28 December 2005 The United States should “seek resolution” with the Baghdad Government in relation to a $1.4 billion contract awarded to the firm Kellogg, Brown and Root using Iraqi oil revenue, officials from the International Advisory and Monitoring Board (IAMB) set up to track the Development Fund for Iraq (DFI) said today.
Briefing the press in New York today, IAMB Chairman Jean-Pierre Halbwachs, a retired UN budget official, summarized the Board’s chief concerns, including the absence of oil metering to maintain control over oil revenues, the use of unaccounted bartered transactions, weak controls in Iraq’s spending ministries, and the use of non-competitive bidding for some contracts.
He recalled that the Board had requested a special audit of all contracts valued at over $5 million that were awarded without competitive bidding by the US-led Coalitional Provisional Authority (CPA) which administered Iraq after the fall of Saddam Hussein’s regime through June, 2004.
The accounting firm KPMG conducted the special audit, which involved summarizing existing audit findings. But the company recused itself from reviewing audits on one contract covering, in part, the restoration of Iraq’s oil infrastructure. Valued at $1.4 billion, the “sole-sourced” contract went to Kellogg, Brown and Root (KBR).
Because KPMG recused itself from the KBR contract, it was instead reviewed by the Special Inspector General for Iraq Reconstruction. While requesting more information, the Special Inspector General reported “questioned costs under this KBR contract for a total amount of $208.5 million,” Mr. Halbwachs said.
Given the “significant” sum involved, the length of the audit process and the fact that the DFI has already spent some $1.2 billion for that contract, the IAMB called on Washington to “seek resolution” with the Iraqi Government on the possible improper use of resources. The IAMB also recommended that “amounts disbursed that cannot be supported as fair be reimbursed expeditiously,” Mr. Halbwachs added.
Responding to press queries, IAMB member Fayezul Choudhury of the World Bank said no one questioned the will of the Iraqi or US Government to cooperate but added that various difficulties combined to delay the special audit, which he said took “an extraordinarily long time.”
The Special Inspector General had produced a “reasonable piece of work that seems to follow fair and acceptable professional standards,” he said, noting that the Iraqis are in discussion with the US on the issue.
The IAMB is scheduled to meet next month on outstanding issues. Mr. Choudhury said “as new information comes to light we will keep that measure under review.”
Asked about the independence of the process, he said some assessments by US government entities had been “pretty scathing” in tone. “I’m not sure there is a prima facia case for saying that the independent oversight functions of the US Government are marching to any political drummer,” he said.
He added that the process had not necessarily unfolded as the IAMB would have wanted “but that’s the way it ended up.”
The Board would review information it had received and remained in dialogue with the US Department of Defense, “and if we believe that further work is warranted we will certainly require that that work be undertaken,” Mr. Choudhury said.
Asked about audit reports that were redacted before being provided to the IAMB, Bert Keuppens of the IMF said early on the Board had noticed that DFI money had been used to pay sole-sourced contracts to Halliburton. US Department of Defense audits provided to the IAMB were heavily redacted, but subsequently the Board was provided with full copies, which had in any event already been posted on the Internet by US Congressman Henry Waxman.
The Board, which operates under a Security Council resolution and was established in October, 2003, is made up of representatives of the UN, the International Monetary Fund (IMF), the World Bank and the Arab Fund for Social and Economic Development. Representatives of each were on hand at the briefing, which followed a daylong IAMB meeting. Officials from the Iraqi Government were to have attended but did not owing to visa difficulties.
The purpose of the Board is to promote the objectives laid out in Security Council resolution 1483 adopted in May 2003. That resolution, in part, underlined that the DFI “shall be used in a transparent manner to meet the humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq's infrastructure, for the continued disarmament of Iraq, and for the costs of Iraqi civilian administration,” as well as for other purposes benefiting the Iraqi people.
The DFI is the repository of Iraqi oil revenues as well as funds left over after the termination of the “Oil-for-Food” programme which aimed to mitigate the effect of international sanctions on the people of Iraq by allowing its Government to use a portion of its petroleum revenues to purchase humanitarian relief aid.