United Nations High Commissioner For Refugees Blasted For Poor Financial Handling EXCLUSIVE: The Office of the United Nations High Commissioner for Refugees, or UNHCR, two years ago was sitting on a stockpile of $437 million in unspent cash, even as a U.N. auditing agency warned that its sloppy handling of funds imperiled future contributions from U.N. member nations. The report, issued last year but only introduced for member-state review in the U.N. General Assembly, cites UNHCR for sloppy bookkeeping, poor financial oversight, managerial disarray, and a lack of tools to judge how well it was doing its job of helping tens of millions of the world's displaced people. The U.N.'s independent Board of Auditors used remarkably straight-forward language to lambaste the refugee agency, whose largest donor, the United States, contributed $712 million to UNHCR in 2010, according to the State Department. The auditors noted that the relief agency, which is financed largely by voluntary contributions, spent about $1.9 billion in 2010; its budget two years earlier was about $1.1 billion. The auditors pointed out that there were "strong indicators of significant shortcomings in financial management" at the agency, headed since 2005 by Antonio Guterres, a former Socialist prime minister of Portugal. "This is a major risk for UNHCR," the auditors warned, "given the increasing pressures on donors to justify why they provide public funds to international aid organizations." Moreover, the inspectors did not seem optimistic that the situation would change soon, even though UNHCR's management now says that it is working hard on a wide variety of fronts to change the disturbing situation. The Board of Auditors report, written last year but only recently published, amounted to the first major external assessment of UNHCR's behavior after its spending began to balloon dramatically in 2008 in line with a new strategy known as the Global Needs Assessment, a novel way to encourage donors to come up with more cash. Rather than looking at its donor pledges and then determining its budget, UNHCR is now using the Global Needs Assessment to determine the amount that it feels it needs to spend, then building a budget to accommodate that perspective -- though, in the end, it still must manage with the amount it takes in. The new approach has given more of a social welfare tilt to UNHCR relief efforts, even though it is still thought of primarily as a front-line relief group that doles out emergency food and shelter to populations displaced across national borders by war, famine and drought. Click here to see the Auditors Report. The Obama administration has apparently found the Global Needs approach convincing. U.S. contributions to the relief agency increased by about 40 percent between 2008 and 2010, before tailing off only slightly last year. For this year and next, when UNHCR hopes to spend about $3.3 billion a year under its Global Needs, a State Department spokesperson told Fox News, U.S. support "will depend on current crises to which UNHCR responds." For UNHCR's external auditors, however, the issue is not so much the agency's needs as its financial and management capabilities -- and these it found dolefully lacking. Among other things, the auditors' report notes: UNHCR could not balance its many checkbooks. No fewer than 99 of its bank and investment accounts, holding more than $375 million, 'lacked up-to-date reconciliations, a key financial control.' The auditors had warned about the same problem a year earlier, and not much was done about it. The backlog had been cut to three active accounts before the auditors' report was published. the agency wasn't even prepared for its own audit, reflecting "significant deficiencies in the systems in place to prepare its financial statements, and in the quality of the supervision and ownership of these processes, from the most senior executive level downward and across the entire organization." UNHCR "remains unable to gather and analyses basic management information on its operations," or "to get a full grip on the performance of its implementing partners or the delivery of major initiatives." Translation: it doesn't know what it is actually doing. UNHCR's own share of what it takes in from donors is high. Despite roughly 22 percent of its $1.9 billion in actual spending for 2010 that went to "administrative overhead and staff benefits," the report notes. At the time of the audit, UNHCR had 6,300 regular staff working in some 380 offices located in 125 countries. despite those overheads, roughly one-third of UNHCR's spending ($667 million) went to "implementing partners," meaning non-government organizations and others who carried out relief operations. Who they all were, and how well they functioned, was not at all clear. The process of selecting those partners, the auditors noted, "lacks rigor and transparency, increasing the risk of fraud, corruption, inefficiency and poor partner performance." More than half of the implementing partners had worked for UNHCR for more than five years, and the auditors found "little evidence of any kind of competitive selection process," cost comparison or matching of capabilities with requirements. The Board of Auditors said it was "particularly concerned at the lack of transparency in partner selection processes and the increased risk of fraud and corruption to which this exposes UNHCR." however badly the partners -- or for that matter, UNHCR staffers -- performed in the field, however, the Board of Auditors did not think highly of the agency's ability to judge it. "Performance from its country network does not enable management to make effective judgments as to the cost-effectiveness of projects and activities or to hold local managers accountable for performance," the report says. If anything, the Board of Auditors report underplays the seriousness of UNHCR's lack of field intelligence on its own operations, many of which stem from a multimillion-dollar fiasco involving installation of a new, systemwide software system, known as Focus. The software was supposed to integrate financial and human resources information, in order to propel UNHCR toward better "results-based management." According to another internal U.N. inspection report, which Fox News reported on last May, there have been "years of delays" in installing Focus, and the lack of information has affected hundreds of millions of dollars in UNHCR spending. Asked how the U.S. viewed the Board of Auditors report, a State Department spokesman declared that "we follow the institutional and operational issues closely." The spokesman also pointed to statements made by the U.S. at a meeting of UNHCR's executive committee last October, where a U.S. diplomat declared that "several of the findings of the Board concern us," without going into detail. At another "ex-com" session in Geneva, U.S. Ambassador David Robinson underlined that "the United States remains a committed partner with UNHCR and the beneficiaries it serves." How does UNHCR itself intend to deal with the management swamp outlined in the Board of Auditors report? Not to worry, according to the agency's management. In a report nearly as long as the auditors' investigation, UNHCR last September outlined a lengthy list of "measures taken and proposed" to improve things. Some of them, however, seemed vague, or less than wholesale. On the alarming bank account reconciliation process, for example, the agency reported that it had already done a great deal, and that "bank accounts held at Headquarters are fully reconciled and are routinely reconciled on a monthly basis." But this excludes accounts in the field, where the auditors are particularly critical of oversight lapses. In addressing what the auditors call "deficiencies in country office financial management and reporting capacity," UNHCR says it will "review relevant audit and inspection reports, consult with Headquarters and Bureaux and continue to analyse data ... to focus on those country offices in need of greater strengthening of financial management practices. Based on this review and analysis, UNHCR will develop workplans to address the identified gaps. It hopes to have the process completed by the end of this year. When it comes to adopting a "risk-management" approach to its partners in relief operations, as the auditors recommended, UNHCR says it first must adopt a "Differentiated Risk-Based Framework" and then apply it appropriately. The agency projects, somewhat murkily, that the "overall development application of the Framework will be completed by 2014." Click here to read the 'Measures Taken' report. Asked by Fox News last week whether it was on track to meet the many promised deadlines in its "measures taken" report, UNHCR had not replied before this article was published. George Russell is executive editor of Fox News and can be found on Twitter @GeorgeRussell Click for more stories by George Russell