OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

October 24, 2007 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

ECONOMIC MINISTER/COORDINATOR FOR ECONOMIC 

TRANSITION IN IRAQ 

MISSION DIRECTOR-IRAQ, U.S AGENCY FOR 

INTERNATIONAL DEVELOPMENT 

DIRECTOR, IRAQ TRANSITION ASSISTANCE OFFICE 

SUBJECT: Interim Report on Efforts and Further Actions Needed to Implement a Financial 

Management Information System in Iraq (SIGIR-08-001) 

Introduction 

In early summer 2003, the Coalition Provisional Authority and the International Monetary Fund 

separately conducted assessments that identified a need for improvements in the Government of 

Iraq’s (GOI) budget and financial control system. The assessments found that the GOI financial 

structure had limited ability to monitor Iraqi ministerial budgets and expenditures, leaving the 

ministries vulnerable to fraud, waste, and misappropriation of funds. Further, a U.S. Embassy 

official told SIGIR that the existing systems had limited planning functionality, which makes it 

difficult for the GOI to develop a budget. 

In July 2003, the U.S. Agency for International Development (USAID) awarded contract RANC-00-03-00043-00 to BearingPoint, Inc., for a broad range of tasks related to economic and 

financial reforms for Iraq. One of the tasks under that contract was to develop and implement a 

new Iraq Financial Management Information System (IFMIS) to replace the existing Iraq 

financial systems. 

In September 2004, a follow-on contract (267-C-00-04-00405-00) with BearingPoint was 

awarded for the continuation of the economic and financial reforms. That contract, which 

continued to fund IFMIS, specified that IFMIS installation would be completed within the year. 

In September 2006, the Iraq Reconstruction and Management Office—which has since become 

the Iraq Transition Assistance Office—issued two concurrent contracts to BearingPoint to 

integrate components into IFMIS: 

• contract W916GXQ-06-C-0009 for a budget module, and 

• contract W916GXQ-06-C-0010 for a procurement module. 

In July 2006, USAID awarded contract DFD-I-00-05-00221-01 to Management Systems 

International, Inc., to design and implement the National Capacity Development Program, a 

component of which is for training and policies for IFMIS.

400 Army Navy Drive • Arlington, Virginia 22202
On March 21, 2007, SIGIR announced a review of U.S. efforts to implement IFMIS. That 

review continues, and SIGIR plans to report on that effort later this year. However, because the 

objective of this report is to provide timely information on economy and efficiency issues 

requiring immediate action and to respond to a request from the U.S. Embassy in Iraq, SIGIR is 

providing interim results and recommendations concerning the IFMIS contracts. 

Interim Results 

Although some progress has been reported on IFMIS, it is difficult to tell specifically what has 

been developed and implemented and how much has been expended for IFMIS. Available 

information shows that the system development and implementation costs are over $38 million. 

Although contract documents state that IFMIS was to replace the Ministry of Finance’s legacy 

accounting systems, the Ministry continues to operate its legacy systems in parallel with the 

components of IFMIS. According to U.S. Embassy officials, the Ministry of Finance continues 

to use its legacy system for overall budget and accounting, “nobody noticed” when IFMIS was 

down for a month, and no one relies on IFMIS to produce reports. Iraqi user requirements have 

not been identified and incorporated in the system’s development. Other ministries, such as 

Interior and Defense, have developed their own financial management information systems, 

which are not compatible with IFMIS and cannot transfer financial data from one system to 

another. As a result, the agency personnel must manually input financial data via terminals in 

the various ministries. 

The International Monetary Fund identifies five pre-conditions for the successful development of 

a financial management information system. SIGIR reviewed these pre-conditions in light of the 

work to date on IFMIS and provides these following preliminary observations: 

Pre-condition Preliminary Observations 

Clear commitment and ownership The GOI is not clearly committed to IFMIS, nor has it 

demonstrated strong ownership of the project. True 

ownership is achievable only through active involvement 

of the GOI in the planning and execution of any financial 

management information system. 

Preconditions are ready for reform The GOI may be ready for reform, but the ministries have 

not agreed on a uniform approach. Iraqi skills and training 

are not yet sufficient to ensure successful operation of a 

system. Legacy system requirements or necessary 

changes to those requirements have not been mapped. 

Although a steering group has been formed, it does not 

include all key players. 

Project design is sound Sound design is predicated on adequate assessments, 

the identification of Iraqi user requirements, and 

implementation planning. None of these essentials have 

yet been fully met. 

Management of project is capable Project management should be a joint effort of the GOI, 

USAID, and BearingPoint. USAID and the GOI have not 

been equal partners in the management of the project. 

Adequate resources The United States has been the key provider of financial 

resources for IFMIS with little financial participation from 

the GOI. 

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In May 2007, the BearingPoint project leader and four of his security detail were kidnapped from 

the Ministry of Finance building and have not been recovered. The work on the budget and 

procurement modules has since been halted. In July 2007, the U.S. Embassy ordered the 

suspension of the IFMIS project, pending clarification of GOI support for the effort. 

Issues Needing Immediate Attention 

The available information indicates that the selection and implementation of IFMIS was 

undertaken without the fundamental planning and analysis that should properly precede the 

wholesale change of a country’s financial management information system. Specifically, the 

IFMIS was reportedly undertaken without the traditional sequence of system development that 

should have included a conceptual design based on Iraqi requirements. In fact, there were no 

attempts to produce detailed user specifications; as a result, there has not been true GOI 

ownership of the project. 

The Board of Supreme Audit highlighted the lack of analysis of Iraqi user requirements. The 

Board issued a statement pointing to shortfalls in the IFMIS implementation as a result of the 

lack of understanding of the existing Iraq financial and business processes before and during the 

installation of the proposed new system. A U.S. Embassy official confirmed that the GOI has a 

distinctive accounting system; it is a unique combination of cash and accrual accounts that is not 

easily adapted into the IFMIS system. 

Recognizing the deficiencies in the current IFMIS configuration, the GOI and the World Bank 

recently conducted a workshop that addressed the IFMIS as part of a broader initiative–the 

Public Expenditure and Institutional Assessment. World Bank officials stated that a formal 

assessment of IFMIS in this broader context may be undertaken by the GOI and the World Bank. 

In August 2007, a survey was conducted of GOI officials to obtain the views of stakeholders on 

aspects of the IFMIS arrangement. 

In light of these generally acknowledged concerns, the U.S. Embassy’s decision to suspend the 

system development seems appropriate. However, the Embassy has yet to develop a strategy for 

the next steps in the system’s implementation. 

Conclusions 

The U.S. government has made a substantial investment in the development of IFMIS. 

However, for various reasons related principally to GOI acceptance of the system and related 

modules, the project has been suspended. Further, the Embassy does not have a firm plan or 

strategy for addressing the next steps in the development of the system. 

Recommendations 

Before further U.S. expenditures are made on a financial management system for the GOI, there 

is a need for a complete assessment of the current IFMIS system to determine whether 

requirements have been adequately defined, specific milestones for achieving those requirements 

have been set, and system development is headed in the right direction. There is also a need to 

clearly define a plan of action for the way forward and for the GOI to clearly state its 

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commitment and willingness to take ownership of any system that eventually is developed. A 

key step in developing the plan of action is an assessment by an independent third party with 

expertise developing international financial management information systems. Such an 

assessment may be undertaken by the World Bank. 

To position the U.S. Embassy to better evaluate IFMIS in the context of GOI’s financial 

management needs, SIGIR recommends that the Embassy establish a working group and draw on 

outside experts as necessary to evaluate such factors as: 

• the capabilities and shortcomings of GOI financial management capabilities, 

• GOI financial management system requirements, 

• how best to achieve those requirements and specific milestones to measure progress 

towards meeting those requirements, and 

• how best to integrate the other ministries’ financial systems into the Ministry of 

Finance’s overall financial system. 

SIGIR further recommends that DoS condition future work and funding for a GOI financial 

management system on (1) securing GOI’s commitment to such a system and (2) the results of a 

GOI sponsored independent assessment of GOI financial management needs. Moreover, in the 

interim, recognizing the need for the GOI to produce financial data, SIGIR recommends that 

DoS help the GOI determine appropriate interim solutions that will improve financial data 

management, especially in the provinces, until a new operational system is developed. 

Management Comments and Audit Response 

SIGIR received comments from USAID on a draft of this report. USAID agreed with SIGIR’s 

recommendations but stated that it is unaware of any organization performing an independent 

technical assessment of the IFMIS program, as stated in SIGIR’s draft report. SIGIR addressed 

their comment in this report by stating that the World Bank is considering an assessment of 

Iraq’s financial management information needs. SIGIR continues to believe no further U.S. 

funds should be expended on IFMIS until it is clearly demonstrated that IFMIS supports GOI’s 

financial management information needs and IFMIS has the full support of the GOI. 

USIAD generally agreed with the report’s findings. However, in a few areas, it disagreed and 

provided information which SIGIR cannot substantiate at this time. SIGIR will follow up on 

those areas as it completes its IFMIS review. 

Scope and Methodology 

SIGIR performed its work from March through September 2007 in Iraq in accordance with 

generally accepted government auditing standards. This report summarizes key information 

SIGIR obtained to date in its ongoing review of the BearingPoint contracts with a focus on 

assessing next steps the Embassy needs to take in the system development process. 

- - - 

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Thank you for the courtesies extended to the SIGIR staff. For additional information on this 

report, please contact Mr. Glenn Furbish, at (703) 428-1058 or glenn.furbish@sigir.mil. For the 

report distribution, see Appendix A. For a list of audit team members, see Appendix B.

Stuart W. Bowen, Jr. 

Inspector General 

Appendices 

cc: See Distribution 

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Management Comments 

US Agency for International Development 

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Appendix A—Report Distribution 

Department of State 

Secretary of State 

Senior Advisor to the Secretary and Coordinator for Iraq 

Director of U.S. Foreign Assistance/Administrator, U.S. Agency for International 

Development 

 Director, Office of Iraq Reconstruction 

 Assistant Secretary for Resource Management/Chief Financial Officer, 

 Bureau of Resource Management 

 Assistant Secretary, Bureau of International Narcotics and Law Enforcement Affairs 

U.S. Ambassador to Iraq* 

Director, Iraq Transition Assistance 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 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

 Deputy Chief Financial Officer 

 Deputy Comptroller (Program/Budget) 

Deputy Assistant Secretary of Defense-Middle East, Office of Policy/International Security 

Affairs 

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 

Chief Financial Officer, U.S. Army Corps of Engineers 

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 

Commanding General, Joint Contracting Command-Iraq/Afghanistan 

Commander, Joint Area Support Group-Central 

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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 

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 Organizations, Democracy and Human 

Rights 

Subcommittee on International Development and Foreign Assistance, Economic Affairs 

and International Environmental Protection 

Subcommittee on Near East and South and Central Asian Affairs 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Financial Management, Government Information, Federal 

Services and International Security 

Permanent Subcommittee on Investigations 

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 State, Foreign Operations, and Related Programs 

House Committee on Armed Services 

House Committee on Oversight and Government Reform 

Subcommittee on Government Management, Organization, and Procurement 

Subcommittee on National Security and Foreign Affairs 

House Committee on Foreign Affairs 

Subcommittee on Middle East and South Asia 

Subcommittee on International Organizations, Human Rights, and Oversight 

*Recipient of draft audit report. 

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Appendix B—Audit Team Members 

This report was prepared, and the audit conducted, under the direction of Glenn Furbish, Acting 

Assistant Inspector General for Audit, Office of the Special Inspector General for Iraq 

Reconstruction. The staff members who contributed include: 

Ziad Buhaissi 

Robert Pelletier 

Diane Recio 

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SIGIR’s Mission Regarding the U.S. reconstruction plans, programs, 

and operations in Iraq, the Special Inspector General 

for Iraq Reconstruction provides independent and 

objective: 

• oversight and review through comprehensive 

audits, inspections, and investigations 

• advice and recommendations on policies to 

promote economy, efficiency, and effectiveness 

• deterrence of malfeasance through the prevention 

and detection of fraud, waste, and abuse 

• information and analysis to the Secretary of 

State, the Secretary of Defense, the Congress, 

and the American people through Quarterly 

Reports 

Obtaining Copies of SIGIR 

Reports and Testimonies 

To obtain copies of SIGIR documents at no cost, go 

to SIGIR’s Web site (www.sigir.mil). 

To Report Fraud, Waste, 

and Abuse in Iraq Relief 

and Reconstruction 

Programs 

Help prevent fraud, waste, and abuse by reporting 

suspicious or illegal activities to the SIGIR Hotline: 

• Web: www.sigir.mil/submit_fraud.html 

• Phone: 703-602-4063 

• Toll Free: 866-301-2003 

Congressional Affairs Hillel Weinberg 

Assistant Inspector General for Congressional 

 Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-428-1059 

Email: hillel.weinberg@sigir.mil 

Public Affairs Kristine R. Belisle 

Director for Public Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-428-1217 

Fax: 703-428-0818 

Email: PublicAffairs@sigir.mil 

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