The Special Inspector General for Iraqi Reconstruction (SIGIR) said the audit had revealed "indications of potential fraud," which it has referred to investigators for further action.
The report was one of three released Wednesday by the SIGIR that faulted the management of  Iraqi reconstruction contracts, drawing the wrath of at least one senior US lawmaker.
"These reports paint a picture of disorganized, sloppy management of both US taxpayer dollars and funds that belong to the Iraqi people themselves," said Senator Russ Feingold.
"Billions of dollars, the success of the stabilization mission, and US credibility are at stake, and these reports inspire very little confidence in the competence and transparency of US efforts to date," the senator said.
"The US risks fostering a culture of corruption in Iraq," he said. "American taxpayers have shouldered a tremendous financial burden to support the administration's policies in Iraq. They deserve better than this."
The audit that found indications of fraud set out to examine whether the account manager and paying agents of the Development Fund for Iraq (DFI) in selected locations in south central Iraq properly controlled and accounted for cash and expenditures.
The DFI was set up after the war under a UN resolution with Iraqi oil revenues, unencumbered UN oil-for-food deposits and repatriated Iraqi assets.