An inquiry into abuses of the UN's Oil-For-Food programme in Iraq called today for major reform of the United Nations.

In its final report, the Independent Inquiry Committee headed by Paul Volcker, the former chairman of the US Federal Reserve, said that Saddam Hussein had cleverly played one side off against the other as he siphoned more than $10 billion from humanitarian oil sales.

Both Kofi Annan, the UN Secretary-General, and Louise Frechette, his deputy who had direct responsibility for the programme, are criticised in the 800-page report for failing to keep control of the programme or to stamp out corruption within it.

"The inescapable conclusion from the committee’s work is that the United Nations organisation needs thorough reform - and it needs it urgently," the report said.

The Volcker report will be seized on by John Bolton, the right-winger appointed by President Bush as US Ambassador to the UN, to push for reform. World leaders will gather in New York next week to consider various proposals put forward by Mr Annan.

Mr Volcker, who presented his report to the Security Council today, makes several recommendations, including appointing a chief operating officer with authority over all aspects of the administration, and an Independent Oversight Board.

Mr Annan told the Council that he accepted responsibility for management lapses uncovered by the independent probe. "The report is critical of me personally, and I accept its criticism," he said after receiving the reoprt.

"As chief administrative officer, I have to take responsibility for the failings revealed."

The committee said that the corruption that reached the top of the programme, whose head, Benon Sevan, is being investigated for allegedly accepting bribes. This reflected the absence of a strong ethos in an organisation that should exemplify the highest global standards because of its "unique and crucial role".

"The General Assembly, Security Council, and Secretariat have been insufficiently conscious of the serious risks posed by not enforcing ethical standards, both to the organisation’s credibility and to its internal morale," the report said.

Yet it also acknowledged that the programme was partly successful, providing minimal standards of nutrition and healthcare for millions of Iraqis trying to cope with UN sanctions imposed after Iraq's 1990 invasion of Kuwait.

The Volcker committee said that the UN was the only organisation of its kind in the world capable of taking on such daunting tasks. One of the largest humanitarian programmes in history, Oil-for-Food was a lifeline for 90 per cent of the country’s population of 26 million.

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