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Investigator: $9B Missing in Iraq

The U.S. occupation authority in Iraq (search) was unable to keep track of nearly $9 billion it transferred to government ministries, which lacked financial controls, security, communications and adequate staff, an inspector general has found.

The U.S. officials relied on Iraqi audit agencies to account for the funds but those offices were not even functioning when the funds were transferred between October 2003 and June 2004, according to an audit by a special U.S. inspector general.

The findings were released Sunday by Stuart Bowen Jr., (search) special inspector general for Iraq reconstruction. Bowen issued several reports on the Coalition Provisional Authority (CPA), the U.S. occupation government that ruled Iraq from June 2003 to June 2004.

The official who led the CPA, L. Paul Bremer III, submitted a blistering, written reply to the findings, saying the report had "many misconceptions and inaccuracies," and lacked professional judgment.

Bremer complained the report "assumes that Western-style budgeting and accounting procedures could be immediately and fully implemented in the midst of a war."

The inspector general said the occupying agency disbursed $8.8 billion to Iraqi ministries "without assurance the moneys were properly accounted for."

U.S. officials, the report said, "did not establish or implement sufficient managerial, financial and contractural controls." There was no way to verify that the money was used for its intended purposes of financing humanitarian needs, economic reconstruction, repair of facilities, disarmament and civil administration.

Pentagon spokesman Bryan Whitman said Sunday the authority was hamstrung by "extraordinary conditions" under which it worked throughout its mission.

"We simply disagree with the audit's conclusion that the CPA provided less than adequate controls," Whitman said.

Turning over the money "was in keeping with the CPA's responsibility to transfer these funds and administrative responsibilities to the Iraqi ministries as an essential part of restoring Iraqi governance."

The inspector general cited an International Monetary Fund assessment in October, 2003 on the poor state of Iraqi government offices. The assessment found ministries suffered from staff shortages, poor security, disruptions in communications, damage and looting of government buildings, and lack of financial policies.

Some of the transferred funds may have paid "ghost" employees, the inspector general found.

CPA staff learned that 8,206 guards were on the payroll at one ministry, but only 602 could be accounted for, the report said. At another ministry, U.S. officials found 1,417 guards on the payroll but could only confirm 642.

When staff members of the U.S. occupation government recommended that payrolls be verified before salary payments, CPA financial officials "stated the CPA would rather overpay salaries than risk not paying employees and inciting violence," the inspector general said.

Bremer attacked many of the specific findings. Among his rebuttal points:

_With more than a million Iraqi families depending on government salaries, there would have been an increased security threat if civil servants had not been paid until modern pay records were developed.

_U.S. policy was to build up the Iraqi force guarding government facilities, and it was better to accept an imperfect payroll system than "to stop paying armed young men" providing security.

_The report was suggesting the CPA "should have placed hundreds of CPA auditors" in Iraqi ministries, contrary to United States and United Nations policy of giving Iraqi ministers responsibility for their budgets.

_The CPA established a program review board, an independent judiciary and inspector generals in each agency to fight corruption.

The inspector general's report rejected Bremer's criticism. It concluded that despite the war, "We believe the CPA management of Iraq's national budget process and oversight of Iraqi funds was burdened by severe inefficiencies and poor management."