Panel II of a Hearing of the House International Relations Committee

PANEL II OF A HEARING OF THE HOUSE INTERNATIONAL RELATIONS COMMITTEE

SUBJECT: U.N. OIL-FOR-FOOD PROGRAM

CHAIRED BY: REPRESENTATIVE HENRY HYDE (R-IL)

April 28, 2004 Wednesday

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REP. GREGORY MEEKS (D-NY): Thank you, Mr. Chairman. I'm just interested and just trying to find out about this oversight, this 661, and whether or not-I think that you've indicated that it was unclear whether the Office of OIP performed its function properly.

MR. CHRISTOFF: Right.

REP. MEEKS: And the U.N. has indicated to our committee that the OIP did indeed perform that function and that it refused to forward hundreds of contracts that fell outside of the range of acceptable pricing to the 661 committee and that this action effectively blocked hundreds of contracts from being approved.

The U.N. has also indicated to us that when the missions representing the companies submitted questionable explanations for overpricing the contracts, OIP then forwarded the contracts to 661 with notes of concern about pricing. And further, the U.N. has indicated that those notes of concern never led 661 to block a contract.

My question is, did you interview or attempt to interview U.N. OIP officials to establish whether these facts, in conducting your audit for the program --

MR. CHRISTOFF: Yes. We met with OIP officials. And one of the first questions we asked them for was what was their pricing criteria. What did they use to go about in trying to determine the price reasonableness of the contract? We have not gotten yet that pricing criteria from the Office of Iraqi Programs.

And they make a distinction. I think we need to think about distinctions here. They were tasked to look at the price and value of the contracts. But it's unclear to me as to how they translated that into looking at price reasonableness. IF they looked at price reasonableness the way the DCAA audit did, perhaps they would have encountered more of this overpricing.

DCAA found that 48 percent of all of the oil-for-food program contracts it looked at was overpriced by 21 percent. So I'm not certain how they translated the mandates to assess price and value into a standard approach for assessing price reasonableness the way the United States or the DCAA would have undertaken a price reasonableness determination.

REP. MEEKS: With reference to the 661, I understand that-wasn't it the Security Council's-the 661 committee, didn't they have the authority and responsibility to oversee the program? And did you investigate why the United States mission to the U.N. did apparently not attempt to use its power to block individual contracts as a way of shutting down overpricing in the humanitarian goods contract?

MR. CHRISTOFF: When we did our investigation, we were told that the majority of the holds-they're called holds on contracts-were holds that were placed primarily on the basis of dual-use items. Ninety percent of the holds-there was about $5.1 billion in holds. When we looked at the program in detail in May of 2002, 90 percent of those holds were placed by the United States, primarily because of concerns of dual-use items, not because of price.

REP. MEEKS: Well, further dealing with the 661 committee, I believe there were about 60 experts that were reviewing the contracts --

MR. CHRISTOFF: Right.

REP. MEEKS: -- (but still they?) didn't contain items that would be used in a weapons program?

MR. CHRISTOFF: Right.

REP. MEEKS: And how many were reviewing the contracts to see if they were overpriced, potentially hiding kickbacks?

MR. CHRISTOFF: When the U.S. oversight function was described to us, it was described as an inter-agency process consisting of the Department of State, Department of Commerce, Department of Defense, the Department of Energy, focusing on whether or not the line items in the contract contained commodities that had dual-use potential. That's how it was described to us, as this extensive 60-person inter- agency process.

REP. MEEKS: And one last question would be, in May of 2003, when the CPA was preparing to take over the oil-for-food program contract, the Defense Contract Auditing Agency, DCAA, was called upon to review those contracts for possible fraud. In reviewing just 60 percent of the active contracts, using only market data, the defense auditors found $656 million of potential overpricing.

All of these contracts were approved by the State Department, and as 661 committee member, apparently without the benefit of such an order. As a professional auditor, do you find it odd that the U.S. and the U.N. were approving Saddam's contracts without auditing them for price validity?

MR. CHRISTOFF: Well, no. In fact, I think it gets back to the good work of DCAA. In looking at pricing value, one should have looked at the price reasonableness of the contract.

REP. MEEKS: No further questions.

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