News and opinions on situation in Iraq
16/12/04

Margin of Error By Edward Teague


The US can apparently bomb with a precision of  9 metres from 16 kilometres, with their JDAM bombs, they can intercept satellite telephone conversations of Osama Bin Laden– but it doesn’t appear they are that good at keeping the books up to date. That is official – from the Board that the UN set up to keep an eye on them – and the money.

The International Advisory and Monitoring Board (IAMB) is an audit oversight body for the The Development Fund for Iraq (DFI) was established on May 22, 2003, as noted in United Nations Security Council resolution 1483 (UNSCR 1483). The IAMB is an audit oversight body for the U.N. Security Council at the same time to monitor the U.S.-led coalition’s management of Iraq’s oil revenue. The IAMB consists of members representing the Director-General of the Arab Fund for Economic and Social Development, the Managing Director of the International Monetary Fund, the United Nations Secretary-General, and the President of the World Bank.

They have just reported as follows ;

REPORT OF THE INTERNATIONAL ADVISORY AND MONITORING BOARD

OF THE DEVELOPMENT FUND FOR IRAQ – COVERING THE PERIOD FROM THE ESTABLISHMENT OF THE DFI ON MAY 22, 2003 UNTIL THE DISSOLUTION OF THE CPA ON JUNE 28, 2004

  • The IAMB expressed concern at an early stage about inadequate controls over Iraq’s oil resources and other aspects of DFI operations.
  • The IAMB noted that the absence of metering for crude oil production precluded a reconciliation of all crude oil extracted with its eventual utilization.
  • The IAMB was also informed by the CPA that some of Iraq’s oil resources were not accounted for and had been smuggled.
  • The IAMB was informed of the bartering of residual fuel and crude oil for electricity and other products with neighboring countries.
  • The IAMB noted, at its meeting in March 2004, that some contracts using DFI funds had been awarded to a Halliburton subsidiary without competitive bidding.

Based on the results of the external audit reports (By KPMG) , the IAMB concluded that proceeds of known oil sales were deposited in the DFI and that disbursements from the account were properly authorized and recorded. However, there were a number of important weaknesses in the overall financial management system that are of concern:

(i) there was an absence of control over oil extraction because of a lack of oil metering;
(ii) the execution of the accounting function was often inadequate;
(iii) financial controls were often lacking in the administration and safeguarding of resources;
(iv) proper contracting procedures were not always adhered to, in particular the use of single-source contracting;
(v) several control weaknesses were revealed also at the Iraqi spending ministries or the beneficiaries of resources; and
(vi) documentation to support contracts was often incomplete or deficient. Also, the external auditor was denied access to certain ministries.

The Auditors (KPMG) reported

a. There were weaknesses in controls over oil extraction, including the absence of metering, which resulted in the external auditor qualifying its audit opinion of the DFI‚s statement of cash receipts and payments;

b. There were control weaknesses in the administration of resources handled by the CPA including lack of access to personnel, inadequate accounting systems, the uneven application of agreed-upon contracting procedures, and inadequate record keeping. KPMG also noted ongoing audits and investigations of the U.S. Army Corps of Engineers projects in Iraq, including DFI funded programs, by U.S. Justice, Inspector General and other agencies;

c. There were inadequate controls identified at Iraqi spending ministries including the absence of reconciliation procedures, inadequate accounting records, deviations from the tendering procedures designed to ensure competitive bidding, insufficient payroll records, and inadequate contract monitoring by the CPA relating to payments on behalf of the Iraqi ministries.

KPMG noted that the scope of their procedures had been limited: KPMG only obtained approval from the Iraqi government to access the Iraqi ministries on August 16, 2004, the Kurdish Regional government denied KPMG access to their accounting records, and security issues precluded KPMG performing any procedures at two ministries and limited the procedures at a third ministry; and

d. While reported frozen funds have been deposited into the DFI, other Iraqi funds and financial assets are still believed to be held by various UN member States. While the U.S. government and regulatory agencies in UN member States are actively pursuing these funds, it is not possible to reliably estimate the amount of such funds that may eventually be transferred to the DFI as some of these assets are subject to a prior judicial, administrative, or arbitral lien or judgment.

Probably the most interesting section covers Section 8 Page 5 ;

The IAMB received redacted copies of the U.S. Defense Contract Audit Agency (DCAA) audit reports on sole sourced contracts, at its meeting in October 2004. The U.S. observer informed the IAMB that portions of the reports had been redacted by the DCAA to safeguard proprietary information of the concerned parties. The DCAA reports, covering five task orders totaling $812 million, highlight many shortcomings including: non-completion of the required technical evaluations, unsupported costs, and overstated costs.

What this means, according to the Chairman Jean-Pierre Halbwachs,is that it was not possible to determine the extent of alleged overcharges by Kellogg Brown & Root, a subsidiary of Halliburton Co., who allegedly charged “unsupported” and “overstated costs” in more than $800 million in U.S.-administered projects because the figures had been redacted (that is accountese for – the actual figures had been removed from  five Pentagon audits presented to the IAMB last month). Jean-Pierre Halbwachs has however agreed to a U.S. proposal to appoint an independent auditor to conduct a “special audit” of all contracts awarded to Kellogg Brown & Root (KBR) and other companies without competitive bidding. For a previous story about Halliburton’s problems of over chargingsee 22/03/04 Oil is not well in Iraq

The WashingtonPost quoted Pentagon spokeswoman, Lt. Col. Rose-Ann L. Lynch, who declined to release an estimate of the overcharges cited in the audit, calling the information “proprietary in nature.” She said that the United States and KBR both approved the redacted versions of the audits presented to the IAMB.

They also state that Halliburton spokeswoman Wendy Hall declined to discuss the conclusions of the Pentagon audit.

The bit I like best is this “the Kurdish Regional government denied KPMG access to their accounting records, and security issues precluded KPMG performing any procedures at two ministries and limited the procedures at a third ministry”.

Not the usual problem that your book jockeys experience.

Apparently 4 kilometre queues for petrol (gasoline) are common in Baghdad, and it fetches 10 a litre on the Black Market. (News reports), and derv or diesel for generators is unavailable.

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