Foreign Assistance: North Korean Constraints Limit Food Aid Monitoring
(Testimony, 10/27/1999, GAO/T-NSIAD-00-47).

Pursuant to a congressional request, GAO discussed its completed
assessment of the World Food Program (WFP) procedures to monitor and
report on U.S. government-donated food aid to North Korea.

GAO noted that: (1) U.S. policy is that no food aid will be provided to
North Korea if it cannot be adequately monitored; (2) WFP has
established procedures to track and monitor food aid deliveries in North
Korea; (3) however, the North Korean government has not allowed WFP to
fully implement its procedures and, as a result, it cannot be sure that
the food aid is being shipped, stored, or used as planned; (4)
specifically, the North Korean government, which controls food
distribution, has denied WFP full access to the food distribution chain
and has not provided required reports on food use; and (5) consequently,
WFP cannot be sure it is accurately reporting on where U.S.
government-donated food aid is being distributed in North Korea.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-00-47
     TITLE:  Foreign Assistance: North Korean Constraints Limit Food
	     Aid Monitoring
      DATE:  10/27/1999
   SUBJECT:  International food programs
	     Internal controls
	     Accountability
	     International agreements
	     Foreign governments
	     Program evaluation
	     International relations
	     Reporting requirements
IDENTIFIER:  UN World Food Program
	     North Korea

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Before the Committee on International Relations, House of Representatives

For Release on Delivery
Expected at
10:00 a.m., EDT
Wednesday, 
October 27, 1999

FOREIGN ASSISTANCE

North Korean Constraints Limit Food Aid Monitoring 

Statement of Benjamin F. Nelson, Director, International Relations and
Trade Issues, National Security and International Affairs
Division
*****************

*****************

GAO/T-NSIAD-00-47

 Foreign Assistance: North Korea Restricts Food Aid Monitoring (GAO/NSIAD-
00-35,
Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss our recently completed assessment
of the World Food Program procedures to monitor and report on U.S.
government-donated food aid to North Korea. The United States is one of
the largest donors of emergency food to North Korea, with cumulative
donations since 1996 valued at about $365 million. Most of this food aid
is channeled through the United Nation's World Food Program and, as of
June 1999, U.S. donations accounted for approximately 
88 percent of the World Food Program's distributions to North Korea.
According to the Department of State and the World Food Program, this food
aid is being provided to address the widespread food shortage in North
Korea. The Department of State also believes that these food donations may
improve the climate of the bilateral relationship with North Korea on a
host of issues, including negotiations regarding North Korea's development
of nuclear weapons and the maintenance of peace on the Korean peninsula.
You had expressed concerns, Mr. Chairman, as to whether the World Food
Program can adequately account for U.S. government-donated food aid to
North Korea and prevent possible diversions of food aid to the military
and ruling elite. My statement today is based on our recent report for the
Committee on this topic./Footnote1/ Our objective was to examine the
procedures the World Food Program has established and implemented to
monitor and report on U.S. government-donated food aid provided to North
Korea.

I want to emphasize at the outset that we recognize that food aid
distributed by the World Food Program has played an important role in
helping to alleviate hunger and saving lives around the world, and, as
noted in our report, the World Food Program is performing a difficult role
in North Korea.

Summary

U.S. policy is that no food aid will be provided to North Korea if it
cannot be adequately monitored. The World Food Program has established
procedures to track and monitor food aid deliveries in North Korea.
However, the North Korean government has not allowed the World Food
Program to fully implement its procedures and, as a result, it cannot be
sure that the food aid is being shipped, stored, or used as planned.
Specifically, the North Korean government, which controls food
distribution, has denied the World Food Program full access to the food
distribution chain and has not provided required reports on food use.
Consequently, the World Food Program cannot be sure it is accurately
reporting on where U.S. government-donated food aid is being distributed
in North Korea.

Mr. Chairman, I would like to now discuss the findings and recommendations
of our report in more detail and the responses we received from the World
Food Program, State, and the U.S. Agency for International Development.

North Korea Limits Ability of WFP to Assure Accountability

World Food Program (WFP) and State Department officials told us that there
is no evidence of significant diversions of food aid to the military or
governing elite in North Korea and that they have confidence in WFP's
ability to account for food aid in North Korea. However, while the WFP and
U.S. government agencies believe that the bulk of the food reaches the
needy, these organizations cannot provide assurance that food aid is being
managed according to plan and is reaching the intended beneficiaries
because North Korea controls distribution of the food aid and restricts
WFP's ability to monitor how the food is used. The North Korean government
has imposed constraints on WFP monitors, who do not have random access to
all stages of the food distribution process. U.S. private voluntary
organizations, State, the U.S. Agency for International Development
(USAID), and others have reported that North Korea has prevented effective
monitoring of a significant portion of food donations, making it
impossible to verify whether food has reached the target beneficiaries.

WFP Food Aid Accountability Standards
-------------------------------------

WFP donations generally become the property of the recipient government
once they arrive in-country and, in most countries in which it operates,
including North Korea, WFP is not directly responsible for food aid
distribution. Food distribution is the responsibility of the recipient
government. Nevertheless, WFP has a responsibility to its donors to ensure
that donations are responsibly managed and reach targeted beneficiaries.
WFP carries out its responsibility for accountability in part by
negotiating implementation agreements with recipient governments--as in
the case of North Korea--and nongovernmental organizations that distribute
its food aid, and then monitoring and reporting on actual food use. WFP's
policy manual provides standard language for agreements between WFP and
recipient governments that stipulates basic accountability, monitoring,
and reporting requirements to help achieve these accountability objectives.

Food aid monitoring, according to WFP's policy manual, includes "frequent
visits to [distribution] centers to inspect records and actual stocks" and
"spot-checking actual [distributions] and observing distribution
procedures." WFP's standard agreement language on monitoring further
specifies that the recipient government "will facilitate travel within the
country of WFP officers and consultants and their access to all ports,
stores, transshipment and distribution points where WFP-supplied
commodities are received, stored, handled and distributed, in order to
observe the handling, distribution and use of the commodities and any
other inputs provided by WFP, and to observe operations at all stages."
WFP agreements with North Korea incorporate this standard WFP language on
monitoring and reporting. For example, North Korea agreed to facilitate
WFP's access to all distribution points and to allow WFP to observe the
use of their food donations.

WFP Accountability for Food Aid Largely Depends on North Korean Government
--------------------------------------------------------------------------

WFP officials told us their operations in North Korea are essentially a
North Korean government program, in which WFP's role is to help North
Korean authorities implement the program by providing advice, establishing
internal control systems, monitoring to see if systems work, and training
government officials in food management. One of the primary accountability
mechanisms WFP relies upon in North Korea is the extreme degree of order
imposed by the government on all facets of society. We were also told that
diversions of food were unlikely because (1) the army and party elite have
preferential access to national agricultural production (which is mainly
rice and more desirable than WFP's wheat donations);
(2) China and other countries provide food aid that can be used by the
military and elite; (3) the army has its own agricultural production; 
(4) there is a culture of respect for state authority; and (5) intense
regimentation of all sectors of society precludes theft. This "cultural
element," we were told, is a natural safeguard in WFP's operations in
North Korea because it minimizes the risk of diversions due to larceny and
petty corruption.

WFP's Tracking System in North Korea Does Not Adequately Track Food From
Time of Arrival to Distribution to Final Beneficiaries
---------------------------------------------------------------------------

WFP and the North Korean government established a food tracking system in
1997 to collect information from the government about its distribution of
WFP food. WFP attempts to track food aid trucked from the ports to county
warehouses using this system, which is administered by North Korean
authorities. WFP and North Korean government authorities 
co-develop and co-sign food distribution plans and then use waybills to
verify that the distribution to warehouses took place as agreed.

However, we found several weaknesses in this food tracking system. For
example, North Korean authorities transport and store the food, complete
the paperwork, manage the warehouses, and do not allow WFP to conduct
unrestricted spot checks along the transportation route or storage sites.
North Korean control of the tracking system and the access constraints
they impose on WFP prevent WFP from independently verifying at each step
of the process that the North Korean authorities have in fact delivered
the food to agreed-upon warehouses.

In addition, the tracking system does not track all the donations.
According to WFP officials in Rome and North Korea, the tracking system in
North Korea was designed primarily to track food aid transported by trucks
from the seaport to county warehouses. The system does not track the
transportation of some food while it is on trains or barges before it is
transferred to trucks for delivery to warehouses. Nor does the system
track food during the period when it is transported from the warehouse to
the estimated 43,000 institutions where the food is actually distributed
to individual beneficiaries.

North Korea Precludes Effective Food Monitoring
-----------------------------------------------

According to WFP officials, North Korea has not allowed WFP independent,
unrestricted access to monitor the food distribution process. WFP
officials told us that North Korean authorities 

o do not allow WFP monitors to act independently and conduct random
  monitoring visits; 

o have not given WFP monitors complete information about the numbers,
  names, and location of institutions and the numbers of beneficiaries at
  locations receiving its food; and

o have rarely allowed WFP monitors to select the institutions they wish
  to visit.

WFP estimates that 90 percent of the 43,000 North Korean institutions
receiving food aid have not received monitoring visits, and WFP monitors
have rarely been allowed to observe the actual distribution of food to
beneficiaries. WFP officials told us that even with complete access, WFP
would not attempt to monitor 100 percent of the institutions receiving its
food but would instead monitor a smaller, randomly selected set of
representative institutions. According to WFP officials in Rome, WFP has
determined that a 10-percent sampling rate for monitoring is adequate.
However, WFP said that, because of North Korean restrictions, it is unable
to randomly select the institutions it monitors. As a result, WFP (1)
cannot generalize its findings from those institutions to which it has
been granted access by the government and (2) cannot randomly visit
institutions about which it may have particular concerns.

Nevertheless, according to officials of the State Department, the U.S.
Agency for International Development, the U.S. Department of Agriculture,
and U.S. nonprofit organizations, WFP is doing a good job under difficult
circumstances and they believe the food is getting to the beneficiaries.
As evidence, WFP referred to the observations of WFP monitors and the
Executive Director, based on her August review of WFP operations in North
Korea, that (1) attendance at institutions receiving food aid--such as
kindergartens and schools--has increased and (2) the condition of the
children to whom the bulk of WFP food is supposed to go to has apparently
improved.

Food Shipped to Counties Later Closed to WFP Monitors by North Korean
Military
---------------------------------------------------------------------------

WFP's agreements with North Korea stipulate that WFP shall have access to
monitor wherever WFP food is distributed. These agreements are consistent
with the frequently stated position of the Department of State--that no
U.S.-donated food shall be distributed that cannot be adequately
monitored. WFP told us, however, that in 1998 North Korean authorities
distributed at least 14,738 metric tons of WFP food to counties that they
had previously agreed would be open to WFP monitors, but that after
distribution the North Korean military blocked WFP from monitoring how the
food was used. The ultimate disposition of the food remains unknown. WFP
did not report food aid shipped to the subsequently closed counties as
lost or stolen.

As a result of these North Korean actions, WFP stated that in May 1998 WFP
introduced a policy of "no access-no food." WFP told us that the delivery
of food to counties where WFP had no access was stopped, and the
corresponding amount of food aid was deducted from the totals planned for
the overall operation.

WFP Subsidizes North Korean Deliveries of its Donations
-------------------------------------------------------

To promote North Korean compliance with the agreed-upon distribution
plans, and because WFP relies on the fuel-poor government to transport its
food, WFP pays a fuel subsidy to the North Korean government of 
$8 for every ton of food transported by truck, which WFP told us is
comparatively inexpensive. WFP reported that as of August 1999 it had paid
North Korea over $5 million in fuel subsidies to help pay for
transportation services and that it is due to pay $2.6 million more for
food transported earlier in the year. If WFP learns, through its waybill
system, that North Korean authorities have transported food to counties
where monitoring is forbidden, WFP reduces the total fuel subsidy by an
amount equal to the subsidy that would have been paid for transporting
that food. For example, as a result of the 14,738 metric tons of food
shipped to closed counties in 1998, WFP told us that in late 1998 it
withheld $117,901 in fuel subsidies.

WFP Not Meeting Reporting Requirements, and Loss Rates May Not Be Accurate

WFP guidelines require that it report to donors on food use upon the
completion of an emergency operation, and host governments are required to
provide an audit report at the end of each emergency operation. We found
that North Korea has not provided any audit reports to WFP as required by
its agreements. This has affected WFP's ability to accurately report back
to its donors. Given North Korean constraints on WFP accountability
procedures, WFP cannot be sure of the accuracy of its reports to donors on
food use because it cannot independently verify where food aid has been
provided.

WFP policy requires it, upon the completion of an emergency operation, to
provide reports to donors on the use of food, including losses. WFP
officials in Rome told us that it has distributed reports to donors on
North Korea operations for 1995, 1996, and 1997 but that WFP's project
report for 1997, though distributed, is incomplete. Its report for 1998 is
late in part because North Korea has not provided food use information to
WFP. 

WFP agreements with North Korea also specify that North Korea should
provide an audit report upon the completion of an operation. These audit
reports are intended to give WFP information about the beneficiaries, the
quantity and condition of the food received, the locations where it was
distributed, any losses, the government's use of WFP subsidies, the
nutritional impact on beneficiaries of WFP food donations, and lessons
learned. North Korea has not provided any of the audit reports that are
due to WFP for operations it has already completed.

WFP policy further requires WFP monitors to observe distribution of food
aid to verify government reports on food use, which together provide the
basis for the Executive Director's reports to donors. In North Korea,
however, WFP cannot provide the independent check to ensure the accuracy
of government reporting. WFP officials told us that the issue of North
Korean reporting delays "has consistently been raised with the government."

WFP, State, and USAID Responses to Our Recommendations

In our report, we made recommendations aimed at (1) improving
accountability over food distributions that are intended to help ensure
that the food is reaching the intended beneficiaries and (2) improving
reporting by WFP on its work in North Korea. For example, we recommended
that the Secretary of State, acting through the U.S. Representative at the
U.S. Mission to the U.N. Agencies for Food and Agriculture in Rome, Italy,
emphasize to the North Korean representative the importance of meeting
North Korea's commitments agreed to in its agreements with the World Food
Program, including granting World Food Program staff improved access to
track and monitor World Food Program food donations and providing required
audit reports in a timely fashion.

To improve WFP's reporting, we recommended that the Secretary of State--
again, acting through the U.S. Representative at the U.S. Mission to the
U.N. Agencies for Food and Agriculture in Rome, Italy--request that the
World Food Program's Executive Director provide the U.S. government
comprehensive and timely reports on the use of U.S.-donated food in North
Korea, including information on (1) North Korea's monitoring restrictions;
(2) the impact of these monitoring restrictions on the World Food
Program's ability to provide independent, accurate reports on food use; 
(3) the World Food Program's efforts to persuade North Korean authorities
to allow the World Food Program to perform independent monitoring; 
(4) North Korean responses to the World Food Program's suggested
improvements; and (5) the use by the World Food Program's Executive
Director of her authority to withhold food aid and fuel subsidies as one
method of responding to North Korean-imposed constraints to effective
accountability.

In their comments, the World Food Program generally agreed with our report
findings, detailed its efforts to improve monitoring, noted strong
congressional and administration support for the program, and stated that
despite the difficulties of operating in North Korea, the humanitarian
needs in North Korea were the primary consideration of the program. Both
State and USAID stated that they will work with the World Food Program and
the North Koreans to implement our recommendations aimed at improving
accountability over U.S. donations through improvements in monitoring and
reporting. 

State and USAID also made some additional observations. For example, they
believe the report relied on the most negative examples available and was
overly critical of the World Food Program's ability to provide
accountability. In addition, USAID stated that famine conditions persist
in North Korea and were concerned that our report could leave the
impression that the food shortage in North Korea is over.

In our report, we pointed out that we were not overly critical of the
World Food Program's ability to account for food aid in the difficult
environment of North Korea. Our assessment was based on information
obtained from World Food Program officials in Rome and North Korea and the
published reports of the U.S. government-funded consortium of private
voluntary groups that have used WFP procedures to assist WFP in its
monitoring of U.S. food aid in North Korea since 1997. WFP and the USAID-
and 
USDA-funded Consortium are the most authoritative sources on the current
conditions affecting WFP's ability to account for U.S. 
government-donated food aid to North Korea.

In response to USAID's comment that our report could leave the impression
that the food shortage in North Korea is over, our report makes it clear
that we did not assess the impact of the food shortage or North Korea's
food aid needs. As the report points out, our objective was to examine the
procedures the World Food Program has established and implemented to
monitor and report on U.S. government-donated food aid provided to North
Korea. We did note, though, that there is not a consensus on either of
these issues, which we feel is part of the fundamental challenge to
accountability in North Korea. We have addressed these and other comments
by WFP, State, and USAID in our report.

Mr. Chairman, that completes my prepared statement. I will be pleased to
respond to any questions you may have.

Contact and Acknowledgments

For future contacts regarding this testimony, please call Benjamin F.
Nelson at (202) 512-4128. Key contributors to this testimony included
Harold Johnson, Phillip Thomas, Ned George, and Christian Hougen.

(711457)

--------------------------------------
/Footnote1/-^Oct. 8, 1999).

*** End of document. ***