Audit shows misuse of Iraqi Money

January 31, 2005

Occupation Authority Did Not Properly Monitor Spending of Iraqi Money, U.S. Audit Says

By ERIK ECKHOLM

The American occupation authority that governed Iraq until mid-2004 did not properly monitor the spending of $8.8 billion in Iraqi money, opening the door to possible corruption, the federal watchdog agency for Iraqi reconstruction said in a report released yesterday.

As it disbursed money to Iraqi ministries to pay salaries and finance development projects, the occupation authority, known as the Coalition Provisional Authority, failed to establish financial controls and transparency, said the report by the watchdog agency, the Special Inspector General for Iraqi Reconstruction. As a result, the report said, "there was no assurance that the funds were used for the purposes mandated."

In a written response included in the report, the former chief of the occupation authority, L. Paul Bremer III, strongly disputed its conclusions. He said the inspectors had seemed to assume that "Western-style budgeting and accounting procedures could be immediately and fully implemented in the midst of a war."

The report does not cite direct evidence of corruption with the Iraqi ministries but notes, among other examples, that one ministry received money to pay 8,206 guards while the presence of only 602 guards in that ministry could be verified.

Allotments of hundreds of millions of dollars were repeatedly given to ministries that had not presented detailed budget plans to explain how the money would be used, the report said.

The new report covers money given to Iraqi ministries between the American invasion of early 2003 and the transfer of sovereignty to an interim Iraqi government in mid-2004. During that time, according to a United Nations resolution, the occupation authority was responsible for disbursing Iraqi oil money, leftover receipts from Iraq's oil-for-food relief program, and seized assets, which were combined into the Development Fund for Iraq.

A large share of the money was transferred to Iraqi ministries, while several billions more were spent directly by the Americans for fuel imports and construction projects.

An international auditing agency has questioned the occupation authority's management of the Iraqi money it spent directly, charging a lack of oversight and overuse of non-competitive contracts.

Formal responsibility over Iraqi finances, which are continually replenished by the country's large oil exports, shifted last year to the interim Iraqi government.

Other American and international auditors have warned that weak financial controls are a continuing problem in Iraqi ministries, opening the door to possible fraud, kickbacks and misuse of funds.

In his comments on the new report, Mr. Bremer said the authors had failed to understand the political context at the time and the initial disarray within the Iraqi government. Of the questioned payments for ministry guard units, for example, he said, "It would have been dangerous for security - ours and Iraq's - to stop paying armed young men."

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