Global Policy Forum

By Colum Lynch

The Bush administration is withholding information from U.N.-sanctioned auditors examining more than $1 billion in contracts awarded to Halliburton Co. and other companies in Iraq without competitive bidding, the head of the international auditing board said Thursday.

Jean-Pierre Halbwachs, the U.N. representative to the International Advisory and Monitoring Board (IAMB), said that the United States has repeatedly rebuffed his requests since March to turn over internal audits, including one that covered three contracts valued at $1.4 billion that were awarded to Halliburton, a Texas-based oil services firm. It has also failed to produced a list of other companies that have obtained contracts without having to compete.

The Security Council established the IAMB, which includes representatives from the United Nations, the World Bank and the International Monetary Fund, in May 2003 to ensure that Iraq's oil revenue would be managed responsibly during the U.S. occupation. The council extended its mandate in July so it could continue to monitor the use of Iraq's oil revenue after the United States transferred political authority to the Iraqis in June.

The dispute comes as the board released an initial audit by the accounting firm KPMG on Thursday that sharply criticized the U.S.-led coalition's management of billions of dollars in Iraqi oil revenue. The audit also raised concerns about lax financial controls in some Iraqi ministries, citing poor bookkeeping and duplicate payments of salaries to government employees.

The Pentagon did not specifically answer questions about withholding information to auditors, but released a statement saying the Coalition Provisional Authority worked hard to manage Iraq's oil resources. "In a very challenging environment, the CPA made every effort to bring sound management transparency and oversight to the Development Fund for Iraq while at the same time improving the quality of life for the Iraqi people," said Lt. Cmdr. Flex Plexico, a Pentagon spokesman. "The CPA supported the efforts of the auditors. KPMG's comments and recommendations will be passed on to the Iraqi interim government for their use."

The audit, which covers May 2003 to December 2003, asserts that the coalition's management of Iraq's oil was plagued by "inadequate" bookkeeping and accounting systems, high turnover among coalition finance officials and a disregard for procedures designed to ensure competitive bidding for contracts. KPMG is planning to produce a second audit that covers the coalition's management of the program through June 2004. The IAMB concluded that more than $10 billion in Iraq's oil proceeds and frozen assets had been "properly and transparently accounted for" after they were deposited in the U.S.-controlled Development Fund for Iraq. But it asserted that "financial controls were insufficient to provide reasonable assurance" that the money was properly spent. "KPMG has not reported to us any evidence of fraud," Halbwachs told reporters before the audit was released. "There are weaknesses that could lead to fraudulent activities. It makes it easier to defraud the system if the controls are weak."

In a written response to the criticism included in the report, the U.S.-led coalition said management of Iraq's oil industry was hampered by ongoing violence. "Although the auditor encountered difficulties, they are generally the result of the challenging work environment and the precautions the security conditions demanded," according to a statement included in the audit. "For example, retrieving a simple bank statement from the Central Bank of Iraq, or a meeting with Ministry of Oil officials, presented significant security issues, as these facilities required a security detail of at least six persons."

KPMG outlined a series of other shortcomings, including the coalition's failure to install meters on Iraq's Persian Gulf export loading platforms, making it impossible to determine how much oil Iraq was exporting. KPMG said that it was unable to verify independently the value of crude oil Iraq bartered for Syrian electricity.