Audit: 96 Percent of Iraq Funds Unaccounted For

An audit recently conducted by the Special Inspector General for Iraq Reconstruction (SIGIR)has found that the Pentagon cannot account for 96 percent of the $9.1 billion it has been receiving since 2004 to rebuild the war-torn nation, a state of affairs that the report blames on poor internal controls within the Department of Defense (DoD) that left the money vulnerable to “inappropriate uses and undetected loss.”

The audit specifically concerns the Development Fund for Iraq (DFI), an income source separate from the, so far, $53 billion appropriated by Congress for the same purpose. Established in 2003, the fund is made up of Iraqi petroleum revenues, frozen Iraqi assets and leftover monies from the now defunct Oil for Food program, meaning that, despite being used by the U.S. government, it technically belongs to Iraq.

According to the special inspector general’s report, government agencies handling money that doesn’t belong to the federal government are required by the Treasury Department to establish special Deposit Fund Accounts, a “key financial management tool” that allows for the maintenance of accountability and oversight. By the time the DoD comptroller even got around to establishing guidance for these accounts, six months had already passed and, even with the instructions for how to set up these accounts now released, only one branch actually managed to do so: Army Central Command (ARCENT).

Further, the report faulted the Pentagon for near non-existent management controls over DFI funds. The special inspector general’s report said that the DoD had no executive agent responsible for overseeing the use of these funds, which meant that there was also no guidance for awarding contracts using DFI funds, meaning that organizations were acting on their own discretion while spending Iraq’s money. This, said the report, impeded the eventual return of these funds to the government of Iraq.

While the goal of the audit, to determine whether DoD organizations adequately accounted for the funds they received from the DFI, had been achieved, said the report, it had been significantly hampered by the fact that many DoD organizations maintained few or no records of their use of the Iraqi funding. Even when records were maintained, not all of them were complete. Further, said the report, auditors were unable to locate personnel with knowledge of DFI activities between 2003 and 2005, when the largest part of contracting activities from the fund occurred. This led to situations where the Pentagon was unable to explain how vast sums of money were actually spent.

“For example, DoD could not provide documentation to substantiate how it spent $2.6 billion,” said the report.

The report said that the Pentagon needs to establish internal controls over the use of these funds, or else it will continue to be unable to properly account for monies from the DFI and similar funds in future instances. In an interview last year, the special inspector general called the current state of Iraq reconstruction financing an “ad hoc-racy.”

This isn’t the first time the special inspector general has delved into waste in Iraqi reconstruction funding. Auditors are currently about halfway finished with another, much larger audit of the more than $50 billion worth of reconstruction funds. Much like this audit, that investigation, though not yet complete, has already discovered numerous instances of waste, fraud and abuse that include duplicate payments, cash payments to fictitious contractors, pay-to-play bribes and simple “pilfering of cash.”