Special Inspector General for Iraq Reconstruction
Special Inspector General for IRAQ Reconstruction
Summary of Report: SIGIR 10-020
Why SIGIR Did this Study
The Development Fund for Iraq (DFI) wasestablished in May 2003 by the Administrator of the Coalition Provisional Authority (CPA) andrecognized by United Nations Security CouncilResolution 1483. DFI funds were to be used ina transparent manner for the benefit of thepeople of Iraq. After the CPA was dissolved inJune 2004, the U.S. government was authorizedby the Government of Iraq (GOI) to administerDFI funds made available for reconstructionprojects. The Department of Defense (DoD)managed DFI funds on behalf of the U.S.government. That authority was withdrawneffective December 31, 2007.Our reporting objective is to determine whetherDoD organizations adequately accounted for thefunds they received from the DFI. To helpaccomplish this objective we selectivelyreviewed records from eight DoD organizationsthat received DFI funds.
SIGIR recommends that the Secretary of Defense take a number of actions to includespecifying procedures for the accounting andreporting of non-U.S. funds in futurecontingencies, designating an executive agent toestablish and oversee policy on the use of funds,establishing milestones for issuing guidanceconsistent with our DFI recommendations madein October 2009, and determining whether DoDorganizations are still holding DFI funds.
Management Comments and AuditResponse
We received comments from the Office of theUnder Secretary of Defense, (Comptroller), U.S.Army Corps of Engineers (USACE), and U.S.Central Command on a draft of this report. TheComptroller concurred with the reportrecommendations. USACE and U.S. CentralCommand provided technical comments that weaddressed where appropriate.
July 27, 2010D
What SIGIR Found
Weaknesses in DoD’s financial and management controls left it unable toproperly account for $8.7 billion of the $9.1 billion in DFI funds it receivedfor reconstruction activities in Iraq. This situation occurred because mostDoD organizations receiving DFI funds did not establish the requiredDepartment of the Treasury accounts and no DoD organization wasdesignated as the executive agent for managing the use of DFI funds. Thebreakdown in controls left the funds vulnerable to inappropriate uses andundetected loss.The Department of the Treasury established guidance for accounting fornon-U.S. government funds when U.S. agencies act as a custodian of thosefunds, but DoD did not implement the guidance in a timely manner. Moreimportantly, most DoD organizations that received DFI funds did not followthe guidance. Only one of these organizations established the requiredaccount and, as a result, accounts were not established for $8.7 billion (96%)of the DFI funds made available to DoD.DoD’s guidance also directed organizations that received DFI funds toreconcile all transactions prior to the time the guidance was issued.However, the reconciliations were not done. Due to the lack of records andpersonnel knowledgeable about financial and management decisions, wecould not determine why the guidance was not followed. Because theaccounts were not reconciled, DoD must rely on its organizations’accounting records to determine the status of DFI funds. Our selectivereview shows the records were not always complete. For example, DoDcould not provide documentation to substantiate how it spent $2.6 billion.We also found differences in DoD contracting practices that impacted thereturn of DFI funds to the GOI. The Joint Contracting Command-Iraq/Afghanistan contracted on behalf of the GOI, while USACE and theU.S. Air Force Center for Engineering and the Environment (AFCEE)contracted on behalf of the U.S. government making those agenciespotentially liable for payment. As a result, USACE and AFCEE could notterminate their contracts and return remaining DFI funds when the GOIdirected DoD to do so at the end of 2007.The lack of oversight and guidance has contributed to DoD organizationscontinuing to hold DFI funds. We found organizations with open contractsthat were holding funds, and also spending funds in some cases. USACEand one of its contractors and the U.S. Army Central Command (ARCENT)are holding about $5.4 million and $28.9 million, respectively. In October2009, SIGIR recommended that DoD provide guidance to USACE on theuse and ultimate disposition of funds it was still holding. However, DoD hasstill not issued the guidance and the funds that USACE and ARCENT areholding are at risk of being expended. While DoD has taken steps to provideguidance for future contingency operations, the guidance does not cover theaccounting and reporting of funds such as occurred with the DFI in Iraq.