OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

400 Army Navy Drive • Arlington, Virginia 22202

January 24, 2006 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ, 

 COMMANDING GENERAL, GULF REGION DIVISION, U.S. 

ARMY CORPS OF ENGINEERS 

SUBJECT: GRD-PCO Management of the Transfer of IRRF-funded Assets to the Iraqi 

Government (SIGIR-05-028) 

We are providing this 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 comments from the U.S. Army Corps of Engineers, Gulf Region Division, on 

a draft of this report when preparing the final report. Their comments on the draft of this 

report conformed to requirements and left no unresolved issues. Therefore, no additional 

comments are required. 

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

please contact Mr. Clifton Spruill by email at clifton.spruill@iraq.centcom.mil or at 

(703) 343-8817, or Mr. Glenn Furbish by email at glenn.furbish@iraq.centcom.mil or at 

(703) 343-8817. For the report distribution, see Appendix C. 

Stuart W. Bowen, Jr. 

Inspector General 
i 

Special Inspector General for Iraq Reconstruction 

SIGIR-05-028 January 24, 2006 

GRD-PCO Management of the Transfer of IRRF-funded Assets 

to the Iraqi Government 

Executive Summary 

This report is one of a series of reports addressing the management, by U.S. government 

organizations, of the transfer of completed reconstruction projects to the Government of 

Iraq. 

Introduction. In November 2003, the United States Congress appropriated $18.4 billion 

for the Iraq Relief and Reconstruction Fund (IRRF) to support security, relief, 

rehabilitation, and reconstruction projects in post-war Iraq. The Gulf Region Division 

(GRD) of the U.S. Army Corps of Engineers and the Project and Contracting Office 

(PCO) have managed the completion of 1,692 projects valued at approximately $1.4 

billion through December 28, 2005, but the largest projects will not be finished until 

2006-2007. Thousands of completed projects funded by the IRRF and other programs 

will be transferred to the Government of Iraq during 2006-2007. These projects 

combined represent the eventual transfer of billions of dollars of assets. A formal asset 

transfer process is necessary to enable the Government of Iraq to integrate the completed 

project assets into a nation-wide infrastructure management plan; adequately budget for 

sustaining the transferred project assets; account for the assets; and leverage the project 

assets to obtain financing for additional projects from world markets. 

Objectives. The overall objective of this audit was to determine whether the U.S. 

government organizations responsible for managing IRRF projects have developed and 

approved policies and procedures for transferring the billions of dollars of assets 

purchased, renovated and constructed with IRRF funds to the Iraqi Government and its 

citizens. This audit focused specifically on asset recognition and transfer policies and 

procedures used by two organizations managing IRRF projects; the GRD and PCO. The 

responsibilities of the GRD were consolidated with those of the PCO on December 4, 

2005. This report uses the term GRD-PCO for the consolidated entity. We will report on 

other U.S. government organizations in future reports. 

Results. The GRD-PCO has recognized the need for formal asset recognition and 

transfer policies and procedures, and is working, in coordination with the Iraq 

Reconstruction Management Office and others, to resolve the issue. However, current 

GRD-PCO policies and procedures are geared toward asset transfer to Iraqi government 

representatives at the local level, and do not address the information needs of the 

Government of Iraq and the Iraqi Ministries responsible for planning the integration and 

sustainment of completed projects. The GRD-PCO has acknowledged the problem and is 

participating in two multi-agency working groups to develop a common policy and 

process for facilitating the legal, financial, and logistical transfer of assets to the 

Government of Iraq. 

Management Actions. During the course of this audit, the GRD-PCO acknowledged the 

need to further address the asset recognition and transfer issue, and dispatched a team to 
Iraq in November 2005 to provide an in-depth assessment of the current contract closeout and asset-transfer processes. In addition, it participates in two multi-agency working 

groups, the Information Technology Working Group and the Asset Recognition and 

Transfer Team Working Group, comprised of representatives from the principal U.S. 

government agencies charged with the relief and reconstruction effort in Iraq. 

The Information Technology Working Group was formed to consolidate all U.S. 

government funded and managed relief and reconstruction project asset information 

across all infrastructure sectors and organizations throughout Iraq into one database. The 

name for this consolidated database is the “Iraq Reconstruction Management System”. 

One of the intended goals for the Iraq Reconstruction Management System is the 

capability to turn over to the Iraqi government an archive of the U.S. government’s relief 

and reconstruction project information, which will help the Iraqi government in its 

budgeting for sustainment of transferred facilities and future master planning. 

The U.S. Department of State’s Iraq Reconstruction and Management Office established 

the Asset Recognition and Transfer Team Working Group, which includes 

representatives from the GRD-PCO, Iraq Reconstruction Management Office, U.S. 

Agency for International Development, Multi-National Security Transition CommandIraq, Multi-National Force-Iraq, Joint Contracting Command-Iraq/Afghanistan and 

others, to develop a common policy and process for the represented agencies to facilitate 

the legal, financial and logistical transfer of assets to the Government of Iraq. 

Recommendations. We recommend that the Commanding General, Gulf Region 

Division, U.S. Army Corps of Engineers direct the GRD-PCO, in coordination with the 

Iraq Reconstruction Management Office, to complete the development of a common 

policy and process facilitating the transfer of completed project assets to the Government 

of Iraq. That process should, at a minimum, provide formal notification of the project 

asset transfer to the Iraqi Ministry of Planning, Ministry of Finance, and the appropriate 

operating ministry central headquarters (Electricity, Water, Oil, Health, Education, 

Transportation, Roads, Communications, Justice, Interior and Defense). Notification 

should also include, at a minimum, relevant data such as operation start date, asset cost, 

estimated short-term and long-term sustainability costs, terms of warranties, and the 

location of maintenance and systems manuals and instructions. 

Management Comments and Audit Response. The Commanding General, Gulf 

Region Division, U.S. Army Corps of Engineers concurred with the finding and 

recommendations; and the comments to all recommendations are fully responsive. 

Additional Observations. In the course of our review, we also noted that in addition to 

the IRRF, Iraq reconstruction activities are also being funded by the Development Fund 

for Iraq, the Commander’s Emergency Response Program, and the Commander’s 

Humanitarian Relief and Reconstruction Program as well as various other U.S. 

government administered funding sources. As with IRRF-funded projects, formal asset 

recognition and transfer policies and procedures are similarly needed for the transfer of 

additional billions of dollars worth of assets. We believe that the transfer of all assets 

developed or funded by U.S. government programs should be governed by a common set 

of policies and procedures. 

ii
Table of Contents 

Executive Summary i 

Introduction 

Background 1 

Objectives 2 

Finding 

 Asset Recognition and Transfer Policies and Procedures 3 

Appendixes 

A. Scope and Methodology 6 

B. Acronyms 7 

C. Report Distribution 8 

D. Audit Team Members 10 

Management Comments 

Commanding General, Gulf Region Division, U.S. Army Corps of Engineers 11 
1

Introduction 

Background 

On November 6, 2003, the U.S. Congress appropriated $18.4 billion, through Public Law 

108-106, for the Iraq Relief and Reconstruction Fund (IRRF) to fund Iraq reconstruction 

requirements that had been identified by the Coalition Provisional Authority during the 

summer and fall of 2003. The Coalition Provisional Authority identified thousands of 

projects within various infrastructure sectors in Iraq, such as electricity, water, oil, health 

care, transportation, and education. Although this audit focuses on the IRRF, there are 

additional programs such as the Commander’s Emergency Response Program, the 

Development Fund for Iraq, the Commander’s Humanitarian Relief and Reconstruction 

Program and other sources that are funding thousands of additional reconstruction 

projects. 

The Gulf Region Division (GRD) of the U.S. Army Corps of Engineers and the Project 

and Contracting Office (PCO) have managed the completion of 1,692 projects valued at 

approximately $1.4 billion through December 28, 2005, but the largest projects will not 

be finished until 2006-2007. Thousands of additional completed projects funded by the 

IRRF and other programs will be transferred to the Government of Iraq during 2006-

2007. As a result of these projects, billions of dollars worth of assets will be transferred 

to the Government of Iraq Therefore, it is imperative the transfer process be 

accomplished in a manner that enables the Government of Iraq to integrate the completed 

project assets into a nation-wide infrastructure plan for future capital projects, assure 

adequate budgeting for sustainability of the transferred project assets, and leverage those 

project assets to obtain financing for additional projects from world markets. 

Responsibilities

According to National Security Presidential Directive 36, entitled, “United States 

Government Operations in Iraq,” the Chief of the U.S. Mission in Iraq, under guidance 

from the Secretary of State, is responsible for the direction, coordination, and supervision 

of all United States government employees, policies, and activities in country, except 

those under the command of an area military commander. This includes the continuous 

supervision and general direction of all assistance for Iraq. The Directive also creates a 

temporary organization within the Department of State, called the Iraq Reconstruction 

Management Office to facilitate the reconstruction in Iraq. 

The PCO was also created by National Security Presidential Directive 36. It is a 

temporary Department of Defense organization whose staff was assigned under Chief of 

the U.S. Mission in Iraq authority. It provides program management services for 

Department of Defense contracts and for contracts managed by the Department of State 

and other departments and agencies. 

The GRD provides engineering and construction services to the Multi-National ForceIraq and the Iraqi government in support of military and civil construction. This is 

accomplished through its Baghdad headquarters, three district offices, and numerous field 

offices located throughout Iraq. 

The responsibilities of the PCO were consolidated with those of the GRD on 

December 4, 2005. Planners anticipated that the GRD would have a longer-term 
2

presence in Iraq to support Multi-National Force-Iraq and there were potential 

organizational efficiencies to downsize and restructure PCO functions while GRD 

continued its presence in Iraq. This report will use GRD-PCO as the name for the 

consolidated entity. 

Objectives 

The overall objective of this audit was to determine whether the U.S. government 

organizations responsible for managing IRRF projects have developed and approved 

policies and procedures for transferring the billions of dollars worth of assets purchased, 

renovated and constructed with IRRF funds to the Government of Iraq and its citizens. 

This audit focused specifically on asset recognition and transfer policies and procedures 

used by two organizations managing IRRF projects; the GRD and PCO. We will report 

on other U.S. government organizations in future reports.

For a discussion of the audit scope and methodology, 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

Asset Recognition and Transfer Policies and 

Procedures 

Effective asset recognition and transfer requires that assets be properly accepted by the 

U.S. government, accounted for, and then formally transferred to the Government of Iraq. 

PCO-GRD officials told us they are in the process of developing, in coordination with the 

Iraq Reconstruction Management Office and others, a common process and policy 

facilitating the transfer of assets to the Government of Iraq and estimate that these 

policies and plans will be completed by March 31, 2006, contingent upon the 

Government of Iraq’s participation and concurrence. 

Coordination of Iraqi Responsibility 

Asset recognition and transfer is the final step in a process which should begin with 

Government of Iraq involvement in the programming and design of the project and 

continue through the inspection process and development and receipt of the contract 

deliverables necessary for operations and maintenance of the completed project. The 

final acceptance and transfer of the project assets should be the culmination of a 

collaborative process between the appropriate United States and Government of Iraq 

representatives. An effective transfer process will help GRD-PCO, in coordination with 

others, prepare the Government of Iraq to sustain completed project assets after transfer. 

In addition, proper recognition of the completed project assets will enable the 

Government of Iraq to leverage those assets to obtain financing from world markets, 

including the International Monetary Fund, World Bank, non-governmental organizations 

and donor nations. 

Asset recognition and turnover is important because the Government of Iraq needs to 

plan for and fund infrastructure and sustainment of completed projects on a nation-wide 

basis. This requires a comprehensive knowledge by all appropriate ministries of assets 

being transferred to its control. According to a senior Iraq Reconstruction Management 

Office official, an effective asset recognition and transfer program in the current Iraqi 

political and security environment should include notification of the transfer to the 

Ministry of Planning, Ministry of Finance, and appropriate operating ministry 

(Electricity, Water, Oil, Health, Education, Transportation, Roads, Communications, 

Justice, Interior and Defense) at the central government level in Baghdad. 

The Ministry of Planning has final planning responsibility for all capital assets. 

Recognition of transferred assets by the Ministry of Planning is necessary in order to 

integrate them into a nation-wide infrastructure plan for future capital projects that will 

best serve the people of Iraq. The Ministry of Finance is responsible for the overall Iraqi 

budget. Recognition by the Ministry of Finance is necessary to assure adequate 

budgeting for sustainability of the transferred assets. In addition, proper recognition of 

the completed projects will enable the Ministry of Finance to leverage those assets to 

obtain financing from world markets, including the International Monetary Fund, World 

Bank, non-governmental organizations and donor nations. 

Coordination of U.S. Responsibility 

The GRD-PCO has developed standard operating procedures for transferring assets, but 

these policies and procedures are geared towards the turnover of projects and facilities to 
4

Iraqi government representatives at the local level. This was because the GRD-PCO saw 

its role as limited to what was needed for successful transition of its infrastructure 

projects to the Iraqis at the local system or facilities level. The GRD-PCO has written 

procedures requiring Iraqi government involvement in the asset inspection and turnover 

process, but lacks specific procedures requiring notification of the asset transfer to the 

operating ministry headquarters in Baghdad or to the Ministry of Planning or Ministry of 

Finance. 

GRD-PCO officials also recognized the need to improve their policies and procedures for 

closing contracts and transferring IRRF funded assets to the Government of Iraq. In 

November 2005, the U.S. Army Corps of Engineers dispatched a team to Iraq to assess 

the current contract close-out and asset-transfer processes. A senior GRD-PCO official 

told us the team concluded that, in general, contracts were being closed out and assets 

transferred by the local GRD field offices to the Government of Iraq in accordance with 

GRD-PCO standard operating procedures. However, to enhance these processes as the 

reconstruction effort matures, GRD-PCO plans to establish dedicated contract close out 

teams to work at field offices and achieve greater consistency in the processes by 

providing additional training to field office personnel. 

The GRD-PCO also participates in two multi-agency working groups, the Information 

Technology Working Group and the Asset Recognition and Transfer Team Working 

Group, comprised of representatives from the principal agencies of the U.S. government 

charged with the relief and reconstruction effort in Iraq. These agencies include, among 

others, GRD-PCO, the Iraq Reconstruction Management Office, Multi-National ForceIraq, Multi-National Security Transition Command-Iraq, Joint Contracting CommandIraq/Afghanistan, and the U.S. Agency for International Development. 

The Information Technology Working Group was formed in August 2005 to consolidate 

all U.S. government funded and managed relief and reconstruction project information 

across all sectors and organizations throughout Iraq into one database. The name for this 

consolidated database is the Iraq Reconstruction Management System. One of the 

intended goals for the Iraq Reconstruction Management System is the capability to turn 

over to the Government of Iraq an archive of the total U.S. government’s relief and 

reconstruction project information, which will help the Iraqi government in its budgeting 

for sustainability of transferred facilities and future master planning. 

In addition, the GRD-PCO is a member of the Asset Recognition and Transfer Team 

Working Group which held its first formal meeting in December 2005. This Working 

Group was started to build on earlier informal efforts by representatives from the Iraq 

Reconstruction Management Office, Joint Contracting Command-Iraq/Afghanistan and 

others to develop a common policy and process for all U.S. agencies to use in transferring 

assets to the Government of Iraq. In September 2005, their effort resulted in a draft for 

common policy and process, but further progress on the issue was limited until the formal 

Working Group began work in December 2005. 

The Working Group includes, among others, representatives from GRD-PCO, Iraq 

Reconstruction and Management Office, U.S. Agency for International Development, 

Multi-National Security Transition Command-Iraq, Multi-National Force-Iraq, and Joint 

Contracting Command-Iraq/Afghanistan. The purpose of the Working Group is to 

complete the development of a common policy and process for the represented agencies 

to facilitate the legal, financial and logistical transfer of assets to the Government of Iraq. 

In its written response to the draft of this audit report, GRD-PCO stated that they 

anticipate having written policies and procedures in place by March 31, 2006, contingent 

upon the Government of Iraq’s participation and concurrence. 
5

Conclusion

Current GRD-PCO policies and procedures are insufficient to assure the successful 

recognition and transfer of assets to the Government of Iraq because they do not require 

the provision for notification and sufficient information to the appropriate Iraqi Ministries 

to enable adequate long-term, nation-wide planning for the integration and sustainability 

of completed projects transferred to the Government of Iraq. To its credit, GRD-PCO has 

acknowledged the problem and is working to resolve the asset recognition and transfer 

issue. 

Recommendations, Management Comments, and Audit 

Response

We recommend that the Commanding General, Gulf Region Division, U.S. Army Corps 

of Engineers direct the GRD-PCO, in coordination with the Iraq Reconstruction 

Management Office, to complete the development of a common policy and process 

facilitating the transfer of completed project assets to the Government of Iraq. That 

process should, at a minimum, provide formal notification of the project asset transfer to 

the Iraqi Ministry of Planning, Ministry of Finance, and the appropriate operating 

ministry central headquarters (Electricity, Water, Oil, Health, Education, Transportation, 

Roads, Communications, Justice, Interior and Defense). Notification should also include, 

at a minimum, relevant data such as operation start date, asset cost, estimated short-term 

and long-term sustainability costs, terms of warranties, and the location of maintenance 

and systems manuals and instructions. 

Management Comments. The Commanding General, Gulf Region Division, U.S. Army 

Corps of Engineers, concurred with the finding and recommendations. 

Audit Response. The management comments to the recommendations are fully 

responsive. 

Additional Observations

In the course of our review, we also noted that in addition to the IRRF, Iraq 

reconstruction activities are also being funded by the Development Fund for Iraq, the 

Commander’s Emergency Response Program, and the Commander’s Humanitarian 

Relief and Reconstruction Program as well as various other U.S. government 

administered funding sources. As with IRRF-funded projects, formal asset recognition 

and transfer policies and procedures are similarly needed for the transfer of additional 

billions of dollars worth of assets. We believe that the transfer of all assets developed or 

funded by U.S. programs should be governed by a common set of policies and 

procedures. 
6

Appendix A. Scope and Methodology 

We initiated this review in November 2005 (Project No. SIGIR-2005-21) to determine if 

the Gulf Region Division (GRD) of the U.S. Army Corps of Engineers, and the Project 

and Contracting Office (PCO) had adequate policies and procedures in place to manage 

the transfer of assets to the Government of Iraq. We interviewed GRD-PCO 

representatives, including the Director, Program Management and Integration Division. 

We also interviewed representatives from the Joint Contracting CommandIraq/Afghanistan to discuss the legal requirements for closing out contracts and 

transferring assets to a foreign government. We also interviewed representatives from 

the Iraq Reconstruction Management Office to gather information about how the asset 

transfer process affects planning and budgeting at the Iraqi central government level. 

We reviewed GRD-PCO policies and procedures regarding the contract close-out and 

asset transfer process. We did not visit GRD field offices to review completed contract 

close-out and asset transfer documentation to determine if they were accomplished in 

accordance with GRD-PCO policies and procedures. We plan to address this issue in a 

future audit. 

We conducted this audit from November 2005 through December 2005, in accordance 

with generally accepted government auditing standards. 

Use of Computer-Processed Data. We did not use computer-processed data to 

perform this audit. 

Prior Coverage. There have been no audits performed concerning the Iraq Relief and 

Reconstruction Fund with the same or similar objectives as this audit. 
7

Appendix B. Acronyms 

GRD Gulf Region Division (U.S. Army Corps of Engineers) 

IRRF Iraq Relief and Reconstruction Fund 

PCO Project and Contracting Office 
8

Appendix C. Report Distribution 

Department of State 

Secretary of State 

Senior Advisor to the Secretary and Coordinator for Iraq 

U.S. Ambassador to Iraq 

Director, Iraq Reconstruction Management Office 

Inspector General, Department of State 

Department of Defense 

Secretary of Defense 

Deputy Secretary of Defense 

Director, Defense Reconstruction Support Office 

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 

Commanding General, Joint Contracting Command – Iraq/Afghanistan 

Assistant Secretary of the Army for Financial Management and Comptroller 

Chief of Engineers and Commander, U.S. Army Corps of Engineers 

 Commanding General, Gulf Region Division 

Auditor General of the Army 

U.S. Central Command

Commanding General, Multi-National Force – Iraq 

 Commanding General, Multi-National Security Transition Command – Iraq 

 Commander, Joint Area Support Group – Central 

Other Defense Organizations

Director, Defense Contract Audit Agency 
9

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 

Mission Director – Iraq, U.S. Agency for International Development 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

U.S. Senate 

Senate Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on State, Foreign Operations and Related Programs 

Senate Committee on Armed Services 

Senate Committee on Foreign Relations 

Subcommittee on International Operations and Terrorism 

Subcommittee on Near Eastern and South Asian Affairs 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Financial Management, Government Information and 

International Security 

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia 

U.S. House of Representatives 

House Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on Foreign Operations, Export Financing and Related Programs 

Subcommittee on Science, State, Justice and Commerce and Related Agencies 

House Committee on Armed Services 

House Committee on Government Reform 

Subcommittee on Management, Finance and Accountability 

Subcommittee on National Security, Emerging Threats and International 

Relations 

House Committee on International Relations 

Subcommittee on Middle East and Central Asia 
10

Appendix D. Audit Team Members 

This audit report was prepared and the audit work was conducted under the 

direction of Joseph T. McDermott, the Assistant Inspector General for Auditing, 

Office of the Special Inspector General for Iraq Reconstruction. The staff members 

who contributed to the report include: 

Glenn Furbish 

Robert Gabriel 

John Morrell 
11

Management Comments 

Commanding General, Gulf Region Division, U.S. 

Army Corps of Engineers 
12