In its report released on Tuesday, the International Advisory and Monitoring Board for Iraq (IAMB) said it had also met delays in separate audits on sole-sourced contracts from the US Defence Contract Audit Agency.
The board said it had requested the special audits after finding that “some contracts using DFI (Development Fund for Iraq) funds had been awarded to a Halliburton subsidiary without competitive bidding”.
Since the US-led war on Iraq in March 2003, Halliburton the US oil services giant, once run by US Vice-President Dick Cheney, has won about $10 billion in contracts to restore Iraqi oil, feed, house and care for US troops in Iraq, but has been accused of accounting problems and overcharging.
Established in October 2003 to oversee the DFI, which was administered by the US-led Coalition Provisional Authority (CPA) until the birth of the interim Iraqi government on 28 June, the IAMB in March 2004 hired the independent auditing firm of KPMG after it had repeatedly raised concerns with the CPA “about weaknesses in controls over the financial operations of the DFI”.
The DFI, now under Iraqi administration, holds the proceeds of oil export sales from Iraq, surplus funds from the oil-for-food programme, and Iraqi assets frozen abroad.
KMPG issued two reports this year covering the period from 22 May 2003 to 28 June 2004. According to IAMB, the auditor reported “a number of important weaknesses in the overall financial management system”.
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The irregularities included “an absence of control over oil extraction,” frequent accounting inadequacies, lax financial controls, and improper contracting procedures “in particular the use of single-source contracting”.
KPMG also found “several control weaknesses at the Iraqi spending ministries or the beneficiaries of resources” and that “documentation to support contracts was often incomplete or deficient,” adding that it was “denied access to certain ministries”.
IAMB said the external auditing reported “that the CPA believes that an unknown quantity of petroleum and petroleum products was smuggled out of Iraq, especially in the early months of post-hostilities”.
On the frozen Iraqi funds, KMPG said some had been deposited into the DFI while “other Iraqi funds and financial assets are still believed to be held by various UN member states,” adding that it was impossible to “reliably estimate the amount of such funds”.
“The control weaknesses identified in the KPMG reports all require follow-up and attention, and the external auditor should have access to all ministries,” IAMB said in its report, which lists a series of recommendations.
The IAMB strongly recommended Iraq to discontinue using barter transactions, which go unrecorded and “makes it difficult to determine whether fair value has been received for Iraq’s oil revenues”.