WASHINGTON, Jan 31 (AFP) - The Coalition Provisional Authority that governed Iraq until last June under former US Ambassador L. Paul Bremer is unable to properly account for 8.8 billion dollars that it transferred to the interim Iraqi government, an audit has found.
In a scathing review, the CPA`s inspector general said the occupation authority failed to implement adequate controls over the money even after a warning that the financial systems at one ministry was open to fraud, kickbacks and misappropriation of funds.
"Specifically, the CPA disbursed over 8.8 billion dollars in DFI (Development Fund for Iraq) funds without assurances the monies were properly used or accounted for," said the report by Stuart Bowen, the CPA inspector general.
Bowen said there was no assurance that the money was not used to pay salaries of thousands of "ghost" employees.
The CPA authorized payment of funds for 74,000 guards even though the guards or the number of sites to be guarded were never validated, the report said.
At one ministry, 8,026 guards were on the payroll but the existence of only 602 guards could be validated. At another ministry, the CPA authorized funds for 1,471 guards but only 642 guards could be shown to exist.
"However, when the CPA staff recommended that the Iraqi Ministry of Finance require certified payrolls prior to salary payments, CPA Ministry of Finance personnel stated the CPA would rather overpay salaries than risk not paying employees and inciting violence," the report said.
Bremer took issue with the audit`s conclusions, arguing in a eight-page rebuttal that the inspector general had failed to understand the context in which the CPA was operating.
"The IG auditors presume that the coalition could achieve a standard of budgetary transparency and execution which even peaceful western nations would have trouble meeting within a year, especially in the midst of a war," he wrote.
"Given the situation the CPA founding Iraq at liberation, this is an unrealistic standard," he said.
The Development Fund for Iraq was established under UN Security Council Resolution 1483, which authorized the CPA to administer Iraqi oil revenues and other funds provided it be done in a transparent manner in behalf of the Iraqi people.
Outside assessments and allegations of corruption by Iraqi ministries in the UN oil-for-food program should have raised concerns about the ministries` ability to administer the money without oversight, Bowen said.
A management consultant for the US Agency for International Development (USAID) concluded after reviewing one ministry`s 435 million dollar budget that "the financial process was open to fraud, kickbacks and misappropriation of funds," the report said.
To comply with the transparency requirements, the CPA published the Iraqi national budgets and the amounts disbursed to Iraqi ministries on the Internet.
But the review found that the CPA did not maintain adequate documentation to support budget disbursements. So, it was unable to explain significant differences between spending plans, budget disbursements and cash allocations.
"For example, approximately 1.5 billion dollars in cash allocations were made to Iraqi banks between January and April 2004 for operating expenses, yet spending plans supported only approximately 498 million dollars in operating expenses," the report said.
The report said CPA senior advisers to Iraqi ministries did not have clear guidance on their oversight responsibilities, there were shortfalls in personnel in CPA budget and finance staffs, and a high turnover of personnel in key financial management positions.
Senior CPA advisers did not review internal financial controls in Iraqi ministries, nor did they compare financial, budgetary or operational performance to plans, the report said.
The CPA awarded a 1.4 million dollar contract to a NorthStar Consultants Inc. in October 2003 to evaluate the design and effectiveness of the internal controls over the Development Fund for Iraq.
But the inspector general found that they "were not certified public accountants and did not perform a review of internal controls as required by the contract."
Instead, the CPA`s comptroller verbally changed the contract and had them perform accounting duties in his office, the report said.
01/31/2005 20:11 GMT - AFP