Global Policy Forum

Watchdog: Iraqi Management of Oil Wealth


By Irwin Arieff

May 23, 2005

The Iraqi authorities are doing about as sloppy a job managing their oil wealth as the American authorities did in the months after the U.S.-led invasion, an international watchdog agency said on Monday. The criticisms come on top of accusations by U.S. lawmakers and an independent U.N. investigation that the United Nations mismanaged a separate oil-for-food program for Iraq under then-leader Saddam Hussein, pointing to years of abuse of Iraq's precious oil resources under three different masters.

The latest international audit of Iraq's oil account, covering the first six months of self-rule, found the new government making virtually all the same mistakes the U.S. Coalition Provisional Authority made in the preceding months, said the International Advisory and Monitoring Board for Iraq. Iraq's oil account, called the Development Fund for Iraq, was set up by the Security Council, along with the monitoring board, to watch over the stewardship of Iraq's natural resources during the U.S. civil administration of Iraq, which began in May 2003 and ended on June 28, 2004. The monitoring board's life was extended after an appointed transitional Iraqi government took over on June 29, 2004. The current elected government took power less than a month ago.

In a separate statement, the board noted "with regret" that the U.S. Defense Contract Audit Agency, the Pentagon auditing arm, had tried to hide from it more than $200 million in apparent overcharges in contracts paid for with Iraqi oil money and awarded on a noncompetitive basis to Halliburton Co., once led by Vice President Dick Cheney.

Questionable Billings Concealed

The U.S. agency had turned over heavily edited audits to the board, stating that the deletions were made to protect trade secrets. An unedited version of the audit later surfaced, showing the deletions sought to conceal questionable billings. In the new Iraqi oil audit by accounting giant KPMG, covering the period June 29 through Dec. 31, 2004, oil was still being smuggled, hard-to-trace barter transactions were continuing and contracts were still being granted on a noncompetitive basis without justification.

In addition, equipment to meter oil production had yet to be installed despite a year-old pledge by the U.S. authorities to do so on an urgent basis, said the monitoring board, which ordered the audit. In a hint that at least some Iraqi oil was still being smuggled rather than sold through the appropriate channels, the audit found a mysterious missing 618,000 tons of fuel oil worth $69 million when the amount sold between June 29 and Dec. 31, 2004 was compared to the amount produced during that same period.

In other findings, the State Oil Marketing Organization SOMO improperly deposited $97.8 million of oil proceeds into three unauthorized bank accounts in Iraq and Jordan and carried out $461 million in barter transactions though the U.S. authorities had agreed to end barter deals months earlier because they could not be properly tracked, the audit found.

The newly released audit found that Iraqi ministries, in spending the proceeds of their oil deals, often failed to award contracts in an open fashion or to monitor their projects once they were funded, to ensure they were completed. Accounting records were incomplete, often prepared months late and never reconciled to ensure figures matched, KPMG said. In addition, the government never compared its spending to the actual state budget, to ensure spending and reconstruction could be managed, the accounting firm said.

"A formal budget monitoring process should be implemented, enabling the Ministry of Finance to exert control over the disbursement of the Iraqi ministries and accurately forecast future funding requirements," the auditing firm suggested.

More Information on Iraq
More Information on the Development Fund for Iraq
More Information on the Oil-for-Food Programme
More Information on Corporate Contracts and Reconstruction


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