Audit Describes Misuse of Funds in Iraq Projects

Audit Describes Misuse of Funds in Iraq Projects
By JAMES GLANZ / NY Times
http://www.nytimes.com/2006/01/25/international/middleeast/25reconstruct.html?th=&emc=th&pagewanted=print

A new audit of American financial practices in Iraq has uncovered irregularities including millions of reconstruction dollars stuffed casually into footlockers and filing cabinets, an American soldier in the Philippines who gambled away cash belonging to Iraq, and three Iraqis who plunged to their deaths in a rebuilt hospital elevator that had been improperly certified as safe.

The audit, released yesterday by the office of the Special Inspector General for Iraq Reconstruction, expands on its previous findings of fraud, incompetence and confusion as the American occupation poured money into training and rebuilding programs in 2003 and 2004. The audit uncovers problems in an area that includes half the land mass in Iraq, with new findings in the southern and central provinces of Anbar, Karbala, Najaf, Wasit, Babil, and Qadisiya. The special inspector reports to the secretary of defense and the secretary of state.

Agents from the inspector general's office found that the living and working quarters of American occupation officials were awash in shrink-wrapped stacks of $100 bills, colloquially known as bricks.

One official kept $2 million in a bathroom safe, another more than half a million dollars in an unlocked footlocker. One contractor received more than $100,000 to completely refurbish an Olympic pool but only polished the pumps; even so, local American officials certified the work as completed. More than 2,000 contracts ranging in value from a few thousand dollars to more than half a million, some $88 million in all, were examined by agents from the inspector general's office. The report says that in some cases the agents found clear indications of potential fraud and that investigations into those cases are continuing.

Some of those cases are expected to intersect with the investigations of four Americans who have been arrested on bribery, theft, weapons and conspiracy charges for what federal prosecutors say was a scheme to steer reconstruction projects to an American contractor working out of the southern city of Hilla, which served as a kind of provincial capital for a vast swath of Iraq under the Coalition Provisional Authority.

But much of the material in the latest audit is new, and the portrait it paints of abandoned rebuilding projects, nonexistent paperwork and cash routinely taken from the main vault in Hilla without even a log to keep track of the transactions is likely to raise major new questions about how the provisional authority did its business and accounted for huge expenditures of Iraqi and American money.

"What's sad about it is that, considering the destruction in the country, with looting and so on, we needed every dollar for reconstruction," said Wayne White, a former State Department official whose responsibilities included Iraq from 2003 to 2005, and who is now at the Middle East Institute, a research organization.

Instead, Mr. White said, large amounts of that money may have been wasted or stolen, with strong indications that the chaos in Hilla might have been repeated at other provisional authority outposts.

Others had a similar reaction. "It does not surprise me at all," said a Defense Department official who worked in Hilla and other parts of the country, who spoke anonymously because he said he feared retribution from the Bush administration. He predicted that similar problems would turn up in the major southern city of Basra and elsewhere in the dangerous desert wasteland of Anbar province. "It's a disaster," the official said of problems with contracting in Anbar.

No records were kept as money came and went from the main vault at the Hilla compound, and inside it was often stashed haphazardly in a filing cabinet.

That casual arrangement led to a dispute when one official for the provisional authority, while clearing his accounts on his way out of Iraq, grabbed $100,000 from another official's stack of cash, according to the report. Whether unintentional or not, the move might never have been discovered except that the second official "had to make a disbursement that day and realized that he was short cash," the report says.

Outside the vault, money seemed to be stuffed into every nook and cranny in the compound. "One contracting officer kept approximately $2 million in cash in a safe in his office bathroom, while a paying agent kept approximately $678,000 in cash in an unlocked footlocker in his office," the report says.

The money, most from Iraqi oil proceeds and cash seized from Saddam Hussein's government, also easily found its way out of the compound and the country. In one case, an American soldier assigned as an assistant to the Iraqi Olympic boxing team was given huge amounts of cash for a trip to the Philippines, where the soldier gambled away somewhere between $20,000 and $60,000 of the money. Exactly how much has not been determined, the report says, because no one kept track of how much money he received in the first place.

In another connection to Iraq's Olympic effort, a $108,140 contract to completely refurbish the Hilla Olympic swimming pool, including the replacement of pumps and pipes, came to nothing when the contractor simply polished some of the hardware to make it appear as if new equipment had been installed. Local officials for the provisional authority signed paperwork stating that all the work had been completed properly and paid the contractor in full, the report says.

The pool never reopened, and when agents from the inspector general's office arrived to try out the equipment, "the water came out a murky brown due to the accumulated dirt and grime in the old pumps," the report says.

Sometimes the consequences of such loose controls were deadly. A contract for $662,800 in civil, electrical, and mechanical work to rehabilitate the Hilla General Hospital was paid in full by an American official in June 2004 even though the work was not finished, the report says. But instead of replacing a central elevator bank, as called for in the scope of work, the contractor tinkered with an unsuccessful rehabilitation.

The report continues, narrating the observation of the inspector general's agents who visited the hospital on Sept. 18, 2004: "The hospital administrator immediately escorted us to the site of the elevators. The administrator said that just a couple days prior to our arrival the elevator crashed and killed three people."