U.S. Owes $208 Million To Iraq, U.N. Audit Finds

By Colum Lynch
November 6, 2005
The Washington Post
Original Source: http://www.washingtonpost.com/wp-dyn/content/article/2005/11/05/AR2005110501151.html?referrer=emailarticle
 
NEW YORK, Nov. 5 -- A U.N.-established international auditing board called on the United States to repay Iraq $208 million in disputed fees for Kellogg, Brown & Root, a Halliburton subsidiary that received nearly $1.4 billion in contracts without having to compete for the delivery of fuel and the repair of Iraq's oil infrastructure.
The board's finding adds to the criticism of the United States' handling of the postwar reconstruction of Iraq after the U.S.-led invasion of the oil-rich country in March 2003. The role of Halliburton -- the company run by Richard B. Cheney before he became George W. Bush's running mate in the 2000 presidential campaign -- in Iraq's reconstruction has fueled charges of political favoritism.
The International Advisory and Monitoring Board commissioned its latest report into the U.S.-led coalition's use of noncompetitive bidding in December, after Pentagon officials refused for months to furnish the board with copies of the Pentagon's internal audits into Kellogg, Brown & Root's activities. Copies of five audits eventually given to the board were so heavily redacted, to omit what Pentagon officials characterized as proprietary information, that they could not be used.
The U.N. board, which was established in May 2003 by the U.N. Security Council to monitor the use of Iraq's oil revenue by the U.S.-led coalition, struck a compromise in December with the United States. The deal required the appointment of an independent auditor to examine 24 contracts valued at more than $1.9 billion between June 2003 and June 2004. The contracts, which were funded largely through Iraqi oil revenue, were administered by the Army Corps of Engineers.
The firm KPMG was hired to do the audit, which included Kellogg, Brown & Root's $1.4 billion deal. However, KPMG, which also is employed by KBR, recused itself from auditing KBR's contract, citing a conflict of interest. KPMG's audit of the 23 other contracts uncovered problems, including instances in which there was insufficient evidence to justify noncompetitive contracts and discrepancies in the billed amounts.
The Pentagon then selected a U.S. government agency, the Special Inspector General for Iraq Reconstruction, to conduct the KBR audit. The audit agency is headed by Stuart W. Bowen Jr., who reports to Defense Secretary Donald H. Rumsfeld and Secretary of State Condoleezza Rice. The agency said the decision to hire KBR was appropriately justified because the firm had prepared a classified plan for the reconstruction of Iraq's oil industry and had a cadre of individuals with the security clearance necessary to work on the program.
But Bowen's 34-page report included a reference to an audit by the Defense Contract Audit Agency, the Pentagon's chief auditing agency, citing more than $208 million in what it considered unacceptable costs. The findings were reported in Saturday's New York Times.
Halliburton spokeswoman Cathy Mann maintains that KBR fairly incurred the costs cited in the Pentagon audit and said that it would be wrong to imply that the company overcharged for its services. The costs questioned in the SIGIR report are just that -- questioned costs, she wrote in an e-mail. The auditors have raised questions about the support and the documentation rather than questioning the fact that we have incurred the costs. Many of the Pentagon audit agency's questions have been about the quality of supporting documentation for costs that KBR clearly incurred.
The International Advisory and Monitoring Board, which is composed of auditors from the United Nations, the World Bank and the International Monetary Fund, said in a statement Friday that it regrets KMPG's decision to recuse itself from the KBR contract only after it was hired. It also regrets the United States' failure to inform it about the decision to appoint SIGIR until very late in the process, the statement added.
The board also recommended that any money paid to contractors, including the $208 million identified by Pentagon auditors, that cannot be supported as fair be reimbursed expeditiously.