OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

PPRROOMMPPTT PPAAYYMMEENNTT AACCTT:: AANNAALLYYSSIISS

OOFF EEXXPPEENNDDIITTUURREESS MMAADDEE FFRROOMM

TTHHEE IIRRAAQQ RREELLIIEEFF AANNDD

RREECCOONNSSTTRRUUCCTTIIOONN FFUUNNDD

SSIIGGIIRR--0066--000022

FFFEEEBBBRRRUUUAAARRRYYY 333,,,222000000666 
SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

400 Army Navy Drive • Arlington, Virginia 22202 

February 3, 2006 

MEMORANDUM FOR ASSISTANT SECRETARY OF THE ARMY FOR FINANCIAL 

MANAGEMENT AND COMPTROLLER 

SUBJECT: Audit Report on Prompt Payment Act: Analysis of Expenditures Made from the 

Iraq Relief and Reconstruction Fund (SIGIR-06-002) 

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, as amended, which 

mandates the independent and objective conduct of audits relating to the programs and 

operations funded with amounts appropriated or otherwise made available to the Iraq Relief and 

Reconstruction Fund. Public Law 108-106, as amended, requires that we provide for the 

independent and objective leadership and coordination of, and recommendations on, policies 

designed to promote economy, efficiency, and effectiveness in the administration of such 

programs and operations and to prevent and detect waste, fraud, and abuse. 

We considered management comments from the Office of the Assistant Secretary of the Army 

(Financial Management and Comptroller) on a draft of this report when preparing the final 

report. Comments on the draft of this report by that organization conformed to requirements and 

left no unresolved issues. Therefore, no additional comments are required. 

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

please contact Mr. Joseph T. McDermott at (914) 822-4618, or by email at 

joseph.mcdermott@iraq.centcom.mil; or Ms. Karen D. Bell at (703) 428-0147, or at 

karen.bell@sigir.mil. For the report distribution, see Appendix H. 

Stuart W. Bowen, Jr. 

Inspector General 
i 

Special Inspector General for Iraq Reconstruction 

SIGIR-06-002 February 3, 2006 

Prompt Payment Act: Analysis of Expenditures 

Made from the Iraq Relief and Reconstruction Fund 

Executive Summary 

Introduction. This audit report discusses the management and payment of interest 

penalties incurred resulting from provisions of the Prompt Payment Act by 

U.S. government organizations responsible for the management of the Iraq Relief and 

Reconstruction Fund. 

Objective. The objective of this audit was to determine whether expenditures by 

U.S. government organizations responsible for the management of the Iraq Relief and 

Reconstruction Fund were made in compliance with the Prompt Payment Act and other 

applicable policies and regulations. 

Results. During fiscal year 2005, approximately $1.4 million in interest penalty 

payments were made by the Army against Iraq Relief and Reconstruction Fund 

disbursements of about $5.275 billion made by Department of Defense organizations 

because of late payments of contractor invoices. This amount of interest exceeded an 

Army management goal, which stipulated that there be no more than $85 in interest 

penalty payments for every million dollars disbursed; in this case that amount would have 

been $448,381. However, the $1.4 million in interest penalties paid amounted to about 

$259 in interest penalties per million disbursed and exceeded the Army goal by 

304 percent.

As a result, interest penalties paid to contractors from the Iraq Relief and Reconstruction 

Fund appropriation reduced, dollar-for-dollar, the availability of funds appropriated for 

the reconstruction of Iraq and for the benefit of the Iraqi people. If the Army achieves the 

current management goal of no more than $85 in interest penalty payments for every 

million dollars disbursed, for the remaining Department of Defense Iraq Relief and 

Reconstruction Fund apportioned funds of approximately $7.0 billion yet to be disbursed, 

the Army could avoid making interest penalty payments of more than $1.2 million and 

make better use of those funds to support pressing relief and reconstruction needs. 

Recommendation. We recommend that the Assistant Secretary of the Army 

(Financial Management and Comptroller) identify and monitor interest penalty 

payments from Iraq Relief and Reconstruction Fund funds to ensure that Army 

organizations managing Iraq Relief and Reconstruction Fund funds consistently 

meet established Army goals.

Management Comments and Audit Response. The Office of the Assistant Secretary of 

the Army (Financial Management and Comptroller) concurred with the finding and 

recommendation and the comments to the recommendation are fully responsive. 
Table of Contents 

Executive Summary i 

Introduction 

Background 1 

Objective 3 

Finding 

Interest Penalty Payments 4 

Appendixes 

A. Scope and Methodology 11 

B. Prompt Payment Act 12 

C. Disbursements and Interest Penalty Payments Made by the 

Department of Defense 13 

D. Disbursements and Interest Penalty Payments Made by the 

U.S. Agency for International Development 14 

E. Disbursements and Interest Penalty Payments Made by the 

Department of State 15 

F. Disbursements and Interest Penalty Payments Made by 

Other U.S. Government Organizations 16 

G. Acronyms 19 

H. Report Distribution 20 

I. Audit Team Members 22 

Management Comments 

Office of the Assistant Secretary of the Army (Financial Management and 

Comptroller) 23 
1 

Introduction 

Background 

This audit report discusses the management and payment of interest penalties incurred 

resulting from provisions of the Prompt Payment Act by U.S. government organizations 

responsible for the management of the Iraq Relief and Reconstruction Fund. 

Iraq Relief and Reconstruction Fund. The Congress has appropriated funds, through 

Public Law 108-11 and Public Law 108-106, for the humanitarian assistance, security, 

relief, rehabilitation, and reconstruction of Iraq. These appropriated funds are 

collectively known as the Iraq Relief and Reconstruction Fund (IRRF). 

Public Law 108-11. Public Law 108-11 was enacted by the Congress on 

April 16, 2003, and provided funds totaling $2.475 billion, to, among other things; begin 

the relief and reconstruction efforts in Iraq. However, according to the Iraq 

Reconstruction Management Office Weekly Status Report, dated September 27, 2005, 

only $2.473 billion had been apportioned. For the purposes of this report, these funds are 

referred to as IRRF 1 funds. 

These funds were appropriated to the President and were subsequently administered by 

the Office of Management and Budget (OMB) for apportionment to the Departments of 

State, Treasury, Defense, Health and Human Services,1 and the U.S. Agency for 

International Development (USAID). The IRRF 1 funds were appropriated for necessary 

expenses incurred in providing humanitarian assistance in and around Iraq and for the 

rehabilitation and reconstruction of Iraq. 

Public Law 108-106. Public Law 108-106 was enacted by the Congress on 

November 6, 2003, and provided funds totaling $18.439 billion for the security, relief, 

rehabilitation, and reconstruction of Iraq. For the purposes of this report, these funds are 

referred to as IRRF 2 funds. 

These funds were appropriated to the President, administered by the OMB, and 

apportioned to the U.S. government agencies discussed above. The purpose of IRRF 2 

funds covered a broad spectrum of sectors2

 for the relief and reconstruction of Iraq. 

Prompt Payment Act. Public Law 97-177, as amended by Public Law 100-496 (known 

as the Prompt Payment Act), are specified at 5 CFR3

 § 1315 (2005) and required 

U.S. government organizations to make payments to contractors in a timely manner. 

Federal Acquisition Regulation Subpart--32.9, “Prompt Payment,” (March 2005) 

implemented the prompt payment requirements of 5 CFR § 1315. 

 

1

 As of September 30, 2005, no official reports showed that IRRF 1 funds had been apportioned to the 

Department of Health and Human Services by the OMB. 

2

 According to the Iraq Reconstruction Management Office Weekly Status Report, dated September 27, 

2005, the sectors were Democracy; Education, Refugees, Human Rights, and Governance; Electric; Health 

Care; Justice, Public Safety, and Civil Society; Oil Infrastructure; Private Sector Development; Roads, 

Bridges, and Construction; Security and Law Enforcement; Transportation and Communications; and 

Water Resources and Sanitation. 

3

 Code of Federal Regulations. 
2 

U.S. Government Contractors. Relief and reconstruction efforts in Iraq were 

performed by U.S. and foreign private companies operating under contract to the various 

U.S. government agencies. Contracts were written in accordance with the provisions of 

Federal Acquisition Regulation Subpart--32.9, “Prompt Payment,” (March 2005), which 

provided for the payment of interest penalties if contractors were paid late through no 

fault of their own. 

The regulation provides that if a contractor is paid late, the contractor is entitled to an 

interest penalty payment in addition to any funds owed for goods or services provided 

without having to request that interest payment. The regulation also provides that interest 

payments are made from the same appropriation identified for payment of the 

contractor’s invoice. Consequently, interest penalty payments reduce available funds that 

are appropriated for specific purposes. For details on the Prompt Payment Act and 

applicable federal regulations, see Appendix B. 

U.S. Government Organizations Receiving Iraq Relief and Reconstruction Fund 

Funding. Five organizations received IRRF 1 funding; the Departments of State, 

Treasury, Defense, the USAID and the U.S. Trade and Development Agency. 

Six organizations received IRRF 2 funding; the Departments of State, Treasury, Defense, 

the USAID, the Overseas Private Investment Corporation, and the United States Institute 

of Peace. We discuss those U.S. government organizations below in the order of the 

amount of IRRF 2 funds apportioned or allocated. 

Department of Defense. The Department of Defense (DoD) was apportioned 

$518.3 million by the OMB from IRRF 1 and $13.07 billion from IRRF 2. The DoD 

disbursed a total of approximately $6.6 billion of IRRF funds for fiscal years 2003 

through 2005. However, for the DoD, Army organizations were responsible for 

managing the IRRF funds and making the IRRF disbursements. For details on IRRF 

disbursements and interest penalties incurred, see Appendix C. 

U.S. Agency for International Development. The USAID was apportioned 

$1.819 billion by the OMB from IRRF 1 and $3.0 billion from IRRF 2. The USAID 

disbursed a total of approximately $2.9 billion of IRRF funds for fiscal years 2003 

through 2005. For details on IRRF disbursements and interest penalties incurred, see 

Appendix D. 

Department of State. The Department of State (DoS) was apportioned 

$125.4 million by the OMB from IRRF 1 and $1.18 billion from IRRF 2. The DoS 

disbursed a total of approximately $1.04 billion of IRRF funds for fiscal years 2003 

through 2005. For details on IRRF disbursements and interest penalties incurred, see 

Appendix E. 

Department of the Treasury. The Department of the Treasury (Treasury) was 

apportioned $6.0 million by the OMB from IRRF 1 and $390.0 million from IRRF 2. 

The Treasury disbursed a total of approximately $22.0 million of IRRF funds for fiscal 

years 2003 and 2004. No IRRF funds were disbursed for fiscal year 2005. For details on 

IRRF disbursements and interest penalties incurred, see Appendix F. 

Overseas Private Investment Corporation. The Overseas Private Investment 

Corporation (OPIC) was allocated $25.9 million in IRRF 2 funds by the USAID. The 

OPIC disbursed a total of $25.9 million of IRRF funds for fiscal years 2004 and 2005. 

No IRRF funds were received or disbursed for fiscal year 2003. For details on IRRF 

disbursements and interest penalties incurred, see Appendix F. 
3 

United States Institute of Peace. The United States Institute of Peace (USIP) 

was apportioned $10.0 million by the OMB from IRRF 2. The USIP disbursed a total of 

approximately $6.9 million of IRRF funds for fiscal years 2004 and 2005. No IRRF 

funds were received or disbursed for fiscal year 2003. For details on IRRF 

disbursements, and interest penalties incurred, see Appendix F. 

U.S. Trade and Development Agency. The U.S. Trade and Development 

Agency (USTDA) was apportioned $5 million by the OMB from IRRF 1. The USTDA 

disbursed a total of approximately $2.37 million of IRRF funds for fiscal years 2004 and 

2005. No IRRF funds were disbursed for fiscal year 2003. For details on IRRF 

disbursements and interest penalties incurred, see Appendix F. 

Objective

The audit objective was to determine whether expenditures by U.S. government 

organizations responsible for the management of the Iraq Relief and Reconstruction Fund 

were made in compliance with the Prompt Payment Act and other applicable policies and 

regulations. 

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

Appendix A. For definitions of the acronyms used in this report, see Appendix G. For a 

list of the audit team members, see Appendix I. 
4 

Interest Penalty Payments 

During fiscal year 2005, approximately $1.4 million in interest penalty payments were 

made by the Army against IRRF disbursements of about $5.275 billion made by DoD 

organizations because of late payments of contractor invoices. This amount of interest 

exceeded an Army management goal, which stipulated that there be no more than $85 in 

interest penalty payments for every million dollars disbursed; in this case that amount 

would have been $448,381. However, the $1.4 million in interest penalties paid 

amounted to about $259 in interest penalties per million disbursed and exceeded the 

Army goal by 304 percent. 

This occurred because Army managers did not place sufficient emphasis on the 

identification and resolution of problems associated with high interest penalty payments; 

particularly the late receipt of required supporting documentation for the payment of 

invoices provided by the Project and Contracting Office (PCO)4 and the Gulf Region 

Division (GRD), a subordinate command of the U.S. Army Corps of Engineers 

(USACE), or certain vendors. 

As a result, interest penalties paid to contractors from the IRRF appropriation reduced, 

dollar-for-dollar, the availability of funds appropriated for the reconstruction of Iraq and 

for the benefit of the Iraqi people. If the Army achieves the fiscal year 2005 management 

goal of no more than $85 in interest penalty payments for every million dollars disbursed, 

for the remaining DoD IRRF apportioned funds of approximately $7.0 billion yet to be 

disbursed, the Army could avoid making interest penalty payments of more than 

$1.2 million and make better use of those funds to support pressing relief and 

reconstruction needs. 

Department of Defense

Goals established by the Army to reduce the amount of interest penalty payments 

were not met by Army organizations responsible for the management of the 

majority of the DoD IRRF funds; the PCO and the GRD. 

Army Responsibilities for the Management of the Iraq Relief and 

Reconstruction Fund. National Security Presidential Directive 36, “United States 

Government Operations in Iraq,” May 11, 2004, established the PCO and directed 

that it provide acquisition and project management support with respect to activities 

in Iraq, to include contract and grant related activities. 

A DoD memorandum, “Organizational Establishment and Placement of the Project 

and Contracting Office within the Department of the Army,” issued by the Deputy 

Secretary of Defense on June 22, 2004, directed “that the PCO be organizationally 

established and placed within the Department of the Army to provide acquisition 

and project management support with respect to activities in Iraq, . . . .” 

The GRD was activated in January 2004 with three district offices throughout Iraq 

and a division headquarters office in Baghdad. In December 2005, the PCO was 

integrated with the GRD, and as a result, the GRD became the execution agency of 

the Iraq reconstruction program and provides engineering services to the Multi-

 

4

 The PCO was merged into the USACE GRD on December 4, 2005. 
5 

National Force-Iraq and the Iraqi government in support of military and civil 

construction. 

Army Interest Penalty Payment Management Goals. To address late payments 

to contractors and the associated interest penalty payments, the Office of the 

Assistant Secretary of the Army (Financial Management and Comptroller) 

(ASA [FM&C]) established goals to restrict interest penalty payments to a 

prescribed amount per million dollars disbursed. Army management was provided 

this metric to measure interest penalty payments, to investigate instances where 

they exceeded established goals, and to take appropriate action to reduce those 

payments. 

On October 20, 2003, the ASA (FM&C) established a fiscal year 2004 interest 

penalty payment goal of $96.44 (reduced from the $120.00 baseline established in 

fiscal year 2003). Similarly, on November 12, 2004, the ASA (FM&C) established 

the fiscal year 2005 goal of $85.00 per million dollars disbursed. 

These annual management goals were provided to all Army major commands for 

implementation as part of the Joint Army Reconciliation Goals and Special Interest 

Initiatives. Interest penalty payment goals were of major importance to Army 

financial managers. To remind commanders and managers of the need to reduce 

penalty payments, the ASA (FM&C) also included the goal in the Army’s Joint 

Reconciliation Program and presented performance data at reconciliation program 

meetings held three times a year. 

Army Interest Penalty Payments. We obtained Army summary-transaction 

historical data on interest penalty payments made with expenditures of IRRF funds 

during fiscal years 2003 through 2005 to determine whether expenditures made by 

the Army were in compliance with the Prompt Payment Act. We determined that 

the Army paid interest penalty payments of $4,723 in IRRF 1 funds and $1,358,867 

in IRRF 2 funds during fiscal year 2005.

We used financial data prepared by the Defense Finance and Accounting Service 

(DFAS), as of September 30, 2005, to obtain the amounts of interest penalty 

payments. The Chief, Army Managerial Accounting Division, at the DFAS 

provided us with assurances that the financial information on IRRF disbursements 

and interest penalty payments was accurate. Within the DoD, the PCO and the 

GRD incurred 99.62 percent5

 of the interest penalty payments. For details on the 

total Army IRRF disbursements and interest penalties incurred, see Appendix C.

Once we identified the amounts of Army interest penalty payments for fiscal 

year 2005, we calculated the dollar amount of payments per million dollars 

disbursed. We determined that for fiscal year 2005, IRRF 1 and IRRF 2 interest 

penalty payments combined amounted to $259 per million dollars disbursed and 

exceeded the Army’s goal of $85 per million dollars disbursed by 304 percent. 

In addition, we determined that IRRF 1 interest penalty payments increased from 

$253 or $.55 per million dollars disbursed in fiscal year 2004, to $4,723 or 

$114.12 per million dollars disbursed in fiscal year 2005 and IRRF 2 interest 

 

5

 We determined that .38% of the Army IRRF interest penalties for fiscal year 2005 were paid under 

Operating Agency 71, “Office of Reconstruction and Humanitarian Assistance.” 
6 

penalty payments increased from $101,246 or $117.06 per million dollars disbursed 

in fiscal year 2004, to $1,358,867 or $259.64 per million dollars disbursed in fiscal 

year 2005. These figures represent significant increases in the trends of interest 

penalty payments. 

Army Reasons for Interest Penalty Payments. We reviewed interest penalty 

payments for fiscal years 2004 and 2005 using disbursement reports requested from 

the DFAS for IRRF 1 and IRRF 2 funds. These reports indicated that the late 

receipt of supporting documentation and delays in obtaining invoices provided by 

the PCO, the GRD, or certain vendors caused 92 percent of the interest penalty 

payments to occur. Reasons attributed to the cause of interest penalty payments are 

shown in Table 1. 

Table 1.

Reasons for Payment of Interest Penalties 

Payments for DoD 

(per the DFAS) 

Fiscal Years 2004 and 2005 

IRRF 1 and IRRF 2 

Reason for Late 

Payments 

Interest 

Penalty 

Payments 

Percentage

Documentation 

Received Late $1,143,545 78 

Delay in Obtaining 

Invoice 203,652 14 

All Other Reasons 117,893 8 

Total $1,465,089 100 

More specifically, according to staff accountants at Headquarters, USACE 

Accounting and Finance Division, the predominant reasons for increased interest 

penalties were the late receipt of receiving reports and invoices and the late 

approvals of pay estimates by contracting officer representatives. In addition, those 

officials noted that there were invoices without matching receiving reports and 

receiving reports without matching invoices. 

Army Management of Interest Penalty Payments. At Headquarters, USACE, we 

met with operating officials of the USACE Finance and Accounting Policy Division 

to determine why supporting documentation was submitted late by the PCO, the 

GRD, or certain vendors, and what steps were being taken to reduce interest penalty 

payments. 
7 

Officials at the USACE Finance and Accounting Policy Division asked the GRD 

for an explanation of the core cause for the late submissions of required supporting 

documents, the corrective actions being taken to eliminate the problem, and notified 

the commanders and senior staff at USACE of the interest penalty payment problem 

at the GRD during quarterly Command Management Reviews. 

Based on discussions with USACE officials, and documentation provided, it 

appeared that the PCO interest penalty payment problem did not receive the same 

degree of managerial oversight as the GRD. We asked USACE Finance and 

Accounting Policy Division officials what actions had been taken to advise Army 

managers about the amount of interest penalty payments incurred by the PCO as a 

result of untimely payments. We were told that the USACE Finance and 

Accounting Policy Division advised managers in the PCO-Washington and the 

PCO-Baghdad offices of the amount of interest penalty payments being incurred. 

We confirmed this with resource management personnel in both PCO offices. 

However, we found that there was no evidence to show that the problems were 

elevated to PCO senior management. 

Army Management Actions. During our audit, we discussed these matters with 

senior officials of the Office of the ASA (FM&C); the USACE Finance and 

Accounting Policy Division; the USACE Finance Center, the PCO; the GRD; and 

the DFAS. Management actions were initiated prior and subsequent to our audit 

work to address the problems noted. Specifically, 

• In June and July 2005, the USACE Finance Center, in conjunction, with the 

USACE Finance and Accounting Policy Division, finalized the testing of 

four enhanced Corps of Engineers Financial Management System reports. 

Those reports were designed to provide daily status on missing or late 

supporting documents; such as missing obligation documents, progress 

payment certifications, receiving reports, and invoices. These reports were 

undergoing field trials at the PCO-Baghdad, the GRD, and other USACE 

divisions and districts at the time of our audit and were designed to alert 

PCO and GRD managers of specific documents urgently needed by the 

USACE Finance Center to avoid paying interest penalties. 

• On June 21, 2005, the USACE Finance and Accounting Policy Division 

required the GRD to explain why the Army standard of $85 per million 

dollars disbursed was exceeded and to submit a comprehensive corrective 

action plan to reduce interest penalty payments. 

• On October 22, 2005, the PCO Comptroller made a special review of the 

organizations involved in PCO reconstruction projects and identified 

shortcomings and areas of concern. An effort was initiated by the 

PCO Comptroller to define the responsibilities of organizations and 

individuals involved in the process, utilize the enhanced Corps of Engineers 

Financial Management System reports, and task offices and individuals with 

specific responsibilities to manage the flow of IRRF supporting documents 

to disbursing organizations. 

• On October 29, 2005, the Commander, GRD included interest penalty 

payments in his weekly situation reports as a matter of top priority for his 

command. 

• On November 29, 2005, senior financial managers in the Office of the 

ASA (FM&C), alerted to the problems raised during our audit, agreed to 

make the reduction of IRRF interest penalty payments a key management 
8 

goal. They were prepared to institute necessary control mechanisms that 

provide greater visibility over interest penalties incurred to direct actions to 

reduce the amount of interest penalties. 

Accounting for Interest Penalty Payments. The ASA (FM&C) convened three 

times during FY 2005 for meetings with the major Army commands to discuss the 

progress made towards goals established at the start of the fiscal year. Interest 

penalty payments were addressed at these meetings. However, the interest penalty 

payments were compiled by Army major commands for reporting to the Office of 

the ASA (FM&C) but were not broken out by the various appropriations utilized by 

a particular command. 

The IRRF interest penalties at the PCO and the USACE were totaled along with the 

interest penalties incurred for all other appropriations used by those organizations.6 Because of this process, the IRRF interest penalties could not be identified 

separately at the ASA (FM&C) level and senior Army financial managers were not 

alerted that the IRRF interest penalty payments in fiscal year 2005 were among the 

highest in the Army. As a result, senior Army financial managers were unable to 

monitor IRRF interest penalty payments effectively to ensure that Army 

organizations using IRRF funds consistently met Army interest penalty goals. 

Potential Monetary Benefits. Adherence to interest penalty management goals by 

Army financial managers has the potential to significantly reduce future 

expenditures of IRRF funds on interest penalty payments. 

We requested Army financial reports from the DFAS for IRRF funds and computed 

the total IRRF funds disbursed by the Army as of September 30, 2005, for fiscal 

years 2003 through 2005. We compared the total Army disbursements to the OMB 

apportioned amounts for IRRF 1 and IRRF 2 and determined the total amount of the 

IRRF apportionment that remained to be disbursed by the DoD. The DoD IRRF 

apportioned funds that remained to be disbursed totaled approximately $7 billion as 

of September 30, 2005. 

Using those amounts, we estimated that the Army could avoid more than 

$1.2 million in interest penalty payments over the balance of the life of the 

OMB IRRF 1 and IRRF 2 apportioned amounts (approximately $7 billion as of 

September 30, 2005) by adhering to the fiscal year 2005 interest penalty payment 

management goal of $85.00 per million dollars disbursed. This cost avoidance in 

interest penalty payments would permit the Army to put those funds to better use by 

devoting the funds to Iraq’s pressing humanitarian and nation building needs. 

Other U.S. Government Organizations

The USAID, the DoS, Treasury, the OPIC, the USIP, and the USTDA also 

disbursed IRRF funds for the relief and reconstruction of Iraq and, additionally, 

 

6

 For example, available fiscal year-end data showed that while USACE interest penalty payments were 

reported to senior Army financial managers under Operating Agency 08 (entitled U.S. Army Corps of 

Engineers), the total interest penalty payments paid with IRRF funds were included along with interest 

penalties paid by all other USACE subordinate organizations (in addition to and including the GRD) and 

for all USACE appropriations. 
9 

provisions were made for the payment of administrative expenses for the USAID 

and the DoS. 

We contacted senior financial management officials in each organization and 

requested financial information regarding amounts disbursed using IRRF 1 and 

IRRF 2 funds and the amounts of interest penalty payments incurred. Each of the 

six organizations responded and senior financial management officials of those 

organizations provided us with assurances that the financial information submitted 

to us was accurate.

Financial data provided to us on IRRF 1 and IRRF 2 disbursements by each of the 

six organizations noted above showed that during fiscal years 2003 through 2005, 

more than $3.9 billion was disbursed and $19,332 in interest penalty payments were 

incurred. For details on IRRF disbursements and interest penalties incurred for the 

USAID, see Appendix D; for the DoS, see Appendix E; and for Treasury, the OPIC, 

the USIP, and the USTDA, see Appendix F. 

Summary of Disbursements and Interest Penalty Payments. U.S. government 

disbursements in IRRF 1 and IRRF 2 funds for fiscal years 2003 through 2005 

totaled more than $10.5 billion and interest penalties incurred totaled almost 

$1.5 million. The total U.S. government disbursements and interest penalty 

payments as of September 30, 2005, are shown in Table 2. 

 

7

 Other U.S. Government organizations include Treasury, the OPIC, the USIP, and the USTDA. 

Table 2. 

Summary of U.S. Government IRRF Disbursements and Interest Penalty Payments 

for Fiscal Years 2003 through 2005 

as of September 30, 2005 

IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

 Disbursements Interest 

Penalties Disbursements Interest Penalties Disbursements Interest Penalties 

Department of 

Defense $ 501,837,955 $4,976 $6,098,593,719 $1,460,113 $ 6,600,431,674 $1,465,089

U.S. Agency 

for 

International 

Development 

1,470,157,774 1,576 1,402,062,872 6,461 2,872,220,646 8,037

Department of 

State 91,162,510 18 948,894,667 11,060 1,040,057,177 11,078

Other U.S. 

Government 

Organizations7

5,345,627 217 51,412,507 0 56,758,134 217

Total $2,068,503,866 $6,787 $8,500,963,766 $1,477,634 $10,569,467,632 $1,484,421
10 

Conclusion

Generally, based on the information provided to us as illustrated in Table 2, interest 

penalty payments, when viewed in the larger context of the total disbursements of 

IRRF funds, were held to a minimum. However, in relation to its established 

management goals, the Army incurred substantial interest penalty payments in the 

management of DoD IRRF funds. 

We believe the initial steps taken by Army managers to implement corrective 

measures designed to control and reduce interest penalty payments is a positive 

approach. However, Army managers need to be more vigilant because IRRF 

expenditures are expected to peak in fiscal year 2006 and unless the timeliness of 

payments made with IRRF funds are more closely monitored and prompt actions 

are taken to address late payments, interest penalty payments may not be reduced 

and may even increase. 

Recommendation, Management Comments, and Audit 

Response 

We recommend that the Assistant Secretary of the Army (Financial Management 

and Comptroller) identify and monitor interest penalty payments from Iraq Relief 

and Reconstruction Fund funds to ensure that Army organizations managing Iraq 

Relief and Reconstruction Fund funds consistently meet established Army goals. 

Management Comment. The Office of the Assistant Secretary of the Army (Financial 

Management and Comptroller) concurred with the finding and recommendation. The 

Director of Management and Control stated that the Office of the Assistant Secretary of 

the Army (Financial Management and Comptroller), in conjunction with the Project and 

Contracting Office, have initiated actions to track prompt payment compliance. 

Audit Response. The Office of the Assistant Secretary of the Army (Financial 

Management and Comptroller) comments to the recommendation are fully responsive. 

Effective December 4, 2005, the Project and Contracting Office was merged into the U.S. 

Army Corp of Engineers, Gulf Region Division, to form the Gulf Region DivisionProject and Contracting Office. 
11 

Appendix A. Scope and Methodology 

In August 2005, we initiated this audit, Project No. SIGIR 2005-12, to determine the 

amounts of Iraq Relief and Reconstruction Fund (IRRF) funds disbursed by the Project 

and Contracting Office and the U.S. Army Corps of Engineers (USACE), and the 

amounts of interest penalties incurred by those two organizations on contract invoices 

paid by the USACE Finance Center located at Millington, Tennessee. 

During the course of our audit, we found that the rate of late payments being made by the 

Army against IRRF disbursements far exceeded the management goals established by the 

Army for interest penalty payments. Because the information being compiled by the 

USACE included reasons for late payments and associated interest penalty payments 

made against those reasons, we relied on that information as support for the Army’s 

performance under prompt payment regulations. 

We requested Army financial reports from the Defense Finance and Accounting 

Service (DFAS) for IRRF funds and computed the total IRRF funds disbursed by 

the Army as of September 30, 2005, for fiscal years 2003 through 2005. We 

compared the total Army disbursements to the OMB apportioned amounts for IRRF 

1 and IRRF 2 and determined the total amount of the IRRF apportionment that 

remained to be disbursed by the DoD. The DoD IRRF apportioned funds that 

remained to be disbursed totaled approximately $7 billion as of September 30, 

2005. We used this data to estimate the amount of interest penalty payments that 

could be avoided by the Army provided it adhered to the fiscal year 2005 interest 

penalty payment management goal of $85 per million dollars disbursed. 

We obtained fiscal year-end financial data submitted by the Department of the 

Army to the Department of the Treasury as of September 30, 2005, that certified the 

dollar amounts of IRRF 1 and IRRF 2 funds disbursed.8

 We also obtained certified 

data from the DFAS attesting to the amount of interest penalties paid as a result of 

late payments to contractors and vendors. 

Similarly, we obtained comparable fiscal year-end financial data from the 

Department of the Treasury, the U.S. Agency for International Development, the 

Overseas Private Investment Corporation, and the United States Institute of Peace. 

We conducted this performance audit from August through December 2005, in 

accordance with generally accepted government auditing standards. 

Use of Computer-Processed Data. We used financial data provided by various 

U.S. government organizations to determine the amounts of IRRF funds disbursed 

and interest penalties incurred but this financial data was not audited by us. Senior 

financial management officials provided us with assurances that the financial 

information on IRRF disbursements and interest penalty payments was accurate. 

Prior Coverage. There have been no audits performed concerning the IRRF with the 

same or similar objectives as this audit. 

 

8

 The IRRF 1 and IRRF 2 funds are discussed on page 1 in the Background Section of this report. 
12 

Appendix B. Prompt Payment Act 

The Prompt Payment Act was enacted by Public Law 97-177, as amended by Public Law 

100-496, and requires U.S. government organizations to make payments to contractors in 

a timely manner. 

Regulations. The Prompt Payment Act regulations are specified at 5 CFR9 § 1315 

(2005) and contain many rules and standards giving particular attention to construction 

contracts, progress payments, and various invoice payments. Federal Acquisition 

Regulation Subpart--32.9, “Prompt Payment,” (March 2005) implements the prompt 

payment regulations of 5 CFR § 1315. Department of Defense 7000.14R, Department of 

Defense Financial Management Regulation, Volume 10, Chapter 7, July 2002, contains 

detailed procedures for determining what constitutes a proper invoice, addresses required 

documentation needed for payment, defines acceptance which establishes ownership and 

liability for payment, provides for the subsequent incurrence of interest penalties if 

payment is not made on dates specified, and cites specifics for computing interest penalty 

payments. The U.S. Army Corps of Engineers Finance Center followed the policies and 

guidance contained in Federal Acquisition Regulation Subpart--32.9 and the Department 

of Defense 7000.14R, Department of Defense Financial Management Regulation, 

Volume 10, Chapter 7, when making interest penalty payments. 

Payment Due Dates. The contract payment terms and conditions are the principal 

sources governing the submission and payment of invoices. Absent some specific 

contractual conditions per Federal Acquisition Regulation Subpart--32.9, due dates for 

making invoice payments are generally the latter of the 30th day after a proper invoice is 

received from the contractor or the 30th day after government acceptance of supplies 

delivered or services performed. Payment due dates are further influenced by the 

availability of discounts offered, contract type, and other stipulations. For example, the 

Federal Acquisition Regulation Subpart--32.9 provides provisions for determining 

payment due dates for architect-engineering contracts, construction contracts, food and 

specified items, and multiple payments. 

Two aspects that most strongly influence payment due dates are (i) accepting and 

annotating a proper invoice as received and (ii) actual or constructive acceptance of 

goods and services with no disagreements as to quantity, quality, or contractor 

compliance with requirements. Generally, interest penalties begin to accrue the day after 

the payment due date and continue up to the date the invoice is paid. The Prompt 

Payment Act and all implementing regulations also stress that when specifying due dates 

for payment, contracting officers give full consideration to the time reasonably required 

by government officials to fulfill their administrative responsibilities under the contract. 

Officials responsible for the receipt and inspection of supplies are not to be 

compelled to approve invoices for payment prior to executing their duties. To 

prevent such situations, contracting officers may specify a longer period of 

acceptance so long as such a practice is contained in the solicitation and in the 

resulting contract to permit the government to conduct proper inspections of a 

proper invoice or 30 days after the government accepts supplies delivered or a test 

of supplies delivered or services performed. 

 

9

 Code of Federal Regulations 
13 

Appendix C. Disbursements and Interest 

Penalty Payments Made by the Department of 

Defense 

The table shows the disbursements and interest penalty payments made by the 

Department of Defense using Iraq Relief and Reconstruction Fund (IRRF) 1 and 2 

funds.10 We obtained this data by request from the Department of Defense 

(specifically the Defense Finance and Accounting Service). The table includes data 

for fiscal years 2003 through 2005 that was reported to the Department of the 

Treasury as of September 30, 2005. For fiscal years 2003 through 2005, the 

Department of Defense disbursed approximately $6.6 billion in IRRF funds and 

paid $1,465,089 in interest penalties. 

Department of Defense IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest Penalties Disbursements Interest Penalties Disbursements Interest 

Penalties 

2005 $ 41,385,396 $4,723 $5,233,690,053 $1,358,867 $5,275,075,449 $1,363,590

2004 459,254,814 253 864,903,666 101,246 1,324,158,480 101,499

2003 1,197,745 0 0 0 1,197,745 0

Total $501,837,955 $4,976 $6,098,593,719 $1,460,113 $6,600,431,674 $1,465,089

 

10 The IRRF 1 and IRRF 2 funds are discussed on page 1 in the Background Section of this report. 
14 

Appendix D. Disbursements and Interest 

Penalty Payments Made by the U.S. Agency for 

International Development 

The table shows the disbursements and interest penalty payments made by the 

U.S. Agency for International Development using Iraq Relief and Reconstruction 

Fund (IRRF) 1 and 2 funds.11 We obtained this data by request from the 

U.S. Agency for International Development. The table includes data for fiscal 

years 2003 through 2005 that was reported to the Department of the Treasury as of 

September 30, 2005. For fiscal years 2003 through 2005, the U.S. Agency for 

International Development disbursed approximately $2.9 billion in IRRF funds and 

paid $8,037 in interest penalties. 

U.S. Agency for International Development IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest Penalties Disbursements Interest Penalties Disbursements Interest 

Penalties 

2005 $ 391,504,659 $ 243 $1,162,555,529 $6,453 $1,554,060,188 $6,696

2004 1,051,464,588 1,333 239,507,343 8 1,290,971,931 1,341

2003 27,188,527 0 0 0 27,188,527 0

Total $1,470,157,774 $1,576 $1,402,062,872 $6,461 $2,872,220,646 $8,037

 

11 The IRRF 1 and IRRF 2 funds are discussed on page 1 in the Background Section of this report. 
15 

Appendix E. Disbursements and Interest 

Penalty Payments Made by the Department of 

State 

The table shows the disbursements and interest penalty payments made by the 

Department of State using Iraq Relief and Reconstruction Fund (IRRF) 1 and 2 

funds.12 We obtained this data by request from the Department of State. The table 

includes data for fiscal years 2003 through 2005 that was reported to the 

Department of the Treasury as of September 30, 2005. For fiscal years 2003 

through 2005, the Department of State disbursed approximately $1.04 billion in 

IRRF funds and paid $11,078 in interest penalties. 

Department of State IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest Penalties Disbursements Interest Penalties Disbursements Interest 

Penalties 

2005 $29,241,889 $13 $681,674,124 $ 5,453 $ 710,916,013 $ 5,466

2004 61,904,123 4 267,220,543 5,607 329,124,666 5,612

2003 16,499 0 0 0 16,499 0

Total $91,162,510 $18 $948,894,667 $11,060 $1,040,057,177 $11,078

 

12 The IRRF 1 and IRRF 2 funds are discussed on page 1 in the Background Section of this report. 
16 

Appendix F. Disbursements and Interest 

Penalty Payments Made by Other U.S. 

Government Organizations 

Iraq Relief and Reconstruction Fund (IRRF) funds were also apportioned or 

allocated to the Department of the Treasury (Treasury), the Overseas Private 

Investment Corporation (OPIC),13 the United States Institute of Peace (USIP), and 

the U.S. Trade and Development Agency (USTDA). 

Table 1 shows the disbursements and interest penalty payments made by the 

Treasury using IRRF 1 and 2 funds.14 We obtained this data by request from the 

Treasury. The table includes data for fiscal years 2003 through 2004 that was 

reported to the Treasury as of September 30, 2005. For fiscal years 2003 through 

2004, the Treasury disbursed approximately $22 million in IRRF funds but did not 

incur interest penalties. 

Table 2 shows the disbursements and interest penalty payments made by the OPIC 

using IRRF 2 funds. We obtained this data by request from the OPIC. The table 

includes data for fiscal years 2004 through 2005 that was reported to the Treasury 

as of September 30, 2005. For fiscal years 2004 through 2005, the OPIC disbursed 

approximately $26 million in IRRF 2 funds but did not incur interest penalties. 

 

13 The OPIC was allocated funds by the U.S. Agency for International Development. 

14 The IRRF 1 and IRRF 2 funds are discussed on page 1 in the Background Section of this report. 

Table 1.

Department of the Treasury IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest Penalties Disbursements Interest Penalties Disbursements Interest 

Penalties 

2005 $ 0 $0 $ 0 $0 $ 0 $0

2004 0 0 18,599,806 0 18,599,806 0

2003 2,972,155 0 0 0 2,972,155 0

Total $2,972,155 $0 $18,599,806 $0 $21,571,961 $0 
17 

Table 3 shows the disbursements and interest penalty payments made by the USIP 

using IRRF 2 funds. We obtained this data by request from the USIP. The table 

includes data for fiscal years 2004 through 2005 that was reported to the Treasury 

as of September 30, 2005. For fiscal years 2004 through 2005, the USIP disbursed 

approximately $7 million in IRRF 2 funds but did not incur interest penalties. 

Table 2. 

Overseas Private Investment Corporation IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest 

Penalties Disbursements Interest 

Penalties Disbursements Interest 

Penalties 

2005 $0 $0 $19,013,910 $0 $19,013,910 $0

2004 0 0 6,886,090 0 6,886,090 0

2003 0 0 0 0 0 0

Total $0 $0 $25,900,000 $0 $25,900,000 $0

Table 3. 

United States Institute of Peace IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest 

Penalties Disbursements Interest 

Penalties Disbursements Interest 

Penalties 

2005 $0 $0 $4,390,218 $0 $4,390,218 $0

2004 0 0 2,522,483 0 2,522,483 0

2003 0 0 0 0 0 0

Total $0 $0 $6,912,701 $0 $6,912,701 $0
18 

Table 4 shows the disbursements and interest penalty payments made by the 

USTDA using IRRF 1 funds. We obtained this data by request from the USTDA. 

The table includes data for fiscal years 2004 through 2005 that was reported to the 

Treasury as of September 30, 2005. For fiscal years 2004 through 2005, the 

USTDA disbursed approximately $2.4 million in IRRF 1 funds. However, $217 in 

interest penalty payments was made from an appropriation other than IRRF 1.15 

 

15 The USTDA did not provide us the year(s) in which it incurred the interest penalties so we assigned the 

$217 to fiscal year 2005 for the purposes of this table. 

Table 4. 

U.S. Trade and Development Agency IRRF Disbursements and Interest Penalties 

as of September 30, 2005 

 IRRF 1 IRRF 2 Grand Total (IRRF 1 & 2) 

Fiscal 

Year Disbursements Interest 

Penalties Disbursements Interest 

Penalties Disbursements Interest 

Penalties 

2005 $2,129,574 $217 $0 $0 $2,129,574 $217

2004 243,898 0 0 0 243,898 0

2003 0 0 0 0 0 0

Total $2,373,472 $217 $0 $0 $2,373,472 $217
19 

Appendix G. Acronyms 

ASA (FM&C) Assistant Secretary of the Army for Financial Management and 

 Comptroller 

CFR Code of Federal Regulations 

DFAS Defense Finance and Accounting Service 

DoD Department of Defense 

DoS Department of State 

GRD Gulf Region Division 

IRRF Iraq Relief and Reconstruction Fund 

OMB Office of Management and Budget 

OPIC Overseas Private Investment Corporation 

PCO Project and Contracting Office 

USACE U.S. Army Corps of Engineers 

USAID U.S. Agency for International Development 

USIP United States Institute of Peace 

USTDA U.S. Trade and Development Agency 
20 

Appendix H. Report Distribution 

Department of State 

Secretary of State 

Senior Advisor to the Secretary and Coordinator for Iraq 

U.S. Ambassador to Iraq 

Director, Iraq Reconstruction Management Office 

Inspector General, Department of State 

Department of Defense 

Secretary of Defense 

Deputy Secretary of Defense 

Director, Defense Reconstruction Support Office 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

 Deputy Chief Financial Officer 

 Deputy Comptroller (Program/Budget) 

Inspector General, Department of Defense 

Department of the Army 

Assistant Secretary of the Army for Acquisition, Logistics, and Technology 

Principal Deputy to the Assistant Secretary of the Army for Acquisition, 

Logistics, and Technology 

Deputy Assistant Secretary of the Army (Policy and Procurement) 

Director, Project and Contracting Office 

Commanding General, Joint Contracting Command-Iraq/Afghanistan 

Assistant Secretary of the Army for Financial Management and Comptroller 

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

 Commanding General, Gulf Region Division 

Auditor General of the Army 

U.S. Central Command

Commanding General, Multi-National Force-Iraq 

Commanding General, Multi-National Security Transition Command-Iraq 

Commander, Joint Area Support Group-Central 

Other Defense Organizations

Director, Defense Contract Audit Agency 

Director, Defense Finance and Accounting Service 
21 

Other Federal Government Organizations 

Director, Office of Management and Budget 

Comptroller General of the United States 

Inspector General, Department of the Treasury 

Inspector General, Department of Commerce 

Inspector General, Department of Health and Human Services 

Inspector General, U.S. Agency for International Development 

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

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 Terrorism 

Subcommittee on Near Eastern and South Asian Affairs 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Financial Management, Government Information and 

International Security 

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia 

U.S. House of Representatives 

House Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on Foreign Operations, Export Financing and Related Programs 

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

House Committee on Armed Services 

House Committee on Government Reform 

Subcommittee on Management, Finance and Accountability 

Subcommittee on National Security, Emerging Threats and International 

Relations 

House Committee on International Relations 

Subcommittee on Middle East and Central Asia 

 
22 

Appendix I. Audit Team Members 

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

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

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

contributed to the report include: 

John Gannon 

Kenneth Littlefield 

Robert Murrell 

Jozette Wilkinson 
23 

Management Comments 

Office of the Assistant Secretary of the Army 

(Financial Management and Comptroller)