UN auditors attack US occupiers over spending of Iraq's oil revenues By Thomas Catan and Gareth Smyth
United Nations-mandated auditors have sharply criticised the US occupation authority for the way it spends Iraqi oil revenues and say they have faced "resistance" to performing their job by coalition officials.
In an interim report obtained by the Financial Times, KPMG said the Development Fund for Iraq (DFI), which is managed by the US-led Coalition Provisional Authority (CPA) and channels oil revenue into reconstruction projects, is "prone to error" and at risk of fraud.
The KPMG auditors are reporting to the International Advisory and Monitoring Board (IAMB), a watchdog set up by the UN Security Council in May last year to oversee coalition spending from the Development Fund for Iraq (DFI) - an account containing Iraqi oil revenues, frozen assets and funds left over from the UN's oil-for-food programme.
The watchdog is comprised of representatives of the World Bank, International Monetary Fund and Arab Fund for Social and Economic Development. They spent much of last year battling with occupation administrators over the watchdog's remit. Officials said they were only able to begin working in earnest in April.
In their first interim report, KPMG said it had "encountered resistance from CPA staff [including the contracting unit] regarding the submission of information required to complete our procedures". CPA staff told KPMG they were overworked and had given them a "low priority". The company also said they faced "bureaucratic hurdles" getting passes for the green zone in central Baghdad, where CPA headquarters are situated.
KPMG warned that these difficulties could prevent it meeting its June 30 deadline to complete work, when the CPA is dissolved and cedes sovereignty to an Iraqi government.
The UN decided this month that responsibility for the DFI will pass to the Iraqi interim government, although it will still be monitored by the IAMB. The panel also intended to widen its scrutiny of past CPA spending by examining reports and audits conducted by the Pentagon's inspector general and the General Accounting Office, the audit arm of the US Congress, an official said.
IAMB officials were meeting in Paris yesterday and were not immediately available for comment.
According to the CPA, the DFI has taken in $20.2bn (¤16.6bn, £11bn) since last May and has already disbursed $11.3bn, with $4.6bn left in outstanding commitments.
The auditors criticised the CPA's bookkeeping methods, saying they were "open to fraudulent acts" and prone to error because they used spreadsheets and tables maintained by a single accountant, rather than a double-entry system.
"The CPA does not have effective controls over the ministries spending of their individually allocated budgets, whether the funds are direct from the CPA or via the ministry of finance," said the report.
Some of their strongest criticisms were of the State Organisation for Marketing Oil (SOMO), the body responsible for the sale of Iraq's most crucial asset. Oil sales, which have flowed into the US-controlled fund, have topped $10bn since Saddam Hussein's overthrow.
"Tendering and contracting decisions are not documented to ensure transparency of [oil] sales decisions," the report said. "Additionally, where the highest bidder is not awarded the contract, no note is prepared justifying the award of the contract to another bidder."
SOMO's only record of barter transactions was "an independent database, derived from verbal confirmations gained by SOMO staff", the report found.
KPMG auditors also said they faced problems gaining information from the ministry of oil - specifically over "global reconciliation" of figures for oil extractions and exports - and from the US Navy over the movements of vessels carrying oil.
The CPA declined to address the substance of the KPMG report, saying merely that it "has been and will continue to discharge its responsibilities under the Iraqi Development Fund".
An adviser to a member of the recently-disbanded Iraqi Governing Council said the report raised the fear no audit of the CPA's work would ever be completed.
A minister in the Iraqi government due to take office on June 30 told the FT he and many colleagues felt "let down by how the CPA has controlled resources".
The KPMG report is the latest criticism of the CPA's management of Iraq's finances. Svetlana Tsalik, director of the Iraq Revenue Watch, a watchdog funded by financier George Soros, said last week that the CPA's haste to agree DFI-funded projects worth $2bn in the run-up to the transfer of sovereignty on June 30 was making it "all but impossible to avoid corruption and waste".