A UN agency operating in North Korea left itself open to exploitation, a US Senate investigation has found.
The US had said North Korean leaders were using UNDP money
A Senate committee criticised the United Nations Development Programme for inappropriate staffing decisions and lax financial controls.
The probe followed US claims North Korea was siphoning off UNDP money.
A UN probe last year found that although rules had been broken, there was no evidence of systematic diversion of funds to North Korean officials.
UNDP pulled out of North Korea last year, after Pyongyang refused to comply with changes to operating policies after problems were exposed.
The probe by the Senate Permanent Subcommittee on Investigations began after the US allegations emerged last year.
In its report, the committee queried UNDP's decision to hire staff vetted by the authorities and pay their salaries in hard currency directly to the government, despite fears of skimming.
It also highlighted inadequate fiscal controls.
In 2002, it said, North Korea used a bank account meant solely for UNDP activities to transfer $2.72m (£1.3m) of its own funds to overseas missions.
It also highlighted a transfer of $50,000 from UNDP to a Chinese company that the US later said was linked to North Korea's weapons sales.
"The evidence indicates that the North Korean government took advantage of the altruism that drives UNDP programmes," the committee said.
UNDP said it had not been aware of concerns when it bought computers from the Chinese company.
It also highlighted a committee finding stating that greater vigilance might not have prevented the $2.72m overseas transfer.
Agency spokesman David Morrison said that UNDP had faced "persistent and detailed allegations about funding diversion and misconduct in its former operations in North Korea".
"We... are gratified that the staff report contains no suggestion that these allegations can be substantiated," he said.