Audit: US cannot account for $8.7B in Iraqi funds

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With the establishment of the Coalition Provisional Authority, which ran Iraq shortly after the start of the U.S. invasion in 2003 until mid-2004, about $20 billion was placed into the account. The $9.1 billion audited by the Iraq reconstruction inspector general were funds withdrawn from that account between 2004 and 2007.

BAGHDAD – A U.S. audit has found that the Pentagon
cannot account for over 95 percent of $9.1 billion in Iraq
reconstruction money, spotlighting Iraqi complaints that there is little to show for the massive funds pumped into their cash-strapped, war-ravaged nation.

The $8.7 billion in question was Iraqi money managed
by the Pentagon, not part of the $53 billion that Congress has allocated
for rebuilding. It’s cash that Iraq, which relies on volatile oil
revenues to fuel its spending, can ill afford to lose.

“Iraq should take legal action to get back this huge amount of money,” said Sabah al-Saedi,
chairman of the Parliamentary Integrity Committee. The money “should be
spent for rebuilding the country and providing services for this poor

The report by the Special Inspector General for Iraq
Reconstruction accused the Defense Department of lax oversight and weak
controls, though not fraud.

“The breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss,” the audit said.

The Pentagon has repeatedly come under fire for apparent mismanagement of the reconstruction effort — as have Iraqi officials themselves.

Seven years after the U.S.-led invasion, electricity
service is spotty, with generation capacity falling far short of demand.
Fuel shortages are common and unemployment remains high, a testament to
the country’s inability to create new jobs or attract foreign

Complaints surfaced from the start of the war in
2003, when soldiers failed to secure banks, armories and other
facilities against looters. Since then the allegations have only
multiplied, including investigations of fraud, awarding of contracts
without the required government bidding process and allowing contractors
to charge exorbitant fees with little oversight, or oversight that came
too late.

But the latest report comes at a particularly
critical time for Iraq. Four months after inconclusive elections, a new
government has yet to be formed, raising fears that insurgents will tap
into the political vacuum to stir sectarian unrest.

In a sign that insurgents are still intent on
igniting sectarian violence, at least six people were killed and dozens
more wounded when a female suicide bomber blew herself up near a
checkpoint in the holy city of Karbala, local police said. They spoke on
condition of anonymity because they were not authorized to speak to the

Thousands of Shiite pilgrims are converging on the
city, 50 miles (80 kilometers) south of Baghdad, for an important
religious holiday marking the birth of a Shiite saint known as the “Hidden Imam” who disappeared in the ninth century. Such mass displays of devotion by Shiites have often been targeted by Sunni extremists.

Iraqi lawmakers met Tuesday, but for the second time
this month failed to convene a parliament session, leaving wide open the
question of when the new government will take shape.

Underscoring its financial challenges, the
International Monetary Fund in March approved a $3.6 billion loan to
help Iraq meet its obligations. Iraq is projected to run a deficit
through 2011, according to analysts, with a possibility of a surplus
following that hinging on oil prices.

Iraq took a financial hit in 2008 as oil prices
plummeted on the back of the global financial meltdown. While those
prices have since rebounded, Iraq remains at the mercy of international
oil markets, with revenues from petroleum sales accounting for over 90
percent of its government budget.

The $9.1 billion in question came from the
Development Fund for Iraq, which was set up by the U.N. Security Council
in 2003. The DFI includes revenues from Iraq’s oil and gas exports, as
well as frozen Iraqi assets and surplus funds from the defunct, Saddam
Hussein-era U.N. oil-for-food program.

Iraq had given the U.S. authorization
to tap into the fund, which is held in New York, for humanitarian and
reconstruction efforts, withdrawing that approval in December 2007.

With the establishment of the Coalition Provisional
Authority, which ran Iraq shortly after the start of the U.S. invasion
in 2003 until mid-2004, about $20 billion was placed into the account.
The $9.1 billion audited by the Iraq reconstruction inspector general
were funds withdrawn from that account between 2004 and 2007.

The report found that the Defense Department could
not “readily account for its obligations, expenditures and remaining
balances associated” with the DFI. At issue was $8.7 billion, or 95
percent of the withdrawn funds.

Of this amount, the Pentagon could not account at all for $2.6 billion, according to the audit.

Tracing the rest of the money is difficult because of a combination of
lax financial controls and management, the failure to designate an
organization to oversee the spending and the failure to set up and
deposit the funds in special accounts, as required by the Treasury

The Defense Department, in responses attached to the audit, said it
agreed with the report’s recommendations to establish better guidelines
for monitoring such funds, including appointing an oversight
organization mostly likely by November.

The failure to properly manage billions in reconstruction funds has also
hobbled the troubled U.S.-led effort to rebuild Afghanistan. About $60
billion have poured into Afghanistan since 2001 in hopes of bringing
electricity, clean water, jobs, roads and education to the crippled

The U.S. alone has committed $51 billion to the project since 2001, and
plans to raise the stakes to $71 billion over the next year — more than
it has spent on reconstruction in Iraq since 2003.

An Associated Press investigation showed that the results so far — or
lack of them — threaten to do more harm than good. The number of Afghans
with access to electricity has increased from 6 percent in 2001 to only
about 10 percent now, far short of the goal of providing power to 65
percent of urban and 25 percent of rural households by the end of this

As an example of the problems, a $100 million diesel-fueled power plant
was built with the goal of delivering electricity to more than 500,000
residents of the capital, Kabul.
The plant’s costs tripled to $305 million as construction lagged a year
behind schedule. The plant now often sits idle because the Afghans were
able to import cheaper power from neighboring Uzbekistan before the
plant came online.


Associated Press writers Mazin Yahya in Baghdad and Robert H. Reid in Kabul contributed to this report.


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