Audit 

Report 

Coalition Provisional Authority’s 

Contracting Processes Leading Up To and 

Including Contract Award 

Report Number 04-013 July 27, 2004 

Office of the Inspector General 

Coalition Provisional Authority
COALITION PROVISIONAL AUTHORITY 

OFFICE OF THE INSPECTOR GENERAL

400 Army Navy Drive • Arlington, Virginia 22202

July 27, 2004 

MEMORANDUM FOR HEAD OF CONTRACTING ACTIVITY, IRAQ PROJECT AND 

CONTRACTING OFFICE 

SUBJECT: Coalition Provisional Authority’s Contracting Processes Leading Up To and 

Including Contract Award 

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

in accordance with our statutory duties contained in Public Law 108-106 which mandates the 

conduct of audits relating to the treatment, handling, and expenditure of funds by the Coalition 

Provisional Authority or its successor entities on Iraq reconstruction, and of the programs, 

operations, and contracts carried out in utilizing such funds. We considered management 

comments on a draft of this report in preparing the final report. 

Management does not concur with the recommendation to request a post-award audit of 

contract DABV01-03-C-0015. We continue to believe the recommendation is valid and will 

work with the Head of Contracting Activity to reach a mutually satisfactory resolution. We will 

accomplish audit follow-up to evaluate management corrective actions. 

We appreciate the courtesies extended to the staff. Questions should be directed to Mr. 

Brian Flynn at (703) 343-9229 or Mr. Kevin Ellenberger at (703) 343-9230. Management may 

request a formal briefing on the results of this audit. See Appendix D for the report distribution.

 Stuart W. Bowen, Jr. 

 Inspector General 

 Coalition Provisional Authority 
i 

Office of the Inspector General 

Coalition Provisional Authority 

Report Number 04-013 July 27, 2004 

Coalition Provisional Authority’s Contracting Processes 

Leading Up To and Including Contract Award 

Executive Summary 

Introduction. Exercising the authority granted to them by the Administrator of the Coalition 

Provisional Authority (CPA), the CPA Contracting Activity, Iraq Project and Contracting Office 

informed us that it had awarded 1,988 contracts, grants, and purchase and delivery orders valued 

at approximately $1.04 billion as of April 4, 2004. Of this total, 1,928 contracts valued at 

approximately $847 million were awarded with Development Funds for Iraq (DFI). 

The Coalition Provisional Authority (CPA) issued Coalition Provisional Authority Memorandum 

No. 4 (the Memorandum), “Contract and Grant Procedures Applicable to Vested and Seized 

Iraqi Property and the Developmental Fund for Iraq,” August 19, 2003, to establish procedures 

applicable to the execution of contracts and grants using Iraqi funds for the benefit of the Iraqi 

people. Although the use of Iraqi funds is not subject to the same laws and regulations that apply 

to U.S. appropriated funds, the CPA was expected to manage Iraqi funds in a transparent manner 

that fully comported with CPA obligations under international law, including United Nations 

Security Council Resolution 1483. 

Objective. The objective of the audit was to evaluate the procedures used by the CPA 

Contracting Activity to award contracts. Specifically, we evaluated policies and procedures 

associated with acquisition planning, source selection, use of competition, and contract 

negotiation. 

Conclusion. The CPA Contracting Activity had not issued standard operating procedures or 

developed an effective contract review, tracking, and monitoring system. In addition, contract 

files were missing and incomplete. Further, contracting officers did not always ensure that 

contract prices were fair and reasonable, contractors were capable of meeting delivery schedules, 

and payments were made in accordance with contract requirements. As a result, the CPA 

Contracting Activity was not accurately reporting the number of contracts actually awarded by 

the CPA Contracting Activity. This hindered the CPA Contracting Activity’s ability to 

demonstrate the transparency required of the CPA when it awarded contracts using DFI funds. 

Management Actions. During the course of our audit, the Head of Contracting Activity 

established and staffed a policy and compliance officer position with a contracting professional 

to develop and standardize contracting procedures and processes for the procuring contracting 

officers assigned to the Iraq Project and Contracting Office. The duties for the policy and 

compliance officer are to:

• Draft and issue a Standard Operating Procedure; 

• Review contract actions and draft, review, and issue standard contract clauses; 
ii 

• Review, track, recommend, and compile warrant packages for the Army’s Principal 

Assistant Responsible for Contracting; and 

• Track and monitor contract actions and dollars. 

We believe the scope of these actions will be sufficient to strengthen the controls for tracking 

and monitoring contracts and the additional problems discussed in this report. Further, we 

believe these actions should result in data that is available and accurate to ensure transparency in 

reporting. Therefore, we did not make recommendations for this area. 

Recommendation. We recommended the Head of Contracting Activity request the Defense 

Contract Audit Agency perform a post-award audit of contract DABV01-03-C-0015, the 

National Currency Exchange Program. 

Management Comments. The Head of Contracting Activity non-concurred with the 

recommendation and stated, “It is important to note that Contract DABV01-03-C-0015, National 

Currency Exchange was a DFI (Development Fund for Iraq) funded contract that is not subject to 

the Federal Acquisition Regulation. We noted that the DCAA (Defense Contract Audit Agency) 

documentation in the file is not a DCAA audit rather; it is a request for pricing assistance by the 

contracting officer. While not in the original file, documentation recently obtained from DCAA 

(Attachment 1), indicates that the Contracting Officer would negotiate the reduced rate unless 

justification was provided from the contractor. Justification was provided from the contractor as 

originally documented in the file and the contract was awarded for $ 24,770,738 vice $ 31.7 

million.” 

Audit Response. The Contracting Activity Office comments were not responsive to our 

recommendation. We continue to believe the recommendation is valid and we will work with 

the Head of Contracting Activity to reach a mutually satisfactory resolution. 
Table of Contents 

Executive Summary i

Introduction

Background 1 

Objective 1 

Finding 

Contracting Processes 2 

Appendices 

A. Scope and Methodology 5

B. Management Comments 6

C. Acronyms 9 

D. Report Distribution 10 

E. Audit Team Members 11 
1

Background 

Exercising the authority granted to them by the Administrator of the Coalition Provisional 

Authority (CPA), the CPA Contracting Activity, Iraq Project and Contracting Office had 

awarded 1,988 contracts, grants, and purchase and delivery orders valued at approximately $1.04 

billion as of April 4, 2004. Of this total, 1,928 contracts valued at approximately $847 million 

were awarded with Development Funds for Iraq (DFI). The scope and methodology used to 

perform this audit are discussed at Appendix A. The acronyms used in this report are shown at 

Appendix C and the audit team members are shown at Appendix E. 

Coalition Provisional Authority Memorandum No. 4 – Purpose. The Coalition Provisional 

Authority (CPA) issued Coalition Provisional Authority Memorandum No. 4 (the 

Memorandum), “Contract and Grant Procedures Applicable to Vested and Seized Iraqi Property 

and the Developmental Fund for Iraq,” August 19, 2003, to establish procedures applicable to the 

execution of contracts and grants using Iraqi funds for the benefit of the Iraqi people. Although 

the use of Iraqi funds is not subject to the same laws and regulations that apply to U.S. 

appropriated funds, the CPA was expected to manage Iraqi funds in a transparent manner that 

fully comported with CPA obligations under international law, including United Nations 

Security Council Resolution 1483. 

Coalition Provisional Authority Memorandum No. 4 – Applicability. The Memorandum 

states “This Memorandum applies to contracts and grants executed by or on behalf of the CPA, 

when those instruments obligated and expended Iraqi Funds. It covers contracts and grants 

executed by. . . CPA's Head of Contracting Activity, or designee(s),. . . .“ 

Objective 

The objective of the audit was to evaluate the procedures used by the CPA Contracting Activity 

to award contracts. Specifically, we evaluated policies and procedures associated with 

acquisition planning, source selection, use of competition, and contract negotiation. 
2

Contracting Processes 

The CPA Contracting Activity had not issued standard operating procedures or developed an 

effective contract review, tracking, and monitoring system. In addition, contract files were 

missing and incomplete. Further, contracting officers did not always ensure that contract prices 

were fair and reasonable, contractors were capable of meeting delivery schedules, and payments 

were made in accordance with contract requirements. This occurred because the CPA 

Contracting Activity did not provide adequate administrative oversight and technical supervision 

over the contracting actions completed by procuring contracting officers as required by the 

Memorandum. As a result, the CPA Contracting Activity was not accurately reporting the 

number of contracts actually awarded by the CPA Contracting Activity. This hindered the CPA 

Contracting Activity’s ability to demonstrate the transparency required of the CPA when it 

awarded contracts using DFI funds. 

Technical Supervision

The Memorandum provided that “The Head of Contracting Activity, CPA, shall be responsible 

for providing technical supervision over Contracting Officers. . . . This technical supervision 

may include prescribing training requirements and prescribing appropriate forms for use in 

solicitations, contract awards, and grant awards. For contracting officers assigned to the CPA 

Contracting Activity, the Head of Contracting Activity, CPA, shall provide administrative 

oversight as well as technical supervision.”

Contracting Processes

The CPA Contracting Activity had not issued standard operating procedures or developed an 

effective contract review, tracking, and monitoring system. In addition, contract files were 

missing and incomplete. Further, contracting officers did not always ensure that contract prices 

were fair and reasonable, contractors were capable of meeting delivery schedules, and payments 

were made in accordance with contract requirements. 

Contract Tracking and Monitoring System. The spreadsheets used by the CPA Contracting 

Activity to review, track, and monitor contract actions provided inaccurate and unreliable 

information and, therefore, were not effective. Specifically, spreadsheets developed by the CPA 

Contracting Activity to track contract files were not adequately maintained and could not be 

relied upon to ensure compliance with the Memorandum or be used as a source of information 

for Congressional reporting. We attempted to reconcile spreadsheets to the contract files by 

verifying contracts with a total value of $5 million or more. The CPA Contracting Activity was 

unable to locate 13 of 62 contract files listed in the spreadsheets. 

Incomplete or Missing Documentation. The Procuring Contracting Officer did not comply 

with the contract procedures outlined in the Memorandum. Specifically, 29 (67 percent) of 43 

small and large purchase contracts we analyzed had incomplete or missing documentation and 

the current status of five contracts was unclear. Additionally, because of the absence of 

receiving reports and complete invoices and payment vouchers, we were unable to determine if 

the goods specified in the contract were ever received, the total amount of payments made to the 

contractor, or if the contractor fully complied with the requirements of the contract. 

Fair and Reasonable Price. The CPA Contracting Activity did not ensure that a fair and 

reasonable price was negotiated for contract DABV01-03-C-0015, National Currency Exchange, 

valued at $ 31.7 million. Specifically, when the contractor developed the contract proposal for 
3

the Iraqi banknote exchange project, it stated that the proposed contract price was calculated as 

accurately as possible based upon current prices and historical costs from existing contracts. 

However, the proposed costs were not based on contractor’s most recent contract (a contract for 

guard/security services for the Republican Presidential Palace in Baghdad), and the contractor 

was not able to provide a justification for the increased proposed costs. 

The Defense Contract Audit Agency (DCAA) conducted a pre-award contract review of the 

contractor’s cost proposal and issued an audit memorandum on August 29, 2003, that 

recommended potential cost reductions of over $5 million. According to the memorandum, the 

contractor could not provide any reasonable and supportable explanation as to why the proposed 

daily labor rates should exceed the rates used to determine their most current security contract 

with CPA. Nevertheless, the contract was awarded at the contractor’s proposed price. The 

contract file contained no documentation of any further negotiations by the contracting officer. 

Meeting Delivery Schedules. The Procuring Contracting Officer did not ensure contractor 

compliance with the proposed delivery for the date of purchase order DABV01-04-M-0018, 

Extended Cab Pickup Trucks for the Border Police. The statement of work required a 30-day 

delivery schedule for the vehicles. However, the contractor was awarded the contract even 

though the contractor proposed a modified delivery schedule of 60 days. That bid should have 

been considered non-responsive to the contract requirement for the delivery of the vehicles. 

Additionally, there was little evidence the contracting officer sought widespread competition for 

this requirement. As such, it is not known whether a more responsive contractor could have been 

awarded the contract 

Payment in Accordance with Contract Requirements. The Procuring Contracting Officer did 

not comply with the schedule of payments of contract DABV01-03-C-5003, the Mitsubishi L200 

Double Cab Trucks for the Maysan Police. Specifically, the contracting officer approved and 

paid an advanced payment of $87,500 to the contractor despite the contract terms stating 

payments shall be made upon delivery of the vehicles. Further, the remaining balance of 

$100,000 was paid to the contractor without written documentation showing that the contractor 

had actually delivered the vehicles. 

Conclusion

We believe these problems occurred because the CPA Contracting Activity did not provide 

adequate administrative oversight and technical supervision over the contracting actions 

completed by procuring contracting officers as required by the Memorandum. As a result, the 

CPA Contracting Activity was not accurately reporting the number of contracts actually awarded 

by the CPA Contracting Activity. This hindered the CPA Contracting Activity’s ability to 

demonstrate the transparency required of the CPA when it awarded contracts using DFI funds. 

We do not believe that transparency can be achieved when pertinent data is unavailable or 

inaccurate. 

Management Corrective Actions 

During the course of our audit, the Head of Contracting Activity established and staffed a policy 

and compliance officer position with a contracting professional to develop and standardize 

contracting procedures and processes for the procuring contracting officers assigned to the Iraq 

Project and Contracting Office. The duties for the policy and compliance officer are to:

• Draft and issue a Standard Operating Procedure; 
4

• Review contract actions and draft, review, and issue standard contract clauses; 

• Review, track, recommend, and compile warrant packages for the Army’s Principal 

Assistant Responsible for Contracting; and 

• Track and monitor contract actions and dollars. 

We believe the scope of these actions will be sufficient to strengthen the controls for tracking 

and monitoring contracts and the additional problems discussed in this report. Further, we 

believe these actions should result in data that is available and accurate to ensure transparency in 

reporting. 

Recommendations, Management Comments, and Audit 

Response 

We recommend the Head of Contracting Activity request the Defense Contract Audit Agency 

perform a post-award audit of contract DABV01-03-C-0015, the National Currency Exchange 

Program. 

Management Comments. The Head of Contracting Activity non-concurred with the 

recommendation and stated, “It is important to note that Contract DABV01-03-C-0015, National 

Currency Exchange was a DFI funded contract that is not subject to the Federal Acquisition 

Regulation. We noted that the DCAA documentation in the file is not a DCAA audit rather; it is 

a request for pricing assistance by the contracting officer. While not in the original file, 

documentation recently obtained from DCAA (Attachment1), indicates that the Contracting 

Officer would negotiate the reduced rate unless justification was provided from the contractor. 

Justification was provided from the contractor as originally documented in the file and the 

contract was awarded for $24,770,738 vice $31.7 million.” 

Audit Response. The Contracting Activity Office comments were not responsive to our 

recommendation. Specifically, the nature of the DCAA analysis, (i.e. audit vs. pricing 

assistance) does not change the DCAA results. The contractor proposed a price of $24,770,738, 

of which DCAA questioned $5,080,717 in costs, but the contract was awarded at full price. The 

contracting office provided us with an email stating the Procuring Contracting Officer would 

award the contract at the lower price and wait for an explanation for the increase. (That email 

also contained proprietary information and will not be included in this report.) However, we 

found no support to demonstrate further negotiations or that the contractor provided additional 

support for the proposed price. Additionally, management comments refer to a price difference 

in the award of $7 million. However, the reduced price management refers to is the difference 

between the original contract and the final contract amount after five modifications. We 

continue to believe the recommendation is valid and we will work with the Head of Contracting 

Activity to reach a mutually satisfactory resolution. We will accomplish audit follow-up to 

evaluate management corrective actions. 
5

Appendix A. Scope and Methodology 

We performed this audit from April thru July 2004 in accordance with generally accepted 

government auditing standards. 

We reviewed Coalition Provisional Authority Regulation 2, “Developmental Fund for Iraq,” 

June 10, 2003, and Coalition Provisional Authority Memorandum 4, “Contract and Grant 

Procedures Applicable to Vested and Seized Iraqi Property and the Developmental Fund for 

Iraq,” August 19, 2003. 

We interviewed contracting officials assigned to the Coalition Provisional Authority (CPA) 

North, CPA South, and to the CPA Contracting Activity, part of the Iraq Project and Contracting 

Office. We also interviewed the Head of Contracting Activity and the Head, Policy and 

Compliance, at the CPA Contracting Activity. 

We attempted to verify the contract listing contained in EXCEL spreadsheets maintained by the 

CPA Contracting Activity by comparing that contract listing to manually prepared contract 

registers and other source documents. We judgmentally selected 45 contracts for review from a 

universe of 1,928 contracts recorded in the spreadsheets and valued at approximately $847 

million. Those 45 contracts were awarded between July 4, 2003 and April 4, 2004, and were 

funded with Development Funds for Iraq. We reviewed each contract file to determine whether 

the file adequately documented actions related to acquisition planning, source selection, use of 

competition, and contract negotiation 

Scope Limitation. Our scope was limited due to time and resource constraints. Specifically, we 

did not review files from the South Central contracting office (located in Al Hillah, Iraq) due to 

security concerns.
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Appendix B. Management Comments from the Head 

of Contracting Activity 
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8
9

Appendix C. Acronyms 

CPA Coalition Provisional Authority 

DCAA Defense Contract Audit Agency 

DFI Development Fund for Iraq 
10

Appendix D: Report Distribution 

Office of the Secretary of Defense 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

 Director, Program Analysis and Evaluation 

 Deputy Chief Financial Officer 

 Deputy Comptroller (Program/Budget) 

Inspector General, Department of Defense 

Director, Defense Procurement and Acquisition 

Office of the Secretary of State 

U.S. Ambassador to Iraq 

Inspector General, Department of State 

Director, Iraq Reconstruction Management Office 

Department of the Army 

Assistant Secretary of the Army, Acquisition, Logistics & Technology 

 Assistant Secretary of the Army for Policy and Procurement 

Auditor General, Department of the Army 

Other Defense Organizations

Director, Defense Contract Audit Agency 

Other Federal Government Organizations 

Office of Management and Budget 

Government Accountability Office 

Inspector General, Department of Commerce 

Inspector General, Health and Human Services 

Inspector General, U.S. Agency for International Development 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

Senate Committee on Appropriations 

Senate Subcommittee on Defense, Committee on Appropriations 

Senate Committee on Armed Services 

Senate Committee on Governmental Affairs 

Senate Committee on Foreign Relations 

House Committee on Appropriations 

House Subcommittee on Defense, Committee on Appropriations 

House Committee on Armed Services 

House Committee on Government Reform 

House Subcommittee on Government Efficiency and Financial Management, Committee on 

Government Reform 

House Subcommittee on National Security, Emerging Threats, and International Relations, 

Committee on Government Reform 

House Subcommittee on Technology, Information Policy, Intergovernmental Relations, and the 

Census, Committee on Government Reform 
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Appendix E: Audit Team Members 

The Logistics Management Division, Office of the Assistant Inspector General for Auditing, 

Coalition Provisional Authority, prepared this report. Personnel of the Office of the Assistant 

Inspector General for Auditing, Coalition Provisional Authority, who contributed to the report 

are listed below. 

John Betar 

Brian Flynn 

Robert Murrell 

Kevin Ellenberger 

Ramon B. Miller Jr. 

David Griffin 

Wei Wu