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Originally published Monday, July 4, 2005 at 12:00 AM

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Iraq reconstruction riddled with waste, audits find

Millions of U.S. and Iraqi dollars intended to help the war-torn country get back on its feet have been stolen, and billions more can't be accounted for.

Newhouse News Service

WASHINGTON — The U.S.-led reconstruction of Iraq, a strategic cornerstone of the war on terrorism, has been badly mismanaged, according to a growing body of evidence compiled mostly by U.S. government auditors.

Billions of dollars — some of it in shrink-wrapped bundles of $100 bills airlifted to Baghdad from the Federal Reserve Bank in New York — should have helped pay Iraqi bureaucrats, fix power lines and build schools. Instead, much of it can't be properly accounted for and millions have been stolen, auditors say.

In a nationally televised speech Tuesday from Ft. Bragg, N.C., President Bush acknowledged that "rebuilding a country after three decades of tyranny is hard, and rebuilding while at war is even harder. Our progress has been uneven, but progress is being made."

Bush did not offer a plan to get reconstruction back on track in the middle of a hot war. Nor did he offer to fix the U.S. administrative shortcomings or suggest how to tackle corruption in Iraqi government offices, a problem compounded by lax U.S. oversight.

On the streets of Baghdad, U.S. military commanders began complaining early that the money rarely seemed to trickle down.

"We're losing the peace," a frustrated U.S. Special Forces Maj. Robert Caffrey said in June 2003 as Iraq teetered between the euphoria of seeing Saddam toppled and frustration at a U.S. occupation that seemed to bring no benefits. At the time, Caffrey was furious that he could get no money to foster local government or pay for small clean-up projects and schools.

Now back home in Hartford, Conn., Caffrey wrote last week in an e-mail that "it doesn't seem that much has changed in the last two years. Much to my sadness, when I said two years ago that we were losing the peace, I was more right than I knew.

"I'm astounded they still haven't gotten it right."

A year ago, Iraqis stood in line to buy gas an average of six minutes; today they wait an hour. Eighteen months ago, electricity powered lights and air conditioning across Iraq an average of 13 hours a day. Today, the nationwide average has sunk to 9.4 hours, according to statistics gathered by the Brookings Institution, a Washington think tank.

It is difficult to track the precise amount the United States is spending on reconstruction.

The Pentagon has let contracts potentially worth $42.1 billion and currently financed at $25.4 billion for a mixture of military logistics and reconstruction. The U.S. Agency for International Development has signed reconstruction and development contracts worth some $5 billion.

In addition, U.S. occupation authorities in Baghdad spent almost $20 billion in Iraqi money, most from oil sales and formerly held by the United Nations. It was turned over to the United States in 2003 for humanitarian and development programs.

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Auditors from Congress' Government Accountability Office, the Defense Contract Audit Agency, the U.S. Army Audit Agency and the State Department, among others, have raised serious questions about how all this money was used.

Pentagon investigators, for example, found $219 million in "unacceptable" charges under a contract with Halliburton, the U.S. contracting giant, for the $2.5 billion "Restore Iraqi Oil" program to supply Iraq with fuel and rebuild its oil industry. An additional $60 million in claims were "unsupported" by documentary evidence — receipts, in short.

A separate program, the Development Fund for Iraq, was financed by $20 billion in Iraqi money. Between June 2003 and June 2004, nearly $12 billion of the money was shipped to Iraq in cash.

U.S. military auditors including Stuart Bowen, the Pentagon's special inspector general for Iraq reconstruction, have detailed millions of dollars that are missing or not properly accounted for. Of $120 million sent to one region for use by U.S. authorities, $96.6 million couldn't be accounted for. In one case, $7.2 million in $100 bills simply disappeared in Iraq, according to Bowen. Two cases of alleged fraud — one involving $1.5 million, the other an unspecified amount — are pending.

Pentagon auditors found that one Iraqi ministry had been paid to hire 8,206 guards, but only 602 were at work; Iraqi Airways put in claims for a payroll of 2,400 employees when it could justify only 400. U.S. authorities, a Pentagon audit report said, "did not implement adequate controls" to prevent such abuse.

Of about $1.6 billion from the Development Fund for Iraq that went to Halliburton, Defense Department auditors questioned some $218 million in apparent overcharges, including claims for labor, material, subcontracts and administrative expenses.

Although the United States had promised "transparency" in how it handled Iraq's money, the Pentagon has refused to give United Nations auditors full access to Bowen's report. Halliburton was allowed to edit the report before releasing a partial version to the U.N.

"This undermines our international standing and, even more seriously, harms our efforts in Iraq," said Rep. Christopher Shays, R-Conn., who chaired a June 21 hearing on waste and fraud in Iraq.

Cathy Mann, a Halliburton spokeswoman, said questions are "part of the normal contracting process" to be expected in a war zone. A Pentagon spokeswoman, Marine Lt. Col. Rose-Ann Lynch, said the Defense Department "is committed to an integrated, well-managed contracting process in Iraq."

Still, with billions of dollars cascading into Iraq, much of it in cash, "corruption thrives," concluded a study released by the U.S. Institute of Peace, the congressionally chartered research organization.

"We had great difficulties in monitoring" expenditures, said Sherri Kraham, a U.S. official who served in Baghdad in 2003. She said the occupation authorities needed "more people on the ground who were experienced, who knew Iraq, knew Arabic and could move faster."

Gen. John Abizaid, the senior U.S. military commander in the Middle East, was asked at a Senate Armed Services Committee hearing June 23 whether these problems still hampered the U.S. effort.

"I believe there are clear indications we have got to do better in this," he said.

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