Pentagon auditors concluded that Kellogg Brown
& Root, a subsidiary of Halliburton
Co., charged "unsupported" and
"overstated costs" in more than $800 million in U.S.-administered projects
financed by Iraqi oil revenue, according to a report issued Tuesday by a
U.N.-appointed financial oversight board.
The chairman of the International Advisory and Monitoring Board (IAMB),
Jean-Pierre Halbwachs, said that it was impossible to determine the extent of
alleged overcharges because the figures had been redacted from a series of five
Pentagon audits presented to the board last month. But he said that he had
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.
The international board was created by the U.N. Security Council in May
2003 to monitor the U.S.-led coalition's management of Iraq's oil revenue. It
had been pressing the Pentagon for months to release the audits of KBR
of a broad effort to ensure that Iraq's oil revenue has been properly spent. The
U.S. company had been awarded at least $1.4 billion from Iraqi revenue to repair
the country's oil facilities and to import fuel for domestic uses, according to
A Pentagon spokeswoman, Lt. Col. Rose-Ann L. Lynch, 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
the redacted versions of the audits presented to the IAMB.
Lynch said that the KBR
contracts had been administered by the Army Corps
of Engineers and noted that the Government Accountability Office stated in a
June report that the Army Corps had "properly awarded" a sole source contract to
rebuild Iraq's oil infrastructure. Iraq's oil revenue "will continue to be used
in a transparent manner to meet the humanitarian needs of the Iraqi people," she
spokeswoman Wendy Hall declined to discuss the conclusions of
the Pentagon audit. But she wrote in an e-mail that the company has addressed
the auditors' assertions "directly with the Army, and we will continue to work
with our customer to prove that KBR
is delivering services at the best value at
a time when few other companies could or would."
The U.N. report issued Tuesday comes as the United Nations, which
monitored Iraq's oil exports before the U.S.-led invasion, confronts allegations
of corruption and mismanagement in that oil-for-food program. Some U.S.
lawmakers have called for the resignation of U.N. Secretary General Kofi Annan
as a result of the allegations, but Bush administration officials have said they
do not seek Annan's ouster and are working well with him. Annan plans to meet
Thursday in Washington with Secretary of State-designate Condoleezza Rice,
The IAMB first raised concerns in March that contracts financed by Iraqi
revenue had been awarded to KBR
without competitive bidding. The Pentagon's
initial refusal to release internal audits on the contracts fueled criticism
among Democratic lawmakers about the U.S.-led coalition's management of Iraq's
The board, which includes representatives from the United Nations, the
World Bank and the International Monetary Fund, has sharply criticized the
U.S.-led coalition's handling of billions of dollars in Iraqi oil revenue. It
has also drawn attention to lax financial controls of Iraqi ministries, citing
poor bookkeeping and duplicate payments to government workers.
A series of audits commissioned by the board, covering May 2003 to June
2004, found that the deposits and disbursements of billions of dollars in oil
sales were accounted for by the U.S. led-coalition. But the audits, which were
carried out by the accounting firm KPMG, have noted that the "financial
controls" were insufficient to ensure the money was properly spent.
"There were a number of weaknesses in the overall financial management
system that are of concern," the IAMB report stated. "There was an absence of
control over oil extraction . . . the execution of the accounting function was
often inadequate . . . proper contracting procedures were not always adhered to,
in particular the use of single-source contracting."
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