The US-led CPA is leaving
a legacy of muddled accounting

By Khatoun Haidar
Special to The Daily Star
Thursday, July 01, 2004

Real sovereignty in Iraq includes holding the CPA accountable for $20 billion in reconstruction contracts.

Handing over sovereignty to the new Iraqi interim government means that the Coalition Provisional Authority (CPA) ceased to exist. Many fear that the US and UN commissioned audits checking for waste and fraud in Iraq reconstruction contracts will simply disappear and accountability will be lost.

This is an area where the US-led CPA cannot blame terrorists, unexpected security events, or a few bad apples as in the Abu Ghraib scandal. The $20 billion that transited through the Development Fund for Iraq (DFI) - a fund that held proceeds from Iraqi oil sales, assets seized from the Hussein regime, and money leftover from the UN's oil-for-food program - were fully and solely under the management of the CPA's Program Review Board, a panel appointed by and subordinated to the Coalition's civilian administrator.

One of the pillars of the democratic values the US aims at promoting in Iraq is good governance, including transparency and combating corruption. Ironically, the CPA's track record in this instance is muddled. It suffers a credibility problem similar to the much derided (by the US) UN management of funds in the Oil for Food Program under Saddam Hussein.

The independent inspector general's office that was set up by the US Senate to oversee reconstruction contracts paid for by the US taxpayers has about half a dozen audit contracts under way in Iraq. They include the services provided by Kellogg Brown & Root, a subsidiary of Halliburton, the Texas oilfield services company formerly led by Vice President Dick Cheney. Halliburton last year was awarded sole-source contracts without competitive bidding.

KPMG, the international auditing firm appointed by the International Advisory and Monitoring Board (IAMB) set up by the UN Security Council to oversee US spending from the DFI, said that the CPA's poor management has left the Fund "open to fraudulent acts."

The IAMB - which includes representatives of the Secretary-General of the United Nations, the International Monetary Fund, the World Bank and the Arab Fund for Social and Economic Development - accused the CPA of delaying action for three months, and KPMG declared that they had "encountered resistance from CPA staff."

Some of the harshest criticism by all auditors was directed at the SOMO, an agency charged with selling Iraq's oil. KMPG's report says that the only record of transaction they were able to get was "an independent database, derived from verbal confirmations gained by SOMO staff."

The CPA's own spreadsheets show that since last May they have already spent $11.2 billion from the fund, an amount far exceeding the $3.2 billion in US taxpayer funds awarded thus far by the CPA for Iraqi reconstruction projects.

The only certainty within all of this ambiguity is that out of the $20.2 billion held by the DFI, only $4.6 billion will supposedly be handed in to the new Iraqi interim government. Given that the agreement on the scope of powers granted to the IAMB was delayed by Paul Bremer and that the audit began only this April, it is clear that no audit of the CPA spending will ever be completed.

Ironically, when appointing the president of the Iraqi Board of Supreme Audit to serve under the new interim government, Bremer said: "a high quality, active and independent national audit institution has a vital role to play in the governance of any modern state. ... (The board) will in the future serve as the people's guardian against fraud, waste and abuse in the administration of public finances."

Khatoun Haidar is a Lebanese Business consultant based in Vienna and Beirut

Copyright © 2004, The Daily Star.