Iraq Oil Board: U.S. Mismanaging

The international board monitoring Iraq's oil revenue criticized the former U.S. administrators of Iraq and the current government for mismanagement, citing smuggling, inadequate spending records and contracts worth at least $812 million where there was no competitive bidding.

The International Advisory and Monitoring Board (search) said it had agreed to terms proposed by the U.S. government for an audit covering contracts awarded to Halliburton (search) and other firms without competitive bidding. It will be conducted by an independent auditor and is expected to be completed by April, the board said.

The board was authorized by the U.N. Security Council in May 2003 to ensure the "transparent" operation of the Development Fund for Iraq (search), which was set up at the Central Bank in Baghdad to receive Iraq's oil revenue and frozen assets from Saddam Hussein's ousted regime for use in rebuilding the country.

The fund was controlled by the United States and Britain, Iraq's occupying powers, until the June 28 transfer of sovereignty to the new interim government. A council resolution in early June transferred control of the fund to the interim government and continued the board's mandate until after elections to be held by Dec. 31, 2005.

A report Tuesday covering the board's oversight until the U.S.-led Coalition Provisional Authority was replaced on June 28 said external auditors concluded that all known oil proceeds, frozen assets and financial transfers from the U.N. oil-for-food program were "properly and transparently accounted for" in the fund.

At the same time, however, the board said it believes "controls were insufficient to provide reasonable assurance for the completeness of export sales of petroleum and petroleum products" and to determine whether all disbursements from the Development Fund "were made for the purposes intended."

Iraq is still plagued with gaps in tracking its oil production because it hasn't installed metering equipment in accordance with standard oil industry practices, as the board recommended in February, the report said.

It also cited weaknesses in the coalition's handling of resources, singling out inadequate record keeping and accounting systems "and the uneven application of agreed-upon contracting procedures." It also noted weak controls over spending in various government ministries including insufficient payroll records and inadequate monitoring of contracts by the coalition.

As a priority, the board called for improved financial controls in key Iraqi ministries that disburse money, including the State Oil Marketing Organization known as SOMO, and better controls over the extraction of oil.

The external auditors only obtained approval from the Iraqi government to access Iraqi ministries on Aug. 16 and the Kurdish regional government denied them access to their accounting records, the report said.

The board said it was informed by the coalition "that some of Iraq's oil resources were not accounted for and had been smuggled." It noted that controls have been put in place by the coalition and SOMO, and called on the interim government "to enhance these measures so as to curtail smuggling."

In March, the board noted that some contracts using money from the Development Fund had been awarded to a Halliburton subsidiary without competitive bidding.

After repeated requests, the board received copies in October of audits by the U.S. Defense Contract Audit Agency on contracts awarded without competition, but it was told information was deleted "to safeguard proprietary information of the concerned parties."

The audit reports, covering five work orders totaling $812 million, "highlight many shortcomings including: non-completion of the required technical evaluations, unsupported costs, and overstated costs," the report said.