Guards tasked to protect the U.S. Embassy in Kabul, where 1,000 U.S. diplomats and staff work, have been staging raucous, homoerotic parties where supervisors are subjecting their subordinates to abuse and sexual humiliation. 

According to a stunning report alleging the debauchery taking place just miles from the U.S. diplomatic mission, the "deviant hazing and humiliation" has led to a breakdown in the chain of command and compromised security -- all at the very heart of the United States' war against terrorism. 

The State Department, which contracted with ArmorGroup North America to provide security at the embassy, says it is taking the allegations seriously and that a wide-ranging official inquiry could lead to the termination of the company's $189 million contract. 

"We expect to see prompt and effective action taken as a result of these investigations," spokesman Ian Kelly told reporters. 

Other possible actions include rebidding the contract or replacing individual guards and supervisors employed by the contractor, he said. The State Department inspector general is leading the investigation. U.S. officials in Kabul also are conducting a review, Kelly said. And a team from the State Department's diplomatic security, management and contracting offices will go to Kabul to examine the situation.

But the independent Project on Government Oversight, which wrote a 10-page letter to Secretary of State Hillary Clinton, noted that the department has known about problems with the contractor for two years. 

The lurid photos and personal accounts disclosed by POGO throw open the window on what the report described as a "Lord of the Flies environment." 

One photo released by the group shows mostly naked men dancing around a campfire; one shows one man eating food out of another's buttocks; another photo shows a naked man peeing in front of others. Alcohol is prevalent in most of the pictures. 

The POGO report explains the activities in the photographs in far more detail. 

"One email from a current guard describes scenes in which guards and supervisors are 'peeing on people, eating potato chips out of (buttock) cracks, vodka shots out of (buttock) cracks (there is video of that one), broken doors after drnken (sic) brawls, threats and intimidation from those leaders participating in this activity,'" the report says. "Photograph after photograph shows guards -- including supervisors -- at parties in various stages of nudity, sometimes fondling each other. These parties take place just a few yards from the housing of other supervisors." 

According to the report, and the personal accounts it included, the behavior was not consensual.
POGO said that guards claim the supervisors are hazing and pressuring other guards to participate, creating a "climate of fear and coercion." Those who do not participate are ridiculed, demoted or even fired. 

"The result is an environment that is dangerous and volatile," the report said. "Some guards have reported barricading themselves in their rooms for fear that those carrying out the hazing will harm them physically. Others have reported that AGNA management has begun to conduct a witch hunt to identify employees who have provided information about this atmosphere to POGO." 

The report said the environment has led to "chronic turnover." 

ArmorGroup's management is aware of the conditions but has not stopped it or disciplined those responsible, the letter reads. Two supervisors alleged to be the worst offenders have been allowed to resign and may now be working on other U.S. contracts, the group said. 

The out-of-control parties and hazing aren't the only concern. 

Nearly two-thirds of the embassy guards are Gurkhas from Nepal and northern India who don't speak adequate English, a situation that creates communications breakdowns, the group says. Pantomime is often used to convey orders and instructions. 

"One guard described the situation as so dire that if he were to say to many of the Gurkhas, 'There is a terrorist standing behind you,' those Gurkhas would answer 'Thank you sir, and good morning,'" the report said. 

The group's investigation found sleep-deprived guards regularly logging 14-hour days, language barriers impairing critical communications, and a failure by the State Department to hold the contractor accountable. 

The State Department has been aware of ArmorGroup's shortcomings, the letter said, but hasn't done enough to correct the problems. 

It cites a July 2007 warning from the department to ArmorGroup that detailed more than a dozen performance deficiencies, including too few guards and armored vehicles. Another "cure notice" was sent less than a year later, raising other problems and criticizing the contractor for failing to fix the prior ones. 

In July 2008, however, the department extended the contract for another year, according to the notice. More problems surfaced and more warning notices followed. Yet during a congressional hearing on the contract in June, State Department officials said the prior shortcomings had been remedied and security at the embassy is effective. 

The contract was renewed again through 2010. 

Sen. Claire McCaskill, D-Mo., on Tuesday called on the State Department to open an investigation into the performance and management of the contract with ArmorGroup North America. McCaskill, who chairs a Senate subcommittee on contracting oversight, said the new evidence calls into question the company's ability to provide adequate security at a key facility. 

In a letter to Patrick Kennedy, the undersecretary of state for management, McCaskill also demanded a slew of documents related to the contract, including any department reviews of alleged misconduct by ArmorGroup employees. 

The nonprofit group's findings are based on interviews with ArmorGroup guards, documents, photographs and e-mails that it says depict "Lord of the Flies" conditions. The reference is to the 1954 novel by William Golding about a group of British schoolboys who are stranded on a desert island and try, but fail, to govern themselves in a chaotic setting. 

Click here to see photos of parties held by the Kabul embassy guards. 

FOX News' Jennifer Griffin and The Associated Press contributed to this report.