Global Policy Forum

By Jim Krane

Iraqi money gambled away in the Philippines. Thousands spent on a swimming pool that was never used. An elevator repaired so poorly that it crashed, killing people.

A U.S. government audit found American-led occupation authorities squandered tens of millions of dollars that were supposed to be used to rebuild Iraq through undocumented spending and outright fraud. In some cases, auditors recommend criminal charges be filed against the perpetrators. In others, it asks the U.S. ambassador to Iraq to recoup the money.

Dryly written audit reports describe the Coalition Provisional Authority's offices in the south-central city of Hillah being awash in bricks of $100 bills taken from a central vault without documentation. It describes one agent who kept almost $700,000 in cash in an unlocked footlocker and mentions a U.S. soldier who gambled away as much as $60,000 in reconstruction funds in the Philippines.

"Tens of millions of dollars in cash had gone in and out of the South-Central Region vault without any tracking of who deposited or withdrew the money, and why it was taken out," says a report by the Special Inspector General for Iraq Reconstruction, which is in the midst of a series of audits for the Pentagon and State Department.

Much of the first audit reports deal with contracting in south-central Iraq, one of the country's least-hostile regions. Audits have yet to be released for the occupation authority's spending in the rest of Iraq. The audits offer a window into the chaotic U.S.-led occupation of Iraq of 2003-04, when inexperienced American officials - including workers from President Bush's election campaign - organized a cash-intensive "hearts and minds" mission to rebuild Iraq's devastated economy.

But the corruption and incompetence documented in the reports reveal that much of the effort, however well-intentioned, was wasted. The failure of the rebuilding effort has been borne out most vividly by the rise of a virulent anti-American insurgency that has claimed most of the 2,237 U.S. military lives lost since the war began.

In some cases, auditors could find no trace of cash, much of which came from Iraqi oil revenues overseen by the occupation authority. "Those deficiencies were so significant that we were precluded from accomplishing our stated objectives," the auditors said of U.S. officials in Hillah being unable to account for $97 million of the $120 million in Iraqi oil revenues earmarked for rebuilding projects. An October 2005 audit found documentation for the spending of just $8 million of that money.

Negligence proved deadly in at least one case. Three Iraqis plummeted to their deaths in an elevator in the Hillah General Hospital that was certified to have been replaced by a contractor who received $662,800. Also in Hillah, occupation officials spent $108,140 to replace pumps and fix the city's Olympic swimming pool. But the contractor merely polished the old plumbing to make it look new and collected his money. When the pool was filled, the water came out a murky brown and the pool's reopening had to be canceled. The reports did not identify the contractors involved.

Auditors have asked the U.S. ambassador to recover a total of $571,823 that the reports describe as overpaid funds. In some cases, cash simply disappeared. Two occupation authority field agents responsible for paying contractors left Iraq without accounting for more than $700,000 each. When auditors confronted their manager and asked where the money was, the manger tried to clear one of the agents through false paperwork.

"This appears to be an attempt to remove outstanding balances by simply washing accounts," the auditor said. The two agents were not identified and there was no word on whether the pair were referred for prosecution. One report describes mismanagement of more than 2,000 small contracts in south-central Iraq worth $88 million. Occupation staffers or those they supervised handed out millions to companies that never submitted required competitive bids or that were paid for unfinished work.

Other examples cited in the reports:

-Only a quarter of $23 million entrusted to civilian and military project and contracting officers to pay contractors ever found its way to those contractors.

-One contractor was paid $14,000 on four separate occasions for the same job.

-Of $7.3 million spent on a police academy near Hillah, auditors could account for just $4 million. They said $1.3 million was wasted on overpriced or duplicate construction or equipment not delivered. More than $2 million was missing.

-U.S. personnel "needlessly disbursed more than $1.8 million" of the estimated $2.3 million spent for renovating the library in the Shiite holy city of Karbala.

-The library contractor delivered only 18 of 68 personal computers called for and did not install Internet wiring or software. The computers worked only as stand-alones.

-The U.S.-led security transition command spent $945,000 for seven armored Mercedes-Benzes that were too lightly armored for Iraq. Auditors were able to account for only six of the cars.

-At one point, several paying agents kept cash inside the same filing cabinet in the Hillah vault. One agent took $100,000 from another's stack of cash to clear his own balance. "This was only discovered because the other paying agent had to make a disbursement that day and realized that he was short cash," the report says.