By James Glanz
The New York Times, 31 January 2006
A sweeping examination of thousands of contracts that the United States underwrote with Iraqi money has provided the most comprehensive look yet at the confusion, waste and lack of accountability in rebuilding and training programs during the first years of the American-led occupation, say the Iraqi finance minister and a retired American officer who led an investigative arm of the audit.
The effort, which is being undertaken by a contracting office in Baghdad that reports to the United States Army and which has not previously been disclosed, began in March 2005 and is close to completion. Previous audits have focused more narrowly on construction contracts and work done in specific areas of Iraq.
The audit of about 9,000 contracts worth at least $5.8 billion in Iraqi oil money and assets seized from Saddam Hussein's government was undertaken to determine how much of the money originally set aside for the work should ultimately be paid.
The contracts in the new examination cover everything from purchases of pistols, radios and four-wheel-drive vehicles for the Iraqi Army to construction of hospitals and power lines to support fledgling Iraqi media outlets.
The examination exposed a system riddled with problems, like projects that were assigned but never carried out and Iraqi subcontractors who did not know they had been awarded jobs, the American officer, Scott Meehan, a retired Army major, said yesterday. He worked on the project from March through August 2005, when roughly 2,000 of the contracts were examined.
Ali Allawi, the Iraqi finance minister, said in a telephone interview over the weekend, "I think you're seeing chaos, basically," and added, "No matter how you cut it, it's very poor project design and implementation."
Mr. Allawi said the American administration brought with it a contracting procedure that may have worked in the orderly environment of the United States. "Once you brought it in the context of Iraq," Mr. Allawi said, "it fell flat on its face."
As an example of the findings, Mr. Meehan cited a contract for a hospital. "We come across this contract," he said, and when he and a team of Iraqis he led checked into the project, "we find nothing."
"We find no indication of the project being done," he said.
But he said that in other cases, contractors had carried out the work. "A lot of times they did, a lot of times they didn't," Mr. Meehan said. "It was definitely in disarray and a mess."
Maj. Gen. John M. Urias, who leads the Joint Contracting Command, which carried out the examination, declined to discuss findings on individual contracts but said the main outcome of the examination was a "reconciliation" between the Iraqi money that had been set aside for the contracts and the money that is owed for work actually performed.
General Urias said his auditors had determined that there was no justification for paying about $230 million originally committed to the thousands of contracts. He characterized the reconciliation as a routine practice in contracting and said that the outcome of the examination was entirely positive, since the money would now be freed for other purposes. Iraqi oil proceeds are kept in an account at the Federal Reserve Bank of New York.
Mr. Meehan also characterized the examination as a "good news story," because it effectively involves giving Iraqi money back to Iraqis. But he said that in case after case, the residual money reflected work that had been abandoned, only partly carried out or simply lost in the confusion of a nation at war. "There was a breakdown in the middle administrative system," Mr. Meehan said.
By agreement with Mr. Allawi's Finance Ministry, General Urias said, $150 million of that money will now be used for rebuilding projects in areas damaged by fighting, including $75 million in Anbar Province, which includes Falluja, which was heavily damaged in a siege by the United States to root out insurgents.
"It's a good story, a good point, that the Iraqis are going to be the beneficiary of new projects using Iraqi money that was residual after the execution of those contracts back in the C.P.A. days," the general said, referring to the Coalition Provisional Authority.
Mr. Allawi said the Iraqi government had agreed to allow the money to be used for repairing war damage only on condition that the United States match, dollar for dollar, all expenditures made from the residual fund. General Urias did not immediately respond to a written request for further information on the arrangement described by Mr. Allawi.
But the general said in an interview that the careful work of assessing the contracts would also allow the United States to turn over responsibility for them to the Iraqi government eventually.
Representative Henry A. Waxman, a Democrat from California who is the ranking minority member of the House Committee on Government Reform, said in a statement that the new findings pointed up the need for a wider investigation of how Iraqi money was used to underwrite contracts in Iraq. "This is far from a complete accounting," he said. "We still don't know how many millions were wasted on contractor overcharges and shoddy work. Congress should conduct a thorough investigation into the administration's use of Iraqi funds."
General Urias said that the examination began in March 2005 with 2,400 contracts totaling $3.3 billion, but that the effort quickly expanded when his team started collecting contracts written in areas outside Iraq. He said the effort started with 13 contracting experts from the Defense Contract Management Agency at the Pentagon and gradually hired and trained 26 local Iraqis.
So far, the general said, all but about 100 of the 9,000 known contracts have been looked at, and what he called the residual, or money left over after work was done, worked out.
"Sometimes when you finish the work, it didn't cost as much as you thought it would," General Urias said. "It's an estimate."
Mr. Allawi also said that reconciling the amount set aside for the contracts in what he called a "subaccount" at the Federal Reserve Bank and the amount that actually needed to be paid amounted to standard practice in the contracting world. But he added that the specific findings in the audit would do little to improve contracting procedures. "Very little of it filters back into Iraq and very little of it has any impact," he said.
"It just confirms the general sense that Iraqi government money has been squandered," Mr. Allawi said.
Mr. Meehan, who said that he led a team of 13 Iraqis in carrying out the work, added that some of the findings baffled his team. In one case, a particular contracting officer from the Pentagon wrote dozens of contracts for roads, bridges and hospitals but little or none of the work was ever performed, Mr. Meehan said.
In another development, the Halliburton Company subsidiary Kellogg Brown & Root has agreed to cut $9 million from contracts paid for with Iraqi oil money after auditors questioned $208 million in possible overcharges, an international watchdog agency said yesterday.
Melissa Norcross, a K.B.R. spokeswoman, said the sums had been questioned because of a lack of supporting documentation and called it "flat wrong" to describe them as overcharges, Reuters reported.
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Citation: James Glanz. "Auditors Find Widespread Waste and Unfinished Work in Iraqi Rebuilding Contracts," The New York Times, 31 January 2006.
Original URL: http://www.nytimes.com/2006/01/31/international/middleeast/31audit.html
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