UNITED NATIONS – An eagerly awaited first report by former U.S. Federal Reserve

chairman Paul Volcker into alleged corruption in the U.N. oil-for-food program in Iraq will be sharply critical of U.N. management in key areas and will target Benon Sevan, who ran the program, a source close to the investigation told The Associated Press on Wednesday.

The Volcker report, to be released Thursday afternoon, will focus on the administration, financial transactions, and internal auditing of the $60 billion program, all of which were “tainted badly,” said the person with knowledge of the report, speaking on condition of anonymity.

Late Wednesday, in an advance copy of an op-ed article in Thursday’s Wall Street Journal, Volcker said “the findings do not make for pleasant reading.”

As the source told the AP, Volcker was particularly hard on Sevan, saying he “placed himself in an irreconcilable conflict of interest” by taking part in choosing those who bought Iraq’s oil. This violated both U.N. rules and Sevan’s responsibility as an international civil servant, Volcker said.

As the source also told AP, Volcker said the procurement process was “tainted,” auditing of the program was “underfunded and undermanned” and its management was “lacking.”

The interim report will not address questions about U.N. Secretary-General Kofi Annan (news – web sites) or the employment of his son, Kojo, by the Swiss company, Cotecna Inspection SA, which had a U.N. contract to certify deals under the oil-for-food program.

Critics have raised questions about nepotism and whether Kojo Annan played any role in securing contracts for Cotecna — allegations he denies. Volcker said the investigation in the secretary-general and his son “is well advanced” and the source said it will be addressed in a separate report later this winter.

The oil-for-food program, launched in December 1996 to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam Hussein (news – web sites)’s 1990 invasion of Kuwait, quickly became a lifeline for 90 percent of the population.

Under the program, Saddam’s regime could sell oil, provided the proceeds went primarily to buy humanitarian goods and pay reparations to victims of the 1991 Gulf War (news – web sites). Saddam’s government decided on the goods it wanted, who should provide them, and who could buy Iraqi oil — but the Security Council committee overseeing sanctions monitored the contracts.

Sevan has repeatedly denied wrongdoing. But the Financial Times reported Tuesday that Sevan personally intervened to steer lucrative Iraqi oil contracts to Africa Middle East Petroleum, a Swiss-based oil trading company. The contracts could be sold to international traders for a markup of up to 35 cents a barrel, the paper said.

Last month, Volcker released more than 50 audits of the oil-for-food program carried out by the U.N.’s internal watchdog office, headed by Dileep Nair, who is also expected to be criticized in the report, the source familiar with the investigation said.

The audits detail how U.N. agencies working under the oil-for-food program allegedly squandered millions of dollars through suspect overpayment to contractors, mismanagement of purchasing and assets, and fraud by its employees.

In a briefing paper that accompanied the release of the audits, Volcker’s Independent Inquiry Committee questioned why the auditors neglected the New York headquarters of the Office of the Iraq Program which Sevan headed. It said auditors also neglected the oil and humanitarian supplies contracts, and transactions through the program’s account at the French bank BNP Paribas.

Investigators say Saddam’s government used its control over contracting to corrupt the program.

Expectations that the preliminary report will produce real evidence are high, especially since Volcker has come under intense criticism for comments downplaying his potential findings. He has said he intends to provide a final report around mid-year.

Annan told reporters Wednesday the United Nations (news – web sites) is already taking measures to strengthen some management practices and will implement Volcker’s recommendations.

He added that he has already asked the General Assembly to review the mandate of the U.N. watchdog office, which was created 10 years ago, “to see how we can strengthen it and give it appropriate authority to do its work.”

Mark Malloch Brown, the secretary-general’s new chief of staff, said Monday Volcker will probably “land some very heavy blows.”

Asked about his comment, Annan quipped with a laugh, “Do I look worried?”

“We will look at the report when it comes,” he said. “Obviously there will be some, maybe, harsh judgments.”

(AP)