U.S.-led government faulted on handling of Iraqi funds

THE BALTIMORE SUN

WASHINGTON - The U.S.-led provisional government in charge of Iraq until last summer was unable to properly account for nearly $9 billion in Iraqi funds it was charged with safeguarding, according to a scathing new audit report.

The Coalition Provisional Authority may have paid salaries for thousands of nonexistent "ghost employees" in Iraqi ministries, issued unauthorized multimillion-dollar contracts and provided little oversight of spending in possibly corrupt ministries, according to the report by Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction.

"While acknowledging the extraordinarily challenging threat environment that confronted the CPA throughout its existence and the number of actions taken by CPA to improve the [interim Iraqi government's] budgeting and financial management, we believe the CPA management of Iraq's national budget process and oversight of Iraqi funds was burdened by severe inefficiencies and poor management," concludes the report, which is scheduled for release today.

In a letter to Bowen, former CPA administrator L. Paul Bremer III criticized findings of a draft copy of the report that he was given, saying it was filled with "misconceptions and inaccuracies."

Bremer acknowledged that financial systems in Iraq were weak but said Bowen did not take into account the U.S. mandate to quickly turn over control to an Iraqi government. The CPA disbanded after handing over power to the interim Iraqi government in June.

Bremer could not be reached for comment yesterday.

The "auditors presume that the coalition could achieve a standard of budgetary transparency and execution which even peaceful Western nations would have trouble meeting within a year, especially in the midst of war," Bremer wrote. "Given the situation the CPA found in Iraq at liberation, this is an unrealistic standard."

A Pentagon spokesman also disagreed yesterday with the report's conclusions, saying the CPA had implemented reforms to improve accountability.

"The CPA was operating under extraordinary conditions from its inception until mission completion," spokesman Bryan Whitman said in a statement. "Throughout, the CPA strived earnestly for sound management, transparency, and oversight."

The audit report adds to a growing body of evidence that the U.S.-led occupation government created a two-tier system of oversight that continues to severely hamper the rebuilding of Iraq.

U.S. taxpayer funds received relatively close scrutiny from dozens of federal auditors and investigators. Iraqi funds stemming from oil revenues and assets seized from the regime of Saddam Hussein, however, were spent without controls designed to ensure accountability.

As a result, companies tapping into the $18.4 billion in U.S. reconstruction funds have moved slowly, partly because of security fears but also because of worries about making financial missteps in the painstaking federal government contracting process. The delay has left many Iraqis without the restoration of desperately needed services such as electricity, water and transportation.

Contracts funded by Iraqi money, however, were issued with little planning or oversight. Such contracts have frequently fallen prey to charges of fraud and cronyism, feeding a sense among Iraqis that corruption continues to run rampant, even under U.S. oversight.

The view that there has been too much control over U.S. funds and too little over Iraqi funds has fueled a sense among those who worked in Iraq that the reconstruction process was deeply flawed from the start.

"We had too few contract officers and too much to do and high turnover," said Col. Thomas X. Hammes, a professor at the National Defense University who participated in the rebuilding effort in Iraq last year, at a recent symposium on contractors in Iraq. "It was penny-wise and pound-foolish."

The audit report being released today focuses on about $8.8 billion in Iraqi money from a development account that passed through coalition authority hands to the Iraqi ministries. Previous reports by a U.N.-appointed board also found problems with the account, the Development Fund for Iraq, which amassed $20.6 billion in oil revenues and assets during the CPA's control of Iraq. One of the past audits, conducted by the International Advisory and Monitoring Board, found that oil proceeds had been properly accounted for but that there were insufficient controls over the fund.

The Los Angeles Times is a Tribune Publishing newspaper.

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