By Ernesto Londoño
Washington Post staff writer
Tuesday, July 27, 2010; A15
BAGHDAD -- Because of poor record-keeping and lax oversight, the Department of Defense cannot account for how it spent $2.6 billion that belonged to the Iraqi government, according to the inspector general for Iraq reconstruction.
An audit of a $9.1 billion fund of Iraqi oil proceeds showed that most American military agencies entrusted with spending the money on reconstruction projects failed to adhere to U.S. rules on how such money must be tracked and spent, the inspector general found.
U.S. officials failed to create bank accounts for $8.7 billion in the Development Fund for Iraq, as mandated by the Department of Treasury, creating "breakdowns in controls [that] left the funds vulnerable to inappropriate uses and undetected loss," according to the report, which is scheduled to be released Tuesday.
The audit is the latest probe to fault the U.S. government for mismanagement of Iraqi funds in the years following the U.S.-led invasion in March 2003, which led to an insurgency and a years-long occupation.
"Weak oversight is directly correlated to increased numbers of cases of theft and abuse, with the majority of convictions to date being traceable to the 2003-2004 time-frame where accounting practices were weakest," Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction, said in an e-mail.
The report also said the U.S. military continues to hold at least $34.3 million of the fund, even though it was required to return it to the Iraqi government in December 2007.
In a written response to a draft of the audit, the Pentagon vowed to act on the inspector general's three recommendations to strengthen accounting mechanisms and dispose of the Iraqi money not yet relinquished.
The Department of Defense comptroller promised to report back to the inspector general's office by November on progress made.
"We look forward to seeing real results," Bowen said.
The alleged mismanagement of the fund has angered Iraqi officials, who have raised the possibility of taking legal action against the United States, Bowen said.
American officials with the Coalition Provisional Authority, the U.S.-led occupation administration, took control in 2003 of $20 billion of Iraqi government funds and obtained permission through a U.N. Security Council resolution to use the money for humanitarian assistance and reconstruction.
After the June 2004 dissolution of the CPA, the Iraqi government agreed to let the U.S. military control the remaining funds.
It revoked the authority on Dec. 31, 2007.
The inspector general in 2005 criticized the CPA's management of an $8.8 billion fund that belonged to the Iraqi government. A criminal probe conducted by the inspector general then led to the conviction of eight U.S. officials on bribery, fraud and money-laundering charges.
The latest audit does not include allegations of criminal conduct.
The United States also has spent more than $50 billion in taxpayer money for reconstruction projects in Iraq.