Audit

Report 

Cost-to-Complete Estimates and 

Financial Reporting for the Management of the 

Iraq Relief and Reconstruction Fund 

Report No. SIGIR-05-011 July 26, 2005 

Office of the Special Inspector General for Iraq Reconstruction 
SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

400 Army Navy Drive • Arlington, Virginia 22202

July 26, 2005 

MEMORANDUM FOR DIRECTOR, IRAQ RECONSTRUCTION MANAGEMENT 

OFFICE 

DIRECTOR, PROJECT AND CONTRACTING OFFICE 

SUBJECT: Cost-to-Complete Estimates and Financial Reporting for the Management of the 

Iraq Relief and Reconstruction Fund (Report No. SIGIR-05-011) 

We are providing this audit report for your information and use. We performed the audit in 

accordance with our statutory duties contained in Public Law 108-106, as amended, which 

mandates the independent and objective conduct of audits relating to the programs and 

operations funded with amounts appropriated or otherwise made available to the Iraq Relief 

and Reconstruction Fund. Public Law 108-106, as amended, requires that we provide for the 

independent and objective leadership and coordination of and recommendations on policies 

designed to promote economy, efficiency, and effectiveness in the administration of such 

programs and operations and to prevent and detect waste, fraud, and abuse. 

We considered the comments from the Acting Director, Iraq Reconstruction Management 

Office, and the Director, Project and Contracting Office, when preparing the final report. 

 

We appreciate the courtesies extended to the staff. For additional information on this report, 

please contact Mr. James P. Mitchell at jim.mitchell@sigir.mil or at (703) 428-1100. For the 

report distribution, see Appendix C. 

Stuart W. Bowen, Jr. 

Inspector General 
i 

Office of the Special Inspector General 

For Iraq Reconstruction 

Report No. SIGIR-05-011 July 26, 2005 

(Project No. D2005-DCPAAI-0004.1) 

Cost-to-Complete Estimates and Financial Reporting for the 

Management of the Iraq Relief and Reconstruction Fund 

Executive Summary 

Introduction. In March 2005, we initiated an audit to determine whether the information 

systems used by U.S. government organizations resulted in the effective management of 

Iraq Relief and Reconstruction Fund programs. This audit report is the first of a series of 

reports addressing management controls over information systems used by U.S. 

government organizations within Iraq to manage Iraq Relief and Reconstruction Fund 

programs. This report discusses the Project and Contracting Office systems used to 

develop cost-to-complete estimates for Iraq Relief and Reconstruction Fund projects and 

report financial obligation data. 

In November 2003, $18.6 billion was appropriated by the Congress under the Emergency 

Supplemental Appropriations Act for Defense and the Reconstruction of Iraq and 

Afghanistan (Public Law 108-106). The law created the Iraq Relief and Reconstruction 

Fund, of which $18.4 billion of the appropriation was designated for Iraq. 

Section 2207 of Public Law 108-106, November 6, 2003, required the Director of the 

Office of Management and Budget, in consultation with the Administrator of the 

Coalition Provisional Authority, to submit a report to Congress every three months that 

updated the proposed uses of all Iraq Relief and Reconstruction Fund funds on a projectby-project basis, including estimates of the costs required to complete each project. The 

Section 2207 Report on Iraq Relief and Reconstruction (Section 2207 Report) is now the 

responsibility of the Iraq Reconstruction Management Office due to the dissolution of the 

Coalition Provisional Authority on June 28, 2004. 

The Iraq Reconstruction Management Office collates the Iraq Relief and Reconstruction 

Fund management information from all agencies apportioned Iraq Relief and 

Reconstruction Fund funds, primarily the Department of State, the Department of 

Defense, and the U.S. Agency for International Development and prepares the Section 

2207 Report for transmission by the Department of State to the Congress. The Project 

and Contracting Office prepares the Secretary of the Army Report, which is incorporated 

into the Section 2207 Report, consolidating Department of Defense information for the 

reporting of Iraq Relief and Reconstruction Fund funds. 

Objective. The specific objective of this first audit in this series was to determine 

whether those information systems and the data contained in those systems used by the 

Iraq Reconstruction Management Office and the Project and Contracting Office to 

monitor Iraq Relief and Reconstruction Fund projects were adequately reliable and 

sufficiently coordinated among those organizations to ensure the accurate, complete, and 

timely reporting to senior government officials and the Congress on the use of Iraq Relief 

and Reconstruction Fund funds. 
ii 

Results. The Section 2207 Report for April 2005, compiled by the Iraq Reconstruction 

Management Office, did not meet the congressionally mandated requirement to include 

estimates, on a project-by-project basis, of the costs required to complete each project. 

As a result, without current and accurate cost-to-complete data, it is difficult to determine 

whether funds are available to complete ongoing Iraq Relief and Reconstruction Fund 

projects and for the initiation of new projects (finding A). 

The accuracy of the $7.9 billion of Department of Defense obligations reported on the 

Secretary of the Army Report issued March 27, 2005, could not be verified. Further, 

information that was incorporated into the Section 2207 Report, including the Secretary 

of the Army Report, was not required to be verified for accuracy by the U.S. government 

organizations providing that information. As a result, our audit was unable to verify the 

accuracy of the data submitted through the Secretary of the Army Report to Iraq 

Reconstruction Management Office. Further, without a requirement to verify the 

submitted data, U.S. government organizations could submit unverified data to Iraq 

Reconstruction Management Office for inclusion in the Section 2207 Report. Finally, 

because no verification was required or performed by the Project and Contracting Office, 

including information submitted by other organizations through the Project and 

Contracting Office, there is no assurance that Congress was provided valid information 

through the Section 2207 Report that is needed to exercise oversight of the reconstruction 

efforts in Iraq (finding B). 

Management Actions. During our audit, the Iraq Reconstruction Management Office 

initiated procedures for preparing and reporting cost-to-complete estimates and will begin 

reporting that information in the Section 2207 Report for September 2005. On June 10, 

2005, the Project and Contracting Office began reporting cost-to-complete estimates to 

the Iraq Reconstruction Management Office. 

Recommendations. We recommended that the Director, Iraq Reconstruction 

Management Office require that current and best estimate for cost-to-complete 

information be provided for inclusion in the Section 2207 Report on Iraq Relief and 

Reconstruction (Recommendation A.2.). We also recommended that the Director, Iraq 

Reconstruction Management Office require that the data provided by U.S. government 

organizations responsible for managing the Iraq Relief and Reconstruction Fund for the 

purposes of inclusion in the Section 2207 Report be verified for accuracy before 

submission (Recommendation B.2.). 

Further, we recommended that the Director, Project and Contracting Office: 

• Complete the integration of the U.S. Army Corps of Engineers Financial 

Management System database with the Project and Contracting Office Oracle Project 

Accounting interface (Recommendation A.1.a.) 

• Finalize and update, on a project-by-project basis, the accurate and complete costs 

required to complete each project (Recommendation A.1.b.) 

• Ensure that management controls over the Secretary of the Army Report, such as 

reconciliation procedures, result in verifying the accuracy of the submitted data 

(Recommendation B.1) 
iii 

Management Comments and Audit Response. The Acting Director, Iraq 

Reconstruction Management Office, concurred with Recommendation A.2. We agreed. 

The Acting Director, Iraq Reconstruction Management Office, also concurred with 

Recommendation B.2. but qualified his concurrence with an alternative approach to the 

recommended action. We agreed and changed our report accordingly. 

The Director, Project and Contracting Office, concurred with Recommendations A.1.a. 

and A.1.b. We agreed. The Director, Project and Contracting Office, did not concur with 

Recommendation B.1. and provided reasons for the nonconcurrence. We agreed and 

changed our report accordingly. 

We plan to perform follow-up audits of the estimates of cost-to-complete prepared by the 

Project and Contracting Office. We also plan to perform follow-up audits on the 

accuracy of the data reported in the Secretary of the Army Report and the Section 2207 

Report and on management controls over the data reported. 
Table of Contents 

Executive Summary i 

Introduction 

Background 1 

Objective 2 

Findings 

A. Undeveloped Cost-to-Complete Estimates for Iraq Reconstruction Projects 3 

B. Accuracy of the Secretary of the Army Report 6 

Appendixes 

A. Scope and Methodology 10 

B. Acronyms 11 

C. Report Distribution 12 

D. Audit Team Members 14 

Management Comments 

Director, Project and Contracting Office – Iraq 15 
1 

Introduction 

Background

In March 2005, we initiated an audit to determine whether the information systems used 

by U.S. government organizations resulted in the effective management of Iraq Relief 

and Reconstruction Fund (IRRF) programs. This audit report is the first of a series of 

reports addressing management controls over information systems used by U.S. 

government organizations within Iraq to manage IRRF programs. This report discusses 

the Project and Contracting Office (PCO) systems used to develop cost-to-complete 

estimates for IRRF projects and report financial obligation data. 

Appropriation for the Iraq Relief and Reconstruction Fund. In November 2003, 

$18.6 billion was appropriated by the Congress under the Emergency Supplemental 

Appropriations Act for Defense and the Reconstruction of Iraq and Afghanistan (Public 

Law 108-106). The law created the IRRF, of which $18.4 billion of the appropriation 

was designated for Iraq. 

Project and Contracting Office. National Security Presidential Directive 36, “United 

States Government Operations in Iraq,” May 11, 2004, established the PCO. National 

Security Presidential Directive 36 directed the PCO to provide acquisition and project 

management support with respect to activities in Iraq. On June 22, 2004, the Deputy 

Secretary of Defense established the PCO within the Department of the Army and 

directed the PCO to provide support related to the close-out of the Coalition Provisional 

Authority. The PCO was made responsible for all activities associated with asset, 

financial, program, and project management and for managing both construction and 

non-construction activities 

Corps of Engineers Financial Management System. The PCO uses the U.S. Army 

Corps of Engineers Financial Management System (CEFMS) for IRRF financial 

accounting. The CEFMS was designed as a single entry system so that transactions 

update the general ledger and subsidiary ledgers in real time. In CEFMS, as in other 

financial accounting systems, general ledger amounts should be in agreement with and 

supported by subsidiary ledgers and transactions detail amounts. 

Cost-to-Complete Estimates. Developing a cost-to-complete estimate is an integral 

component of cost management. Cost-to-complete estimates should be made on an 

iterative basis, taking into account the reasons for variances from initial estimates. Costto-complete estimates should be developed as follows: 

• Determine the progress toward contract completion to date 

• Determine the cost of the contract work completed to date 

• Determine the reasons for variances from initial estimates 

• Estimate the amount of work remaining to be completed 

• Estimate the cost of the work remaining to be completed 

Management Information Systems. Public Law 108-106 provided $50 million to 

develop and deploy management information systems capable of satisfying congressional 

expectations. According to the PCO chief technology officer, approximately $16 million 

of the $50 million was used to develop what is called the “PCO-solution.” The PCOsolution was designed and developed based upon analysis conducted by the Naval 
2 

Facilities Engineering Command and the U.S. Army Corps of Engineers. The analysis 

reviewed various configurations of construction program management software 

applications to determine which application would be best suited for use in the 

management of construction projects located in the operating environment in Iraq. The 

Office of the Special Inspector General for Iraq Reconstruction is currently reviewing the 

development and operational functionality of the PCO-solution and will determine how 

the remaining $34 million was used to fulfill the reporting and monitoring requirements 

of Public Law 108-106. 

Objectives 

The overall objective of this audit was to determine whether information systems used by 

U.S. government organizations result in the effective management of IRRF programs. 

An additional objective was to determine whether those information systems used by 

U.S. government organizations were adequately reliable and sufficiently coordinated 

among those organizations to ensure accurate, complete, and timely reporting to senior 

government officials and the Congress on the use of IRRF funds. 

The specific objective of this first audit in this series was to determine whether those 

information systems and the data contained in those systems used by the Iraq 

Reconstruction Management Office (IRMO) and the PCO to monitor IRRF projects were 

adequately reliable and sufficiently coordinated among those organizations to ensure the 

accurate, complete, and timely reporting to senior government officials and the Congress 

on the use of IRRF funds. 

We will address the overall objective in subsequent audits. Specifically, we plan to 

perform follow-up audits of the estimates of cost-to-complete prepared by the PCO. We 

also plan to perform follow-up audits on the accuracy of the data reported in the 

Secretary of the Army Report and the Section 2207 Report and on management controls 

over the data reported. 

For a discussion of the audit scope, methodology, and a summary of prior coverage, see 

Appendix A. For definitions of the acronyms used in this report, see Appendix B. For a 

list of the audit team members, see Appendix D. 
3 

A. Undeveloped Cost-to-Complete Estimates for 

Iraq Reconstruction Projects 

The Section 2207 Report on Iraq Relief and Reconstruction (Section 2207 Report) for 

April 2005, compiled by the IRMO, did not meet the congressionally mandated 

requirement to include estimates, on a project-by-project basis, of the costs required to 

complete each project. The IRMO did not report the cost-to-complete data because PCO 

project management personnel did not complete the integration of program and financial 

data systems and did not develop the required cost-to-complete estimates for the Section 

2207 Report. As a result, without current and accurate cost-to-complete data, it is 

difficult to determine whether funds are available to complete ongoing IRRF projects and 

for the initiation of new projects. 

Section 2207 Report on Iraq Relief and Reconstruction 

Section 2207 of Public Law 108-106, November 6, 2003, required the Director of the 

Office of Management and Budget, in consultation with the Administrator of the 

Coalition Provisional Authority, to submit a report to Congress every three months that 

updated the proposed uses of all IRRF funds on a project-by-project basis, including 

estimates of the costs required to complete each project. The Section 2207 Report is now 

the responsibility of the IRMO due to the dissolution of the Coalition Provisional 

Authority on June 28, 2004. The IRMO collates the information from the various 

organizations managing the IRRF and prepares the report for transmission by the 

Department of State to the Congress. 

At the time our audit work was completed, the most recent Section 2207 Report prepared 

by IRMO was released on April 6, 2005. The Section 2207 Report brings together IRRF 

management information from all agencies apportioned IRRF funds, primarily the 

Department of State, the Department of Defense, and the U.S. Agency for International 

Development. The PCO prepares the Secretary of the Army Report, which is 

incorporated into the Section 2207 Report, by consolidating Department of Defense 

information for the reporting of IRRF funds. 

Development of Cost-to-Complete Estimates by PCO 

The Section 2207 Report on for April 2005, compiled by the IRMO, did not meet the 

congressionally mandated requirement to include estimates, on a project-by-project basis, 

of the costs required to complete each project. The IRMO did not report the cost-tocomplete data because PCO project management personnel did not complete the 

integration of program and financial data systems and did not develop the required costto-complete estimates for the Section 2207 Report. PCO officials cited a number of 

constraints that hindered the development of cost-to-complete estimates including: 

difficulty integrating data among financial and project management information systems, 

incomplete program management data, and rapidly rising security costs. 

Systems Integration Issues at the Project and Contracting Office. PCO management 

has experienced difficulties integrating financial and program management data across its 

management information systems infrastructure. For example, the PCO Oracle Project 

Accounting interface with the CEFMS database has not been completed because there is 
4 

not a compatible common project code identifier that the two systems share. The 

inability to share data has negatively impacted the PCO ability to link the financial 

information in CEFMS to program information. Consequently, it is difficult for project 

managers to prepare cost-to-complete estimates. 

Program Management Data at the Project and Contracting Office. PCO program 

management officials cited incomplete program management data as an impediment to 

developing cost-to-complete estimates. As of March 31, 2005, the largest 

151 construction projects totaled approximately $4.4 billion. PCO officials noted that 84 

of those projects totaling approximately $2 billion were planned but realistic targeted 

costs and baseline schedules were not established. Realistic targeted costs and baseline 

schedules for use in managing and forecasting costs for the remaining 67 projects totaling 

approximately $2.4 billion had been established. 

Security Costs at the Project and Contracting Office. Another impediment cited by 

PCO program management officials was the rapid growth in the cost to provide project 

security from insurgent activity. PCO management advised that, as of March 31, 2005, 

the estimated cost for project security had risen from the original program baseline of 

$1.2 billion to more than $2 billion. 

Management Actions 

During our audit, IRMO officials initiated procedures for preparing and reporting cost-tocomplete estimates. On June 7, 2005, IRMO officials advised us that IRMO will begin 

reporting cost-to-complete estimates in the Section 2207 Report for September 2005. On 

June 10, 2005, PCO officials began reporting cost-to-complete estimates to IRMO. We 

were advised by the PCO Chief Information Officer and Director of Information 

Technology that the U.S. Army Corps of Engineers is developing a software solution that 

will link the PCO Oracle Project Accounting interface with the CEFMS database. This is 

to provide integration of financial and project data that will improve PCO abilities to 

generate cost-to-complete estimates. The estimated completion date for the interface is 

August 31, 2005. 

In response to our draft audit report, the PCO officials stated that in coordination with 

IRMO and effective June 2005, it had fully implemented the procedures that support the 

monthly reporting requirement to develop and submit updated cost-to-complete estimates 

for Sector Project Codes and related construction projects. PCO officials stated they have 

provided the cost-to-complete estimates for each project (defined as a major task order) 

to IRMO. 

Conclusion 

Estimating cost-to-complete for each project is a challenging but congressionallymandated requirement in Iraq. Progress on reconstruction projects is sometimes difficult 

to determine. The lack of adequate automation support also adds to the difficulty. 

However, decision-makers need an accurate picture of funds required to complete 

projects currently underway. Without current and accurate cost-to-complete data, it is 

difficult to determine whether funds are available to complete ongoing IRRF projects and 

for the initiation of new projects. 
5 

Recommendations, Management Comments, and Audit 

Response 

A.1. We recommend that the Director, Project and Contracting Office: 

a. Complete the integration of the U.S. Army Corps of Engineers Financial 

Management System database with the Project and Contracting Office Oracle 

Project Accounting interface. 

Management Comments. The Director, PCO, concurred with our recommendation. 

The Director, PCO, stated that he anticipates completion of the development work of the 

PCO component of this interface by August 31, 2005.

Audit Response. We agreed.

b. Finalize and update, on a project-by-project basis, the current and best 

estimate of costs required to complete each project. 

Management Comments. The Director, PCO, concurred with our recommendation. 

The Director, PCO, stated that the PCO will continue its efforts to generate cost-tocomplete estimates and that the PCO has already provided the first of the information to 

the interested parties.

Audit Response. We agreed.

A.2. We recommend that the Director, Iraq Reconstruction Management Office 

require that current and best estimate for cost-to-complete information be provided 

for inclusion in the Section 2207 Report on Iraq Relief and Reconstruction. 

Management Comments. The Acting Director, IRMO, concurred with the 

recommendation through informal written comments. The Acting Director, IRMO, 

stated that the IRMO concurred as long as it could include the cost-to-complete 

information as a separate report with its Section 2207 Report submittal due to the 

sensitivity of the detailed information on projects. 

Audit Response. We agreed. 
6 

B. Accuracy of the Secretary of the Army Report 

The accuracy of the $7.9 billion of Department of Defense obligations reported on the 

Secretary of the Army Report issued March 27, 2005, could not be verified. Further, 

information that was incorporated into the Section 2207 Report, including the Secretary 

of the Army Report, was not required to be verified for accuracy by the U.S. government 

organizations providing that information. 

This occurred because PCO finance personnel could not provide transaction level details 

of obligations that were reconcilable to obligations contained in the Secretary of the 

Army Report and the Section 2207 Report, and because the IRMO had not established a 

requirement that submitted data for the Section 2207 Report be verified before 

submission. 

As a result, our audit was unable to verify the accuracy of the data submitted through the 

Secretary of the Army Report to the IRMO. Further, without a requirement to verify the 

submitted data, U.S. government organizations could submit unverified data to the IRMO 

for inclusion in the Section 2207 Report. Finally, because no verification was required or 

performed by the PCO, including information submitted by other organizations through 

the PCO, there is no assurance that the Congress was provided valid information through 

the Section 2207 Report that is needed to exercise oversight of the reconstruction efforts 

in Iraq.

Obligation Transaction Data

We requested obligation transaction data to support amounts reported on the March 27, 

2005, Secretary of the Army Report. The PCO provided an obligation transaction listing 

to us, retrieved from the CEFMS, which at the time it was provided was to be 

representative and reconcilable to the Secretary of the Army Report. During our audit, it 

was determined that the data provided, although not significantly different, could not be 

reconciled to the reported obligation amounts in the Secretary of the Army Report. 

Obligation Transaction Listing

The accuracy of the $7.9 billion of Department of Defense obligations reported on the 

Secretary of the Army Report issued March 27, 2005, could not be verified. This 

occurred because PCO finance personnel could not provide transaction level details of 

obligations that were reconcilable to obligations contained in the Secretary of the Army 

Report and the Section 2207 Report 

Obligations Shown in the Secretary of the Army Report and the Obligation 

Transaction Listing. Our review showed that there were differences between the 

obligations shown in the Secretary of the Army Report and the obligation transaction 

listing. The table shows the differences in the amounts reported in the Secretary of the 

Army Report and the amounts determined from the obligation transaction listing. 
7 

Differences Between the Obligations Shown in the Secretary of the Army Report 

 and the Obligation Transaction Listing 

 Construction Non-Construction Overhead Totals

Secretary of the 

Army Report 

(a) 

$5,056,061,174 $2,609,260,401 $254,834,868 $7,920,156,443 

Obligation 

Transaction Listing 

(b) 

$4,938,810,175 $2,355,972,039 $495,012,835 $7,789,795,049 

Dollar Amount of 

Differences 

(a-b = c) 

$117,250,999 $253,288,362 ($240,177,967) $130,361,394

Percent Amount of 

Differences 

(c/a) 

2.32% 9.71% (94.25)% 1.65% 

The Project and Contracting Office Position. We requested transactional data from 

the PCO to support amounts reported on the March 27, 2005, Secretary of the Army 

Report. The transactional data that was provided by the PCO for our review was not 

reconcilable to the Secretary of the Army Report and consequently did not meet our audit 

objectives. We were advised by PCO finance personnel that the CEFMS did not have a 

standard management report to support such a request but that CEFMS programmers had 

been asked to develop a program to provide the requested information. 

When we inquired about these differences, PCO finance personnel advised that: 

A nominal difference exists between the SecArmy Report and the 

detailed transaction listing supplied to the AFAA [sic] auditors in 

Baghdad. The Sec Army Report reflects valid, supportable, and 

certifiable figures that are obtained from the Corps of Engineers 

Financial Management System (CEFMS). The detail transaction listing 

is an internal analysis tool generated from CEFMS intended to be used 

by resource managers to identify material increases/decreases in 

sector/program accounts. The detail transaction report was never 

created to be used as a certifiable report. It is a reconciliation tool. 

CEFMS does not presently have available a comprehensive report that 

lists every individual transaction rolling up to AMSCOs [Army 

Management Structure Code], allotment serial numbers and 

appropriations, as such a report has never been required to reconcile 

CEFMS internally, though HQUSACE [Headquarters, U.S. Army 

Corps of Engineers] could certainly program such a report. CEFMS 

was designed as a ‘one entry updates all applicable general ledgers and 

subsidiary ledgers’, and almost all transactions are updated in real time. 

Reconciliation routines are run each night to insure the general ledger 

and subsidiary ledgers are reconciled. 

The detail transaction report we provided the auditors was never 

represented as a transaction file that reconciles exactly Sec Army data. 

The auditors needed a tool to select obligation transactions to test, we 

provided this, however not every transaction will be in the provided 
8 

data. For example labor, cost transfers, and interest payments would 

not be in the data set provided – our data set would only capture 

transactions linked to an undelivered order obligation document 

(emphasis added in bold). CEFMS cost transfers are accomplished at 

the Work Item Code (WIC) level, and are not attached to obligations. 

Interest payments work the same way, and labor transactions do not 

become obligations until t&a [time and attendance] data is signed, 

going from certified commitment to accrued expenditure, not tied to an 

undelivered order. All these transactions are captured on the SecArmy 

Report but not on the detailed obligation transaction report. 

When the SecArmy and Transaction Listing reports are compared at 

summary level, there is less than a quarter percent difference. This is a 

reasonable difference that provides a high level of assurance that the 

funds are being properly accounted for. 

We plan to perform follow-up audits of the accuracy of the data reported in the Secretary 

of the Army Report and on management controls over the data reported. 

Verification of Submitted Data 

The information that was incorporated into the Section 2207 Report, including the 

Secretary of the Army Report, was not required to be verified for accuracy by the U.S. 

government organizations providing that information. This occurred because IRMO had 

not established a requirement that submitted data for the Section 2207 Report be verified 

before submission. 

Certification of Data. According to PCO officials, the PCO is not required to certify the 

accuracy of the submitted data that is input into the Secretary of the Army Report. 

Further, according to PCO officials, the Secretary of the Army Report is compiled by the 

PCO from various Department of Defense organizations that manage and utilize funds 

obtained through the Iraq Relief and Reconstruction Fund. 

Iraq Reconstruction Management Office Position. IRMO officials provided informal 

comments to our draft report and stated that they have management controls in place to 

ensure accurate data is provided to them on a weekly basis. However, those officials also 

stated that the Secretary of Army Report is not an IRMO report and that they do not 

know what management controls are in place for this report. Given that the Secretary of 

the Army Report is the basis for the information that is provided to IRMO for the Section 

2207 Report, we asked how IRMO ensured that this data were validated for accuracy. 

Officials at IRMO stated that they only collated and prepared the Section 2207 Report for 

transmission by the Department of State to Congress. When IRMO officials were asked 

if they required that the information they reported to Congress be validated, they said no 

but agreed that it should be and would request that the data being provided to them for 

the purposes of the Section 2207 Report be verified for accuracy. 

Reconciliation of the Submitted Data 

We do not believe that the PCO can assert that “The Secretary of the Army Report 

reflects valid, supportable, and certifiable figures that are obtained from the Corps of 

Engineers Financial Management System (CEFMS)” when it can neither provide support 

for such a statement nor reconcile the reported figures to detailed transactions. 
9 

Further, we also do not believe that the PCO can argue that “The detail transaction report 

was never created to be used as a certifiable report” and that “The detail transaction 

report we provided the auditors was never represented as a transaction file that reconciles 

exactly Sec Army data” and simultaneously maintain that “When the Secretary of the 

Army and Transaction Listing reports are compared at summary level, there is less than a 

quarter percent difference. This is a reasonable difference that provides a high level of 

assurance that the funds are being properly accounted for.” We find these statements to 

be contradictory. 

Finally, we do not understand the PCO position that “The detail transaction report is an 

internal analysis tool generated from CEFMS intended to be used only by resource 

managers to identify material increase/decreases in sector/program accounts” and yet 

state “it is a reconciliation tool” when it cannot be reconciled to the data reported for the 

Secretary of the Army Report. 

Conclusion 

We were unable to verify the accuracy of the data submitted through the Secretary of the 

Army Report to the IRMO. Further, without a requirement to verify the submitted data, 

U.S. government organizations could submit unverified data to the IRMO for inclusion in 

the Section 2207 Report. Finally, because no verification was required or performed by 

the PCO, including information submitted by other organizations through the PCO, there 

is no assurance that the Congress was provided valid information through the Section 

2207 Report that is needed to exercise oversight of the reconstruction efforts in Iraq.

Recommendations, Management Comments, and Audit 

Response 

B.1. We recommend that the Director, Project and Contracting Office ensure that 

management controls over the Secretary of the Army Report, such as reconciliation 

procedures, result in verifying the accuracy of the submitted data. 

Management Comments. The Director, PCO, did not concur with our recommendation. 

The Director, PCO, stated that the Secretary of the Army Report is a weekly update for 

Army management that was never intended to be a certified report. The Director, PCO, 

further stated that because the PCO compiles data which is generated from multiple 

Department of Defense accounting systems, certification of the report is not possible by 

the PCO. 

Audit Response. We agreed and changed our report accordingly. 

B.2. We recommend that the Director, Iraq Reconstruction Management Office 

require that the data provided by U.S. government organizations responsible for 

managing the Iraq Relief and Reconstruction Fund for the purposes of inclusion in 

the Section 2207 Report be verified for accuracy before submission. 

Management Comments. The Acting Director, IRMO, concurred with the 

recommendation through informal written comments. The Acting Director, IRMO, 

stated that the data provided to them does not have to be certified but that the accuracy of 

the data should be verified by the various organizations submitting the data to IRMO. 

Audit Response. We agreed and changed our report accordingly. 
10 

Appendix A. Scope and Methodology 

We interviewed management personnel within the Iraq Reconstruction Management 

Office (IRMO) and the Project and Contracting Office (PCO) and reviewed 

organizational charts and relevant program memoranda to gain an understanding of the 

entities’ operations to include their organization, management style, and the internal and 

external factors influencing their operating environments. 

We reviewed the Section 2207 Report on Iraq Relief and Reconstruction issued to the 

Congress on April 6, 2005, for completeness. We attempted to reconcile the reported 

amounts to supporting worksheets provided by the PCO. The PCO provided the 

Department of Defense Iraq Relief and Reconstruction Fund (IRRF) program financial 

data as reported in the Secretary of the Army Report issued March 27, 2005. 

We performed our audit in Baghdad, Iraq, at the Presidential Palace, where we 

interviewed PCO finance and senior management personnel and IRMO budget and 

operations personnel and reviewed IRRF program and financial data, and at the PCO 

Annex, where we met with PCO project management and information technology 

personnel and reviewed project management data. 

We conducted this performance audit from March through July 2005, in accordance with 

generally accepted government auditing standards. 

Use of Computer-Processed Data. We performed tests to verify automated financial 

data maintained by the PCO through a comparison of reported balances to detail 

transactions records and by comparing detail transactions to source documents. We also 

utilized computer assisted audit techniques to identify potential duplicate obligations. 

The audit results indicated that the detailed transaction records provided to us by the PCO 

were not representative of data input to the summary PCO records and, therefore, not 

valid or reliable for verification by audit. 

Prior Coverage. There were no audits performed in the past 5 years with the same or 

similar objectives as this audit. 
11 

Appendix B. Acronyms 

CEFMS U.S. Army Corps of Engineers Financial Management System 

IRMO Iraq Reconstruction Management Office 

IRRF Iraq Relief and Reconstruction Fund 

PCO Project and Contracting Office 
12 

Appendix C. Report Distribution 

Department of State 

Secretary of State 

Senior Advisor/Coordinator for Iraq 

U.S. Ambassador to Iraq 

Director, Iraq Reconstruction Management Office 

Inspector General, Department of State 

Department of Defense 

Deputy Secretary of Defense 

Director, Defense Reconstruction Support Office-Iraq 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

Deputy Chief Financial Officer 

Deputy Comptroller (Program/Budget) 

Inspector General, Department of Defense 

Department of the Army 

Assistant Secretary of the Army for Acquisition, Logistics, and Technology 

Principal Deputy to the Assistant Secretary of the Army for Acquisition, Logistics, 

and Technology 

Deputy Assistant Secretary of the Army (Policy and Procurement) 

Director, Project and Contracting Office 

Assistant Secretary of the Army for Financial Management and Comptroller 

Auditor General of the Army 

Other Defense Organizations

Director, Defense Contract Audit Agency 

Other Federal Government Organizations 

Director, Office of Management and Budget 

Comptroller General of the United States 

Inspector General, Department of the Treasury 

Inspector General, Department of Commerce 

Inspector General, Department of Health and Human Services 

Inspector General, U.S. Agency for International Development 
13 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

U.S. Senate 

Senate Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on Foreign Operations 

Senate Committee on Armed Services 

Senate Committee on Foreign Relations 

Subcommittee on Near Eastern and South Asian Affairs 

Subcommittee on International Operations and Terrorism 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Government Efficiency and Financial Management 

Subcommittee on Financial Management, the Budget, and International Security 

U.S. House of Representatives 

House Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on Foreign Operations, Export Financing and Related Programs 

House Committee on Armed Services 

House Committee on International Relations 

Subcommittee on Middle East and Central Asia 

House Committee on Government Reform 

Subcommittee on Government Efficiency and Financial Management 

Subcommittee on National Security, Emerging Threats and International Relations 
14 

Appendix D. Audit Team Members 

The Office of the Assistant Inspector General for Auditing, Office of the Special 

Inspector General for Iraq Reconstruction, prepared this audit report. The staff members 

who contributed to the report include: 

Timothy Baum 

James Carrera 

Dan Haigler 

James Kojak