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IRAQ: U.S. Government Officials Investigated for Alleged Embezzling of Iraqi Assets

The U.S. government has opened a criminal inquiry into suspected embezzling by officials who failed to account for nearly $100 million they disbursed for Iraqi reconstruction projects, federal investigators said Wednesday.


by T. Christian MillerThe Los Angeles Times
May 4th, 2005

 WASHINGTON -- The U.S. government has opened a criminal inquiry into suspected embezzling by officials who failed to account for nearly $100 million they disbursed for Iraqi reconstruction projects, federal investigators said Wednesday.

Auditors have been unable to fully document how the money was doled out to Iraqi workers by a small group of officials working from a U.S. outpost in Hillah, according to an audit report released Wednesday by Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction.

The auditors found "significant" problems in the Hillah office, including one case in which an official fired for mishandling funds was allowed to continue disbursing money nearly a month after his termination.

The case marks the first time that U.S. government officials have been investigated for a major corruption scheme involving Iraq reconstruction efforts, which have been marred by allegations against Iraqis and contractors from the United States and elsewhere.

The reconstruction funds that were examined came from seized assets of Saddam Hussein's regime and from Iraqi oil revenue, not from U.S. taxpayer funds.

A few other U.S. officials in Iraq have drawn scrutiny by investigators for smaller incidents, though none have been charged. In the cases now under investigation, the report notes questionable accounting practices by several officers involving millions of dollars over 16 months, ending last October.

Investigators are looking at a "handful" of possible suspects, said Jim Mitchell, a spokesman for the special inspector general's office. He cautioned that the inquiry was in an early stage, saying that the discrepancies uncovered by the auditors warranted referral to criminal investigators.

He also said it was unclear whether the U.S. officials were operating in concert, since they served at different times.

"We're not saying the money is lost. We're saying they can't account for it," Mitchell said.

In the inquiry, one U.S. official told auditors that he was given $6.75 million on June 21 and told that he had to spend the money by June 28, the day that the U.S.-led occupation administration turned over sovereignty to an interim Iraqi government.

U.S. officials "were under the impression that it was more important to quickly distribute the money to the region than to obtain all necessary documentation," the audit said.

Auditors were struck by a series of apparent accounting errors in the Rapid Regional Response Program, an obscure rebuilding effort operated from the Hillah office. The program was designed to jump-start reconstruction in south-central Iraq by allowing local U.S. officials to quickly issue contracts worth up to $200,000 each.

To pay for work under the contracts in Iraq's cash-based economy, the United States appointed military personnel and civilians to physically hand out cash to Iraqis. The U.S. officials were then supposed to reconcile those payments with receipts. But the auditors found that such receipts were lacking or incomplete for $96.6 million of the $119.9 million in payments.

In one case, two U.S. officials left Iraq after completing their tours of duty without accounting for a total of $1.5 million. The manager of the cash funds simply zeroed out the balance on a spreadsheet -- an apparent attempt "to remove outstanding balances by simply washing accounts," the audit said. The officials, like all others in the audit, were not named.

In another case, the United States ordered the removal of the official in charge of the overall cash program on May 30, but he remained in office until June 20. When told he had failed to account for $1,878,870, the official returned exactly that amount three days later -- leading to suspicions that the official had "a reserve of cash and turned in only the amount" need to complete the clearance process, the report said.

In yet another case, one payment official had three errors in his accounting books. In one example, he told superiors that he gave $311,100 to another U.S. official when he had actually handed over $1,210,000 -- leaving it unclear what happened to $898,900, the report said.

Two other audits, also released Wednesday, criticized the overall U.S. handling of Iraqi and U.S. funds. For contracts funded with Iraqi money, contract officers could not show that services had been delivered for more than half of 300 contracts valued at $332.9 million.

For contracts funded with $18.4 billion in U.S. taxpayer funds, contract officers could not even find about a quarter of 48 contracts that had been selected for review. Other contracts were found stuffed in drawers or misfiled with other contracts.

U.S. officials responding to the audits acknowledged problems and vowed to fix them. They blamed the discrepancies on the difficulty of operating in a wartime environment.

The officials cited difficulties such as high turnover, security concerns and even a lack of basic office supplies, like file cabinets, for causing the problems.



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