A new Pentagon audit of Halliburton Co. concluded that the company has not done an adequate job of estimating and justifying costs for services in Iraq, where subsidiary Kellogg, Brown & Root Inc. has earned billions of dollars as the leading private contractor.
The Defense Contracting Audit Agency said in an Aug. 4 report that KBR's cost estimating system "is inadequate."
It recommended that government contracting officials require the company to make corrections within 45 days, according to a summary of the report made available yesterday.
The Wall Street Journal, which reported the audit agency's findings Monday, said auditors found that $1.8 billion billed for work in Iraq and Kuwait had not been adequately accounted for. The report is the latest in a series of questions raised by auditors and in Congress about whether Halliburton is properly charging and accounting for all of its work providing support for the military and in the reconstruction of Iraq's oil fields.
If the issues raised in the new report are not resolved, the government could withhold up to 15 percent of outstanding payments to KBR under federal procurement rules that mandate that contractors provide clear justification, in writing, for their bills.
Though the company warned in recent filings with the Securities and Exchange Commission that withholdings could "affect our liquidity," a spokeswoman downplayed the prospect yesterday, saying Halliburton would suspend payments to subcontractors if its own payments were withheld.
Spokeswoman Wendy Hall said Halliburton disagrees with the report's findings. In an e-mail, she said that they are "simply not true," adding, "We believe these issues will be resolved in our favor."
She suggested that the company is being targeted for extra attention because Dick Cheney was its chief executive before being elected vice president. "Only in an election year, when Halliburton is being covered in a political context as opposed to business, does a DCAA audit dispute become a news story."
The Democratic presidential campaign of Sen. John F. Kerry responded to news of the audit report yesterday by saying questions about Halliburton's practices have become a powerful election-year issue, at least with undecided swing voters who have participated in campaign-sponsored focus groups.
Tad Devine, a senior adviser to the Kerry campaign, said Halliburton has become "a flashpoint" for voters concerned that the administration has favored special interests at the expense of the public.
"This is a tired old political attack," Cheney's campaign spokeswoman, Anne Womack, said of the Kerry campaign's comments. "There's no substance to it."