The U.S.-run administration in Baghdad failed to keep track of nearly $9 billion of money it transferred to various Iraqi ministries, according to an official audit released Sunday.
The report by the U.S. Special Inspector General for Iraq Reconstruction says that the now defunct U.S.-led Coalition Provisional Authority (CPA) did not exercise adequate managerial control over funds paid to Iraqi government ministries, which employ hundreds of experts from the United States.
This resulted in potentially widespread corruption, including paying salaries to "ghost" employees, and led to the eventual disappearance of $8.8 billion between early 2003 and mid-2004.
The CPA was phased out last July to make way for the interim Iraqi government, which will be replaced by an elected body later this year. The report said that although the CPA published reports on the Internet of total disbursements to the Iraqi ministries, it failed to specify what the funds were used for.
The inspector general, Stuart Bowen Jr., who was appointed in Jan. 2004, accused the CPA of not exercising enough oversight over the contracting procedures at the Iraqi ministries.
In his 53-page report, Bowen acknowledged the difficulties of working under war conditions, but concluded that "we believe the CPA management of Iraq’s national budget process and oversight of Iraqi funds was burdened by severe inefficiencies and poor management."
The CPA’s Inspector General’s office evaluates the effectiveness of CPA management in areas including ministry financial controls, and uses of seized and donated funds in Iraq. It reports directly to the U.S. secretary of state and the secretary of defense.
The Defense Department and the former CPA administrator Paul Bremer both disagreed with the findings. In a statement included in the report itself, Bremer said the audit did not acknowledge the difficult context in which the CPA was operating, and that it contained "many misconceptions and inaccuracies."
He said that the report did not recognize the actions taken to improve the weaknesses in the Iraqi budgeting and financial management.
The audit referred to an instance in which the CPA paid salaries to 74,000 security guards although the actual number of employees could not be validated.
The report says that in one case some 8,206 guards were listed on a payroll, but only 602 real individuals could be verified. At another ministry, payrolls listed 1,471 security guards when only 642 were actually working.
This is not the first time that U.S. financial conduct in Iraq has come under fire, specifically over funds slated for reconstruction after the U.S.-led attack in March 2003, which then went unaccounted for.
Last June, the British charity Christian Aid said that at least $20 billion in oil revenues and other Iraqi funds intended to rebuild the country had disappeared from banks administered by the CPA.
Other watchdog groups have complained before about the opaque nature of the CPA’s handling of Iraqi money and the lack of transparency of U.S. and Iraqi officials, especially in dealing with reconstruction contracts, some awarded without a public tendering process.
Iraq Revenue Watch, a group funded by international financier George Soros to monitor the country’s reconstruction, said last year that the U.S.-controlled CPA had engaged in a last-minute spending spree, committing billions of dollars to "ill-conceived projects just before it dissolves," in an apparent attempt to pre-impose those deals on any future Iraqi government.
In a single meeting, the U.S.-controlled body in charge of managing Iraq’s finances approved the expenditure of nearly $2 billion in Iraqi funds for reconstruction projects, the group said.
A UN Security Council resolution passed on June 8 required the new government to satisfy all outstanding obligations against the Development Fund for Iraq made before June 30, leaving the new interim Iraqi government with no choice but to honor those questionable expenditures.
Iraq Revenue Watch also says that the occupation left the Iraqis burdened with a legacy of hundreds of U.S. "experts and advisers" working in all of Iraq’s 29 ministries as well as other government agencies.
Those advisers, who mostly hail from U.S. market institutions, wielded enormous influence over decisions taken before the nominal handover. They are believed to maintain real influence on economic decisions.
Washington had also initially restricted the most lucrative reconstruction contracts in Iraq to large U.S. firms, fueling accusations that the George W. Bush administration was seeking to benefit a select few U.S. companies rather than find the best, and possibly the cheapest, options to help rebuild Iraq.
After numerous complaints, the contracting process was officially opened to firms from other nations, but many of them still insist they are not competing on a level playing field with U.S. businesses.
Halliburton, a giant U.S. company that has been awarded $8.2 billion worth of contracts from the Defense Department to provide support services such as meals, shelter, laundry, and Internet connections for U.S. soldiers in Iraq, has been criticized for overcharging for some of those services. From 1995 to 2000, the company was headed by Dick Cheney, Bush’s vice president.