$9 Billion in Iraq Reconstruction Funds Missing

US auditor says Pentagon cannot account for 96 percent of the money spent.

August 2, 2010, 2:06 PM

Aug. 2, 2010 — -- In a little noticed report last week, a US auditor concluded that $8.7 billion in reconstruction aid to Iraq is unaccounted for by the Department of Defense. With Iraq struggling financially as the US withdraws, the vanished money has become a symbol of the dysfunctional American-led rebuilding effort.

According to the report by the Special Inspector General for Iraq Reconstruction, known as SIGIR, as much as 96 percent of the $9 billion provided by the Development Fund for Iraq (DFI) for reconstruction cannot be properly accounted for, noting that poor management and lack of regulations have led to the missing funds. For fully $2.6 billion of the missing funds, there is no paperwork at all.

Although SIGIR did conduct criminal investigations, which led to eight convictions for bribery, fraud, and money laundering, the report does not suggest that the bulk of the $8.7 billion was stolen.

Critics of the military's management said they were troubled by the sheer size of the figures and how much of the money could not be traced to any records of any kind.

"Was the money funneled? Did it end up in the hands of the Iraqi insurgency? This isn't the best advertisement for US government management," said Scott Amey, general counsel for the Project on Government Oversight, a non-partisan watchdog group.

The DFI was created in 2003 by the United Nations with Iraqi money from a combination of oil revenue, previously frozen assets and left over funds in the UN's oil for food program. After the US-led invasion of Iraq in 2003, the Iraqi government allowed the US military to manage the dispersal of the DFI funds in an effort expedite the reconstruction of Iraq. The US Congress gave the Iraqi government a separate $53 billion for reconstruction.

The SIGIR report noted that the US military was slow to establish rules about accounting for the money, but more significantly, "once established the guidance was not followed." The contracting was so poor, the report notes, that the US government may be "potentially liable."

Money allocated for reconstruction was originally overseen by the Coalition Provisional Authority (CPA) until it was dissolved in 2004. Subsequently, the Iraqi government permitted the Department of Defense to administer the fund and manage contracts for reconstruction.

According to the audit, the only element of the military to provide documentation for money spent was the Army Central Command, which handled and spent roughly $400M.

"When the government cannot account for 96 percent of the money it spends on anything," said Amey, " it's very troubling."

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