Audit: Pentagon can't account for billions to Iraq

BAGHDAD - A U.S. audit has found that the Pentagon cannot account for more than 95 percent of $9.1 billion in Iraq reconstruction money, spotlighting Iraqi complaints that there is little to show for the massive funds pumped into their cash-strapped, war-ravaged nation.

The $8.7 billion in question was Iraqi money managed by the Pentagon, not part of the $53 billion that Congress has allocated for rebuilding. It is cash that Iraq, which relies on volatile oil revenues to fuel its spending, can ill afford to lose.

"Iraq should take legal action to get back this huge amount of money," said Sabah al-Saedi, chairman of the Parliamentary Integrity Committee. The money "should be spent for rebuilding the country and providing services for this poor nation."

The report by the Special Inspector General for Iraq Reconstruction accused the Defense Department of lax oversight and weak controls, though not fraud. "The breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss," the audit said.

The Pentagon has repeatedly come under fire for apparent mismanagement of the reconstruction effort - as have Iraqi officials themselves. Seven years after the U.S.-led invasion, electricity service is spotty, with generation capacity falling far short of demand. Fuel shortages are common and unemployment remains high, a testament to the country's inability to create new jobs or attract foreign investors.

Complaints surfaced from the start of the war in 2003, when soldiers failed to secure banks, armories, and other facilities against looters. Since then, the allegations have only multiplied, including investigations of fraud, awarding of contracts without the required government bidding process, and allowing contractors to charge exorbitant fees with little oversight, or oversight that came too late.

The latest report comes at a particularly critical time for Iraq. Four months after inconclusive elections, a new government has yet to be formed, raising fears that insurgents will tap into the political vacuum to stir sectarian unrest.

Lawmakers met Tuesday but for the second time this month failed to convene a parliament session, leaving wide open the question of when the new government will take shape.

The $9.1 billion came from the Development Fund for Iraq, which was set up by the U.N. Security Council in 2003. The DFI includes revenues from Iraq's oil and gas exports, as well as frozen Iraqi assets and surplus funds from the defunct, Saddam Hussein-era U.N. oil-for-food program.

The report found that the Defense Department could not "readily account for its obligations, expenditures and remaining balances associated" with the DFI. At issue was the $8.7 billion, or 95 percent of the withdrawn funds. Of this amount, the Pentagon could not account at all for $2.6 billion, according to the audit.

Tracing the rest of the money is difficult because of a combination of lax financial controls and management, failure to designate an organization to oversee the spending, and failure to set up and deposit funds in special accounts, as required by the Treasury Department.

The Defense Department, in responses attached to the audit, said it agreed with the report's recommendations to establish better guidelines for monitoring such funds, including appointing an oversight organization most likely by November.

The failure to properly manage billions in reconstruction funds has also hobbled the U.S.-led effort in Afghanistan. About $60 billion has poured into Afghanistan since 2001 in hopes of bringing electricity, clean water, jobs, roads, and education to the crippled country.

An AP investigation showed that the number of Afghans with access to electricity increased from 6 percent in 2001 to about 10 percent now, far short of the goal of providing power to 65 percent of urban and 25 percent of rural households by the end of this year.