ALEXANDRIA, Va. -- A Rhode Island accountant testified yesterday that he reconciled the vast majority of Custer Battles LLC's $12.8 million in reported expenses for a contract in Iraq with more than 12,000 receipts shipped in boxes to the company's Newport offices in 2004.
But Kevin Carter also acknowledged at the trial of war-profiteering charges against the company and its two owners that he had no way of knowing whether the receipts were genuine.
"I think a conspiracy theory on that point would be highly unlikely," the 44-year-old Warwick accountant testified as the civil lawsuit by two whistleblowers -- which began on Feb. 14 -- neared a conclusion as early as Monday.
It's hard to believe," Carter suggested, that so much paper of "different colors and sizes and looks" -- including some slips in Arabic -- could be orchestrated into the multimillion false-claim scheme alleged against former Rhode Islander Michael J. Battles and his partner, Scott Custer, of Virginia.
The former Army officers, both in their mid-30s, have denied any wrongdoing in the security and construction work their company undertook in the months after the U.S. invasion of Iraq in 2003.
The case centers on the Custer Battles contract to set up and run three bases to support a crash program to replace Iraq's entire national currency system over a period of weeks in the winter of 2003-04.
The contract ultimately approached $20-million worth of work, but because of uncertainty about which funds were seized from Iraq or given by U.S. allies, U.S. District Court Judge T.S. Ellis III has told the jury in this case to focus on a $3-million advance that Custer Battles got from the U.S. Treasury when they won the Iraqi currency-exchange job -- known as ICE -- in summer 2003.
The limitations of that focus were underlined yesterday when the judge refused to let the whistleblowers call an Army officer who investigated the Custer Battles contract in Iraq. He was prepared to testify that he had learned from company employees that large sums of Iraq's old currency -- dinars bearing Saddam Hussein's image -- had been pocketed during the exchange program rather than properly incinerated. Ellis reasoned, in part, that such a charge was not strictly relevant to the charge of false claims for payment of U.S. taxpayers dollars.
The Custer Battles accusers have presented extensive testimony to buttress their central allegation, that Battles and Custer, assisted by a key former employee, Joseph Morris, of Connecticut, created subsidiary companies in the Cayman Islands to use as "bill mills" for the manufacture of phony invoices used to claim millions improperly.
Battles, who grew up partly in Barrington, and Custer have responded in essence that the subsidiaries served as legitimate subcontractors for transportation, security and other services and that, as company co-owners, they weren't much involved in billing the U.S.-led Coalition Provisional Authority for their work.
Morris, citing his right not to incriminate himself, has refused to answer questions abut whether he faked invoices for the company. Ellis has told the jury that in this civil proceeding -- unlike a criminal trial -- they may conclude that Morris' answers to such questions would be "adverse" for him.
Custer and Battles have portrayed the whistleblowers, William D. "Pete" Baldwin and William J. Isakson, as embittered former associates in Iraq whose purposes in filing their suit under the Civil War-vintage False Claims Act was personal gain. If the jury finds in their favor and the judge approves an award of damages to the government, the whistleblowers and their lawyers stand to take in the neighborhood of 12 percent. Baldwin testified with some emotion that he was motivated by the desire to do the right thing to thwart war-profiteering.
Carter, the accountant, a self-employed 1983 graduate of Bryant College, partially backed up Custer's earlier testimony, saying that the company spent about $12.8 million but was paid only $11.6 million.
But in his cross-examination, Alan M. Grayson, lawyer for the whistleblowers, elicited Carter's repeated concession that as he kept the books in Rhode Island, largely on computer programs, he depended entirely on the information that the company submitted in regular e-mails about its spending and income.
Carter told how in mid-2004, months after the currency exchange had been completed, Custer Battles lawyers shipped to the company's Newport offices "12,000 to 14,000" receipts in boxes. Company officials instructed Carter and his staff of about six to undertake his reconciliation of his electronic books against the reams of receipts.
Some were for as much as $300,000, for the provision of cabins at a camp; some for as little as 80 cents, for the purchase of automobile fuses, he said. He said he calculated that the receipts accounted for 90 percent of the company's expenditures.
But Carter acknowledged that receipts for larger sums -- for expenditures of $100,000 or more -- accounted for a signification proportion of the spending on the contract.
Grayson asked whether it was correct that, since he never went to Iraq, interviewed vendors or looked at his company's work, "you would have no way of knowing" if receipts were "fraudulent."
"I guess you could say that," Carter answered.