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Federal auditors can't trace $96.6 million earmarked for Iraq

WASHINGTON—Nearly $100 million in Iraqi reconstruction cash—which was supposed to be handed out by U.S. workers in shrink-wrapped bricks of new hundred-dollar bills—can't be accounted for, federal auditors reported Wednesday.

A criminal investigation into possible fraud in a handful of cases is under way to determine what happened to some of the $96.6 million that was earmarked to rebuild south-central Iraq, according to a new report by the Special Inspector General for Iraq Reconstruction.

The money came from Iraqi oil sales and other local revenues, not from U.S. taxpayers, and it was supposed to be distributed by the main financial office of the U.S. rebuilding effort in Iraq. That financial office—first part of the now-defunct Coalition Provisional Authority and now run by Joint Area Support Group-Central—hired a cadre of U.S. workers who pay cash to locals and contractors to repair Iraq and provide relief to Iraqis.

But U.S. officials didn't watch where the cash went, the inspector general found.

An examination of financial records between June 2003 and October 2004 showed poor bookkeeping, and investigators "found indicators of potential fraud," the report said.

In two cases, U.S. workers left Iraq without telling their bosses what happened to $1.49 million in cash they were in charge of, according to the inspector general's office. When the inspector general's office looked into it, it found that those two "field paying agents" didn't sign the required forms to take on personal liability for any lost cash.

Instead of trying to find out what happened to the money, the boss for the two agents tried to use other funds "to remove outstanding balances by simply washing accounts," the 36-page report said.

On other occasions, wads of cash were handed out without being counted properly, according to the inspector general. One U.S. office wasn't cleared to receive cash—and had even asked not to be given any—but got some anyway. The Joint Area Support Group-Central said the delivery was supposed to be $3.5 million. When the money was counted, it came to only $3.25 million.

Outside financial watchdogs, legislators and private contracting experts said they're no longer surprised or shocked by reports of financial mismanagement in Iraq.

"You have a system that is broken down," said Brookings Institution senior fellow Peter Singer, the author of the book "Corporate Warriors." "It's what people warned about, it's what people knew was going on. Now I'm afraid it's too late."

Sen. Russell Feingold, D-Wis., said the findings "paint a picture of disorganized, sloppy management."

"The U.S. risks fostering a culture of corruption in Iraq," Feingold said.

The inspector general examined a total of $119.9 million in cash, but auditors could properly account for only $23.3 million of that money.

The inspector general's office was unable even to estimate how much of the missing $96.6 million was due to sloppy recordkeeping and how much was lost to criminal activity.

Contracting officials told the inspector general where they think $89.4 million of the unaccounted-for money went—but couldn't provide adequate receipts or paperwork to prove it.

Another $7.2 million vanished off the books.

"We don't know where it is," Assistant Inspector General James Mitchell told Knight Ridder.

Cash is necessary in Iraq because the country doesn't have electronic funds or automated teller machines, Mitchell said.

Defense Department spokeswoman Lt. Col. Rose-Ann Lynch emphasized that all the money in question came from Iraqi funds, "not U.S. taxpayers' dollars," and said reconstruction managers in Iraq "did the best they could with what they had."

"It was a tough situation with not enough people, people shooting. They had to move constantly. (It was) very challenging in an austere environment," Lynch said.

The chaos of war also was a problem, Singer said. "But in many situations it's people taking advantage of the expediency of war," he added.

The inspector general issued several recommendations for fixing cash controls, which military officials in Iraq promised to undertake.

These problems might be expected a year-and-a-half ago, but not well after the fall of Baghdad, said Keith Ashdown, vice president of Taxpayers for Common Sense.

In the past, reports show that the U.S. government has "lost forklifts, misplaced generators," Ashdown said. "Now you're doing something you thought you could never do: You're misplacing millions of dollars."


(c) 2005, Knight Ridder/Tribune Information Services.

GRAPHIC (from KRT Graphics, 202-383-6064): 20050504 USIRAQ CASH