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EXCLUSIVE: While controversy continues to swirl around the huge Hamas tunnel network in Gaza, an internal United Nations audit report reveals that a U.N. Development Program office that funds and monitors spending on construction in the territory allowed at least five non-staff contract employees to handle “core” procurement processes that only staffers are supposed to handle, including those for ordering up “significant” civil construction activities.

Moreover, the report says, of the UNDP office: “the Office was not monitoring and recording actual work” performed by these individuals and other contract employees handling “core” functions, and the terms of reference for their employment “did not include specifications for services provided to particular projects” — in other words, were relatively undefined.

At the same time, the office’s internal financial tracking system — a UNDP-wide system known as Atlas — was improperly recording at least $8 million worth of civil construction spending at far less than its full value, a practice that UNDP auditors noted could keep the activity under the radar of higher-level U.N. officials who must approve purchase orders above defined cost threshold levels.

Moreover, the Palestinian program office was not properly keeping track of expenditures or receipts in the financial system. The auditors noted that in a sampling of 41 payment vouchers, 12 purchase orders did not have receipts recorded in the system. “This practice,” the report noted, “increases the risk of paying for goods that are not delivered.”

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The same office of the anti-poverty United Nations Development Program (UNDP) failed to use an electronic funds transfer system with local banks that would have allowed the UNDP program to “be notified electronically when any bank transactions take place,” including, as the report delicately puts it, “transactions not made by UNDP.”

Taken together, the findings in the carefully manicured audit report — which was vetted by UNDP management at the affected office — point to a possible black hole in the supervision of civil construction, and perhaps other programs in Gaza and the other Palestinian territories for at least a year before the current explosion of terrorism.

The report adds a new level of potential credibility to Israeli accusations that internationally-managed relief supplies to Gaza were diverted into construction of the elaborate and highly-engineered tunnels under the territory that were used by Hamas terrorists to launch and coordinate rocket attacks and incursions into Israel that dramatically escalated in March.

The audit report itself calls the performance of core jobs by contract staffers a “critical” lapse, where “prompt action is required to ensure that UNDP is not exposed to high risks. Failure to take action could result in major negative consequences for UNDP.”

The main purpose of the UNDP program, based in Jerusalem and like all U.N. activities operating under diplomatic immunity from any national authorities, was to provide funding and support for what the document chastely calls “another U.N. entity” that coordinates the world organization’s activity in Gaza.

That “entity” is the United Nations Relief and Works Agency, or UNRWA, which has been accused for years — and especially during the last major Israeli military response to Palestinian terrorist attacks from Gaza in 2009 — of allowing Hamas to divert humanitarian supplies to its own military purposes. UNWRA has some 13,000 employees in Gaza, the overwhelming majority of them local Palestinians.

The watchdog report on the UNDP office, formally known as the UNDP Program of Assistance to the Palestinian People, covered all of 2013 — the period immediately leading up to the current explosion of Hamas rocket attacks and Israeli’s now-suspended counter-incursion.

The document, produced by UNDP’s Office of Audit and Investigations, does not offer anything like full insight into the irregular pattern of activities surrounding the Palestinian program, although it clearly indicates that there are more areas of concern.

Among other things, it notes that 43 people beyond the five specifically mentioned as “examples’ are also “incorrectly” providing “core functions” while operating on service contracts, without specifying their activities.

The entire tally of non-staffers performing “core” functions represents about one-quarter of the 187 service contract holders listed as part of the program, which spent $90 million in 2013.

The UNDP offices’ activities cover not only Gaza, but East Jerusalem and a large amount of the West Bank.

They also had an additional point of potential vulnerability. Unlike UNDP offices in some other sensitive locales — or places where local skills are not available — the Palestinian program of assistance during all of 2013 (and for six months previously), had no provisions in place for what is called “direct implementation.”

That is a method of work meaning that UNDP itself, without any cooperating partners, would be not only a funding agency and manager, but would also be “accountable for achieving project results,” as the report puts it. Direct implementation is used when local partners are not believed capable of providing the needed skills, or where possibilities of financial mismanagement or other risks are deemed to be high.

The alternative is called “national implementation,” meaning that projects are carried out “in cooperation with national counterparts,” which in this case means Palestinian civil authorities — in a government that includes Hamas.

According to the audit report, the UNDP Palestinian program’s “direct implementation” authorization expired on June 30, 2012, and “the office did not seek its renewal until March 2014” — roughly around the time that Hamas commenced its latest large-scale rocket assault on Israel.

Moreover, that authorization still did not exist at the time the report was written; based on internal evidence, apparently in June. (The document was finalized in early July, and posted on UNDP’s website over the past weekend.) It says only that “management is following with Headquarters” to get direct implementation renewed “as soon as possible.”

Questions from Fox News concerning the report, sent to UNDP headquarters over the weekend, had not been answered before this article was published.

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For their part, and despite the “critical” alarm bells set off by auditors, the managers of the UNDP program claim in the document that they were doing nothing inappropriate in their use of the service contracts in whatever functions the holders filled, and said what they had done “has been subject to review by several Headquarters missions.”

However, they then agreed to “review job descriptions and terms of reference to ensure better clarity on the purpose of positions and whether they serve projects or core functions.”

The review, however, is not slated for completion until September.

UPDATE

UNDP responded to questions from Fox News late Monday to declare that “the 48 people on service contracts are not fulfilling core functions but a number of project staff needed to have their job descriptions enhanced in order to clarify what project tasks they were carrying out.” The organization did not reply directly, however, to a question from Fox News about which specific projects the staff were working on. Instead, it declared that “many people fulfilling the same or other functions were shifted from project to project without fully updating the specific tasks under their terms of reference.”

The U.N. organization also said that the lapse in its Palestinian support office’s mandate to use “direct implementation” in its projects—an authorization in place since 1978—was due to “an internal miscommunication between two different units on requesting the renewal. As soon as the audit report identified this delay, action was taken immediately, and a request for renewal was submitted and the approval has been obtained.”

In explanation of its lack of electronic banking transfers, UNDP told Fox News that “the electronic banking interface is not mandatory” for its offices, and cited the Democratic Republic of Congo—which has been torn apart for years by a vicious civil war—as an example of where “electronic banking interfaces are not used because they are not operational or up to standard”—conditions that did not apply to its Jerusalem office, according to UNDP’s own audit.

As to whether a review of the situation in the Palestinian office would be completed by September, UNDP replied that delays beyond September “are possible in light of the current crisis in the Gaza Strip.”

George Russell is editor-at-large of Fox News and can be found on Twitter:@GeorgeRussell or on Facebook.com/George Russell