Iraq audit can't find billions -- Gaps found in spending for reconstruction

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The Boston Globe

Iraq audit can't find billions
Gaps found in spending for reconstruction

By Bryan Bender, Globe Staff | October 16, 2004

WASHINGTON -- About half of the roughly $5 billion in Iraq reconstruction funds disbursed by the US government in the first half of this year cannot be accounted for, according to an audit commissioned by the United Nations, which could not find records for numerous rebuilding projects and other payments.

One chunk of the money -- $1.4 billion -- was deposited into a local bank by Kurdish leaders in northern Iraq but could be tracked no further: The auditors reported that they were shown a deposit slip but could find no additional records to explain how the money was used or to prove that it remains in the bank.

Auditors also said they could not track more than $1 billion in funds doled out by US authorities for hundreds of large and small reconstruction projects.

The audit, released yesterday, found serious gaps in how the Development Fund for Iraq -- a pool of money drawn from Iraqi oil revenues and international aid, including some from the United States -- was handled by American occupation officials responsible for funding reconstruction projects and the operations of Iraqi ministries and provincial governments. The development fund is separate from the $18.4 billion in US reconstruction funds set aside last year to rebuild the country.

All the funds -- more than $5 billion -- were spent between Jan. 1 and June 28, 2004, during the period when the US-led Coalition Provisional Authority ran the country.

The audit reported numerous instances of improper disbursement practices by the coalition authority. Among the findings:

Hundreds of projects worth more than $100 million covered by the Commander's Emergency Response Program, designed to allow US military officers to quickly fund small reconstruction projects around the country, had either no contracts on file, no evidence that bids were obtained through competition, no purchase invoices, or no payment vouchers.

Weapons were paid for under a buyback program with funds specifically prohibited for such use.

The coalition authority gave money to the Iraqi Ministry of Finance, which then maintained two different sets of records. The report said a ''reconciliation between these two sets of accounting records was not prepared and the difference was significant."

Checks were made payable to the coalition authority's senior adviser to the Ministry of Health, rather than to suppliers, raising questions about whether the money was spent for its intended purposes.

A number of projects were awarded without bids ''without justification" by treasury officials in one Iraqi province.

The coalition authority could not find an underlying contract or evidence of services rendered for a $2.6 million disbursement earmarked for the Ministry of Oil. The audit said the matter is under investigation by the State Department, which became the primary American presence in Iraq after the coalition authority dissolved.

The auditors said they were told by US officials that all discrepancies were ''under investigation."

The Bush administration did not respond late yesterday to the audit, which follows a sharply critical report in July from the inspector general of the coalition authority, which itself found ''insufficient controls" over at least $600 million spent on Iraqi reconstruction.

The more comprehensive UN audit -- released yesterday by Democrats on the House Government Reform Committee -- provided new fodder for the presidential campaign of Democrat John F. Kerry, which portrayed it as evidence that President Bush mishandled postwar Iraq. ''The audit report is yet more evidence of the Bush administration's mismanagement of Iraqi and US taxpayer resources in their failed effort to reconstruct Iraq," Susan Rice, a top national security adviser for Kerry, said in a statement. ''Unfortunately, waste, fraud, and abuse have become the hallmark of the Bush administration's handling of Iraq."

Democrats on the Government Reform Committee, which has responsibility for monitoring the reconstruction effort, said in a joint statement that ''serious problems" in the management of Iraq funds must be rectified.

''These problems involved hundreds of millions of dollars, numerous sole-source contracts, missing and nonexistent contracting files, and continuing investigations into major irregularities," the statement said.

Representative Henry Waxman of California, senior Democrat on the committee, said the audit indicates that Congress must immediately launch its own investigation.

''The Bush administration cannot account for how billions of dollars of Iraqi oil proceeds were spent," he said in a statement. ''The mismanagement, lack of transparency, and potential corruption will seriously undermine our efforts in Iraq."

Spokespersons for the Republican majority on the committee did not return phone calls.

Rice suggested the findings raise further questions about whether the US-led rebuilding effort is making a difference in the lives of Iraqis and bringing stability to the war-ravaged country.

Citing the former head of the coalition authority, L. Paul Bremer III, she said: ''Over a year ago, Paul Bremer hit the nail on the head when he said that 'early progress on reconstructing Iraq will give us an edge against the terrorists and save American lives.' A year later, it appears the administration is still not listening."

The audit was performed by the accounting firm of KPMG for the UN's International Advisory and Monitoring Board.

The Development Fund for Iraq was created under the aegis of the UN in May 2003 and set up by the Federal Reserve Bank of New York at the coalition authority's request. The UN's advisory board was established at the same time to ensure that the Iraqi oil money and international contributions were ''used in a transparent manner" during the occupation, according to UN Security Council Resolution 1483.