Unicef staff 'misappropriate' more than $1m

The United Nations Children's Fund, Unicef, has reported a loss of up to $10m (pounds 6.25m) at its Kenya office and says more than $1m was "misappropriated" by staff. Unicef made public a report by its own auditors into the scandal and said it was taking remedial action. Diplomats and UN officials said Unicef's response to the audit was prompt and open, setting a model of accountability signally lacking in other UN agencies.

But the affair will refocus attention on the management of the UN, after critical findings by Britain's Auditor-General, Sir John Bourne, at the Africa regional office of the World Health Organisation. Disagreement between WHO and Sir John led him to step down as external auditor.

In Kenya, it was Unicef's internal auditors who found "chaotic" conditions. Gross mismanagement and widespread fraud appeared to be the order of the day and there was was poor staff integrity, a corrupt office environment and biased recruitment. "The audit found no management standards in the Kenya country office to properly measure accountability,'' Unicef said, ''and that the personal management style and practices encouraged wrongdoing."

Losses estimated between $9m and $10m from programme funds were found. More than $1m was "misappropriated by staff members". There had been a "gross violation" of Unicef rules and regulations.

The losses were run up through excessive costs, the establishment of seven local offices without proper approval, and "fees" of up to 30 per cent paid to contractors. Staff had been in collusion with banks and suppliers. Expense advances were outstanding, there were "excessive" local travel costs and "high entertainment costs''.

Even drivers and secretaries were handing out Unicef cash instead of following authorised accounting practice. "Administrative and financial control systems and procedures in the office were either superficial or did not exist," the auditors found. Unicef's office of internal audit has now prepared detailed reports on staff members. Twenty-four cases of fraud and mismanagement have been identified and another 23 are being investigated.

The frauds came to light when an internal auditor paid an unannounced visit to the office. His findings set off a full inquiry. The Kenya management had covered up its financial problems by seeking additional funding, and the recommendations made in previous auditors' reports had been conveniently ignored.

There were also shortcomings at Unicef's regional office and at its headquarters, where officials had failed to detect the full scale of the problem.