Audit

Report 

Administration of Contracts Funded by the 

Development Fund for Iraq 

Report No. 05-008 April 30, 2005 

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

400 Army Navy Drive • Arlington, Virginia 22202

April 30, 2005 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

COMMANDER, MULTI-NATIONAL FORCE - IRAQ 

DIRECTOR, PROJECT AND CONTRACTING OFFICE 

COMMANDER, JOINT AREA SUPPORT GROUP – CENTRAL 

(PROVISIONAL) 

SUBJECT: Administration of Contracts Funded by the Development Fund for Iraq 

(Report Number 05-008) 

We are providing this audit report for your review and comment. 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. 

The Chief of Mission of the United States Embassy Baghdad and the Commander, MultiNational Force - Iraq did not respond to the draft report. However, we considered comments 

from the Director, Project and Contracting Office and the Commander, Joint Area Support 

Group - Central when preparing the final report. 

We request comments on the final report from the Chief of Mission of the United States 

Embassy Baghdad and the Commander, Multi-National Force - Iraq by May 16, 2005. Please 

send management comments in electronic format (Adobe Acrobat file only) to Mr. James P. 

Mitchell at jim.mitchell@sigir.mil. Copies of the management comments must contain the 

actual signature of the authorizing official. 

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 E. 

Robert M. Murrell 

Deputy Inspector General 
i 

Office of the Special Inspector General 

For Iraq Reconstruction 

Report Number 05-008 April 30, 2005 

(Project No. D2004-DCPAAF-0033) 

Administration of Contracts Funded by the Development Fund for Iraq 

Executive Summary 

Introduction. This audit report discusses procedures used by the Project and Contracting Office 

(PCO), formerly the Program Management Office (PMO), to monitor the administration of 

contracts funded by the Development Fund for Iraq (DFI). 

On June 15, 2004, in a memorandum for the Director, PMO, “Administration of Development 

Fund for Iraq (DFI)-Funded Contracts” (the Memorandum), the Iraqi Interim Government 

Minister of Finance designated the Director of the PMO with the responsibility to monitor and 

confirm performance, certify and/or make payments, and otherwise administer contracts or 

grants that: 

• were funded with monies from the DFI 

• were awarded on or before June 30, 2004, by the Coalition Provisional Authority or the 

Multi-National Force - Iraq in accordance with Resolution 1483 and implementing 

regulations 

• required the continued performance and/or payment of money originating from the DFI 

past June 30, 2004 

• are not the subject of a fully-funded letter of credit intended to otherwise ensure 

performance under the contract or grant 

The Memorandum required the PMO to provide to the Ministry of Finance, as soon as 

practicable, a breakdown of contracts by each Iraqi Interim Government ministry to which the 

PMO was a party. The Memorandum also stated that the aggregate value (the amount awarded) 

of contracts authorized to be administered by the PMO could not exceed $800 million but 

provided that the Minister of Finance or another designated Ministry official could increase this 

limit at their discretion. 

Objective. The overall objective of the audit was to determine whether the PCO complied with 

the Minister of Finance, Iraqi Interim Government, memorandum, "Administration of 

Development Fund for Iraq (DFI)-Funded Contracts," June 15, 2004. Specifically, we were to 

determine whether the Director, PCO, effectively implemented the assigned responsibilities 

under the Memorandum to monitor and confirm contract performance, certify and/or make 

payments, and administer contracts or grants funded with monies from the DFI. Due to the 

absence of documentation and the impracticality of extended travel to all the PCO regions, we 

were unable to confirm contract performance for all the contracts reviewed or fully assess all 

aspects of the administration of contracts and grants. 

Further, because the Joint Area Support Group - Central (JASG-C) Comptroller, rather than the 

PCO, had responsibility for certifying and making payments, we modified our original objective 

to determine whether the Director, PCO, effectively monitored contracts to ensure: the accurate 

recording of obligations, payments, and unpaid obligations; timely payments; and sufficient 

documentation for contracts and grants funded with monies from the DFI. 
ii 

Results. The PCO did not fully comply with the requirements described in the memorandum 

from the Iraqi Interim Government Minister of Finance to the Director, PMO, “Administration of 

Development Fund for Iraq (DFI)-Funded Contracts,” June 15, 2004, to monitor DFI contract 

administration. The PCO and the JASG-C Comptroller could not accurately identify the current 

value of obligations, payments, and unpaid obligations for DFI contracts. However, cash 

payments appeared to be made in a timely manner. Additionally, the PCO lacked the necessary 

controls and adequate documentation to effectively perform its responsibilities to monitor and 

administer contracts funded by the DFI. 

The audit identified material management control weaknesses in the accounting for DFI contract 

liabilities and significant deficiencies in contract administration. Consequently, there was no 

assurance that fraud, waste, and abuse did not occur in the management and administration of 

contracts funded by the DFI, that DFI funds were used in a transparent manner, or that DFI funds 

were used for the purposes mandated by Resolution 1483. 

Management Actions. During our review, PCO officials initiated actions to develop a new 

database and input data that incorporated DFI payment voucher information and validated 

contract obligation and liability amounts. However, we completed our audit work before data 

input was finalized. Therefore, we could not verify the accuracy of data recorded in the new 

database. 

In addition, the JASG-C Comptroller initiated a tasking that was issued by the Chief of Mission 

of the United States Embassy Baghdad to the “Heads of All American Agencies Represented in 

Iraq” on January 14, 2005, to provide data for a comprehensive list of DFI contracts and 

obligations. This data, when obtained, should assist the PCO with the identification of DFI 

contract liabilities. However, we could not verify the accuracy of the information because we 

completed our audit work before the Chief of Mission of the United States Embassy Baghdad 

(Chief of Mission) collected the data. 

Because management actions were still ongoing at the time our audit work was concluded, we 

could not assess the effectiveness of those actions. 

Recommendations. We recommend that the Chief of Mission and the Commander, MultiNational Force - Iraq: 

• Define and assign the PCO and JASG-C Comptroller roles, responsibilities, and methods 

to effectively manage and accurately determine the current value of obligations, payments, 

and unpaid obligations for DFI contracts. 

• Direct the assessment of comptroller and financial management tasks to determine if 

existing functions could incorporate or support management responsibilities for the DFI. 

• Provide the PCO and the JASG-C Comptroller with automated accounting and 

contracting systems to maintain accounting, disbursing, and contract records for the DFI to 

assemble and maintain accurate and reliable historical records. 

We recommend that the Director, PCO and the JASG-C Comptroller develop and coordinate 

standard procedures, controls, and organizational functions needed to maintain DFI records, 

paying particular attention to the necessary controls and adequate documentation to effectively 

monitor and administer contracts funded by the DFI. 

We recommend that the Director, PCO establish procedures to verify that contracting officers 

maintain and monitor contract execution data for each contract awarded. 

We recommend that the JASG-C Comptroller require that all agents issuing DFI funds comply 

with existing guidance for the separation of duties, including specific written instructions and 

checklists for making proper payments. 
iii 

Management Comments and Audit Response. The Director, PCO and the Commander, 

JASG-C concurred with the findings and recommendations. However, both provided 

suggestions for changes to the draft report to clarify the executive summary, background, 

findings, and recommendations. We evaluated management's comments, determined that all 

were responsive, and made all of the changes suggested. See the Finding section of the report 

for a discussion of management comments and the Management Comments section of the report 

for the complete text of the Director, PCO and the Commander, JASG-C comments. 

We provided a draft of this report on April 4, 2005, to the Chief of Mission and Commander, 

Multi-National Force - Iraq. No management comments to the draft of this report were received. 

Therefore, we request that the Chief of Mission and Commander, Multi-National Force - Iraq 

provide comments on this final report by May 16, 2005. 
Table of Contents

Executive Summary i 

Introduction 

Background 1 

Objective 2

Finding

Administration of Contracts Funded by the Development Fund for Iraq 3 

Appendixes 

A. Scope and Methodology 11 

B. Other Matters of Interest 13 

C. Memorandum for the Administration of the 

Development Fund for Iraq (DFI)-Funded Contracts 14 

D. Acronyms 17 

E. Report Distribution 18 

F. Audit Team Members 20 

Management Comments 

Director, Project and Contracting Office 21 

Commander, Joint Area Support Group - Central (Provisional) 27 
1 

Introduction 

Background 

This audit report discusses procedures used by the Project and Contracting Office (PCO), 

formerly the Program Management Office (PMO), to monitor the administration of contracts 

funded by the Development Fund for Iraq (DFI). 

Coalition Provisional Authority. Coalition Provisional Authority (CPA) Regulation Number 1, 

May 16, 2003, was issued by Ambassador L. Paul Bremer III, “Pursuant to my authority as 

Administrator of the Coalition Provisional Authority, relevant United Nations Security Council 

resolutions, including Resolution 1483 (2003), and the laws and usages of war. . . .” CPA 

Regulation Number 1 stated: 

The CPA shall exercise powers of government temporarily in order to provide for the effective 

administration of Iraq during the period of transitional administration, to restore conditions of 

security and stability, to create conditions in which the Iraqi people can freely determine their own 

political future, including by advancing efforts to restore and establish national and local 

institutions for representative governance and facilitating economic recovery and sustainable 

reconstruction and development. 

The Development Fund for Iraq. United Nations Security Council Resolution 1483 

(Resolution 1483), May 22, 2003, noted the establishment of the DFI and assigned responsibility 

for managing the fund to the CPA. Resolution 1483 noted that DFI funds should be disbursed at 

the direction of the CPA, in consultation with the Iraqi interim administration. Resolution 1483 

also required the DFI funds be used in a transparent manner to meet the humanitarian needs of 

the Iraqi people, for the economic reconstruction and repair of Iraq’s infrastructure, for the 

continued disarmament of Iraq, for the costs of Iraqi civilian administration, and for other 

purposes benefiting the people of Iraq. The DFI was the primary financial vehicle to channel 

revenue from ongoing Iraqi oil sales, unencumbered Oil-for-Food deposits, and repatriated Iraqi 

assets to the relief and reconstruction efforts for Iraq. During the CPA administration of Iraq, 

DFI funds were managed by the CPA Comptroller. 

Coalition Provisional Authority Memorandum 4. CPA Memorandum Number 4, “Contract 

and Grant Procedures Applicable to Vested and Seized Iraqi Property and the Development Fund 

for Iraq, Implementation of Regulation Number 3, Program Review Board,” August 19, 2003, 

“establishes procedures applicable to the execution of contracts and grants for the benefit of the 

Iraqi people using Iraqi Funds ...” The memo directs that “the CPA will manage and spend Iraqi 

Funds, which belong to the Iraqi people, for their benefit ... in a transparent manner that fully 

comports with the CPA's obligations under international law, including Resolution 1483.” The 

memo also states: 

Consistent with their programmatic responsibility to ensure that contractors and grantees properly 

perform their duties, Contracting Officers shall be responsible for regularly monitoring the postaward execution of all Contracts they approve. This monitoring process includes ensuring that the 

contractor provides the agreed upon goods, services or construction in accordance with the 

provisions, and that payments are made in a timely manner. Contracting Officers shall include in 

the Contract file a written report describing post-award performance by contractors or grantees, 

including a final assessment upon completion of the Contract. Contracting Officers shall rely upon 

locally available military engineering resources in assessing all repair and construction projects. 

All documents related to the establishment and execution of Contracts will be maintained in a 

Contract file that includes the materials described in Appendix A to this Memorandum. 
2 

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 and to the Chief of Mission of the United States 

Embassy Baghdad (Chief of Mission), as requested by the Secretary of State and heads of other 

departments and agencies. 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 CPA. The PCO was made responsible for all activities associated with asset, 

financial, program, and project management and for managing both construction and nonconstruction activities across six major sectors: 

• buildings, education, and health care 

• electricity 

• oil 

• public works and water 

• security and justice 

• transportation and communications 

Project Management Office. The CPA was the authority responsible for the temporary 

governance of Iraq through June 28, 2004. Thereafter, the Iraqi Interim Government (IIG) was 

the authority responsible for the governance of Iraq. The responsibility for the DFI transferred 

from the CPA to the IIG on June 28, 2004. The PMO, as part of the CPA, ceased to exist on 

June 28, 2004, and the PCO was established to replace the PMO. 

Objective 

The overall objective of the audit was to determine whether the PCO complied with the Minister 

of Finance, IIG, memorandum, "Administration of Development Fund for Iraq (DFI)-Funded 

Contracts," June 15, 2004. Specifically, we were to determine whether the Director, PCO, 

effectively implemented the assigned responsibilities under the Memorandum to monitor and 

confirm contract performance, certify and/or make payments, and administer contracts or grants 

funded with monies from the DFI. Due to the absence of documentation and the impracticality 

of extended travel to all the PCO regions, we were unable to confirm contract performance for 

all the contracts reviewed or fully assess all aspects of the administration of contracts and grants. 

Further, because the Joint Area Support Group - Central (JASG-C) Comptroller, rather than the 

PCO, had responsibility for certifying and making payments, we modified our original objective 

to determine whether the Director, PCO, effectively monitored contracts to ensure: the accurate 

recording of obligations, payments, and unpaid obligations; timely payments; and sufficient 

documentation for contracts and grants funded with monies from the DFI. 

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

Appendix A. For other matters of interest, see Appendix B. For definitions of the acronyms 

used in this report, see Appendix D. For a list of the audit team members, see Appendix F. 
3 

Administration of Contracts Funded by the 

Development Fund for Iraq 

The PCO did not fully comply with the requirements described in a memorandum from the IIG 

Minister of Finance to the Director, PMO, “Administration of Development Fund for Iraq (DFI)-

Funded Contracts,” June 15, 2004, to monitor DFI contract administration. The PCO and the 

JASG-C Comptroller could not accurately identify the current value of obligations, payments, and 

unpaid obligations for DFI contracts. However, cash payments appeared to be made in a timely 

manner. Additionally, the PCO lacked the necessary controls and adequate documentation to 

effectively perform its responsibilities to monitor and administer contracts funded by the DFI. 

These deficiencies occurred because the Chief of Mission and Commander, Multi-National Force 

– Iraq (MNF-I), did not define and assign roles, responsibilities, and methods to effectively 

manage DFI liabilities. Further, the Chief of Mission and Commander, MNF-I, did not assess 

comptroller and financial management tasks to determine if existing functions could incorporate 

or support management responsibilities for the DFI. In addition, the Chief of Mission and 

Commander, MNF-I, did not provide automated accounting and contracting systems to maintain 

accounting, disbursing, and contract records for the DFI; and appropriate actions were not taken 

to develop such systems. The Director, PCO, did not establish effective procedures or maintain 

adequate documentation to effectively perform its responsibilities to monitor and administer 

contracts funded by the DFI. We determined that the Director, PCO and the JASG-C 

Comptroller did not develop and coordinate standard procedures, controls, and organizational 

functions to maintain DFI records. 

The audit identified material management control weaknesses in the accounting for DFI contract 

liabilities and significant deficiencies in contract administration. Consequently, there was no 

assurance that fraud, waste, and abuse did not occur in the management and administration of 

contracts funded by the DFI, that DFI funds were used in a transparent manner, or that DFI funds 

were used for the purposes mandated by Resolution 1483. 

Authority for the Administration of Contracts 

The Memorandum discussed below outlined the specific roles and responsibilities for the 

administration of DFI-funded contracts by the PMO. However, because the CPA (which 

included the PMO) was dissolved on June 28, 2004, the requirements of the Memorandum were 

subsequently applied to the PCO. 

Iraqi Interim Government Ministry of Finance Memorandum. On June 15, 2004, in a 

memorandum for the Director, PMO, “Administration of Development Fund for Iraq (DFI)-

Funded Contracts” (the Memorandum), the IIG Minister of Finance designated the Director of 

the PMO with the responsibility to monitor and confirm performance, certify and/or make 

payments, and otherwise administer contracts or grants that: 

• were funded with monies from the DFI 

• were awarded on or before June 30, 2004, by the CPA or the MNF-I in accordance 

with Resolution 1483 and implementing regulations 

• required the continued performance and/or payment of money originating from the 

DFI past June 30, 2004 

• are not the subject of a fully-funded letter of credit intended to otherwise ensure 

performance under the contract or grant 
4 

The Memorandum required the PMO to provide to the Ministry of Finance, as soon as 

practicable, a breakdown of contracts by each IIG ministry to which the PMO was a party. The 

Memorandum also stated that the aggregate value (the amount awarded) of contracts authorized 

to be administered by the PMO could not exceed $800 million but provided that the Minister of 

Finance or another designated Ministry official could increase this limit at their discretion. For a 

copy of the Memorandum, see Appendix C. 

The JASG-C Comptroller assumed responsibility for the cash management of the DFI funds for 

these contracts on the dissolution of the CPA. The IIG incrementally increased the amount to be 

administered and, as of December 24, 2004, the JASG-C Comptroller was authorized to certify 

and disburse funds for contracts with an aggregate value of $2.8 billion of DFI funds. 

The Development Fund for Iraq Sub-Account. The Memorandum further stated that as long 

as the PMO complied with all of the requirements of the Memorandum and CPA Memorandum 

Number 4, funds would be transferred from the Central Bank of Iraq/Development Fund for 

Iraq/Transition account1 into an account in the Central Bank of Iraq, Rafidain Bank, and/or 

Rasheed Bank for further disbursement by the PMO. 

The Memorandum gave the PMO, and subsequently the JASG-C Comptroller, the authority to 

make disbursements from the latter accounts to carry out the duties prescribed by the 

Memorandum. The sub-account also included DFI cash maintained by the JASG-C Comptroller 

for disbursements made to contractors in Iraq that required cash payments. Additionally, the 

Chief of Mission, MNF-I, and the PMO held and retained $217.7 million of DFI cash before the 

transfer of sovereignty for cash payments for existing DFI obligations. 

Contract Accounting 

The PCO and the JASG-C Comptroller could not accurately identify the current value of 

obligations, payments, and unpaid obligations for DFI contracts. To evaluate accounting for DFI 

contract liabilities, we reviewed 225 contracts for which the awards totaled $327 million. 

Specifically, we reviewed the contract files to determine whether PCO and the JASG-C 

Comptroller could identify the current value of paid and unpaid contract obligations. 

Contracts Reviewed. Table 1 shows the dollar amounts awarded for the 225 contracts by the 

PCO regions reviewed. We selected the contracts from the 2,304 contracts shown in the 

automated Comptroller/PCO listing dated September 14, 2004, and awarded by PCO in the 

amount of $3.07 billion. 

Table 1. Contracts Reviewed to Evaluate Accounting for Development Fund for Iraq Contract Liabilities 

Project and Contracting Office 

Region Number of Contracts Amount of Contract Awards 

North 75 $22,675,776 

Central 75 $246,527,556 

South 75 $58,125,885 

Total 225 $327,329,217 

 

1

 The Central Bank of Iraq established this separate sub-account at the Federal Reserve Bank of New York. 
5 

Accounting for Contract Liabilities. The PCO and JASG-C Comptroller contract and 

accounting records did not accurately identify the current value of obligations, payments, and 

unpaid obligations for DFI contracts during the period of the audit. Our review showed that 

financial records: 

• overstated gross contract obligations by $11,135,411 

• understated payments made by $108,255,875 

• overstated unpaid obligations by $119,361,286 

Table 2 shows the dollar amounts of those overstatements and understatements in the contracts, 

by the PCO regions reviewed. 

Table 2. Accounting Deficiencies in Reported Development Fund for Iraq Contract Liabilities 

Project and 

Contracting 

Office 

Region 

Gross 

Obligations

Validated 

Gross 

Obligations 

Amount 

Overstated 

(Understated) 

Payments

Validated 

Payments 

Amount 

Overstated 

(Understated) 

Unpaid 

Obligations 

Validated 

Unpaid 

Obligations

Amount 

Overstated 

(Understated) 

North $22,675,776 ($770,798) $6,441,031 ($2,738,867) $16,234,745 $1,968,069 

Central $246,527,556 $11,188,347 $153,909,570 ($84,304,031) $92,617,986 $95,492,378

South $58,125,885 $717,862 $46,261,217 ($21,182,977) $11,864,667 $21,900,839

Total $327,329,217 $11,135,411 $206,611,818 ($108,255,875) $120,717,398 $119,361,286 

Controls Over Contract Payments. The JASG-C Comptroller did not establish adequate 

procedures to ensure that key contract acceptance and payment duties for cash payments were 

performed by separate individuals. According to the Government Accountability Office 

“Standards for Internal Control in the Federal Government” (November 1999): 

Key duties and responsibilities need to be divided or segregated among different people to reduce 

the risk of error or fraud. This should include separating the responsibilities for authorizing 

transactions, processing and recording them, reviewing the transactions, and handling any related 

assets. No one individual should control all key aspects of a transaction or event. 

Although the JASG-C Comptroller had issued guidance for payment procedures, our review of 

contract payments made for the PCO North Region indicated that, for 13 payments, valued at 

$1,436,620, one individual controlled all phases of the payment transactions. Specifically, one 

individual, as a paying agent signing as a Projects Officer, inappropriately performed all of the 

following actions: 

• signed to receive goods and services 

• accepted that the goods and services conformed to the contract 

• certified that the voucher was proper for payment 

• approved the voucher for payment 
6 

Contract Administration 

The PCO lacked the necessary controls and adequate documentation to effectively perform its 

responsibilities to monitor and administer contracts funded by the DFI. To evaluate contract 

administration, we reviewed 300 contracts with an award value totaling $332.9 million. 

Specifically, we reviewed contract files to determine whether PCO was monitoring contractor 

performance and payments by reviewing receiving documents, vendor invoices, payment 

vouchers, and other written information in the contract files. 

Contracts Reviewed. Table 3 shows the dollar amounts awarded for the 300 contracts, by the 

PCO regions reviewed. We selected the contracts from the 2,304 contracts awarded by PCO that 

were in the automated Comptroller/PCO listing dated September 14, 2004, and valued at 

$3.07 billion. 

Table 3. Contracts Reviewed to Evaluate Development Fund for Iraq Contract Administration 

Project and Contracting Office 

Region Number of Contracts Amount of Contract Awards 

North 75 $22,675,776 

Central 75 $246,527,556 

South-Central 75 $5,669,554 

South 75 $58,125,885 

Total 300 $332,998,771 

Contract Documentation. For 198 of 300 contracts,2 documentation was not available in 

contract files to indicate that contract execution was monitored for performance and payment. 

Our review showed that for the 198 contracts, files did not contain evidence that goods and 

services had been received for 154 contracts, that invoices had been submitted for 169 contracts, 

or that payments had been made for 144 contracts. Table 4 shows the number of contracts for 

which the documents were not found, by the PCO regions reviewed. 

Table 4. Development Fund for Iraq Contracts with Missing Documentation 

Project and Contracting 

Office Region 

Contracts 

Reviewed 

Number of Contracts

No Evidence of Receipts 

for Goods or Services 

Number of 

Contracts

No Evidence of 

Invoices 

Number of 

Contracts

No Evidence of 

Payments 

North 75 60 60 61 

Central 75 50 50 54

South-Central 75 37 55 17

South 75 7 4 12

Total 300 154 169 144

 

2

 Some contracts have more than one discrepancy. 
7 

Contract Files. The PCO did not effectively maintain contract files to ensure that contract 

execution was monitored for performance and payment. During our initial review, PCO 

personnel in 3 of the 4 PCO regions could not locate contract files for 13 contracts (4 for the 

North region, 6 for the Central region, and 3 for the South-Central region), valued at $7,568,565. 

During February 2005, based on our request, PCO personnel located contract files for 12 of the 

13 contracts previously identified by our review as missing. However, 5 of the 12 contract files 

included only partial contract information, 1 showed a value of $68,500 greater than shown in 

the Comptroller/PCO listing, and 3 that were canceled or not awarded showed a value of $66,584 

less than shown in the same listing. 

Contract Funding. The PCO could not accurately identify the total value of contracts funded 

by the DFI. Our review showed that six contracts, valued at $25,418, were funded by U.S. 

Government appropriated funds but were erroneously presented as DFI liabilities in 

Comptroller/PCO summary records. 

Contract Numbering. The PCO did not maintain adequate administrative control over contract 

numbering. Our review showed that the Comptroller/PCO listing indicated that the PCO issued 

34 contracts, valued at $54,343,349, but used only 14 different contract numbers. Contract 

values totaled $27,660,981 for contracts that used the same contract numbers two or more times. 

Contract Payments. The PCO did not always properly review contract files prior to making 

contract payments to ensure that the correct amount was paid. Our review showed that one 

contract in the South-Central Region was overpaid by $40,000. Documentation showed that for 

a contract valued at $90,777, the paying agent made a partial payment of $40,000 and a final 

payment of $90,777 – for a total payment of $130,777. 

Management of Development Fund for Iraq Liabilities 

The Chief of Mission and the Commander, MNF-I, did not specifically define and assign PCO 

and JASG-C Comptroller roles, responsibilities, and methods to effectively manage DFI 

liabilities. 

Roles and Responsibilities to Manage Development Fund for Iraq Liabilities. The Chief of 

Mission and the Commander, MNF-I, did not assess comptroller and financial management tasks 

to determine if existing functions could incorporate or support DFI responsibilities. For 

example, the JASG-C Comptroller organization was authorized only four positions: the 

Comptroller, the Deputy Comptroller, the Budget Officer, and the Disbursing Officer. The PCO 

provided two additional loaned technicians. However, the JASG-C Comptroller organization did 

not include a traditional accounts payable function to manage individual contract obligation and 

payment transactions. 

Further, although the PCO performed all phases of financial management, including input of 

accounting transactions to the Corps of Engineers Financial Management System, the PCO did 

not perform any of these functions for funds other than the Iraq Relief and Reconstruction Fund. 

Correspondingly, the Multi-National Corps - Iraq Comptroller managed and performed 

accounting functions for appropriated, seized, and vested funds through automated Department 

of Defense systems, but provided no support for DFI accounting or cash transactions. 

Methods to Manage Development Fund for Iraq Liabilities. The Chief of Mission and the 

Commander, MNF-I, did not provide the PCO and JASG-C Comptroller with automated 

accounting and contracting systems to maintain accounting, disbursing, and contract records for 

the DFI and did not take actions to develop such systems. In addition, the PCO and the JASG-C 

Comptroller did not establish effective procedures or maintain adequate documentation to 
8 

effectively perform their responsibilities to monitor and administer contracts funded by the DFI. 

Further, the PCO and the JASG-C Comptroller did not develop or coordinate any standard 

procedures, controls, and organizational functions to maintain DFI records. For example, the 

JASG-C Comptroller maintained spreadsheets for recording disbursement transactions that were 

identified by CPA Program Review Board numbers3 while the PCO developed the 

Comptroller/PCO Listing spreadsheets of contract obligations that were identified by contract 

numbers. The use of different identifying numbers did not allow the data to be reconciled or 

compared. The JASG-C Comptroller had been providing electronic copies of payment files to 

the PCO, but the PCO did not record the payments made in the contract files. 

Management Actions 

During our review, PCO officials initiated actions to develop a new database and input data that 

incorporated DFI payment voucher information and validated contract obligation and liability 

amounts. However, we completed our audit work before data input was finalized. Therefore, we 

could not verify the accuracy of data recorded in the new database. 

In addition, the JASG-C Comptroller initiated a tasking that was issued by the Chief of Mission 

to the ”Heads of All American Agencies Represented in Iraq” on January 14, 2005, to provide 

data for a comprehensive list of DFI contracts and obligations. This data, when obtained, should 

assist the PCO with the identification of DFI contract liabilities. However, we could not verify 

the accuracy of the information because we completed our audit work before the Chief of 

Mission collected the data. 

Because management actions were still ongoing at the time our audit work was concluded, we 

could not assess the effectiveness of those actions. 

Conclusion 

The PCO did not fully comply with the requirements described in a memorandum from the IIG 

Minister of Finance for the Director, PMO, “Administration of Development Fund for Iraq (DFI)-

Funded Contracts,” June 15, 2004, to monitor DFI contract administration. The PCO and the 

JASG-C Comptroller could not accurately identify the current value of obligations, payments, and 

unpaid obligations for each DFI contract. However, cash payments appeared to be made in a 

timely manner. Additionally, the PCO lacked the necessary management controls and adequate 

documentation to effectively perform its responsibilities to monitor and administer contracts 

funded by the DFI. 

Further, the PCO and/or the JASG-C Comptroller did not: 

• establish adequate procedures for cash payments to ensure that key contract acceptance 

and payment duties were performed by separate individuals (JASG-C) 

• effectively maintain documentation to ensure that contract execution was monitored for 

performance and payment (PCO) 

• accurately identify the total value of contracts funded by the DFI (PCO) 

• maintain adequate administrative control over contract numbering (PCO) 

• always make contract payments in the correct amount (PCO and JASG-C) 

 

3

Approved Program Review Board requirements and requests for funds were identified with control numbers. 
9 

Material Management Control Weaknesses. The audit identified material management 

control weaknesses in the accounting for DFI contract liabilities and significant deficiencies in 

contract administration. Consequently, there was no assurance that fraud, waste, and abuse did 

not occur in the management and administration of contracts funded by the DFI, that DFI funds 

were used in a transparent manner, or that DFI funds were used for the purposes mandated by 

Resolution 1483. 

Recommendations 

We recommend that the Chief of Mission of the United States Embassy Baghdad and 

Commander, Multi-National Force - Iraq: 

1. Define and assign the Project and Contracting Office and Joint Area Support GroupCentral Comptroller roles, responsibilities, and methods to effectively manage and 

accurately determine the current value of obligations, payments, and unpaid 

obligations for Development Fund for Iraq contracts. 

2. Direct the assessment of comptroller and financial management tasks to determine if 

existing functions could incorporate or support management responsibilities for the 

Development Fund for Iraq. At a minimum, establish government or contractor 

positions to perform accounts payable tasks for Development Fund for Iraq funds to 

include maintaining a history of individual payments and current contract balances by 

individual contract. 

3. Provide the Project and Contracting Office and the Joint Area Support Group-Central 

Comptroller with automated accounting and contracting systems to maintain 

accounting, disbursing, and contract records for the Development Fund for Iraq. A 

centralized database or system should be acquired and used to assemble and maintain 

accurate and reliable historical records. 

We recommend that The Director, Project and Contracting Office, and the Joint Area Support 

Group-Central Comptroller develop and coordinate standard procedures, controls, and 

organizational functions needed to maintain Development Fund for Iraq records, paying 

particular attention to the necessary controls and adequate documentation needed to effectively 

monitor and administer contracts funded by the Development Fund for Iraq. 

We recommend that The Director, Project and Contracting Office establish procedures to verify 

that contracting officers maintain and monitor contract execution data, to include specific 

payments and outstanding balances, for each contract awarded. 

We recommend that The Joint Area Support Group-Central Comptroller require that all agents 

issuing Development Fund for Iraq funds comply with existing guidance for the separation of 

duties, to include specific written instructions and checklists for making proper payments. 

Management Comments and Audit Response 

The Director, PCO, and the Commander, JASG-C, concurred with the finding and 

recommendations. However, both suggested changes to the draft report to clarify the executive 

summary, background, findings, and recommendations. We determined that the management's 

comments were responsive and made the changes suggested. See the Finding section of the 

report for a discussion of management comments and the Management Comments section of the 

report for the complete text of the Director, PCO and the Commander, JASG-C comments. 
10 

We provided a draft of this report on April 4, 2005, to the Chief of Mission and Commander, 

Multi-National Force - Iraq. No management comments to the draft of this report were received. 

Therefore, we request that the Chief of Mission and Commander, Multi-National Force - Iraq 

provide comments on this final report by May 16, 2005. 
11 

Appendix A. Scope and Methodology

We evaluated procedures and documents at the Project and Contracting Office (PCO) and the 

Office of the Comptroller, Joint Area Support Group-Central (JASG-C). We interviewed the 

Principal Assistant Responsible for Contracts and the JASG-C Comptroller to discuss the 

procedures and processes used to administer contracts funded by the Development Fund for Iraq 

(DFI). 

We reviewed the following documents issued by the Coalition Provisional Authority (CPA). 

CPA Regulation Number 1 (established the CPA), May 16, 2003 

CPA Regulation Number 2, “Developmental Fund for Iraq,” June 10, 2003 

CPA Memorandum Number 4, “Contract and Grant Procedures Applicable to Vested and 

Seized Iraqi Property and the Developmental Fund for Iraq, Implementation of Regulation 

Number 3, Program Review Board,” August 19, 2003 

CPA Memorandum Number 15, “Amendment to Coalition Provisional Authority 

Memorandum 4,” June 15, 2004 

We also reviewed the Memorandum for the Director, Program Management Office, 

“Administration of Development Fund for Iraq (DFI)-Funded Contracts,” June 15, 2004, issued by 

the Iraqi Interim Government Ministry of Finance. For a copy of this memorandum, see 

Appendix C. 

We performed two separate evaluations during this audit concerning the administration of 

contracts by the PCO that were funded by the DFI. We evaluated accounting for DFI contract 

liabilities. We also evaluated contract administration. We selected 300 contracts for review – 

75 each from PCO regions North, Central, South-Central, and South. We selected the contracts 

from 2,304 contracts, shown in the automated Comptroller/PCO Listing dated September 14, 

2004, and awarded by the PCO in the amount of $3.07 billion. For both evaluations, we reviewed 

contract and payment documentation for the period August 2003 through September 2004. 

For our assessment of accounting for DFI contract liabilities, we reviewed 225 of the 

300 contracts – 75 each from PCO regions North, Central, and South. Specifically, we reviewed 

the contract files to determine whether the PCO and the JASG-C could identify the current value 

of paid and unpaid contract obligations. 

For our assessment of contract administration, we reviewed all 300 contracts – 75 each from PCO 

regions North, Central, South-Central, and South. Specifically, we reviewed contract files to 

determine whether the PCO was monitoring contractor performance, invoices, and payments by 

reviewing receiving documents, vendor invoices, payment vouchers, and other written information 

in the contract files. 

We conducted this performance audit from August 2004 through April 2005, in accordance with 

generally accepted government auditing standards. 

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

financial data maintained by the PCO and JASG-C Comptroller through a comparison of data 

obtained from the Comptroller/PCO Listing database for the 300 contracts selected to source 

documents such as contracts, invoices, and payment vouchers. The audit results indicated that the 

data input to the summary PCO and JASG-C Comptroller records was not valid or reliable. 
12 

Prior Coverage. The Government Accountability Office (GAO) and the Special Inspector 

General for Iraq Reconstruction (formerly the Coalition Provisional Authority Inspector General 

(CPA-IG)) collectively issued seven reports related to the DFI. However, the objectives and 

scopes of those audits were not the same as discussed in this report. Reports issued by the 

Special Inspector General for Iraq Reconstruction can be accessed over the Internet at 

http://www.sigir.mil. Also, the International Advisory and Monitoring Board contracted with 

KPMG in Bahrain for audits concerning DFI Export Sales, Oil Proceeds, and Disbursements. 

The reports are listed below. 

GAO Report No. 04-651T, “United Nations: Observations on the Oil for Food Program,” 

April 7, 2004 

CPA-IG Report No. 04-001, “Coalition Provisional Authority Coordination of Donated Funds,” 

June 25, 2004 

CPA-IG Report No. 04-007, “Oil for Food Cash Controls for the Office of Project Coordination 

in Erbil, Iraq,” July 26, 2004 

CPA-IG Report No. 04-008, “Coalition Provisional Authority Control Over Seized and Vested 

Assets,” July 30, 2004 

CPA-IG Report No. 04-009, “Coalition Provisional Authority Comptroller Cash Management 

Controls Over the Development Fund for Iraq,” July 28, 2004 

CPA-IG Report No. 04-013, “Coalition Provisional Authority’s Contracting Processes Leading 

Up To and Including Contract Award,” July 27, 2004 

CPA-IG Report No. 05-004, “Oversight of Funds Provided to Iraqi Ministries through the 

National Budget Process,” January 30, 2005 

KPMG Report, “Development Fund for Iraq - Statement of Cash Receipts and Payments for the 

Period from 22 May 2003 to 31 December 2003,” June 29, 2004 

KPMG Report, “Development Fund for Iraq – Agreed-Upon Procedures Report for the Period 

from 22 May 2003 to 31 December 2003 (Disbursements),” June 29, 2004 

KPMG Report, “Development Fund for Iraq – Appendix – Matters Noted Involving Internal 

Controls and Other Operations Issues During the Audit of the Fund for the Period from 22 May 

2003 to 31 December 2003,” June 29, 2003 

KPMG Report, “Development Fund for Iraq - Statement of Cash Receipts and Payments for the 

Period from 1 January 2004 to 28 June 2004,” September 30, 2004 

KPMG Report, “Development Fund for Iraq – Management Letter on Internal Controls for the 

Period from 1 January 2004 to 28 June 2004,” September 30, 2004 

KPMG Report, “Development Fund for Iraq – Report of Factual Findings for the Period from 1 

January 2004 to 28 June 2004 (Disbursements),” September 30, 2004 
13 

Appendix B. Other Matters of Interest

Other matters of interest identified by our audit work are discussed below. 

Personnel Management. The Joint Area Support Group-Central (JASG-C) Comptroller and the 

Principal Assistant Responsible for Contracts cited the lack of resources as a factor in 

maintaining accurate data. Per the Principal Assistant Responsible for Contracts, the Project and 

Contracting Office (PCO) had primarily focused its available resources on awarding contracts, 

because a significant number of vacant positions limited the resources available to emphasize 

monitoring and documenting contract execution. 

During the audit work, we also observed that the 90-day Air Force tours of duty (through 

July 20, 2004, for Comptrollers and through October 4, 2004, for Disbursing Officers) may have 

contributed to the JASG-C Comptroller’s inability to standardize the management of 

Development Fund for Iraq operations. 

We are planning to commence an audit to determine whether U.S. Government organization 

recruitment and deployment processes for qualified personnel supporting Iraq reconstruction is 

effective. We will concentrate our efforts on the effectiveness of legislative and regulatory 

guidance and processes used to identify personnel requirements, the methods to recruit and retain 

the personnel, and the procedures to measure recruitment and retention success. 

Records Management. This audit determined that the PCO and the JASG-C Comptroller 

lacked the necessary controls and adequate documentation to effectively perform their 

responsibilities to monitor and administer contracts funded by the Development Fund for Iraq. 

We found that faulty record management produced these results: 

• an inaccurate identification of the current value of obligations, payments, and unpaid 

obligations for DFI contracts 

• of 198 contract files reviewed, 154 did not contain evidence that goods and services were 

received, 169 did not contain invoices, and 144 did not contain evidence of payment 

• missing contract files 

• duplicate contract numbers 

We are planning to commence an audit to determine whether U.S. organizations have established 

adequate requirements, systems, and processes to manage and maintain records to facilitate 

future audits and investigations of the identification and use of funds provided by the Iraq Relief 

and Reconstruction Fund. 
14 

Appendix C. Memorandum for the Administration of 

Development Fund for Iraq (DFI)-Funded Contracts

The Iraqi Interim Government Minister of Finance issued a memorandum, “Administration of 

Development Fund for Iraq (DFI)-Funded Contracts” for the Director, Project Management 

Office on June 15, 2004. That memorandum is shown below. 
15 
16 
17 

Appendix D. Acronyms 

CPA Coalition Provisional Authority 

CPA-IG Coalition Provisional Authority Inspector General

DFI Development Fund for Iraq 

IIG Iraqi Interim Government 

JASG-C Joint Area Support Group - Central 

MNF-I Multi-National Force - Iraq 

PCO Project and Contracting Office 

PMO Program Management Office 
18 

Appendix E. Report Distribution 

Department of State 

U.S. Ambassador to Iraq 

Director, Iraq Reconstruction Management Office 

Inspector General, Department of State 

Department of Defense 

Deputy Secretary of Defense 

Director, Defense 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 (Acquisition, Logistics and Technology) 

Principal Deputy to the Assistant Secretary of the Army (Acquisition, Logistics and 

Technology) 

Deputy Assistant Secretary of the Army for Policy and Procurement 

Director, Project and Contracting Office 

Assistant Secretary of the Army (Financial Management and Comptroller) 

Auditor General of the Army 

U.S. Central Command

Commander, Multi-National Force – Iraq 

 Commander, Joint Contracting Command - Iraq 

Commander, Joint Area Support Group - Central 

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, Health and Human Services 

Inspector General, U.S. Agency for International Development 
19 

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 
20 

Appendix F. Audit Team Members 

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

General for Iraq Reconstruction, prepared this report. The staff members who contributed to the 

report include: 

Brian Flynn 

Mary Davis 

Ramon B. Miller Jr. 

Keith Fujimura 



Management Comments, Director, Project and 

Contracting Office - Iraq

24
25
26
27
28
29
30
31
32
33