OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

September 22, 2006 

MEMORANDUM FOR UNDER SECRETARY OF DEFENSE (COMPTROLLER), 

U.S. DEPARTMENT OF DEFENSE 

 DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

 U.S. AMBASSADOR TO IRAQ 

 COMMANDING GENERAL, MULTI-NATIONAL FORCEIRAQ 

COMMANDING GENERAL, U.S. ARMY CORPS OF 

ENGINEERS 

DIRECTOR, IRAQ RECONSTRUCTION MANAGEMENT 

OFFICE 

 COMMANDING GENERAL, GULF REGION DIVISION, 

U.S. ARMY CORPS OF ENGINEERS 

 

SUBJECT: Interim Audit Report on Improper Obligations Using the Iraq Relief and 

Reconstruction Fund (IRRF 2) (SIGIR-06-037) 

Due to the time-sensitive nature of the matter discussed in this report we are providing 

this interim audit report for your information and use. We performed this review in 

accordance with our statutory duties 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 in support of 

Iraq relief and reconstruction. 

Objective 

This review was announced on July 21, 2006, with the overall objective of determining 

the amount of Iraq Relief and Reconstruction Fund (IRRF) unmatched disbursements, 

and whether the U.S. Government agencies have established adequate management 

controls over IRRF unmatched disbursements. During our review of unmatched 

disbursements we found 96 obligations totaling about $362 million that described the 

vendor name as “Dummy Vendor”. The term “Dummy Vendor” was used in the U.S. 

Army Corps of Engineers Financial Management System to allow entering data into a 

data field for vendors when no specific vendor existed. We do not believe in using this 

term there was any attempt to mislead on the true status of obligations. The U.S. Army 

Corps of Engineers has since changed this terminology from “dummy vendor” to “IRRF 

in-scope modifications and estimate cost-to-complete projects” to more accurately reflect 

their purpose for the obligations. 

The objective of this interim audit was to assess whether these obligations of IRRF funds 

initially noted as “Dummy Vendor” met the criteria for proper obligations. 

400 Army Navy Drive • Arlington, Virginia 22202
Background 

In November 2003, Congress passed Public Law 108-106, the Emergency Supplemental 

Appropriations Act for Defense and for the Reconstruction of Iraq and Afghanistan, 

which appropriated $18.4 billion for the rebuilding of Iraq. This money is known as the 

Iraq Relief and Reconstruction Fund 2 (hereafter referred to as IRRF 2).1 The funds 

provided in Public Law 108-106 were to remain available until September 30, 2006. 

Therefore, the authority to initially obligate these funds will expire on that date. 

According to the financial records of the U.S. Army Corps of Engineers (USACE) 

Finance Center, as of August 24, 2006, the Department of Defense (DoD) has about $464 

million remaining in IRRF 2 to obligate by September 30, 2006, as detailed in the Corps 

of Engineers Financial Management System (CEFMS) report of all DoD IRRF 2 

obligations and disbursements allocated to DoD. 

Results 

Our review of the Project and Contracting Office obligations recorded in USACE’s 

financial records determined that the $362 million recorded under the vendor name as 

“Dummy Vendor” do not constitute proper obligations. The establishment of these 

obligations is not consistent with a 1995 decision by the Comptroller General of the 

United States on appropriations availability, the U.S. Government Accountability 

Office’s (GAO) Appropriations Law Manual, and the DoD Financial Management 

Regulation (FMR) requirements for the recording and reviewing of commitments and 

obligations. If action to obligate these funds consistent with GAO and DoD guidance on 

what constitutes proper obligations is not taken by September 30, 2006, they will expire. 

As a result, USACE actually over reported its obligations by $362 million so it really had 

as of August 24, 2006, $826 million remaining to obligate by the end of the fiscal year. 

Guidance Exists on Availability and Recording of a Proper Obligation

The Comptroller General of the United States, GAO’s Appropriations Law Manual, and 

the DoD FMR provide guidance on what constitutes a proper obligation. According to 

the GAO Appropriations Law Manual, Chapter 7, an “obligation” is some action that 

creates a liability or definite commitment on the part of the government to make a 

disbursement at some later time. In a 1995 decision2 the Comptroller General stated that 

it is a fundamental principle of appropriations law that appropriated amounts are limited 

for obligation to a definite period and are available only for payment of expenses 

properly incurred during that period of availability. The Comptroller General further 

stated that unless properly obligated during their period of availability, any amounts 

reserved in a contingency account would not be available to support obligations arising 

after the expiration of their period of availability. 

This decision is discussed in detail in GAO’s Appropriations Law Manual, Chapter 5.3 

The manual states: “An appropriation may not be used for the needs of some time period 

subsequent to the expiration of its period of availability.” With respect to annual 

appropriations, a more common statement of the rule is that an appropriation for a given 

 

1

 P.L. 108-11 established the $2.48 billion Iraq Relief and Reconstruction Fund 1 (IRRF 1). The scope of 

this report does not include IRRF 1 funds. 

2 Comp. Gen. Dec. No. B-257061, 1995, Matter of Federal Aviation Administration -- Appropriations 

availability -- Payments of Attorney’s Fees.

3

 U.S. Government Accountability Office, Principles of Federal Appropriations Law: Third Edition, 

Volume 1, GAO-04-261SP, January 2004. The document was last updated on June 9, 2005. 

2 
fiscal year is not available for the needs of a future fiscal year.” IRRF 2 is a multiple-year 

appropriation (Fiscal Years 2004-2006), and apart from the extended period of 

availability, multiple-year appropriations are subject to the same principles applicable to 

annual appropriations. 

Regarding recording of obligations, DoD’s FMR, 7000.14R, Volume 3, Chapter 8, states 

that obligations shall be recorded in the official accounting records at the time a legal 

obligation is incurred, or as close to the time of incurrence as is feasible. An amount 

shall be recorded as an obligation only when supported by documentary evidence of the 

transaction. 

Some IRRF 2 Obligations Recorded In CEFMS 

Do Not Constitute Proper Obligations 

In reviewing the August 24, 2006, CEFMS report of all IRRF 2 obligations and 

disbursements allocated to DoD, we identified 96 obligations totaling about $362 million 

that described the vendor name as “Dummy Vendor”. These obligations, recorded 

between November 2004 and August 2006, were identified within five categories in the 

CEFMS report, as shown in table 1. None of these obligations identified a vendor or 

contractor by name, nor had any disbursements been made against them. When we 

discussed these obligations with the Deputy Director of USACE’s Finance Center on 

August 25, 2006, she queried the USACE’s Gulf Region Division-Project and 

Contracting Office. The Gulf Region Division Deputy Director for Finance advised the 

USACE Finance Center that these are miscellaneous obligation documents set up by the 

Project and Contracting Office within IRRF 2 and that a formal request for legal review 

is being prepared to formalize USACE’s authority to keep these miscellaneous obligation 

documents on the books. 

Table 1: IRRF 2 Obligations Described in CEFMS Under “Dummy Vendor” Accounts 

Type of Obligation 

Number of 

CEFMS 

Entries 

Amount Obligated

($ in millions) 

Amount Disbursed

($ in millions) 

Contingency 30 $ 252.2 $ 0 

Design/Build Program Close Out 25 85.1 0 

Public Works Center Costs 36 19.4 0 

Supervision & Administration 2 0.3 0 

Claims & Unknown 3 $ 5.5 0 

Total 96 $362.5 $ 0 

Source: Developed by SIGIR from CEFMS data as of August 24, 2006.

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As shown in Table 2, these obligations cover 9 construction and non-construction sectors 

relating to the Iraqi economy. The bulk of them—69%—are in the oil and electricity 

sectors. 

Table 2: IRRF 2 Obligations with Vendor Name of “Dummy Vendor” by Sector 

Sector Number of 

Entries 

Amount Obligated 

($ in millions) 

Percent of Total 

“Dummy 

Vendor” 

Obligations 

Security & Law Enforcement 3 $2.5 .7 

Justice, Public Safety Infrastructure & 

Civil Society 

22 29.0 8.0 

Electricity 16 129.6 35.8 

Oil Infrastructure 8 119.4 32.9 

Water Resources 21 55.7 15.4 

Transportation & Telecommunications 12 5.3 1.5 

Roads, Bridges & Construction 9 8.8 2.4 

Health Care 4 12.1 3.3 

Education, Refugees, Human Rights & 

Governance 

1 .1 0 

Total 96 $362.5 100.0 

Source: Developed by SIGIR from CEFMS data as of August 24, 2006.

On September 7, 2006, we discussed these results with the USACE Chief Financial 

Officer (CFO), the command’s senior fiscal official. In response to our concerns that the 

current obligations identified under “Dummy Vendor” are not proper obligations, the 

CFO stated that he is in the process of taking several actions. Specifically, the CFO 

informed us that he: 

1. formally requested, on September 6, 2006, a legal opinion from the Army Deputy 

General Counsel (Ethics and Fiscal) on USACE’s plan to reserve funds 

appropriated for IRRF for in-scope modifications and close-out costs 

2. initiated discussions with the Office of Management and Budget to determine the 

validity of this method of reserving and recording IRRF 2 funds 

3. plans to initiate discussions with the Department of State, which is responsible for 

managing IRRF 

We believe given that these recent or planned actions only began on September 6, 2006, 

there is a high risk that this issue will not be resolved before the authority to obligate 

IRRF 2 funds expires on September 30, 2006. 

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Conclusion 

The obligation of amounts from IRRF 2 must be made for bona fide purposes prior to 

September 30, 2006. Appropriated amounts are limited for obligation to a definite 

period and are available only for payment of expenses properly incurred during that 

period. Thus, unless obligated consistent with GAO and DoD guidance on what 

constitutes proper obligations during their period of availability, any amounts reserved as 

a contingency would not be available to support obligations arising after expiration of 

their period of availability. Consequently, we have concluded that the $362 million 

recorded in CEFMS as “Dummy Vendor” are not proper obligations of IRRF funds. 

Further, if these funds are not obligated against discrete contracts (or other recordable 

transactions) consistent with GAO and DoD guidance on what constitutes proper 

obligations, the authority to obligate them will expire on September 30, 2006. 

We further believe that including the $362 million of improper IRRF obligations in the 

CEFMS official accounting records has resulted in inaccurate reporting to Congress on 

the amount of IRRF funds obligated and the funds remaining to be obligated. 

Consequently, DoD management and Congress are not receiving accurate information on 

IRRF. 

Recommendation 

We recommend that the Commanding General, USACE, direct the Gulf Region DivisionProject and Contracting Office to immediately review the 96 obligations established for 

“dummy vendors,” and to the extent practicable, take steps to obligate these funds 

consistent with GAO and DoD guidance on what constitutes proper obligations by 

September 30, 2006; or alternately take steps to assure that the funds remain legally 

available. 

Management Comments and Our Response 

Because of the time sensitive nature of this report we obtained formal oral comments 

from USACE. We discussed the finding with the USACE CFO, the command’s senior 

fiscal official, in an exit conference on September 12, 2006. USACE’s CFO agreed with 

our conclusion that the $362 million in IRRF 2 funds obligated without a vendor name 

were not proper obligations. USACE is seeking a solution that meets its needs to fund 

future contingency and close-out costs in a manner that constitutes proper obligations. 

On September 18, 2006, the USACE CFO provided an additional response. According to 

the CFO, the USACE will recommend that the Project and Contracting Office deobligate 

these funds immediately and return the funds to the Department of the Army. The CFO 

IRRF worksheet identified about $348 million to be de-obligated. USACE will let these 

funds expire on September 30, 2006 under their agency code and will maintain these 

expired funds for in-scope modifications in Fiscal Year 2007. 

Guidance Exists on the Use of Expired Funds

Once the initial period for which an appropriation is available expires, the availability of 

any remaining balances for further obligation is limited. GAO’s Appropriations Law 

Manual provides guidance on disposition of appropriation balances. An annual 

appropriation that is un-obligated at the end of the fiscal year for which it was 

appropriated is said to “expire” for operational purposes. In other words, they cease to be 

5 
available for the purposes of incurring and recording new obligations. The same 

principle applies to multiple year appropriations as of the end of the last fiscal year for 

which they were provided. Upon expiration of a fixed appropriation, the obligated 

balances retain their fiscal year identity in an “expired account” for that appropriation for 

an additional five fiscal years.4 During the five year period, the expired account balance 

may be used to liquidate obligations properly chargeable to the account prior to its 

expiration. The expired account balance also remains available to make legitimate 

obligations adjustments, that is, to record previously unrecorded obligations and to make 

upward adjustments in previously under recorded obligations.5 

Scope and Methodology 

This review was announced on July 21, 2006 (Project No. 6027), with the objective of 

determining the amount of IRRF unmatched disbursements, and whether the U.S. 

Government agencies have established adequate management controls over IRRF 1 and 

IRRF 2 unmatched disbursements. We conducted this review at the USACE Finance 

Center in Millington, Tennessee, and USACE headquarters in Washington, D.C. 

In the course of examining IRRF 2 unmatched disbursements, we obtained and reviewed 

the USACE Finance Center’s August 24, 2006, report of all IRRF 2 obligations and 

disbursements allocated to the DoD which was generated from CEFMS. During our 

review of the CEFMS report, we identified 96 obligations totaling about $362 million 

that described the vendor name as “Dummy Vendor”. 

To determine the basis for the entry of the 96 obligations into CEFMS, we held 

discussions with Finance Center personnel. In responding to our questions about the 

“Dummy Vouchers” the Deputy Director of the Finance Center queried USACE’s Gulf 

Region Division-Project and Contracting Office in Baghdad. We also discussed the basis 

for these obligations with senior USACE resource management officials, including 

USACE’s CFO. To determine whether these obligations were proper, we reviewed 

Comptroller General of the United States decisions, GAO’s Appropriations Law Manual, 

and the DoD FMR to identify what constitutes a proper obligation. 

We performed this review from July 21, 2006 through September 20, 2006, in accordance 

with generally accepted government auditing standards. 

- - - - 

This interim report is provided for management’s use and appropriate action, and is 

consistent with the information discussed at our meetings held on September 12 and 18, 

2006, with the USACE CFO. No response to this interim report is required, but we will 

follow-up on the recommendations made as we continue our audit. 

 

4

U.S. Government Accountability Office, Principles of Federal Appropriations Law: Third Edition, 

Volume 1, GAO-04-261SP, January 2004. See pp. 5-72. 5

 Ibid 

6 
We appreciate the courtesies extended to the staff. For additional information on this 

interim report, please contact Mr. Joseph T. McDermott (703-604-0982 / 

joseph.mcdermott@sigir.mil); or Mr. Steve Sternlieb (703-428-0240 / 

steven.sternlieb@sigir.mil. 

Stuart W. Bowen, Jr. 

Inspector General 

cc: See Distribution 

7 
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 

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

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 

Director, Defense Contract Audit Agency 

Director, Defense Finance and Accounting Service 

Director, Defense Contract Management Agency 

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 Corps-Iraq 

Commanding General, Multi-National Security Transition Command-Iraq 

Commander, Joint Area Support Group-Central 

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 

President, Overseas Private Investment Corporation 

President, U.S. Institute for Peace 

8 
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 

 

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