Microsoft Word - 0627171e.doc
United Nations
A
/60/720
General Assembly
Distr.: General
14 March 2006
Original: English
06-27171 (E) 290306
*0627171*
Sixtieth session
Items 132 and 136
Report of the Secretary-General on the activities of the
Office of Internal Oversight Services
Administrative and budgetary aspects of the financing of the
United Nations peacekeeping operations
Report of the Office of Internal Oversight Services
on the investigation conducted by the Investigations
Task Force into fraud and corruption allegations at
Pristina Airport*
Summary
In 2002 the Investigations Division of the Office of Internal Oversight Services
(OIOS) and the European Commission's European Anti-fraud Office (OLAF)
conducted an investigation into the fraudulent activities of a senior staff member of
the Kosovo Energy Company, KEK, which led to his criminal conviction and the
successful return of $4.3 million. As a consequence of that investigation, a series of
financial and forensic audits of KEK and four other publicly owned enterprises in
Kosovo and in Serbia and Montenegro were conducted. As a result of those audits,
in which fraudulent activities were identified, a decision was taken in mid-2003 to
establish a joint investigations task force with a focus on serious misconduct and
criminal conduct in those public enterprises.
OIOS, OLAF, the Office of the Special Representative of the Secretary-General
for the United Nations Interim Administration Mission in Kosovo (UNMIK) and the
UNMIK Financial Investigations Unit agreed to establish an Investigations Task
Force to identify fraud and corruption in UNMIK as well as in all the publicly
owned enterprises in Kosovo and those institutions funded from the Kosovo
consolidated budget. To ensure efficiency of the operation in Kosovo, an UNMIK
*The delay in submission was necessitated by intensive consultations with the United Nations
Interim Administration Mission in Kosovo and the time required to evaluate and incorporate the
comments received on the report's findings and recommendations.
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executive decision, dated 21 October 2003 identified the parameters of the Task
Force and its responsibilities, but each component of the Task Force retained its
respective authority and mandate.
The first responsibility of the Task Force was to conduct a full investigation
into activities at Pristina Airport, which commenced in November 2003. Based on
the audit reports on the airport, the Task Force anticipated that a detailed
investigation into airport activities could be completed in approximately six months
and possible systemic traits identified that could assist investigations of other
publicly owned enterprises. However, the airport investigation required more time
than expected. In all, the Task Force submitted 33 reports to the Special
Representative of the Secretary-General: the first in August 2004 and the last in June
2005. In 17 cases, the Task Force addressed institutional shortcomings and provided
recommendations for management review. Fifteen cases involved administrative
shortcomings and flaws, primarily in the areas of procurement. Nine cases were
referred through the Special Representative of the Secretary-General to the UNMIK
Department of Justice for further criminal investigation. As some reports addressed
more than one category or issue (administrative, institutional, criminal referral), the
number of cases described here exceeds the overall total of 33.
The findings of the investigations and the resultant actions by UNMIK show a
lack of accountability in the operation, management and supervision of the airport.
Since the issuance of the reports there has been an exchange of correspondence
between OIOS/OLAF and the Special Representative of the Secretary-General on the
lack of support for the work of the Task Force. In a letter dated 25 July 2005
addressed to the Task Force, OIOS and OLAF, the Special Representative conveyed
the message that — in most instances — no administrative action against airport
managers would be taken, citing reasons such as that "staff in peacekeeping
missions, including UNMIK, are transient" and the events reported were
"historical". The Special Representative reiterated this position in another
memorandum to OIOS dated 28 October 2005. OIOS addressed this lack of
accountability in two letters to the Special Representative, dated 22 September and
28 November 2005. On 9 November, the Director-General of OLAF responded to the
Special Representative's 28 October 2005 memorandum and reiterated the position
of OIOS.
OIOS is hereby reporting to the General Assembly on its activities with respect
to the misconduct and mismanagement identified at Pristina Airport for its review
and consideration. The present report was provided to OLAF for its comments. The
Director-General of OLAF indicated his agreement and support for the content of the
report. The comments of the Special Representative and the Department of
Peacekeeping Operations are shown in italics throughout the report.
The Special Representative of the Secretary-General, in his response to the
final draft of the report, stated that it was outside OIOS jurisdiction to report to the
General Assembly on the results of Task Force investigations, citing a legal opinion
of the Office of Legal Affairs dated 6 December 2005. The Special Representative
responded: "I must take strong exception to the manner in which OIOS is purporting
to adopt [Task Force] reporting as its own, reveal the substance of [Task Force]
reports publicly, question and monitor decisions on [Task Force] recommendations
that are mine alone to take". The Special Representative has refused to address the
OIOS recommendations since they flow from "incorrect and unfounded assertions of
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a prerogative to direct [him] with regard to [Task Force] reporting, and of a
mandate to investigate entities such as the [publicly owned enterprises] in Kosovo".
The Department of Peacekeeping Operations, in response to the final draft of this
report, supported the Special Representative's comments.
OIOS has an obligation to report to the General Assembly on matters "that
provide insight into the effective utilization and management of resources and the
protection of assets", in accordance with resolution 48/218 B. With particular
reference to UNMIK and the publicly owned enterprises, OIOS has reported to the
Assembly in the past in the reports on its activities (A/57/451, A/59/359 and
A/60/346) and in a separate report on investigation into the fraud in KEK (A/58/592
and Corr.1). OLAF, for its part, also submitted a comprehensive report on the Task
Force investigations to the European Union in May 2005.
It is the view of OIOS, shared by OLAF, that it is the responsibility of UNMIK
to combat corruption vigorously, including addressing all issues raised by the Task
Force, to ensure that the future of Kosovo is based on sound management and
international standards in the area of anti-corruption prevention and investigation to
further reduce long-term problems. OIOS is concerned that the Special
Representative's failure to address an exceptionally large number of the
recommendations of the Task Force and, notably, his reluctance to consider any of
the OIOS recommendations, will allow the ongoing problem of corruption to prevail.
In a recent report of the Secretary-General to the Security Council on UNMIK, the
Special Representative himself establishes that "no significant progress was made on
tackling corruption" (S/2006/45, para. 39) . Nevertheless, certain senior staff
members of publicly owned enterprises were, and still are, in the same positions as
they were when the investigation was undertaken and the reports were issued to the
Special Representative.
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Contents
Paragraphs Page
I. Introduction ..........................................................
1-6
5
II. Background information ................................................ 7-13
6
A.
Structure of the United Nations Interim Administration Mission in Kosovo ..
76
B.
Audit deficiencies .................................................
86
C.
Responsibility of the United Nations Interim Administration Mission in
Kosovo for Pristina Airport
.........................................
9-10
7
D.
Background to investigation of Pristina Airport .........................
11-13
7
III. Methodology ......................................................... 14-15
8
IV. Investigative activities .................................................
16-34
8
A.
Criminal referrals .................................................
22-24
10
B.
Administrative cases ...............................................
25-34
11
V. Findings ............................................................. 35-3913
VI. Conclusions .......................................................... 40-4615
VII. Recommendations .....................................................
47
16
Annex
Case list
.......................................................................
18
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I. Introduction
1. In 2002 the United Nations Office of Internal Oversight Services (OIOS) and
the European Anti-fraud Office (OLAF) cooperated in the investigation of fraud-
related activities of Jo Hans Dieter Trutschler, who was the internationally recruited
co-head of the Administrative Department of Public Utilities of the United Nations
Interim Administration Mission in Kosovo (UNMIK). At the same time he served as
Chairman of the Supervisory Board of the Kosovo Energy Company (KEK).
Mr. Trutschler used his positions to fraudulently obtain in excess of $4.3 million to
the financial disadvantage of UNMIK. The case was referred to the authorities in
Germany, where he was subsequently convicted and sentenced to a prison term. The
investigation enabled UNMIK to recover the full amount of the financial loss.
2. The investigation indicated that KEK and other publicly owned enterprises in
Kosovo were at high risk for fraud and other financial irregularities. Therefore,
OLAF and OIOS requested that Pillar IV of UNMIK, which is responsible for public
institutions and infrastructure reconstruction and is a key component of the
requirements of Security Council resolution 1244 (1999), undertake comprehensive
audits of the major publicly owned enterprises, namely, Pristina Airport, KEK,
UNMIK Railways, the post and telecommunications provider (PTK) and the water,
waste and irrigation sector. Subsequent audits by the firms KPMG, Deloitte &
Touche, and De Chazal Du Mée (DCDM) indicated a high probability of fraud and
significant management and systems of control problems in all areas.
3. The audit of Pristina Airport by DCDM, covering the period from January
2001 to early 2003, identified significant opportunities for fraud and determined that
mismanagement, particularly in the areas of procurement, the collection of handling
and landing fees and the allocation of aircraft landing and takeoff slots, was rife.
Moreover, additional information came to light after the completion of the DCDM
audit of Pristina Airport regarding allegations of what appeared to be systematic
corruption in the management of the airport, such as the handling and storage of
cargo and bribery in connection with employment.
4. In July 2003 representatives of OLAF, OIOS, the UNMIK Office of the
Special Representative of the Secretary-General, the European Agency for
Reconstruction and the UNMIK Financial Investigation Unit, agreed to establish an
Investigation Task Force to examine the areas of concern identified by the audits as
well as allegations of criminality in the publicly owned enterprises.
5. On 21 October 2003, the then Special Representative of the Secretary-General,
Harri Holkeri, issued executive decision 2003/16 establishing the Investigation Task
Force and identified its operational parameters.1
The Task Force, which is composed
of OIOS, OLAF and the Financial Investigation Unit, began its operations in
Kosovo in November 2003.
6. Under the executive decision, each of the three investigative bodies operates
within the Task Force but retains its own mandate: OLAF and OIOS conduct
administrative investigations and, by virtue of its mandate, the Financial
Investigation Unit provides the necessary executive police powers. Also in late
2003, the Office for Coordination of Oversight of Publicly Owned Enterprises was
__________________
1
See http://www.unmikonline.org/regulations/unmikgazette/02english/e2003eds/
EDE2003_16.pdf.
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created by UNMIK to assist in the management reform of the publicly owned
enterprises. The Office was mandated to coordinate UNMIK oversight of publicly
owned enterprises in close cooperation with the Kosovo Trust Agency and Pillars I
and IV (see below). The head of the Office reported directly to the Special
Representative of the Secretary-General and was to ensure that the reform of the
publicly owned enterprises, especially in line with the issues identified by the audits
and the investigations, would be addressed by the relevant UNMIK pillars,
especially Pillar IV.
II. Background information
A. Structure of the United Nations Interim Administration
Mission in Kosovo
7. The mandate of UNMIK (see Security Council resolution 1244 (1999) and
UNMIK regulation 1999/1), with the assistance of other international organizations,
is to establish an international civil presence and provide an interim administration
for Kosovo. This is carried out under four "pillars", two financed by the United
Nations and two financed by other international organizations, but all falling under
United Nations leadership. The pillars are: I, police and justice — financed by the
United Nations; II, civil administration — financed by the United Nations; III,
democratization and institution-building — financed by the Organization for
Security and Cooperation in Europe; and IV, reconstruction and economic
development — financed by the European Union. To affirm the legal responsibility
of UNMIK, reference should be made to the first report of the Secretary-General to
the Security Council on UNMIK (S/1999/672), in which he enumerated the main
responsibilities of the interim administration, elaborated on the structure of the
Mission, explained that all activities of the international community in Kosovo
would be carried out in an integrated manner with a clear chain of command, and
stated that the Special Representative of the Secretary-General would have overall
authority to manage the Mission and coordinate the activities of all United Nations
agencies and other international organizations operating as part of UNMIK.
B. Audit deficiencies
8. OIOS, in its report on audit needs assessment for non-United Nations funds in
UNMIK (AP/2001/83/2), observed inadequate internal audit arrangements in
UNMIK, limited audit coverage of autonomous institutions such as Pristina Airport,
KEK and entities providing banking and post and telecommunications services, and
a need for better coordination among the existing internal audit units. The same
report referred to a European Union proposal to appoint an international staff
member to fill the post of Auditor-General with the aim of creating a core team of
Kosovar auditors by the end of 2004. The Office of the Auditor-General was
established in 2002 (UNMIK regulation 2002/18), and an international Auditor-
General was recruited by the end of 2003. At present the Office of the Auditor-
General is not able to fully discharge all its responsibilities owing to a lack of
professional auditors. OIOS stresses that regular external audits of the publicly
owned enterprises should be conducted.
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C. Responsibility of the United Nations Interim Administration
Mission in Kosovo for Pristina Airport
9. The assets of Pristina Airport, a State-owned enterprise, include runways,
terminal and other buildings, fuel storage facilities and equipment. For the duration
of the investigation, those assets were maintained by the Public Enterprise Airport
Pristina in cooperation with military units of the Kosovo Force.
10. Until the end of June 2002, responsibility for the administration of Pristina
Airport was entrusted to UNMIK Pillar II. On 1 July 2002, responsibility for the
administration of the airport passed to the Kosovo Trust Agency and Pillar IV. On
1 April 2004, Pristina Airport passed from military to civilian jurisdiction and
became subject to International Civil Aviation Organization regulations.
D. Background to investigation of Pristina Airport
11. Because OIOS and OLAF had completed an investigation of KEK, it was
decided that another segment of UNMIK Pillar IV should be examined. Pristina
Airport was selected as the first project, and it was initially believed that such an
inquiry would go quickly owing to the relative newness and size of the airport and
the report of DCDM that no documents were available at the airport. In November
2003 the Task Force visited the administrative offices at Pristina Airport.
Surprisingly, the Task Force found and removed hundreds of files pertaining to
expenditures and procurement activities. This material was translated and analysed
and led to the initiation of multiple investigations. At each stage of those
investigations, an average of eight investigators were assigned to the Task Force.
Thirty-three reports were issued to the Special Representative of the Secretary-
General. The field component of the airport investigation was completed when the
last case report was issued to the Special Representative, on 29 June 2005.
12. On a quarterly basis during the airport investigations, a head of agency
meeting was convened in Kosovo by the UNMIK Principal Deputy Special
Representative of the Secretary-General to discuss Task Force developments and the
latest information on fraud and corruption in Kosovo. These meetings were attended
by the Special Representative or his designee, usually his Principal Deputy, the head
of each pillar, the head of the Financial Investigation Unit, the respective heads of
OLAF and OIOS or their designees, the UNMIK legal adviser and the Director of
the Criminal Division of Pillar I. The last of these meetings was held in March
2005, with another one scheduled for July 2005 that did not take place. It would
appear that since early 2005 the focus of senior UNMIK management has shifted
away from anti-corruption efforts. This is clearly indicated by the lack of support
for the continuation of these regular inter-agency meetings and the response of the
Special Representative to Task Force reports. The absence of an anti-corruption
focus is seen as a potential problem for the success of the United Nations in Kosovo
in the future and is addressed below.
13. The Special Representative's statement in response to the Task Force reports,
dated 25 July 2005, indicated that UNMIK did not want "historical"
recommendations but only those which proposed specific management actions for
the future, despite the fact that the reports, the first one dated 16 August 2004,
contained numerous recommendations for both actions against airport managers for
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their failures as managers — which may be "historical" but are also necessary if
there is to be accountability for corruption and mismanagement — and corrective
measures designed to protect against such problems in the future. This negative
attitude to the Task Force recommendations is also indicated by the reluctance of
senior Mission management to take corrective action against key airport personnel
identified in the reports provided to UNMIK management over the course of the
past year.
The Special Representative, in his response to the final draft of the present
report, stated that UNMIK had introduced a comprehensive reform programme and
therefore that the conclusions of OIOS had been "drawn on a stopped clock".
However, the Special Representative himself reported to the Security Council that
no significant progress had been made on tackling corruption. The report made no
mention of the Task Force (S/2006/45, annex I, para. 39).
III. Methodology
14. The Task Force obtained hundreds of files and records from Pristina Airport in
November 2003 and additional material from UNMIK, from both Pillar II and Pillar
IV. Investigators also interviewed more than 50 managers and personnel from
Pristina Airport and the Kosovo Trust Agency as well as third parties. The Task
Force collated and analysed the results and investigated the allegations as discrete
cases, conducting additional interviews and obtaining further documents and records
as necessary. Moreover, the Task Force provided investigative assistance to the
Financial Investigation Unit in a number of cases. The Task Force issued its reports
to the Special Representative setting out the investigation findings and, in certain
cases, where a prima facie criminal case was identified, sought his approval to refer
those cases to the UNMIK Department of Justice. In the majority of cases
investigated, the Task Force recommended administrative or disciplinary action by
UNMIK.
The Special Representative has rejected most of the disciplinary
recommendations citing excuses of difficult circumstances in a peacekeeping
environment and refusing to acknowledge corruption as a widespread phenomenon
at Pristina Airport. The Special Representative was satisfied with 21 out of 74
recommendations having been implemented. He added that, with regard to Task
Force recommendations on which he had decided that no further action would have
to be taken, they involved for the most part individuals who were outside his
mandate (former UNMIK employees and employees of publicly owned enterprises).
15. OIOS recalls that the Special Representative has overall responsibility for all
activities performed under the umbrella of UNMIK in Kosovo (see S/1999/672,
para. 3). OIOS further clarifies that, in accordance with its mandate as set out in
UNMIK executive decision 2003/16, the Task Force also investigated non-UNMIK
staff members with responsibilities at the airport.
IV. Investigative activities
16. During the research phase of the investigation, the Task Force established that
no external audit reports regarding finance, operations and management had been
presented while the airport was being managed and administered by Pillar II, prior
to 1 July 2002. Furthermore, the Task Force found no evidence of any external
control of airport funds prior to that date. Following a series of discussions between
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the head of Pillar IV and the OIOS and OLAF managers, external audits were
commissioned by Pillar IV after its assumption of responsibility for the airport.
They focused on the period from January 2001 to early 2003 and revealed a
substantial lack of managerial, administrative and financial accountability on the
part of the Kosovo Trust Agency and airport management, which both fall under the
management responsibility of Pillar IV and, ultimately, the Special Representative.
17. The February 2003 audit report submitted by DCDM demonstrated that
requests for tenders and purchases were not centralized in the procurement
department, nor was there any evidence of legal vetting and independent approval of
the procurement activity requested. In another instance, DCDM established that
processes and information flows in airport management were inefficient and
ineffective and that there was a risk of undetected fraud and errors owing to
shortcomings in business processes, revenue collection and information technology
applications.
18. Furthermore, DCDM audits suggested a high risk of fraud and corruption in
airport operations and management. In one instance the report identified a lack of
confidentiality and transparency in the airport procurement process. It stated that
commissions and kickbacks were paid and salient information was passed on to
favoured bidders, which was confirmed by the Task Force in case 214/04, which
was referred to the Department of Justice, where it is still under judicial review.
19. Following the DCDM audit reports, the Task Force investigated allegations of
disregard for procurement rules and tendering procedures, possible misappropriation
of funds and fraud to the detriment of Pristina Airport and UNMIK, as well as
allegations received during the course of those inquiries. The Task Force identified
the need for a complete overhaul of the airport's administrative activities, including
the institution of administrative and disciplinary procedures for staff, institutional
managerial improvements and areas requiring further criminal investigation.
20. The Task Force opened 35 separate cases related to Pristina Airport. From
August 2004 to June 2005, it issued 33 reports to the Special Representative. Of the
remaining two cases, one was not within the jurisdiction of the Task Force, as it was
a European Union matter. The other pertained to potential lost revenue at the
Pristina Airport cafeteria, which was identified and rectified on the spot when
investigators provided informal advice to airport management. Five of the cases
were closed by the Task Force for lack of evidence. In 17 cases, the Task Force
addressed institutional shortcomings and gave managerial advice. Fifteen cases
involved administrative irregularities, primarily in the areas of contracts and
procurement. Nine cases were referred through the Special Representative to the
Department of Justice for criminal investigation. As some case reports addressed
more than one category or issue (administrative, institutional, criminal referral), the
number totals more than 33.
21. A brief summary of the most significant cases is provided below and a list of
all matters investigated is provided in the annex. Investigation reports on individual
cases were issued between August 2004 and June 2005, when the Special
Representative of the Secretary-General had direct responsibility for the airport.
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A. Criminal referrals
Alleged fraud relating to the construction of an apartment building
owned by Pristina Airport and its employees (case 214/04)
22. The Task Force received information that numerous irregularities had occurred
in the construction and subsequent utilization of an apartment complex intended for
residential use by Pristina Airport employees. The investigation uncovered evidence
that the Divisional Manager of Airport Services and Terminal Operations and the
Chief of Maintenance Services had committed several fraudulent acts and
significantly abused tendering processes in connection with the construction of the
DM 1.2 billion building. In fact, the evidence suggested that the Divisional Manager
had collaborated with one bidder and manipulated the bidding process in favour of
the latter. Furthermore, the Task Force found evidence supporting the allegation that
two airport unit chiefs, including the Chief of Maintenance Services, had unlawfully
generated personal profit by subletting parts of the ground floor of the complex
without authorization. Moreover, according to the evidence obtained by the Task
Force, all three managers had defrauded UNMIK by diverting funds allocated for
construction works. In addition, the Task Force found evidence that an UNMIK
employee, working in the service of the municipality of Pristina, had embezzled a
municipal fee of DM 25,000 in connection with the complex. The Task Force
submitted the matter to the Special Representative of the Secretary-General on
10 May 2005, recommending the referral of the case to the Department of Justice
for criminal investigation and the imposition of administrative sanctions against the
individuals concerned. The Special Representative approved the referral and the
Department of Justice is conducting interviews and further investigating the case.
No indictment has been issued yet, as the case is still in the pre-trial stage.
The
Special Representative added that in those instances where OIOS had recommended
administrative action he had referred the cases to the Board of Directors of Pristina
Airport.
OIOS reiterates that the Special Representative has overall responsibility
for all activities performed under the umbrella of UNMIK in Kosovo.
Alleged theft and misappropriation of funds in the handling of cargo
at Pristina Airport (case 192/04)
23. The Task Force received information that a Cargo Department team leader at
Pristina Airport had presented a customer with a false statement of account for
storage fees of
€8,000, accepted payment of the fee and then kept the amount paid.
The investigation indicated the complicity of the Cargo Department Manager, who
had misled the customer about cargo clearance procedures and then failed to collect
the required storage fees of
€32,500, which represented lost revenue to Pristina
Airport. The matter was referred to the Department of Justice with the approval of
the Special Representative on 15 April 2005 and, following further measures by the
Financial Investigation Unit, the Cargo Department team leader was charged with
criminal offences; he is currently awaiting trial.
Alleged payments for jobs (case 377/04)
24. The Task Force received information that senior officials and employees of
Pristina Airport, including the General Manager, were accepting bribes in exchange
for providing employment at the airport. The Task Force obtained corroborating
evidence and sought and obtained the approval of the Special Representative to refer
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the matter to the Department of Justice on 15 April 2005. The case is currently
under review by the Department of Justice.
B. Administrative cases
Alleged irregularities in the provision of a heating, ventilation and
air-conditioning system at Pristina Airport (case 219/04)
25. The DCDM audit identified irregularities in the awarding of a single-source
procurement contract, valued at
€681,125, for a heating, ventilation and air-
conditioning system in the terminal building at Pristina Airport. The Task Force
found deficiencies in the original design of the system, causing the contract price to
rise by
€98,430. Furthermore, the Task Force found that a lack of management
supervision caused an unjustified delay, which ultimately led to the single-source
contract for procurement of the system. Thus, UNMIK was deprived of the benefits
of a competitive tender.
26. The Task Force submitted its findings to the Special Representative on
18 April 2005, recommending administrative action for poor management and
planning against the Divisional Manager of Airport Services and Terminal
Operations, the former Director of the Department of Transport and Infrastructure
and two other airport employees. In addition, the Task Force recommended that the
Special Representative take appropriate action against the Divisional Manager of
Airport Services and Terminal Operations, who gave evasive and contradictory
responses during the investigation. The Divisional Manager is also facing criminal
charges (see para. 22). At present, no action has been taken against the Pristina
Airport employees.
The Special Representative was of the opinion that the employer,
Pristina Airport, should take action upon referral by the Special Representative
.
OIOS reiterates its response regarding the Special Representative's overall
responsibility (see para. 7).
Allegations of irregularities in the awarding of contracts for the
construction of a car park at Pristina Airport (case 274/04)
27. The audit by DCDM identified irregularities in the awarding of a competitive
tender contract valued at
€801,438 for the construction of a car park, a single-source
procurement contract valued at €34,501 for the provision of a lighting system for the
car park and a competitive shopping contract valued at €24,864 for the provision of
a canopy for car park barriers at Pristina Airport.
28. The Task Force investigation revealed that the tender procedure for the car
park had been conducted improperly in that the company that eventually won the
tender had failed to submit a correctly prepared bank guarantee form, even though
bids from other companies had been rejected for similar deficiencies. The bid
evaluation report submitted by the Evaluation Committee wrongly reflected that the
winning company's bid had met all evaluation criteria. Furthermore, an airport
manager breached tender procedures by accepting documents from another bidder
after the deadline. The Task Force found similar problems of favouritism and
corrupt practices concerning the procurement of the lighting system and the barrier
canopy for the car park.
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29. The Task Force submitted its findings to the Special Representative on
15 April 2005 recommending a review of the performance of the responsible
managers, including the Divisional Manager of Airport Services and Terminal
Operations and the former Manager of the Airport Sector of the Kosovo Trust
Agency, for their failure to conduct a proper procurement exercise. This case and
others investigated by the Task Force demonstrated violations of administrative
procedures by the Divisional Manager and others but did not indicate evidence of
criminal behaviour sufficient for referral to the Department of Justice. No action has
been taken against any person identified in this investigation who violated
procurement procedures.
The Special Representative responded that none of the
individuals cited was an UNMIK employee. Concerning the two individuals
remaining at the airport, he had provided the Task Force report to the Board of
Directors of the airport, which was reconsidering the cases. In his earlier
memorandum, dated 25 July 2005, the Special Representative declined
accountability by stating: "No further action planned. The report implies, at worst,
mismanagement on the part of [the individual] and makes no supportable allegation
of corruption. No action is considered appropriate at this late stage ... The report
fails to take sufficient account of the circumstances under which [the individual]
was working at the time and, faced with the options he had available to him at the
time, it is believed that he chose the least worst option.
" OIOS again refers to
paragraph 7 above and notes that violations of procurement procedures can
constitute corruption without being violations of local criminal laws. Again, when
the case report was issued, the airport was still under the direct authority of the
Special Representative.
Allegations of false employee information provided by the Deputy
Manager of Pristina Airport (case 352/04)
30. The Task Force received information that the Deputy General Manager of
Pristina Airport had failed to disclose in his personal history form the required
information that he had been convicted of a criminal offence in 1995 involving the
trafficking of persons across borders. The investigation found that the official had
knowingly provided inaccurate information to his employer by failing to declare the
criminal offence. The Task Force submitted its findings to the Special
Representative on 30 December 2004 recommending that appropriate action be
taken.
The Special Representative refused to take any action citing the
"circumstances of war … at the time" and "that the penalty was a fine, and not
imprisonment
". OIOS emphasizes that the staff member was identified as having
been convicted in a serious matter in another jurisdiction and that he had failed to
declare that fact — as required — in his job application.
Allegations of theft and corruption arising out of the collection of
handling and landing fees and de-icing costs for passenger aircraft
using Pristina Airport (case 283/04)
31. The Task Force investigated allegations that corruption had occurred in the
management of handling and landing fees charged by Pristina Airport to all airlines
flying into and out of the airport. Primarily, the Task Force found that the charges
levied on commercial airlines for such activities had not been managed through a
proper financial accounting system that allowed for bank transfers from the airlines
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to airport accounts. Rather, airport management required that all such charges be
paid in cash directly to airport officials.
32. The Task Force found that the cash collected for landing and handling fees was
controlled solely by airport managers. Some of the funds were used to pay for day-
to-day running costs of the airport rather than being kept separate and paid into
airport accounts. This decision therefore removed all possibility for any financial
management of the landing and handling fees.
33. The Task Force also received reports that some commercial airlines had been
the subject of extortion in the payment of fees for landing slots — a critical element
of any commercial air carrier's flight scheduling. Moreover, in the view of the Task
Force, the practice of making last-minute scheduling changes may have been
designed to frustrate the airline representatives into paying bribes to airport officials
to reduce such changes.
34. The Task Force was highly dependent on the air carriers themselves to provide
information as to charges levied on them in its attempt to reconcile airport records
of landing and handling fees. Without independent information from the air carriers
or the International Air Transport Association, the Task Force was unable to prove
that they were overcharged or that attempts were made to extort money from them.
The investigation report, provided to the Special Representative on 15 April 2005,
recommended that UNMIK make contact with the key air carriers in an effort to
obtain that information. The Special Representative responded that, in view of the
fact that much time had passed since 2001 when the events had occurred, UNMIK
agreed with the airport management that it would not be a good use of limited
resources to pursue this matter further when the chance of success was clearly
negligible
. OIOS is of the opinion that this response ignores the possibility of the
collusion or extortion continuing under other guises or past criminal acts at the
airport. Furthermore, cash payments continued until 2003.
V. Findings
35. The investigators found a general disregard of and disrespect for procurement
rules by persons employed at Pristina Airport and a complete failure of UNMIK to
address this problem. The responsible managers gave the Task Force the excuse that
they had been unable to comply with procurement rules immediately after the
termination of the armed conflict in 1999. However this excuse cannot be
considered valid, as rules that are in place must be respected, and the relevant
UNMIK financial regulation has been in effect since 1999. Moreover, the excuse is
even less convincing for procurement activities in the 2002-2003 period, when the
concept of emergency operations in Kosovo had waned dramatically. Furthermore,
the Task Force found at the highest levels of Pristina Airport management a
readiness to handle public funds provided by the Kosovo Trust Agency as well as
revenues generated by the airport without any real concern about accountability. The
lack of both UNMIK oversight and a system of internal control permitted the abuse
of public funds by Pristina Airport staff.
36. Consequently the airport, while turning a modest profit, is less successful
financially than would be expected from one of the fastest-growing airports in
Europe. The evidence suggests that airport managers, as indicated in the cases
described above, did not work in the interest of the common good of Kosovo and
14
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UNMIK. It is the assessment of the Task Force that the oversight carried out by
UNMIK — via the Kosovo Trust Agency, Pillar II (pre-July 2002) and Pillar IV
(post-July 2002) — of the finances, management and personnel of the airport has
lacked vigour and application and has led directly to the abusive practices identified
by the Task Force.
37. The Task Force was surprised to find that even after the transmittal of the
individual investigation reports, substantial reluctance remained on the part of
UNMIK senior management to take appropriate disciplinary action against those
responsible for the lack of oversight and control of airport funds. In his response to
the Task Force reports, the Special Representative stated that it was incompetence
rather than corruption that prevailed in cases of mismanagement at Pristina Airport
identified by the Task Force. In one case the Special Representative attempted to
exonerate the former manager of the airport sector of the Kosovo Trust Agency from
administrative charges by stating that the Department of Justice had not found
support for criminal charges against him. Although the Department of Justice has
not discussed this finding with the Task Force, it cannot be considered as a valid
justification for the failure to undertake administrative action.
38. The lack of action by UNMIK senior management and its inability to address
fraud and corruption within the publicly owned enterprises dates back to the
establishment of the Mission. Even though it has become clear that corruption is
rampant in Kosovo, as revealed by the Task Force investigations and external audits,
Mission management is reluctant to take action. The reports on Pristina Airport
show that key airport managers were found to be the very source of mismanagement
and abuse of funds in the airport for many years. As the Task Force at present is not
mandated to carry out further airport investigations, it is unclear who will address
these issues in the future. After more than six years of UNMIK operations, there
should be a pool of qualified personnel in Kosovo able to assume responsible
positions for the management of Pristina Airport. The continuity of airport
operations cannot be an excuse for retaining managers who fail to demonstrate their
capacity to manage. The Pillar IV management and the Special Representative need
to act swiftly and strongly in order to change the culture of corruption and
mismanagement in Kosovo public sector operations.
39. The Office for Coordination of Oversight of Publicly Owned Enterprises is not
mandated to investigate mismanagement, fraud and corruption at the airport, but it is
mandated to monitor the progress of the privatization of publicly owned enterprises,
including the airport. As its function is a complementary one, the Office cannot
replace the Task Force. It was established purely to monitor the reform of the
publicly owned enterprises and to ensure that the Special Representative was kept
abreast of developments, both positive and negative. In the absence of a fully
functioning audit office in Kosovo and an anti-corruption office with the necessary
mandate, it is not clear that corruption can be detected and prevented. The decision
to create the Kosovo Auditor-General's office was welcomed, but it requires
significant support and several years to identify, recruit and train local Kosovars to
the standards required internationally for such a function. In the interim, ad hoc
audits have been completed and the Office for Coordination of Oversight of Publicly
Owned Enterprises has attempted — not so successfully — to garner support from
Pillar IV and the Special Representative on this topic.
15
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VI. Conclusions
40. The inevitable conclusion is that accountability for mismanagement and abuse
of funds does not exist in the operation, management and supervision of the airport.
Few or no external checks and balances were in place while the airport was under
UNMIK Pillar II responsibility prior to 1 July 2002. Since then, the evidence
suggests an absence of management oversight and a lack of action to curb fraud and
corruption in airport operations and management on the part of UNMIK and Pillar
IV.
The Special Representative responded that "none of these sweeping and entirely
unwarranted OIOS assertions is substantiated in the report itself, or in the
underlying [Task Force] reports that OIOS purports to analyse
". OIOS is of the
opinion that the 33 case reports, with 15 cases involving administrative deficiencies,
9 cases referred to the Department of Justice for criminal referral and 17 cases
addressing institutional shortcomings and providing recommendations for
management review, strongly support the assessment that fraud and mismanagement
were rife and that there was systematic corruption. OLAF, in its final case report to
the European Commission, agreed and stated that the activities took the form of
fraud and corruption, deliberate breaches of administrative regulations,
mismanagement and poor project management.
41. When DCDM transmitted its report to UNMIK Pillar IV in February 2003, it
offered advice on a number of issues, such as the development of an accounting
procedures manual for the airport and an information technology-driven financial
management package in order to reduce the risk of fraud arising from the existing
programmes. There is no evidence that Pillar IV took any action based on that
advice. As a matter of fact, the report of external auditors on Pristina Airport for
2004 contained a disclaimer in which the auditors concluded that they were unable
to express an opinion on the financial statements of the airport. Such an opinion is
usually a sign of a serious weakness in management and the system of internal
control.
42. The Task Force frequently heard the argument — even from UNMIK senior
managers — that the funds at issue were those of Pristina Airport, not UNMIK,
thereby relieving the Mission of any responsibility. This argument displays a strong
disregard for the nature of publicly owned enterprises, as well as for the function of
UNMIK, in Kosovo. The Special Representative and the head of Pillar IV must
re-emphasize to senior managers and others the Mission's role in the budget
process. Donor funds, which continue to pour into Kosovo, could easily be reduced
if such publicly owned enterprises as the airport were efficiently run and earned the
expected profit, free from systemic corruption and inefficiency. The Special
Representative is accountable for the activities of Pillar IV and even with the
prompting of the Office for Coordination of Oversight of Publicly Owned
Enterprises, it is for the Special Representative to ensure that reform measures are
understood and implemented. Furthermore, the controls placed by UNMIK on
Pristina Airport funds do not ensure proper accountability and efficient use of
resources. Adequate control and oversight might have prevented, or at least reduced,
the misappropriation and diversion of funds and the aberrant procurement practices.
Therefore, control must be tightened and regular audits must be conducted in order
to reach the goal of proper accountability of the publicly owned enterprises.
43. A considerable number of managers presented the Task Force with the excuse
that they were not clear as to whether European Union or United Nations
16
A/60/720
institutional rules applied in Pillar IV and Kosovo Trust Agency activities and thus
have not assumed any responsibility. This lack of clarification contributed to an air
of uncertainty regarding the applicability of rules that led to abuses of the monies
available to Pristina Airport. This misunderstanding must be removed and the
applicability of rules, including those rules related to procurement and finance, must
be clarified.
44. The Special Representative has overall and ultimate responsibility for the four
pillars and should address corrupt management in the publicly owned enterprises
and ensure that a change in the culture regarding accountability occurs within
UNMIK and those enterprises. In the report of the Secretary-General to the Security
Council, the Special Representative stated that the anti-corruption law needed to be
finalized and adopted and an anti-corruption agency established in accordance with
European standards (S/2005/335 and Corr.1, annex I, para. 56). As mentioned in
paragraph 13 above, the Special Representative concluded that no significant
progress had been made on tackling corruption. OIOS agrees with that conclusion
and stresses that only strong disciplinary action against persons responsible for
misconduct and mismanagement at Pristina Airport will have the desired impact of
deterring management in other publicly owned enterprises. Only the creation of a
strong role model will convince the public in Kosovo and elsewhere that the transfer
of responsibilities to the provisional institutions of self-government is indeed
connected to a new emphasis on accountability.
45. If accountability and responsibility are neglected, the prospect of a successful,
democratic and prosperous Kosovo will fail. This risk was expressed by the
International Crisis Group in its Europe Report No. 163 of 26 May 2005, which
stated: "Much of the work being rushed through at present to get a result in the midyear
standards review is of questionable quality, not likely to stand the test of time.
Problems that will come back to haunt Kosovo like toleration of widespread
corruption and of powerful, unaccountable partisan political intelligence agencies
are being swept under the carpet rather than addressed." Although the International
Crisis Group reports neither to the General Assembly nor to the Security Council, it
is an independent group with a long-standing and excellent reputation in the
international community.
46. With UNMIK peacekeeping operations winding down and in the light of the
widely held view that the United Nations will withdraw from Kosovo in 2006, the
reluctance by senior Mission management to address fraud and corruption will have
a devastating impact on public perception inside and outside of Kosovo, as the
United Nations will be seen as escaping from the problems rather than solving them.
VII. Recommendations
47. OIOS makes 11 recommendations based on the findings of the investigations,
designed to ensure proper accountability for Pristina Airport. The Special
Representative has not accepted the recommendations, stating that: "
they flow from
OIOS's incorrect and unfounded assertions of a prerogative to direct the [Special
Representative of the Secretary-General] with regard to the [Investigations Task
Force] reporting, and of a mandate to investigate entities such as the [publicly
owned enterprises] in Kosovo
".
17
A/60/720
•Recommendation 1: It is recommended that UNMIK cooperate with the
Kosovo Government as to the creation of a viable, long-term anti-corruption
entity responsible for administrative investigations in the public sector
(IV03/365/01)
•Recommendation 2: It is recommended that UNMIK monitor the cases
referred to the Department of Justice and report to the Department of
Peacekeeping Operations and the Task Force on the results of the cases.
Furthermore, any cases referred for criminal action that are not the subject of a
prosecution action should be addressed via applicable administrative and
disciplinary processes (IV03/365/02)
•Recommendation 3: It is recommended that the performance of all managers
of Pristina Airport be evaluated in light of the Task Force investigations
(IV03/365/03)
•Recommendation 4: It is recommended that adequate resources be made
available to conduct regular external audits for each of the publicly owned
enterprises to assist in improving systems of control and reducing the
opportunities for fraudulent activities (IV03/365/04)
•Recommendation 5: It is recommended that UNMIK introduce procedures for
the regular disclosure of assets by publicly owned enterprises staff, such as
senior managers and those working in areas of risk, such as public
procurement (IV03/365/05)
•Recommendation 6: It is recommended that the Special Representative of the
Secretary-General, together with UNMIK Pillar IV, clarify the rules applicable
to the publicly owned enterprises and undertake an awareness-raising
programme to ensure clarity for all personnel (IV03/365/06)
•Recommendation 7: It is recommended that UNMIK, through Pillar IV,
conduct training for all staff in the publicly owned enterprises on adherence to
rules, both financial and administrative, relevant to each of the publicly owned
enterprises (IV03/365/07)
•Recommendation 8: It is recommended that UNMIK take the actions
recommended in the individual Task Force reports in a speedy and effective
manner in order to prevent further fraud and corruption risks from
materializing to the detriment of Kosovo (IV03/365/08)
•Recommendation 9: It is recommended that UNMIK, in collaboration with the
relevant Kosovo authorities, establish and promote the concept of merit-based
employment in all public institutions (IV03/365/09)
•Recommendation 10: It is recommended that UNMIK make contact with the
air carriers mentioned above in an attempt to determine whether any Pristina
Airport officials improperly interfered with the conduct of aviation operations
or the scheduling of flights or whether any person with an official function at
the airport sought a bribe in connection with legitimate aviation activities at
the airport (IV03/365/10)
•Recommendation 11: It is recommended that the Secretary-General share the
present report with the Security Council (IV03/365/11)
( Signed ) Inga-Britt Ahlenius
Under-Secretary-General for Internal Oversight Services
18
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Annex
Case list
Criminal
050/04
Alleged misappropriation of airport funds for insurance purposes
192/04
Allegation of fraud in handling of cargo at Pristina Airport
214/04
Allegations of impropriety regarding airport apartments
223/04
Investigation into allegations of bribes for visa applications
260/04
Austrian Air tickets
285/04
Pristina Airport — possible administrative irregularity regarding tender
procedures for electronic equipment (referred to Department of Justice
for information purposes in conjunction with 286/04)
286/04
Alleged falsification of documents
377/04
Allegations of bribes/kickbacks for employment at Pristina Airport
462/04
Investigation into allegations of bribery and favouritism in procurement
of uniforms by Pristina Airport (referred to Department of Justice for
information purposes)
Administrative
049/04
Pristina Airport air traffic control services — frequent cash withdrawals
219/04
Irregularities in the provision of a heating, ventilation and air-
conditioning system at Pristina Airport
217/04
Radar procurement
221/04
Alleged irregularities with UNMIK bank account No. 1110019243020132-1
261/04
Alleged fraud — Pristina Airport cargo department
262/04
Report of allegations of evasion of Pristina Airport charges
274/04
Irregularities in the procurement and contract award for the new car park
at Pristina Airport
275/04
Irregularities in the procurement and contract award for winter and
summer uniforms at Pristina Airport
276/04
Alleged irregularities in a contract for the construction of garages and a
parking area for air traffic control services at Pristina Airport and in an
annex agreement for the supply of new offices, training room and
maintenance garage for the rescue firefighting service
277/04
Irregularities in the contract for the supply and mounting of a suspended
ceiling in the old part of the passenger terminal
278/04
Pristina Airport — alleged administrative irregularity regarding a flat
information display system tender
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A/60/720
279/04
Irregularities in a contract for the supply and construction of office
containers for air traffic control services and in a single-source annex
agreement for additional office accommodation, lunch room and showers
for the KFOR multinational force at Pristina Airport
280/04
Investigation into allegations of irregularities in two tender processes for
the supply of cleaning machines to Pristina Airport
281/04
Irregularities in the addition of a single-source contract one month after
the award of a contract for the supply of two new containers and the
dismantling, transport and reconstruction of a further seven containers at
Pristina Airport
282/04
Irregularities in the procurement for the extension of the cargo apron at
Pristina Airport
283/04
Allegations of theft and corruption arising out of the collection of
handling and landing fees and de-icing costs for passenger aircraft using
Pristina Airport
284/04
Irregularities in the award of contracts for the maintenance and repair of
the runway, taxiways and parking areas at Pristina Airport
287/04
Pristina Airport — alleged administrative irregularity regarding an X-ray
tender
352/04
Allegations against a Pristina Airport employee for not having disclosed
a conviction for human trafficking
Other
215/04
Allegations of sexual exploitation/rape
216/04
Alleged violations of procurement procedures — insurance
218/04
Allegation of possible bribery at Pristina Airport
220/04
Alleged violation of procurement procedures — electrical equipment
222/04
Allegation of violations of procurement procedures regarding the airport
management agreement
288/04
Theft of cash in Pristina Airport cafeteria
289/04
Tender for design of the main project for a ring road in Pristina City
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Summary 17 United Nations Interim Administration Mission in Kosovo (UNMIK) Investigation Task Force reports into corruption and other irregularities at Pristina Airport.
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