently as we can, as we strive to work together to manage the risks faced by complex programs in challenging environments like Afghanistan," she wrote. "The complete elimination of risk in these environments is unfortunately not possible and thus a harmonized and collaborative approach to sharing fiduciary risks with relevant donors, program countries, and development partners is necessary."

But Sopko challenged UNDP’s claim that it lacks authority to adequately monitor the trust fund. "I am concerned that UNDP officials are not proactively addressing many of the problems plaguing this program," he wrote to U.S. Maj. Gen. Kevin R. Wendel, the officer in charge of the Combined Security Transition Command in Afghanistan, which is responsible for training the Afghan security forces. "In the face of evidence of fraud, dubious ‘deductions’ taken from ANP [Afghan National Police] salaries by the Afghan Ministry of Interior, and concerns expressed by donors regarding the integrity of LOTFA, UNDP now claims that it lacks the authority to conduct comprehensive oversight of this multibillion-dollar program."

"It is SIGAR’s position that UNDP has a duty to oversee the expenditure of LOTFA funds and to ensure that donor money is spent for its intended purposes," he added. "Rather than attempting to shift blame for LOTFA’s shortcomings, UNDP must acknowledge its responsibility for properly overseeing a trust fund that has paid out more than $1.62 billion since January, 1, 2011."

In response to Sopko’s criticism, UNDP on Monday issued a statement saying it is committed to working with SIGAR and donors to "strengthen oversight" of the trust fund and improve the payroll procedures to address concerns about possible fraud. UNDP said it has set up a technical working group to "mitigate and improve accountability."

"UNDP has in fact gone beyond [its] responsibility by bringing to the attention of the Government of the Islamic Republic of Afghanistan and international partners issues related to the LOTFA payroll process that lie beyond the parameters of UNDP’s responsibility," the statement said.