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UN: Board Cites U.S. Contractor in Iraq

by Colum LynchWashington Post
December 15th, 2004

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 as part 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 Halbwachs.

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 both approved 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 said.

Halliburton 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, officials said.

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 oil revenue.

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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