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Pentagon can't account for $8.7 billion in Iraqi funds

The reconstruction money was from oil revenue it was entrusted with between 2004 and 2007, according to a newly released audit that underscores a pattern of poor record-keeping.

July 26, 2010|By Liz Sly, Los Angeles Times

Reporting from Baghdad — The Defense Department is unable to properly account for $8.7 billion out of $9.1 billion in Iraqi oil revenue entrusted to it between 2004 and 2007, according to a newly released audit that underscores a pattern of poor record-keeping during the war.

Of that amount, the military failed to provide any records at all for $2.6 billion in purported reconstruction expenditure, says the report by the Special Inspector General for Iraq Reconstruction, which is responsible for monitoring U.S. spending in Iraq. The rest of the money was not properly deposited in special accounts as required under Treasury Department rules, making it difficult to trace how it was spent.

Though there is no apparent evidence of fraud, the improper accounting practices add to the pattern of mismanagement, reckless spending and, in some instances, corruption uncovered by the agency since 2004, when it was created to oversee the total of $53 billion in U.S. taxpayer money appropriated by Congress for the reconstruction effort.

"The breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss," notes the audit report, a copy of which was obtained Monday by the Los Angeles Times.

Special Inspector General Stuart Bowen, who heads the agency, said repeated investigations have shown that "weak oversight is directly correlated to increased numbers of cases of theft and abuse."

In this instance, the audit focused on Iraqi revenue earmarked for reconstruction under a 2004 arrangement granting the Defense Department access to Iraq's oil proceeds at a time when the country did not have a fully functioning government and was unable to undertake urgently needed projects. The revenue was deposited in a special account in New York, called the Development Fund for Iraq.

The report comes as Iraqis are increasingly frustrated with their own government's inability to provide basic services, or to explain how tens of billions of dollars' worth of oil revenue has been spent since 2007. The alleged U.S. mismanagement of Iraqi money is certain to revive grievances against the U.S. for failing to make a big dent in the country's reconstruction needs despite massive expenditures.

Iraqis are still angry about the failure to account for a separate $8.8 billion in Iraqi oil revenue spent by the U.S.-led Coalition Provisional Authority in 2003 and 2004.

If more money is found to be missing, "Iraq will definitely try to get it back," said Ali Musawi, a media advisor to Prime Minister Nouri Maliki.

Most of the money covered in the latest audit has been spent, but the study found $34.3 million that should legally have been returned to Iraq in 2007, when Iraq's government assumed responsibility for its finances.

The Defense Department has not said what it intends to do with the money, which is "at risk" of being spent, the audit said.

In response to the audit findings, the Defense Department concurred with recommendations that it establish better guidelines for managing such funds. But a letter from U.S. Central Command emphasized that failure to establish deposit accounts for the $8.7 billion does not mean it all cannot be accounted for.

The U.S. reconstruction effort is winding down as the military withdraws, and no more new U.S. funds are expected to be allocated.

liz.sly@latimes.com

Times staff writer Riyadh Mohammed contributed to this report.

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