S PE CI AL I NS PECTO R GE NE R AL FO R I RA Q RE CO NST R UC TIO N 

400 Army Navy Drive • Arlington, Virginia 22202 

July 21, 2010 

LETTER FOR U.S. AMBASSADOR TO IRAQ 

MISSION DIRECTOR, U.S. AGENCY FOR INTERNATIONAL 

DEVELOPMENT, IRAQ 

SUBJECT: Most Iraq Economic Support Funds Have Been Obligated and Liquidated 

(SIGIR 10-018) 

This letter addresses the Special Inspector General for Iraq Reconstruction’s (SIGIR) review of 

Economic Support Fund (ESF) allocations for Iraq. Since 2006, about $4.5 billion have been 

allocated in ESF for use by the Department of State (DoS), U.S. Agency for International 

Development (USAID), the Department of Treasury, and the Department of Justice, among 

others, specifically for programs in Iraq. This review looks only at the U.S. Embassy’s Iraq 

Transition Assistance Office (ITAO) and USAID’s use of Iraq ESF funds because these two 

agencies received about 83% of the Iraq-allocated ESF funds. 

Background 

The Economic Support Fund (ESF) is an appropriation account authorized by the Foreign 

Assistance Act of 1961 to provide flexible economic assistance to countries selected for their 

special political and security interests to the United States. ESF advances U.S. foreign policy 

interests by: 

 increasing the role of the private sector in the economy, reducing government controls 

over markets, enhancing job creation, and improving economic growth 

 developing an effective, accessible, independent legal system operating under the rule of 

law 

 assisting in the transition to transparent and accountable governance and the 

empowerment of citizens 

 developing and strengthening institutions necessary for sustainable democracy 

 strengthening the capacity to manage the human dimension of the transition to democracy 

and a market economy, and to help sustain the neediest sectors of the population during 

the transition 
2

ESF appropriations are two-year appropriations under the authority of the Foreign Assistance 

Act of 1961.1 However, the funds remain available for deobligation and subsequent reobligation 

for a period of four years after the appropriation expires. Specific ESF dollar amounts are 

requested within the President’s Budget to Congress and approved by Congress under the 

Department of State’s International Affairs—Foreign Operations, Export Financing and Related 

Program (Foreign Operations) budgetary account. The ESF is also recognized as a bilateral 

economic assistance account for use by U.S. allies and countries in democratic transition to 

promote U.S. foreign policy objectives. 

Since mid-2006, DoS, through the Director of Foreign Assistance, has been responsible for ESF 

programming decisions. The U.S. Agency for International Development and several DoS 

organizations have been given responsibility for implementing ESF funds for Iraq. Appendix B 

identifies all agencies, bureaus, and offices that received Iraq ESF funds from 2006 to 2010. 

According to DoS and USAID financial records, between fiscal years 2006 and 2010, the U.S. 

Embassy-Baghdad and the USAID mission in Iraq received $4,527 million in ESF funds for 

activities in Iraq. Table 1 summarizes the reported ESF allocations and the periods in which they 

may be used. 

 

1

 Public Law 87-195, Sec. 102. 
3

Table 1—ESF Allocations for Iraq between June 2006 and March 2010 

($ millions) 

Fiscal Years

Amount

Allocated

Expiration 

Date

Funds Available 

for Obligation

Through

2006-2007 $1,570 09-30-2007 09-30-2011

2007-2008 1,802 09-30-2008 09-30-2012

2008-2009 462 09-30-2009 09-30-2013

2009-2010 553 09-30-2010 09-30-2014

2010-2011 135 09-30-2011 09-30-2015

Total $4,527

Note: Numbers affected by rounding. 

Source: SIGIR analysis of DoS and USAID data as of March 31, 2010.

Obligations are recorded when an authorized agent of the federal government enters into a 

legally binding agreement to purchase specific goods or services. As bills are received and 

payments made, the recorded obligation is reduced by the amount of the payments made, with 

the balance—that is, the money still owed—referred to as the unliquidated obligation balance. 

When all services or goods have been received and paid for, the obligation is considered 

“liquidated,” and any remaining unliquidated obligation balance not needed for payments should 

be deobligated and reduced to zero. If at any time the unliquidated obligation balance is no 

longer needed, the unliquidated obligation should be deobligated and the funds made available 

for other uses.2 

The DoS, through ITAO,3 uses interagency agreements in accordance with Section 632(b) of the 

Foreign Assistance Act to obligate the majority of ITAO’s Iraq ESF allocations. ITAO considers 

these funds as fully obligated when the interagency agreements are signed for the total amount 

indicated in the agreements. Specifically, the implementing agency designated in most of the 

agreements is the U.S. Army Corps of Engineers (USACE). Once ITAO approves a project, it is 

then forwarded to USACE, who then works with ITAO program management in the preparation 

of the statement of work and cost estimates for all projects. ITAO and USACE work in 

coordination with the Joint Contracting Command-Iraq/Afghanistan (JCC-I/A)4 who then solicits 

and awards the majority of ITAO contracts for implementation. Other contract implementers for 

 

2

 Appropriations Law, Volume II, Chapter 7, GAO 06-382SP. 

3

 The Iraq Strategic Partnership Office replaced ITAO on May 7, 2010. 

4

 The Joint Contracting Command-Iraq/Afghanistan transitioned to a Joint Theater Support Contracting Command 

in April 2010. 
4

ITAO ESF include the DoS Office of Acquisitions Management and the Near Eastern 

Affairs/Iraq (NEA/I) Grants Office. After a contract is awarded with 632(b) funding, USACE 

enters the contract award amount in its official financial management system, the Corps of 

Engineers Financial Management System (CEFMS), as sub-obligations. All other ESF that is 

not part of the 632(b) agreement is obligated and paid through DoS.

Allocated funds must be obligated in the fiscal years for which they are made available. These 

obligated funds may be paid out as bills for services received. If the goods and services are 

received and paid for during the contract period and the procurement is complete, any remaining 

unliquidated obligation balance can be deobligated and used for other needs consistent with the 

source appropriation. Deobligation of funds obligated through 632(b) agreements requires an 

amendment to the 632(b) in order to de-obligate the funds. Funds expire if they are not obligated 

in the fiscal years for which they are allocated. Expired funds can be used in the subsequent four 

years to liquidate obligations properly chargeable to the account prior to its expiration. The 

expired account balance also remains available to make legitimate obligation adjustments, that is, 

to record previously unrecorded obligations and to make upward adjustments in previously 

under-recorded obligations. 

The major recipients of the Iraq ESF were ITAO, which received 31% of the funds, and USAID 

which received 52% of the funds. The following section of this report will discuss information 

related to and reported by these two recipients.

Between FY 2006 and FY 2008,5 ITAO obligated ESF in three tracks. These are: 

 Security: projects and programs designed to improve the security situation in Iraq, such 

as Infrastructure Security Protection for oil, water and electric sectors, and the Provincial 

Reconstruction Development for buildings, communications, electricity, education, 

health, security and justice, transportation, and water 

 Political: programs and projects such as Ministerial Transitional Capacity Development 

 Economic: projects such as Plant-level Capacity Development and the Technical 

Training, and the Targeted Development Program 

Since 2006, USAID has also obligated ESF in three tracks. These are: 

 Security: projects and programs designed to improve the security in Iraq, such as the 

Community Stabilization Program, and the Community Action Program 

 Political: programs and projects such as Monitoring and Evaluation and Democracy and 

Civil Society 

 

5

 ITAO received no ESF after fiscal year 2008. 
5

 Economic: projects such as the Inma Agribusiness Development, and Economic Growth 

Program 

Figure 1 summarizes the amounts obligated for each track. 

Figure 1—ESF Iraq Obligations by ITAO and USAID as of March 31, 2010 

($ millions) 

Source: SIGIR Analysis of Department of State and U.S. Agency for International Development data as of March 31, 2010. 

Notes: 

Numbers affected by rounding. 

Pie Chart totals are less than totals in Table 1 and Table 2 because USAID has not received most of its ESF funds for fiscal year 2010. 

The security track is for reconstruction projects designed to improve the security situation in Iraq. 

Our objective for this report is to document the status of the ESF Iraq allocations. 

Most of the Iraq ESF Funds Were Obligated and Liquidated 

ITAO 

Between fiscal years 2006 and 2008, ITAO received approximately $1,397 million in ESF, of 

which approximately $1,378 million (nearly 99%) has been obligated. 

Of the $1,378 million obligated as of March 31, 2010, about $1,030 million (nearly 75%) has 

been liquidated. About $347 million (over 25%) in obligations remain to be liquidated. 

About $20 million (approximately 1%) of the funds allocated were not obligated during the 

period in which they were authorized and thus have expired. These expired funds cannot be used 

for new obligations but can be used to cover adjustments to prior obligations. If the funds are 
6

not needed to cover potential adjustments, the expired funds for each fiscal year will remain in 

ITAO’s accounts for four years. 

The Iraq Strategic Partnership Office replaced ITAO on May 7, 2010. According to embassy 

officials, in preparing for ITAO’s closure, the officials reviewed all open projects and cancelled 

some. Funds for the cancelled projects were then deobligated. According to the same officials, 

these funds are now being reprogrammed for other assistance programs in Iraq. ISPO will not 

fund any new projects and will solely monitor the remaining 114 projects. The column labeled 

“Unliquidated Obligations” in Table 2 reflects $82.16 million in funding that embassy officials 

state is in the process of being reprogrammed. 

 

6

 The $82.1 million was deobligated after March 31, 2010, after the cut-off date for all other data in this report. 
7

Table 2 shows the status of the Iraq ESF allocated to ITAO for each fiscal year, as of March 31, 

2010.

Table 2—Status of Iraq ESF Funds by Fiscal Year as of March 31, 2010 

($ millions) 

Fiscal 

Year 

Amount

Allocated

Amount

Obligated

Amount 

Liquidated

Amount 

Remaining 

for New 

Obligation

Amount 

Expired

Unliquidated 

Obligations

2006 $914 $900 $764 $0 $15 $135

2007 $478 $473 $266 $0 $5 $207

2008 $5 $5 $0 $0 $0 $5

Total $1,397 $1,378 $1,030 $0 $20 $347

Source: SIGIR analysis of data provided by ITAO as of March 31, 2010.

USAID 

Between fiscal years 2006 and 2009, USAID received approximately $2,332 million in ESF for 

its programs in Iraq, of which about $2,213 million (95%) has been obligated. About 

$12 million from the 2006 and 2007 appropriations remains available for new obligations 

because those funds were deobligated from their respective years. The Office of the Chief 

Financial Officer for USAID is currently working with the Office of Management and Budget on 

making these funds available for reprogramming. About $108 million from fiscal year 2009 

appropriation remains available for new obligation through September 30, 2010. 

Of the $2,213 million obligated as of March 31, 2010, $1,841 million (approximately 83%) has 

been liquidated. About $371 million (approximately 17%) in outstanding obligations remains to 

be liquidated. 
8

Table 3 shows the status of the Iraq ESF allocated to USAID for each fiscal year, as of March 

31, 2010. 

Table 3—Status of Iraq ESF Funds by Fiscal Year as Reported by USAID 

($ millions) 

Fiscal 

Year 

Amount

Allocated

Amount

Obligated

Amount 

Liquidated

Amount 

Remaining 

for New 

Obligation

Amount 

Expired

Unliquidated 

Obligations

2006 $434 $431 $431 $4 $0 $0

2007 1,110 1,102 1,088 8 0 15

2008 384 384 287 0 0 97

2009 404 296 36 108 0 259

Total $2,332 $2,213 $1,841 $120 $0 $371

Note: Numbers affected by rounding. 

Source: SIGIR analysis of data provided by USAID as of March 31, 2010.

Concluding Observation 

DoS and USAID have obligated the majority of funds allocated for ESF programs in Iraq and are 

in the process of obligating the remaining funds. The agencies also liquidated the majority of 

their obligations. 

Management Comments and Audit Response 

This report does not contain recommendations, and SIGIR did not receive comments from the 

U.S. Ambassador to Iraq or the Mission Director, U.S. Agency for International Development. 
9

- - - - 

We appreciate the courtesies extended to the SIGIR staff. For additional information on the 

report, please contact Glenn Furbish, Principal Deputy Assistant Inspector General for Audits 

(Washington, DC), (703) 604-1388/ glenn.furbish@sigir.mil, or Nancee Needham, Deputy 

Assistant Inspector General for Audits (Baghdad), (240) 553-0581, ext. 3793/ 

nancee.needham@iraq.centcom.mil.

Stuart W. Bowen, Jr. 

Inspector General 

cc: U.S. Secretary of State 

 Administrator, U.S. Agency for International Development 

U.S. Secretary of Defense 

Commander, U.S. Central Command 

Commanding General, U.S. Forces-Iraq 
10

Appendix A—Scope and Methodology

In April 2010, the Special Inspector General for Iraq Reconstruction (SIGIR) initiated Project 

1011 to audit the status of the Economic Support Fund (ESF) allocated for programs in Iraq. Our 

objective for this report is to determine the status of the Iraq Economic Support Fund (ESF) 

appropriations. This audit was performed by SIGIR under the authority of Public Law 108-106, 

as amended, which also incorporates the duties and responsibilities of inspectors general under 

the Inspector General Act of 1978. SIGIR conducted its work during April through June 2010 in 

Baghdad, Iraq. 

We reviewed activities by the Department of State’s (DoS) Iraq Transition Assistance Office 

(ITAO) and the U.S. Agency for International Development (USAID) because they are the major 

implementing agencies for the Iraq ESF appropriations. We obtained and analyzed documents 

and data provided by officials from DoS and USAID on processes and procedures used to track 

and account for obligations and expenditures made from appropriations for the Iraq ESF. The 

data provided by these offices originated from the U.S. Army Corps of Engineers’ Financial 

Management System, the Consolidated Overseas Accountability Support Toolbox, and the 

Phoenix Financial Management System, which are the financial management systems of record 

for the Iraq ESF. We discussed this information with DoS and USAID officials and also queried 

them about the project and activity planning for the latest ESF-allocated funds for Iraq, such as 

spending plans or project metrics. Further, we obtained and reviewed relevant portions of the 

laws and regulations governing the appropriation and use of the ESF. 

The audit was conducted in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions based on our audit 

objectives. We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objective. 

Use of Computer-processed Data 

We used computer-processed data in this report from the Corps of Engineers’ Financial 

Management System, USAID’s Phoenix Financial Management System, and the Department of 

State’s Consolidated Overseas Accountability Support Toolbox. We did not verify the data, but 

we determined that the controls used by DoD, USAID, and DoS for tracking the status of the 

Iraq ESF appropriations were sufficiently reliable for purposes of the audit. 
11

Internal Controls 

In conducting the audit, we reviewed the internal controls used by DoS and USAID to track the 

status of funds allocated for the Iraq ESF. In addition, we examined documents and held 

discussions with key officials to gain an understanding of the internal controls governing the use 

of ESF. We determined that DoS and USAID’s internal controls were sufficiently reliable for 

tracking the status of Iraq ESF appropriations, obligations, and expenditures for the purpose of 

the audit. The results of our review in terms of the status of Iraq ESF appropriations are 

discussed in the report. 

Prior Coverage 

We reviewed the following SIGIR reports for this audit: 

 Fact Sheet on Sources and Uses of U.S. Funding Provided in Fiscal Year 2006 for Iraq 

Relief and Reconstruction, SIGIR 07-005, 7/27/2007. 

 Status of Department of State Economic Support Fund Interagency Agreements with the U.S. 

Army Corps of Engineers in Iraq, SIGIR 09-006, 10/28/2008. 
12

Appendix B—Iraq ESF Funding by Agency 

Table 4—ESF Funds for Iraq—by Agency ($ millions) 

Implementers FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Total

State Department $1,091 $686 $78 $140 $124 $2,119

U.S. Agency for International 

Development 434 1,110 384 404 0 2,332

Department of Treasury 13 0 0 0 6 19

Department of Agriculture 0 2 0 8 0 10

Department of Commerce 0 3 0 5 5 13

Department of Justice 33 0 0 0 0 33

Total $4,527

Source: SIGIR analysis of DoS and USAID data as of March 31, 2010. 

Notes: 

Numbers affected by rounding. 
13

Appendix B—Iraq ESF Funding by Agency (cont.) 

Table 5—State Department ESF Funds for Iraq—by Bureaus and Offices 

($ millions) 

Implementers FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Total

State Department/ITAO1

$0 $36 $33 $14 $28 $111

State Department/ITAO 0 0 5 0 0 5

State Department/ITAO2

0 57 0 15 0 72

State Department 42 0 20 5 0 67

State Department/S/GWI 0 0 0 5 0 5

State Department NEA/MEPI 0 0 10 0 0 10

State Department/

Baghdad/ACCO 0 0 0 4 6 10

State Department/CLA 0 0 0 19 0 19

State Department/DRL 85 205 0 71 90 452

State Department/ECA 0 0 0 2 0 2

State Department/INR 0 2 0 0 0 2

State Department/ITAO3

45 0 10 0 0 55

State Department/OPA 0 0 0 5 0 5

State Department/PRM 50 0 0 0 0 50

USACE/GRD (sub-obligated 

from ITAO) 869 385 0 0 0 1,254

Total DoS $1,091 $686 $78 $140 $124 $2,119

Source: SIGIR analysis of DoS and USAID data as of March 31, 2010.

 

1

 The $36 million in FY 2007 is included in ITAO total of reporting purposes. 

2

 Only the $57 million in FY 2007 was managed by ITAO. 

3

 Only the $45 million in FY 2006 belongs to ITAO. 
14

Appendix C—Definitions of Terms 

The following terms were used in the report. 

Appropriation A statute that generally provides legal authority for federal agencies 

to incur obligations and to make payments out of the Treasury for 

specified purposes. 

Availability of Funds Funds remain available for deobligation and subsequent 

reobligation for a period of four years after the appropriation 

expires.

Expenditures The actual spending of money; an outlay.

Expired Funds Funds expire if they are not obligated within the time period 

specified in its appropriation for incurring obligations.

Liquidated Funds Funds are considered liquidated when all services or goods have 

been received and paid for.

Obligation A definite commitment that creates a legal liability for the payment 

of goods and services ordered or received.

Unliquidated Obligation The amount of an obligation that has yet to be expended. 
15

Appendix D—Acronyms 

Acronym Description

DoS Department of State

ESF Economic Support Fund

ITAO Iraq Transition Assistance Office

PRT Provincial Reconstruction Teams

PRDC Provincial Reconstruction Development Committee

SIGIR Special Inspector General for Iraq Reconstruction 

USACE United States Army Corps of Engineers

USAID United States Agency for International Development 
16

Appendix E—Audit Team Members 

This report was prepared and the review conducted under the direction of David R. Warren, 

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

Reconstruction. 

The staff members who conducted the review and contributed to the report include: 

Mohamed K. Abdou 

Arthur Granger 

Nancee K. Needham 
17

Appendix F—SIGIR Mission and Contact Information 

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

operations in Iraq, the Special Inspector General for Iraq 

Reconstruction provides independent and objective:

 oversight and review through comprehensive audits, 

inspections, and investigations

 advice and recommendations on policies to promote 

economy, efficiency, and effectiveness

 deterrence of malfeasance through the prevention and 

detection of fraud, waste, and abuse

 information and analysis to the Secretary of State, the 

Secretary of Defense, the Congress, and the American 

people through Quarterly Reports

Obtaining Copies of SIGIR 

Reports and Testimonies

To obtain copies of SIGIR documents at no cost, go to 

SIGIR’s Web site (www.sigir.mil).

To Report Fraud, Waste, and 

Abuse in Iraq Relief and 

Reconstruction Programs

Help prevent fraud, waste, and abuse by reporting 

suspicious or illegal activities to the SIGIR Hotline:

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

 Phone: 703-602-4063

 Toll Free: 866-301-2003

Congressional Affairs Hillel Weinberg

Assistant Inspector General for Congressional

Affairs

Mail: Office of the Special Inspector General

for Iraq Reconstruction

400 Army Navy Drive

Arlington, VA 22202-4704

Phone 703-428-1059

Email hillel.weinberg@sigir.mil

Public Affairs Deborah Horan

Office of Public Affairs

Mail: Office of the Special Inspector General for Iraq 

Reconstruction

400 Army Navy Drive

Arlington, VA 22202-4704

Phone: 703-428-1217

Fax: 703-428-0817

Email: PublicAffairs@sigir.mil