Audit of Iraq Spending Spurs Criminal Probe

By Griff Witte
Washington Post Staff Writer
Thursday, May 5, 2005

Investigators have opened a criminal inquiry into millions of dollars missing in Iraq after auditors uncovered indications of fraud in nearly $100 million in reconstruction spending that could not be properly accounted for.

The money had been intended for rebuilding projects in south-central Iraq. But auditors with the Office of the Special Inspector General for Iraq Reconstruction found that of $119.9 million allocated, $7.2 million could not be accounted for at all, and $89.4 million in reported spending could not be backed up with sufficient documentation, according to a report released yesterday.

"[T]here was no assurance that fraud, waste, and abuse did not occur in the management and administration of cash assets," the audit concluded.

The money came from the Development Fund for Iraq, an account created with revenue from Iraqi oil sales, funding from the United Nations' now-defunct oil-for-food program and Iraqi assets repatriated from abroad. An office in the U.S.-led multinational force, which has helped run the country since power was transferred to the Iraqis in June 2004, was responsible for overseeing the money. But the audit found that its efforts were beset by rampant disorganization and sloppy bookkeeping.

Criminal investigators with the office of Special Inspector General Stuart W. Bowen Jr. will be looking into whether anyone involved committed fraud, the audit says, although it does not disclose who is being investigated.

The audit does highlight a case in which two unnamed field agents responsible for disbursing cash left Iraq with $1.5 million between them left on their books. Authorities could not locate the cash. The audit's authors said an account manager's later effort to reconcile the difference by applying one agent's surplus to another's deficit "appears to be an attempt to remove outstanding balances by simply washing accounts."

Col. Thomas S. Stefanko, commander of the office responsible for overseeing the funds in question, generally agreed with the audit's findings. "Extensive corrective actions have been taken," he wrote in response to the audit.

James P. Mitchell, spokesman for Bowen, said the office was encouraged by changes aimed at providing more accountability for how funds are spent.

Several other government reports this spring have found deep flaws in the way authorities have administered funds in Iraq.

In March and early April, Pentagon audits showed more than $200 million in questionable costs in a massive, no-bid Halliburton Co. contract for delivering fuel to Iraq. Later in April, an inspector general's report concluded that a British security firm lacked proof that its armed employees had received proper weapons training and that the Army had not provided enough oversight of the company's work. And last week, a Government Accountability Office report said U.S. officials had all but abandoned their responsibility for overseeing a contract under which employees of CACI International Inc. had conducted interrogations at Abu Ghraib prison.

Rep. Henry A. Waxman (D-Calif.), a critic of contracting in Iraq, said yesterday's audit helps describe a pattern of behavior that merits more scrutiny. "It is mind-boggling that the Administration handed out nearly $100 million in cash without any accountability," Waxman said in a statement. He added that the inspector general's findings "underscore the need for a thorough congressional investigation to ask hard questions about why millions of dollars of cash are unaccounted for."

Yesterday's audit of spending in south-central Iraq was accompanied by two others, both of which also uncovered evidence of poor accounting. One looked at the management of Iraqi funds while the other examined the spending of U.S. taxpayer funds from the $18.4 billion Congress authorized in 2003 for reconstruction. The audit of U.S. funds found that contract files were "unavailable, incomplete, inconsistent and unreliable." As a result, auditors said the U.S. government may have trouble making a case against contractors that overbill or don't do what they are supposed to.

In a response, Maj. Gen. John M. Urias, head of the military's contracting office in Iraq, said the task of managing contracts was made far more difficult because of "the environment here in Iraq during the war."

Brookings Institution fellow Peter W. Singer said the disorderly atmosphere was all the more reason authorities should have been taking extra precautions against fraud. "You want to be even more careful in those chaotic environments because people take advantage," he said.

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