Audit Report 

OIG-06-029

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction 

March 23, 2006 

Office of 

Inspector General 

Department of the Treasury 
Contents 

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction 

Page i

Audit Report

 Background.................................................................................................. 2 

Findings ...................................................................................................... 5 

Treasury Provides Technical Assistance and Support to Modernize 

the Iraqi Banking System ........................................................................... 5 

The Financial Information Provided by OTA Fairly Presented 

the Fund-Use Status of Treasury’s Iraq Reconstruction Activities .................... 7 

 

Appendices 

 Appendix 1: Objectives, Scope, and Methodology ..................................... 11 

 Appendix 2: OTA IRRF Fund-Use Statement............................................... 12 

 Appendix 3: Management Response......................................................... 13 

 Appendix 4: Report Distribution ............................................................... 14 

Abbreviations

 ACH Automated Clearing House 

 CBI Central Bank of Iraq 

 CPA Coalition Provisional Authority 

 IFC International Finance Corporation 

 IFTF Iraq Financial Task Force 

 IRRF Iraq Relief and Reconstruction Fund 

 OIG Office of Inspector General 

 OMB Office of Management and Budget 

 OTA Office of Technical Assistance 

 PSD Treasury Departmental Offices’ Procurement Services Division 

 RTGS Real Time Gross Settlement 

 SIGIR Special Inspector General for Iraq Reconstruction 

 Treasury United States Department of the Treasury

 U.S. United States 

 
OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General 

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction 

Page 1

March 23, 2006 

Van B. Jorstad 

Director, Office of Technical Assistance 

Office of International Affairs 

This report provides the results of our review of the Department 

of the Treasury’s (Treasury) activities for Iraq Reconstruction, 

in which the Office of Technical Assistance (OTA) plays a central 

role. Our objectives were to (1) identify Treasury activities and 

funding involving Iraq relief and reconstruction and (2) determine 

the completeness and accuracy of the information provided by 

OTA in its reports to the Special Inspector General for Iraq 

Reconstruction (SIGIR) regarding its activities for Iraq 

reconstruction. 

Treasury’s Iraq reconstruction activities have been funded by two 

Iraq Relief and Reconstruction Funds (IRRF)—IRRF 1 and IRRF 2. 

We identified two OTA-administered reconstruction programs and 

found that as of August 31, 2005, approximately $29.4 million 

had been obligated out of $35.1 million apportioned for the 

programs and about $23.2 million had been disbursed.1

We reviewed selected contracts and related documentation to 

verify the fund-use status statement through August 31, 2005, 

provided to SIGIR, which is included in Appendix 2. 

A more-detailed description of our objectives, scope, and 

methodology is included in Appendix 1. 

We found that the fund-use status statement fairly presented the 

financial status of the contractual obligations and disbursements 

through August 31, 2005. In its March 20, 2006, response to our 

draft report, OTA management concurred with our findings. See 

Appendix 3 for a copy of the management response. 

 

1

 As of February 28, 2006, about $32.9 million had been obligated and about $26.3 million had been 

disbursed. 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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Background 

Office of Technical Assistance

OTA provides technical assistance to countries with transitional 

or developing economies. OTA is under the supervision of the 

Deputy Assistant Secretary for Technical Assistance Policy, 

who is 1 of the 6 deputies supporting the Assistant Secretary for 

International Affairs. The Deputy Assistant Secretary for Technical 

Assistance Policy develops, evaluates, and implements Treasury 

policies and positions on economic and financial assistance to 

countries with transitional or developing economies. 

Since 1990, OTA has provided advisory services to governments 

in Central and Eastern Europe and the former Soviet Union to assist 

in their transitions to market economies. Typically, a Treasury 

advisor, with the support of short-term experts and technicians, 

advises a senior finance ministry or central bank counterpart. 

More recently, as countries in Eastern Europe and the former Soviet 

Union have made progress in their transitions, OTA has addressed 

challenges in other parts of the world, such as South Africa, Haiti, 

and Indonesia. 

In Iraq, Treasury’s primary reconstruction efforts are focused on 

establishing modern central bank functions and a nationwide 

payment system among local banks and the central bank. OTA has 

been administering the banking sector establishment program by 

awarding contracts and conducting procurement activities under 

six major projects. OTA is the only Treasury office whose works 

have been funded through the IRRFs. 

Iraq Financial Task Force

To coordinate and support Treasury’s reconstruction efforts, 

in March 2003 the Under Secretary for International Affairs 

created the Iraq Financial Task Force (IFTF) within the Office of 

International Affairs. The Director of International Affairs’ Office 

of Middle East and South Asian Nations at that time was appointed 

to lead the task force. 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction 

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The task of IFTF was to coordinate the planning and execution of 

Treasury’s role in the post-war stabilization, administration, and 

reconstruction of Iraq. The staff of the task force was composed 

of officials of Treasury’s Office of International Affairs, the Federal 

Reserve Bank of New York, Treasury’s Office of the Fiscal 

Assistant Secretary, and a few detailed officials from the 

Department of the State and the United States (U.S.) Agency for 

International Development. At its heights, the task force had 

approximately a dozen staff members. IFTF and its function were 

folded into the Office of Middle East and South Asian Nations in 

August 2005. 

IFTF served as liaison among Treasury and various organizations 

involved in the post-conflict reconstruction, such as the 

International Monetary Fund; the World Bank; Iraqi exiles, some of 

whom later became officials in Iraq; as well as the U.S. agencies 

involved in the reconstruction. Because Treasury’s involvement 

was focused on the financial sector, IFTF’s role was also focused 

on that sector. 

In particular, IFTF was involved in discussing and planning the 

printing and delivery of the new Iraqi currency (the dinar); sought 

expertise from the Federal Reserve System, the Office of the 

Comptroller of the Currency, and the International Monetary Fund 

in formulating macroeconomic, monetary, banking and exchange 

rate policies to stabilize the economy; and coordinated the debt 

relief efforts with the members of the Paris Club,2

 working closely 

with the Treasury Office of International Debt Policy. As OTA was 

involved in technical assistance to Iraqi financial institutions, IFTF 

was actively engaged in its mission, providing support to the OTA 

advisors working in Iraq. The IFTF’s work and the salaries of its 

staff were not funded by the IRRFs.3

 

2

 The Paris Club is an informal group of official creditors whose role is to find coordinated and 

sustainable solutions to the payment difficulties experienced by debtor nations. The first meeting 

was held in 1956 when Argentina agreed to meet its public creditors in Paris. There are currently 

19 permanent members, including the United States. Iraq’s external debt was estimated to be around 

$120 billion, of which the Paris Club members were owed roughly $40 billion. The rest of Iraq’s debt 

was held by non-Paris Club governments, chiefly the Gulf States. 

3

 They were assigned to the task and thus compensated by their respective agencies. 
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Activities for Iraq Reconstruction

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Iraq Relief and Reconstruction Funds

On May 22, 2003, President Bush issued Executive Order 13303 

to protect the Development Fund for Iraq4 and the proceeds from 

the sales of Iraqi petroleum and petroleum products to assure an 

orderly reconstruction of Iraq. This fund and dozens of others 

constitute the funding sources for Iraq relief and reconstruction. 

Among them are two appropriated funds5

—commonly referred to 

as IRRF 1 and IRRF 2. 

IRRF 1 was established by Public Law 108-11 in April 2003 for 

necessary expenses for humanitarian assistance, rehabilitation, 

and reconstruction in Iraq. Congress appropriated a total of 

$2.475 billion for IRRF 1, and the Office of Management and 

Budget (OMB) allocated this amount among the U.S. Agency for 

International Development, the Department of Defense, the 

Department of State, and Treasury. The apportionment for 

Treasury was $6.0 million. 

IRRF 2 was established by Public Law 108-106 in November 2003 

for the defense and reconstruction of Iraq and Afghanistan. 

Congress appropriated $18.4 billion for IRRF 2, which OMB also 

allocated among the U.S. Agency for International Development, 

the Department of Defense, the Department of State, and 

Treasury. The original apportionment for Treasury was 

$39.1 million, of which $10.0 million6

 was transferred to the 

International Finance Corporation (IFC), a member of the World 

Bank Group, under an agreement between the U.S. Government 

and IFC dated April 2, 2004. Therefore, the remaining two 

programs represent Treasury’s actual reconstruction activities, for 

which $35.1 million was funded by IRRF 1 and IRRF 2. 

 

4

 The Development Fund for Iraq is a fund established in May 2003 on the books of the Central Bank of 

Iraq by the Administrator of the Coalition Provisional Authority. This fund consists of the proceeds from 

the export sales of Iraq’s oil as well as the funds remaining from the United Nation Oil-for-Food Program 

and other assets seized from the defunct regime. 

5

 An appropriated fund is one that receives appropriations from Congress. 6

 Initially, $10.0 million was allocated for Treasury to fund the Micro, Small, and Medium Enterprise 

Development Program. 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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Office of the Special Inspector General for Iraq Reconstruction

The Office of the SIGIR, formerly the Coalition Provisional Authority 

(CPA) Office of Inspector General, is charged with independently 

and objectively conducting and supervising audits and 

investigations relating to programs and operations funded by the 

IRRFs. The SIGIR, who reports to the Secretary of State and the 

Secretary of Defense, works closely with other agencies, 

inspectors general, and non-governmental entities to ensure that 

reconstruction funds for Iraq are handled effectively and without 

waste, fraud, or abuse. 

The SIGIR submits quarterly reports to Congress outlining the key 

findings and progress related to Iraq reconstruction programs, as 

well as deficiencies and the corrective actions taken to improve the 

programs. IRRF-funded agencies are required to report their 

quarterly fund-use status to the SIGIR. Each quarter, the Treasury 

Office of Inspector General (OIG) reviews OTA’s fund-use status 

statements as well as the SIGIR’s quarterly reports to ensure the 

accuracy and completeness of the information relating to the 

Treasury’s reconstruction efforts. OIG also coordinates the SIGIR’s 

audit efforts pertinent to the functions of the Treasury. 

Findings 

Treasury Provides Technical Assistance and Support to 

Modernize the Iraqi Banking System 

Under IRRF 1 and IRRF 2, Treasury was allocated funds for 

two Iraq reconstruction programs: 

1. The Technical Assistance Program (IRRF 1, $6.0 million) 

2. The Banking System Modernization Program (IRRF 2, 

$29.1 million) 

The Technical Assistance Program provides advisory services to 

Iraqi officials in administering the economic, fiscal, and financial 

sectors. The funds allocated to the program have been used for 

various operating expenses and the provision of security for civilian 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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advisors and consultants, working for the economic, fiscal, and 

financial sector reconstruction in Iraq. The personnel included, 

but were not limited to, the Treasury officials who had expertise 

in bank regulation and resolution, tax and budget administration, 

and the formulation of economic and financial institution policies. 

As of June 5, 2003, 25 personnel were deployed in Iraq in 

four separate phases. 

Assigned mostly in the Iraqi Ministry of Finance and the Central 

Bank of Iraq (CBI), the deployed personnel advised Iraqi officials on 

overall debt policy, budget and tax policies and administration, and 

bank operations. By the end of August 2005, Treasury had 

obligated the full $6.0 million allocated under IRRF 1 for this 

program and had disbursed about $4.7 million. 

The purpose of the Banking System Modernization Program is to 

modernize the Iraqi banking system. OTA has been administering 

the program under six major projects.7

 The projects are primarily to 

build financial sector infrastructure, purchase bank equipment, 

implement the core functions of CBI, train CBI staff, and establish 

security for CBI personnel and others involved in implementing the 

program. 

To implement the core functions of CBI, OTA awarded contracts 

for planning, acquisition, installation, and initial operation of two 

essential components of a nationwide payment system for CBI. 

The two components are a Real Time Gross Settlement (RTGS) 

system, for making inter-bank payments with immediate finality 

across the books of the CBI; and an Automated Clearing House 

(ACH) system, for processing files of payment instructions, both 

debits and credits, and settling on a net basis across the books of 

CBI. The initial operation also included training of CBI staff and 

staff from other participant banks so that operational responsibility 

for the nationwide payment system can be transferred to CBI. 

Also included in the program is an establishment of a Visa-based 

interim bank branch payments and clearing system. This project 

 

7

 Some of the major projects break down to several sub-projects with different contracts. 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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refers to the payments of the membership fees to Visa International 

Service Association on behalf of the Iraqi banks. 

Typically, a contract is awarded by a contracting officer of the 

Treasury Departmental Offices’ Procurement Services Division 

(PSD) at OTA’s request. PSD monitors the execution of the 

contract and keeps the records. When an invoice arrives at OTA, 

an OTA official reviews and certifies it, and sends the invoice to 

PSD. PSD reviews the invoice and approves the payment. OTA 

then sends a payment notice to the Treasury Departmental Offices’ 

Office of Financial Management. Upon receiving the notice, the 

Office of Financial Management pays the invoice. 

The Banking System Modernization Program was funded through 

IRRF 2. Of the $29.1 million apportioned for the program, 

Treasury had obligated about $23.4 million and disbursed about 

$18.4 million by the end of August 2005.8

 In summary, from the 

total of $35.1 million that Treasury received through IRRF 1 and 

IRRF 2 to execute the two programs, about $29.4 million had been 

obligated and about $23.2 million had been disbursed through 

August 31, 2005. As a result, $5.7 million remained as the 

available, unobligated balance at the end of August 2005.9 

The Financial Information Provided by OTA Fairly 

Presented the Fund-Use Status of Treasury’s Iraq 

Reconstruction Activities 

As required, OTA has provided the quarterly fund-use status 

statements to the Office of the SIGIR.10 To obtain evidence about 

the accuracy of this information, we selected a sample of four 

major obligations under the six major projects11 to review the 

 

8

 By the end of February 2006, for the Banking System Modernization Program about $26.9 million had 

been obligated and about $21.4 million had been disbursed. 9

 By the end of February 2006, a total of $32.9 million had been obligated and $26.3 million had been 

disbursed. As a result, about $2.2 million remained as the available balance. 

10 Currently, OTA sends monthly fund-use status statements to the SIGIR to provide more timely 

information. 

11 The contracts under these projects ranged in value from $85,300 to $8,835,037. 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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statements of work for the related contracts, funds obligated, and 

progress on the work. These obligations, described below, totaled 

approximately $17.5 million, which is approximately 60 percent of 

the $29.1 million allocated to Treasury for reconstruction projects 

under IRRF 2. 

Description of Sample Projects

1. Financial Sector Senior Advisors and Consultants: Protective 

Services Transportation 

This project provides secure transportation of senior advisors 

and consultants who are working to facilitate the program in 

Iraq. The services refer mainly to armored-vehicle 

transportation of the personnel. For the Protective Services 

Transportation project, $4,770,951 was obligated as of 

August 31, 2005. 

2. Essential Office Equipment for Banks 

This project involves two contracts made through PSD. The 

first contract, awarded for $1,065,335 in May 2004, procured 

laser printers, cartridges, batteries, computers, monitors, and 

other peripherals. The second contract, awarded for 

$1,763,783 in June 2004, procured similar items. The total 

obligation for the two procurement contracts was $2,829,118. 

3. Visa-Based Interim Bank Branch Payments and Clearing System 

As mentioned earlier, this project refers to the payments of the 

membership fees to Visa International Service Association on 

behalf of the Iraqi banks to establish an interim automated 

payment system. This project was approved by the CPA, and a 

memorandum for the obligation and disbursement was issued 

by the member of the CPA responsible for the project; hence, 

no further contract administration was required by OTA for the 

transaction. A total of $1,134,000 was obligated as of 

August 31, 2005. 
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4. National Payment System (RTGS and ACH) 

This project is an essential part of the banking system 

modernization program. As previously described, this project 

refers to an installation of two core bank payment systems – 

the RTGS and ACH systems. OTA awarded a single contract 

to execute the project. The amount of the contract, which was 

awarded in April 2005, was $8,835,037. The contract line 

items included software for the RTGS and ACH systems, 

equipment and operating software, program management, 

training and technical support. Nearly a half of the contract 

amount was for the cost of the software for the RTGS and 

ACH systems. 

The contract amounts of the four sample projects were captured in 

the worksheet that OTA used to list the projects and tally the 

contract amounts. OTA summed up the contract amounts and 

reported the sum as the obligation in its fund-use status statement 

to SIGIR. 

To verify the accuracy of the contract amounts of the sample 

projects listed in the worksheet, we obtained the copies of the 

sample contract documents from PSD. We found that the 

obligations in the worksheet correctly reflected the contract 

amounts recorded in the contract documents. Therefore, we 

determined that the contract amounts were correctly captured in 

the fund-use status statement. 

We also considered the manner in which OTA compiles the 

disbursement data for its reports to SIGIR and reviewed the 

support for the disbursement amounts for the four sample projects. 

We found that the disbursements of the four sample projects 

totaled $12.9 million by the end of August 2005. 

We found that the disbursements were made properly following the 

due process of certification, approval, and documentation, after 

confirmation of the receipt of goods and services in accordance 

with the agreement set forth in the contracts. 
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INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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Based on our review, we concluded that the financial information 

that OTA reported to the SIGIR fairly presented the fund-use 

status of Treasury’s Iraq reconstruction activities through 

August 31, 2005. 

* * * * * * * 

We would like to extend our appreciation to the Associate Director, 

Operations and his staff for the cooperation and courtesies 

extended to our staff during the review. If you have any 

questions, please contact me at (202) 927-6512 or Myung Han, 

Management Analyst, the major contributor to this report, at 

(202) 927-4878. 

/s/ 

Donald R. Kassel 

Director, Fiscal Service Audits 
Appendix 1 

Objectives, Scope, and Methodology 

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

 Page 11 

Our objectives were to (1) identify Treasury activities and funding 

involving Iraq relief and reconstruction and (2) determine the 

completeness and accuracy of the information that OTA provided 

in its reports to the SIGIR on Treasury’s Iraq reconstruction 

activities. 

We reviewed the SIGIR’s initial report to Congress, dated 

January 30, 2005, and updated reports thereafter. We reviewed 

the relevant laws that appropriated funds for Treasury’s Iraq 

reconstruction activities. We visited OTA and interviewed the 

Associate Director, Operations, and the Operations Manager. 

We also spoke with the Chief of the Internal Programs Contracts 

Branch of Treasury’s Procurement Services Division. 

We performed certain tests of the fund-use status statement that 

OTA provided to the SIGIR for the month of August 2005. 

Specifically, we reviewed the list of contracts awarded by OTA to 

execute Iraq reconstruction program activities, which was provided 

by OTA’s Associate Director, Operations, and tested a sample of 

contractual obligations against the contract data obtained from 

Procurement Services Division personnel to ensure that the 

obligated amounts were correctly captured in the report. We also 

reviewed the disbursement documents provided by OTA’s financial 

manager. 

We conducted our field work from August 2005 to October 2005 

in accordance with generally accepted government auditing 

standards. 
Appendix 2 

OTA IRRF Fund-Use Statement 

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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Iraq Relief and Reconstruction Funds 

Treasury Office of Technical Assistance 

Status through 08/31/2005 

FY 2003 FY 2003 FY 2004 TOTAL 

Fund Title 

Iraq Relief & 

Reconstruction Fund 

International Affairs 

Technical 

Assistance 

IRRF2 PC 08000 

Fund Symbol 20-113/41096 113/41045 20-114/61096 

Amount Received 3,750,000 2,250,000 29,100,000 $35,100,000 

Obligations in FY 2003 520,001 2,250,000 $2,770,001 

Balance from previous report 0 0 7,011,411 $7,011,411 

Project 0 0 6,233.748 

Operating 0 0 777,663 

Received/Recoveries 0 0 0 

Project 0 0 0 

Operating 0 0 0 

Total Resources 0 0 7,011,411 $7,011,411 

Project 0 0 6,233,748 

Operating 0 0 777,663 

Obligations 0 0 1,308,788 $1,308,788 

Project 0 0 531,125 

Operating 0 0 777,663 

Available Balance 0 0 5,702,623 $5,702,623 

Project 0 0 5,702,623 

Operating 0 0 0 

 

Disbursements/Outlays(Total) 2,972,091 1,765,722 18,444,653 $23,182,466 

Project 16,602,855 

Operating 1,841,798 

Note: The total obligation through the end of 08/31/2005 can be derived by subtracting the available 

balance ($5,702,623) from the total amount received ($35,100,000). Hence, it is $29,397,377. 
Appendix 3 

Management Response 

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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Appendix 4 

Report Distribution 

INTERNATIONAL ASSISTANCE PROGRAMS: Review of Treasury 

Activities for Iraq Reconstruction

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Department of the Treasury

Deputy Assistant Secretary for Technical Assistance 

Associate Director, Operations, Office of Technical Assistance 

Office of Strategic Planning and Performance Management 

Office of Accounting and Internal Control 

Office of Management and Budget

OIG Budget Examiner 

Office of the Special Inspector General for Iraq Reconstruction