U.S. official says government wasted $6-8 billion in Iraq reconstruction

Introduction

The official in charge of monitoring America’s $51 billion effort to reconstruct Iraq has estimated that $6 billion to $8 billion of that amount was lost to waste, fraud and abuse.

Stuart Bowen, the Special Inspector General for Iraq Reconstruction (SIGIR) for the past eight years, gave that estimate in an interview with the Center for Public Integrity on Monday, shortly after releasing a new summary of his office’s many grim discoveries since it began work in in 2004.

In Friday’s report, Bowen said the exact funds lost to fraud and waste “can never be known,” largely because of poor record-keeping by the U.S. agencies involved in the effort. These include the Departments of State and Defense, along with the U.S. Agency for International Development.

According to the report, auditors repeatedly found that the State Department and Defense Department failed to properly review invoices from government contractors, often approving billions of dollars in services without checking if costs were accurate or efficient. “I think the consistent theme throughout our eight years of oversight work has been the inconsistent availability of records and information on contracts and costs,” said Bowen, a former Texas lawyer.

Bowen said his efforts were hampered from the outset by the ineffectiveness of a clearinghouse created in Iraq for government departments to submit reconstruction bills and contracts for review and oversight. Known as the Iraq Reconstruction Management System, the system was often ignored, with the result that nearly a third of all the contracts could not be monitored adequately.

“Agencies often inconsistently used it – such as USAID. Sometimes projects were put in there, sometimes they weren’t,” said Bowen. Aides said his $6 to $8 billion figure is based on his review of audits and reconstruction costs, as well of estimates of waste in programs where key data is missing.

Bowen’s Deputy Inspector General, Glenn Furbish, said separately in the interview that the cost of many contracts was steadily increased due to frequent modifications. “Once U.S. agencies started down this road, they rarely stopped and said ‘this is getting out of hand,’” Furbish said.

He also noted that many agencies sometimes skipped appropriate review of their bills in an effort to spend money within a deadline, so they did not have to return it to the Treasury.

Since its founding in 2004, SIGIR has investigated $635 million in spending, resulting in $176 million in “fines, forfeitures, and other monetary results.” In total, the agency estimates it has saved around $1.5 billion in taxpayer funds.

Friday’s report mostly detailed the persistent poor handling of government contracts. “In some instances, invoices were reviewed months after they were paid,” according to the report. “Poor and/or delayed invoice reviews add risk that the government may overpay, or pay unallowable and unreasonable costs.”

The report lays much of the blame on a lack of manpower dedicated to reviewing and overseeing government contracts. The State Department enlisted a single contracting officer to handle a $2.5 billion deal with DynCorp International to train Iraqi police forces, for example. Auditors called this decision “especially disturbing” because of problems in earlier DynCorp contracts. According to Furbish, after SIGIR singled out the contract, the State Department reviewed its original agreement with DynCorp and recovered more than $60 million from the company.

DynCorp spokeswoman Ashley Burke confirmed that her company returned funds to the government but said it had not engaged in misconduct.

SIGIR’s investigation also uncovered instances of bid-rigging and bribe-taking by State and Pentagon officials.

Fraudulent activities uncovered by the special inspector general resulted in 87 indictments, according to the report. Of those cases, 61 involved contract kickbacks, 11 involved contract fraud, and nine were related to embezzlement. Both military officers and defense contractors were frequently implicated.

The report details one such case, involving U.S. Army Major Roderick Sanchez, who served from 2004 to 2007 as a contracting officer in Afghanistan, Iraq, and Kuwait. Sanchez used his authority to solicit cash payments, Rolex watches and other expensive gifts in exchange for steering Pentagon contracts to foreign companies, reaping benefits worth more than $200,000, according to the report. He was sentenced to five years in prison and a fine of $15,000.

A Navy Lieutenant Commander named Frankie Hand, stationed at Camp Taji in Iraq as a contracting officer, entered into a secret agreement with two U.S. contractors — Michelle Adams and Peter Dunn — agreeing to rig government contracts to their benefit in exchange for a cut of the profits, the report said. The two contractors paid Hand $757,525 after obtaining two contracts improperly. An Air Force Master Sergeant received $50,000 in bribe money for “assistance” in the deal, the report said.

Hand received three years in prison and forfeited his share of contract profits, while Adams and Dunn received 15 and 14 months in prison, respectively.

Friday’s report, titled “Final Forensic Audit Report of Iraq Reconstruction Funds”, was wider in scope than most of SIGIR’s work, covering not just a specific project, but a broader picture of Iraq’s reconstruction. SIGIR spokesman Chris Griffith said however that Bowen’ has one more major report to publish in January.

Many of the challenges described in the Iraq report mirror those depicted in similar reports by its cousin, the office of the Special Inspector General for Afghanistan Reconstruction. In a May report to Congress, for example, that office concluded that “corruption remains a major threat to the reconstruction effort” and said contractors were taking advantage of lax oversight in Afghanistan.