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38–832 2008

[H.A.S.C. No. 110–5]

APPROACHES TO AUDIT OF RECONSTRUCTION AND SUPPORT ACTIVITIES

IN IRAQ

COMMITTEE ON ARMED SERVICES

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

HEARING HELD

JANUARY 18, 2007

(II)

HOUSE COMMITTEE ON ARMED SERVICES

ONE HUNDRED TENTH CONGRESS

IKE SKELTON, Missouri

JOHN SPRATT, South Carolina

SOLOMON P. ORTIZ, Texas

GENE TAYLOR, Mississippi

NEIL ABERCROMBIE, Hawaii

MARTY MEEHAN, Massachusetts

SILVESTRE REYES, Texas

VIC SNYDER, Arkansas

ADAM SMITH, Washington

LORETTA SANCHEZ, California

MIKE MCINTYRE, North Carolina

ELLEN O. TAUSCHER, California

ROBERT A. BRADY, Pennsylvania

ROBERT ANDREWS, New Jersey

SUSAN A. DAVIS, California

RICK LARSEN, Washington

JIM COOPER, Tennessee

JIM MARSHALL, Georgia

MADELEINE Z. BORDALLO, Guam

MARK UDALL, Colorado

DAN BOREN, Oklahoma

BRAD ELLSWORTH, Indiana

NANCY BOYDA, Kansas

PATRICK J. MURPHY, Pennsylvania

HANK JOHNSON, Georgia

CAROL SHEA-PORTER, New Hampshire

JOE COURTNEY, Connecticut

DAVID LOEBSACK, Iowa

KIRSTEN GILLIBRAND, New York

JOE SESTAK, Pennsylvania

GABRIELLE GIFFORDS, Arizona

ELIJAH E. CUMMINGS, Maryland

KENDRICK B. MEEK, Florida

KATHY CASTOR, Florida

DUNCAN HUNTER, California

JIM SAXTON, New Jersey

JOHN M. MCHUGH, New York

TERRY EVERETT, Alabama

ROSCOE G. BARTLETT, Maryland

HOWARD P. ‘‘BUCK’’ MCKEON, California

MAC THORNBERRY, Texas

WALTER B. JONES, North Carolina

ROBIN HAYES, North Carolina

KEN CALVERT, California

JO ANN DAVIS, Virginia

W. TODD AKIN, Missouri

J. RANDY FORBES, Virginia

JEFF MILLER, Florida

JOE WILSON, South Carolina

FRANK A. LOBIONDO, New Jersey

TOM COLE, Oklahoma

ROB BISHOP, Utah

MICHAEL TURNER, Ohio

JOHN KLINE, Minnesota

CANDICE S. MILLER, Michigan

PHIL GINGREY, Georgia

MIKE ROGERS, Alabama

TRENT FRANKS, Arizona

THELMA DRAKE, Virginia

CATHY MCMORRIS RODGERS, Washington

K. MICHAEL CONAWAY, Texas

GEOFF DAVIS, Kentucky

ERIN C. CONATON, Staff Director

ANDREW HUNTER, Professional Staff Member

STEPHANIE SANOK, Professional Staff Member

REGINA BURGESS, Research Assistant

(III)

C O N T E N T S

CHRONOLOGICAL LIST OF HEARINGS

2007

Page

HEARING:

Thursday, January 18, 2007, Approaches to Audit of Reconstruction and

Support Activities in Iraq .................................................................................... 1

APPENDIX:

Thursday, January 18, 2007 ................................................................................... 45

THURSDAY, JANUARY 18, 2007

APPROACHES TO AUDIT OF RECONSTRUCTION AND SUPPORT

ACTIVITIES IN IRAQ

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Hunter, Hon. Duncan, a Representative from California, Ranking Member,

Committee on Armed Services ............................................................................ 34

Saxton, Hon. Jim, a Representative from New Jersey, Committee on Armed

Services ................................................................................................................. 3

Skelton, Hon. Ike, a Representative from Missouri, Chairman, Committee

on Armed Services ................................................................................................ 1

WITNESSES

Bowen, Stuart W., Jr., Special Inspector General for Iraq Reconstruction ........ 8

Gimble, Thomas F., Acting Inspector General of the Department of Defense ... 5

Krongard, Howard J., Inspector General of the U.S. Department of State

and Broadcasting Board of Governors ................................................................ 6

Walker, Hon. David M., Comptroller General of the United States, Government Accountability Office .................................................................................. 3

APPENDIX

PREPARED STATEMENTS:

Bowen, Stuart W., Jr. ....................................................................................... 81

Gimble, Thomas F. ........................................................................................... 67

Krongard, Howard J. ........................................................................................ 77

Walker, Hon. David M. .................................................................................... 49

DOCUMENTS SUBMITTED FOR THE RECORD:

[There were no Documents submitted.]

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD:

Ms. Bordallo ...................................................................................................... 98

Dr. Gingrey ....................................................................................................... 98

Mr. Marshall ..................................................................................................... 98

Mr. Skelton ....................................................................................................... 97

(1)

APPROACHES TO AUDIT OF RECONSTRUCTION AND

SUPPORT ACTIVITIES IN IRAQ

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Thursday, January 18, 2007.

The committee met, pursuant to call, at 10:00 a.m., in room

2118, Rayburn House Office Building, Hon. Ike Skelton (chairman

of the committee) presiding.

OPENING STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE FROM MISSOURI, CHAIRMAN, COMMITTEE ON ARMED

SERVICES

The CHAIRMAN. Ladies and gentlemen, it is shortly past 10

o’clock. We like to do our best to start on time. We have asked our

witnesses to condense and summarize their testimony into four

minutes if at all possible. They, of course, will make their full

statements ready for the record. We have had two hearings thus

far, and I have got to brag on you; you have done very well thus

far staying within the five-minute rule, and we will continue to do

that. I will remind those in the front row that when Secretary

Gates once appears, we will begin with the front row because you

did not have the opportunity to ask the Secretary questions then.

But we will start with this. Today’s witnesses will testify regarding honest reconstruction and support activities in Iraq. This will

be the first of many oversight hearings from the full committee as

well as the other committees, including but not limited to the Subcommittee on Oversight and Investigations. Our witnesses will give

us their honest opinions on how things are going in Iraq. They are

here today because being forthright is their job. They are honest

and independent. That is their primary duty. In fact, it is written

in law.

The Inspector General Act of 1978 says inspectors general shall

be chosen solely on the basis of integrity and no one shall prevent

or prohibit the inspector general from initiating, carrying out, or

completing any audit or investigation, or from issuing any subpoena.

With that in mind, I welcome our witnesses. Today we have the

Honorable David Walker, the Comptroller General of our country.

He leads the Government Accountability Office, the GAO, which is

doing tremendous work helping Congress provide oversight to the

Department of Defense. He has served in this capacity since 1998.

Thomas Gimble, Acting Inspector General of the Department of

Defense, who spent a career in the field of audit and accountability

in the Department of Defense. He also served in the Army, receivVerDate 22-MAR-2001 13:32 Oct 20, 2008 Jkt 038832 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\110-5\018000.000 HAS2 PsN: HAS2
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ing the Purple Heart and Combat Infantry Badge and the Bronze

Star.

Howard Krongard, the Inspector General of the State Department. Like Mr. Walker, Mr. Krongard came to government from

the accounting industry.

We also have Mr. Stuart Bowen, the Special Inspector General

for Iraq Reconstruction. Mr. Bowen came to his current job from

the legal profession, which, I might point out, was also my field before I was fortunate to come to Congress.

So, gentlemen, welcome to the Armed Services Committee. We

have two missions to accomplish today. First, we must identify the

critical lessons learned from the war in Iraq; for today, now, while

we are still engaged in the fight. If we are to have any hope of improving our course, we cannot wait five years, or even one year.

Gentlemen, we look forward to your helping this committee understand what has been done right and what has been done wrong in

Iraq. We want to eliminate what has been done wrong and do what

has been done right. Mr. Bowen told me he has already visited Iraq

15 times, and I know our other witnesses have been closely monitoring the situation. We value your insight this morning.

Second, we must identify the lessons learned in Iraq for the future because, unfortunately, this government and our military are

likely to be asked to engage in reconstruction and rebuilding activities again elsewhere. We don’t know what the future holds. Iraq

will not be a model that we will ever seek to repeat. Nevertheless,

there are failed states and ungoverned areas elsewhere in the

world and there will be a next time, I am convinced. But we must

do better when that next time arrives.

My own conclusion is that reconstruction in Iraq can best be described by paraphrasing General Pace’s analysis of the war itself.

He said: we are not winning but we are not losing.

Well, the story in reconstruction is it is not a total failure, but

it is not in any means a success. Unfortunately I don’t think a middling outcome in a situation as complex and volatile as Iraq is good

enough. I have been told that as much as 20 percent of the reconstruction funding spent in Iraq thus far has been wasted, largely

as a result of the lack of security. And, gentlemen, if this is true,

then somewhere between $4 billion and $6 billion of taxpayers’

money has been wasted.

Let me briefly point out the charts along the wall. Two of the

major areas of reconstruction are displayed. Electricity production.

The chart shows the supply of electricity has increased at times

and fallen again. From start to finish the chart shows almost no

change. That, of course, is not good enough.

Oil production. That chart shows that oil production has consistently fallen short of our goals of prewar production levels. That is

not good enough.

The chart also shows attacks steadily increasing; casualties of

Iraqi civilians are also increasing. That is not good enough. Gentlemen, we must do better.

I yield to the gentleman from New Jersey, Mr. Saxton.

3

STATEMENT OF HON. JIM SAXTON, A REPRESENTATIVE FROM

NEW JERSEY, COMMITTEE ON ARMED SERVICES

Mr. SAXTON. Thank you, Mr. Chairman. Let me thank you for

holding this very important hearing. And I would also like to welcome our witnesses this morning. All four of you perform valuable

services both for the American taxpayers and in keeping this Congress informed. You and your staffs ensure that U.S. funds are

spent appropriately and as effectively as possible.

This inspection and auditing task is especially difficult when we

consider the amount of funds dedicated to Iraq reconstruction and

the challenging security environment in which these duties must

be carried out. So please accept our thanks and extend this expression of appreciation to your staffs.

Iraqi reconstruction efforts constitute one element of what the

chairman of the joint chiefs of staff recently called the three-legged

stool for the government strategy for Iraq. This strategy’s longterm success rests in part on the effective reconstruction of Iraqi

society including projects addressing, as the chairman just pointed

out, electricity democracy, roads, bridges, water sanitation, transport, and telecommunication needs.

And, of course, there are others as well.

To date, Congress has appropriated more than $25 billion for

these efforts. Because the U.S. Government is accountable to the

U.S. taxpayers for that money, we must have the right inspection

and auditing mechanisms in place to provide sufficient oversight.

We certainly look forward to your perspective on these issues this

morning, and, again, I would like to thank all of you for being here

with us this morning.

And thank you, Mr. Chairman.

The CHAIRMAN. We will begin with your four-minute summary.

Mr. Walker.

STATEMENT OF HON. DAVID M. WALKER, COMPTROLLER GENERAL OF THE UNITED STATES, GOVERNMENT ACCOUNTABILITY OFFICE

Mr. WALKER. Thank you, Mr. Chairman. It is a pleasure to be

here before you today to provide a strategic overview of GAO’s

work relating to securing, stabilizing, and rebuilding Iraq.

My statement today is based upon the extensive work the GAO

has done since 2003 in which we have issued some 67 Iraq-related

reports and testimonials, and most recently I sent up to the Congress, early in January, our report that includes a number of key

issues that we believe Congress needs to seriously consider in connection with oversight activities dealing with Iraq.

GAO and the inspector generals of individual departments and

agencies have different clients, different roles and responsibilities,

and different professional standards that govern their work in

some circumstances. Our work at GAO includes very broad audit

authority. The Congress is our sole client and we are able, through

our multifaceted skills and knowledges and staff, to be able to cut

across multiple federal agencies and to take a longer-range and

broader view with regard to the work that we do on behalf of the

Congress.

4

Our work spans the security, political, and economic prongs of

the U.S. strategy for Iraq. It is very broad-based and cross-cutting

in nature. This by itself helps to minimize the possibility of overlap

and duplication of individual engagements.

However, we also participate in the periodic coordination meetings that take place, as well as have supplemental one-on-one activities with the special inspector general of Iraq as well as the

other inspector generals to minimize the possibility of duplication

of effort.

To give you a sense as to the scope of our work, our analysis of

the national strategy for victory in Iraq recommended that the National Security Council improve the strategy by articulating clearer

roles and responsibilities for the U.S. and others, specifying future

contributions and identifying current costs and future resource

needs. In our examination of the cost of the U.S. military operations abroad, we recommended that the Secretary of Defense improve the transparency of and reliability of DOD’s global war on

terror obligation data. We also recommended that DOD build more

funding into the baseline budget once an operation reaches the

level of known effort and more predictable cost.

In assessing the capability of Iraqi security forces, a particularly

important and timely topic, we found that the overall security conditions in Iraq have deteriorated despite increases in the numbers

of trained and equipped security forces. A complete assessment of

Iraqi security forces capabilities is dependent upon the GAO being

provided access to individual unit transitional readiness assessments. We have been seeking this for months. It has not been

forthcoming. I have an agreement in principle with Deputy Secretary of Defense Gordon England to provide it, but we need to get

it and we need to get it soon. This is invaluable information for the

Congress of the United States and is particularly important at this

critical juncture given the status in Iraq.

We have also done work with regard to the impact of extending

U.S. presence overseas, on the stress of our forces, on the need to

reset our equipment as well as a variety of other issues.

On acquisitions. In assessing acquisition outcomes, we found that

DOD often entered into contract arrangements with unclear requirements which posed additional risk to government and taxpayers. They also lacked adequate capacity to conduct effective

oversight. We have extensive quality control procedures over our

work which I am happy to answer questions on. I know that is one

of the issues that the staff was interested in.

In summary, GAO’s work highlights the critical challenge that

the United States and its allies face in the ongoing struggle to help

the Iraqis stabilize, secure, and rebuild their country.

Many forthright answers to the questions included in this document are essential in order for the Congress to be in a position to

make informed and timely decisions with regard to its constitutional responsibilities. We look forward to continuing to work to

support the Congress in these and other areas, and I am happy to

answer questions after my co-panelists have had a chance to make

their presentation. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Walker, thank you very much. We will have

some questions a bit later.

5

[The prepared statement of Mr. Walker can be found in the Appendix on page 49.]

The CHAIRMAN. Mr. Gimble.

STATEMENT OF THOMAS F. GIMBLE, ACTING INSPECTOR

GENERAL OF THE DEPARTMENT OF DEFENSE

Mr. GIMBLE. Mr. Chairman, members of the Committee on

Armed Services, I would like to thank you for the opportunity to

appear before this committee. I also want to publicly thank the

men and women who serve in our armed forces. Each time I make

a visit to Iraq and Qatar, it reminds me of the importance of my

office in providing oversight necessary to ensure funds are being

appropriately managed and properly used to warfight and achieve

the DOD mission.

As I stated in my last semiannual report to Congress, the global

war on terror is at the forefront of our Nation’s concerns and continues to be a priority for the DOD office of the inspector general

(OIG). Currently we have about 140 OIG personnel working with

the Department and the Congress in providing oversight in the

$400 billion in DOD supplemental funds appropriated to support

our fight against terrorism and to support the men and women of

our armed forces in Southwest Asia.

To accomplish our oversight mission, we recognized that we

needed a combination of initiatives while simultaneously aiding in

the reconstruction and support activities in Iraq. We recognize we

needed a combination of initiatives. One is to establish an in-country oversight presence; two is to expand oversight coverage of funds

that are predominantly being executed in the United States; and

three, to improve interagency coordination and collaboration to

minimize any duplication efforts within the oversight community.

To briefly highlight our first initiative, it is important to know

that we continue to move forward with expanding our presence in

theater. We are currently working to increase our presence in Iraq

and Afghanistan and Kuwait before the end of the year. We currently have an office in Qatar. We extended our oversight since my

testimony in September of 2005, and we have currently 23 ongoing

audits inspections. We also have 39 criminal investigations that

were completed through the audits. These audits involve critical

readiness issues that directly impact the warfighter such as personnel and operational equipment readiness, and resetting ground

vehicles and equipment with the combatant commands. Also, the

Defense Criminal Investigative Services (DCIS) which is the criminal investigative arm of the DOD Inspector General, has been engaged in investigating DOD-related matters pertaining to the Iraqi

theater, to include Kuwait, since the start of the war.

The presence of DCIS in the region has led to numerous investigations of corrupt business practices, loss of U.S. funds through

contract fraud, loss of Iraqi military equipment; and our investigations have been focused on matters such as bribery, theft, gratuities, bid-rigging, product substitution, and conflicts of interest.

Our intelligence component continues to review and assess highprofile issues such as the DOD-directed investigations of detainee

abuse. We are also evaluating the U.S. Government’s relationship

6

with the Iraqi National Congress, and we have a review ongoing

of congressional concerns regarding the Rendon Group.

Finally, our policy and oversight component continues to play a

key role in promoting establishment of effective oversight operations in both Afghanistan and Iraq. We are continuing also to conduct joint critical assessment of police training and counternarcotics programs with the department of state inspector general.

We are committed to remaining an active player in improving

interagency coordination and collaboration to minimize the duplication of efforts.

I am confident that my colleagues within the oversight community will attest that the continuous interagency collaboration is essential for our business. We participate in the inspector council

that is hosted by Inspector General Bowen.

We also recognize that the joint staff and combatant commands

inspectors general are key players in helping us achieve our oversight responsibility. And we plan to host the next joint staff combatant commands and inspector generals conference. Further, we

are hosting the Southwest Asia audit planning group which will coincide with the combatant commands inspector generals conference

and the joint staff.

Operational constraints, such as travel restrictions, impact oversight efforts, including those of my office. Operational tempo requirements and anticipated surge of war patterns may present

operational challenges for us to enter Southwest Asia; specifically

Iraq and Afghanistan. Nonetheless, our in-country presence to conduct adequate oversight is imperative.

In closing, we recognize the men and women of the U.S. armed

forces are facing enormous challenges ahead for the defense of our

Nation’s goals. We offer our commitment that the DOD resources

that are appropriated and provided to those men and women of

those armed forces are effectively used in the global war on terror.

Again, thank you for the opportunity to appear before you.

[The prepared statement of Mr. Gimble can be found in the Appendix on page 67.]

The CHAIRMAN. Mr. Krongard.

STATEMENT OF HOWARD J. KRONGARD, INSPECTOR GENERAL OF THE U.S. DEPARTMENT OF STATE AND BROADCASTING BOARD OF GOVERNORS

Mr. KRONGARD. Congressmen, thank you for the opportunity to

discuss the Department of State’s Office of Inspector General’s view

of audit and oversight activities related to Iraq. OIG’s approach to

oversight in Iraq has been through audits, inspections, investigations, assessments, and surveys to identify and recommend ways in

which State Department programs can operate more efficiently and

economically. These are programs affecting the various operation of

Embassy Baghdad, including the construction of the new embassy

compound as well as Iraq reconstruction, governance and security,

all of which are critical elements to ensuring stability in Iraq.

With resources limited due to statutorily and mandated audit

and inspection requirements and flat budgets in an increased cost

environment, OIG has nevertheless constructed high-value projects

that have included, in fiscal years 2005 and 2006 and thus far into

7

2007, 10 program and management assessments, 15 audits with 4

more in progress, and supervision of 4 defense contract agency audits. Significant program assessments included an assessment of

Iraq police training and inspection of rule of law programs in Iraq

and a survey of anticorruption programs in Iraq. Significant audit

work has included a survey of the Bureau of International Narcotics and Law Enforcement (INL) funding for Iraq and currently in

progress is a review of a large contract for Iraq police training support.

I should note that I have been a strong proponent of interagency

inspector general undertakings as a way of leveraging my own way

of limited resources and of enhancing cooperation among the three

OIG offices before you today, as well as others. In that vein, the

assessment of Iraq police training was done jointly with the DOD,

OIG. The survey of anticorruption programs and the audits of INL

funding and of the Iraq training support contract were all done in

conjunction with SIGIR. And parenthetically, an assessment of the

police training program in Afghanistan and an assessment of Afghanistan counternarcotics programs were done jointly with DOD

and OIG.

In addition to the foregoing reports, I have personally traveled to

Iraq to accomplish specific objectives. For example, during my visit

this past September, I met with all 29 Iraqi inspectors general. I

said to them, among other things, and I quote, ‘‘Each of your prime

ministers and deputy prime ministers have recently identified corruption as one of the two greatest threats, along with violence, to

the stability and long-term success of Iraq as a free and democratic

country. Indeed, violence and corruption go together. Corruption

feeds and funds the insurgency and contributes to an environment

where both can thrive. You are in the very front line of this great

battle against corruption, and I look forward to seeing how we can

assist and support you in this crucial fight for your country.’’

To assist them, for example, I undertook to identify someone experienced in the U.S. inspector general community to become a

senior adviser to Iraqi IGs in Embassy Baghdad. I succinctly identified such an individual who is now being processed and should be

in Baghdad shortly. I believe the foregoing is responsive to your

question as to what is working with respect to oversight in Iraq.

With respect to what is not working, I would point first to the

limited resources available to my office. The work in Iraq I have

described to you was funded by an allocation of 1.3 million from the

fiscal year 2005 supplemental and 1.7 million from the fiscal year

2006 supplemental. That $3 million over 2 years was intended to

provide for our work in both Iraq and Afghanistan. As for 2007, we

have received no supplemental fundings for Iraq or Afghanistan.

By way of contract, I believe SIGIR’s initial and supplemental

spending have approximated $100 million. So at a time when the

costs and risks attributable to State Department programs in Iraq

continue to increase, OIG’s resources have remained flat and perhaps have decreased after considering mandatory wage increases,

higher travel costs, and lower dollar exchange rates.

In closing, Mr. Chairman, I would like to recognize the brave and

the dedicated military and civilian personnel in Iraq who are making enormous efforts to bring about a safe, secure, and democratic

8

environment where rights and liberties of individuals are protected.

This is a difficult challenge, and we in OIG want to do our part

in assuring that U.S. resources are used to the optimum possible

efficiency and effectiveness in such trying circumstances.

Thank you.

The CHAIRMAN. Thank you, sir.

[The prepared statement of Mr. Krongard can be found in the

Appendix on page 77.]

The CHAIRMAN. Mr. Bowen, we will call on you, but my recollection is we had a conversation—and I made reference to that in my

opening statement—that you said as much as 20 percent of the reconstruction funding spent in Iraq thus far has been wasted. During your comments, would you be kind enough to make reference

to any details you might have in that regard?

Mr. Bowen.

STATEMENT OF STUART W. BOWEN, JR., SPECIAL INSPECTOR

GENERAL FOR IRAQ RECONSTRUCTION

Mr. BOWEN. Yes. Thank you, Mr. Chairman, members of the

committee, for this opportunity to address you on the work of my

office, Special Inspector General for Iraq Reconstruction, in its mission to provide oversight of the expenditure of the Iraq relief and

reconstruction fund.

And let me address that issue of waste right off the bat. As I said

when I met with you, it is an issue that we recognize that Congress

has asked my office to explore, and we have looked at it from the

start since we began our work 3 months ago in the conduct of 74

audits and over 90 audit products. The real number that we were

able to derive regarding waste of that fund will come out as we do

audits of each of the major contractors, and that is a program that

I have initiated and we are ongoing, looking at what all the top six

contractors provided the United States for the money that they

were allocated.

I was appointed, as I said, the Coalition Provisional Authority

(CPA) IG three years ago this week and departed on my first trip

for Iraq two weeks thereafter. I am going to leave for my 15th trip

in 2 weeks, and I have spent just over a year in Iraq supervising

our work.

Today we have 55 auditors, inspectors, and investigators assigned on the ground in Iraq, and they travel across the country

carrying out the mission that Congress has assigned us.

To date, my office has produced 11 quarterly reports, the 12th

one will be out in 2 weeks. We have completed over 90 audits, 90

onsite inspections across Iraq, opened 236 investigations and have

87 ongoing. Five have been convicted, U.S. officials, of fraud; and

four sentenced to date.

We also are managing a robust lessons learned program looking

at what has and has not worked in Iraq. We have issued two reports, one on human capital management, the other on contracting

in Iraq. The third report on program and project management will

be out this quarter and and we are looking at a capping report that

will be out at the end of the year which will explore the complete

picture of the story of Iraq reconstruction.

9

SIGIR’s audit work to date has resulted in direct savings of over $50 million in taxpayers’ money and has pointed to potential savings and recoveries of over another 100 million.

We will have eight new audits coming out in the next quarterly

report, which will be issued at the end of this month, including a

review of police training in Iraq and an update on our report on

the primary health care clinics, specifically looking at how equipment was used in those clinics, a review of how Bechtel managed

their property, a thorough review of that; a review of the improper

obligations of the Iraqi Relief and Reconstruction Fund (IRRF), a

follow-up to the report that we issued last quarter; and also a review of security costs, a question that continues to dog the entire

program.

Our inspection work continues apace, and we will have visited

over 90 sites by the end of this month, resulting in tens of millions

of dollars in direct savings from our advice and reporting.

Most notably this quarter, we will have a follow-up on the Baghdad Police College. We issued a quick reaction report last quarter

that resulted in remedial activity. We will identify the efficacy of

that remedial activity in this newest report which will be out next

week.

Our investigative work continues to show progress. Most notably

this quarter we—SIGIR established the Joint Task Force on International Contract and Corruption. And that is in conjunction with

the FBI and the Department of State IG, Department of Defense

IG, and we are maintaining a Joint Operation Center SIGIR headquarters here in Arlington to coordinate investigative efforts among

those various agencies.

Coordination is essential to efficient oversight in Iraq. And to

that end, when I began this job, I created the Iraq Inspector General Council which brings together, every quarter, all entities that

have oversight responsibility in attempts to deconflict our oversight

efforts and to identify areas that need to be looked at. And we will

continue to coordinate with GAO and the inspector generals of the

Department of Defense and State as we look forward to carrying

out the important mission that you have assigned my office.

Thank you.

The CHAIRMAN. Mr. Bowen, thank you very much.

[The prepared statement of Mr. Bowen can be found in the Appendix on page 81.]

The CHAIRMAN. Let me take this opportunity to welcome a

brand-new member to this committee, the gentleman from Maryland, Mr. Elijah Cummings, seated in the first row, a veteran lawmaker. And we are very very pleased, Mr. Cummings to welcome

you to your new position here. I know that you will enjoy it as we

do. Thank you for being with us here.

In asking questions today, I note we have four members of the

panel, and five minutes is five minutes, and I would strongly suggest you to ask one or two members of the panel, unless it is a

question that all of them can answer quickly.

So we will start by one question of Mr. Walker and Mr. Gimble.

What is the big problem?

Mr. WALKER. Well, I think security, obviously, is problem number one. The U.S. plan assumed that there would be a relatively

10

stable and secure and permissive environment. That assumption

obviously proved false and it has a pervasive effect on the ability

to build capacity, on the ability to engage in reconstruction activities, and in the ability to be able to maintain and protect whatever

reconstruction has been performed. And that is the number one

problem is the lack of adequate security. And the lack of adequate

security also impairs the ability to make progress with regard to

oil, electricity, potable water, as well as employment, increasing

employment opportunities for Iraqis.

The CHAIRMAN. Mr. Gimble.

Mr. GIMBLE. Mr. Chairman, I would just second what my colleague Mr. Walker has said, because that is, as he so eloquently

put it, is exactly the issues. So I really don’t have much to add to

that.

The CHAIRMAN. Mr. Saxton.

Mr. SAXTON. Mr. Walker, I have just one observation or question

and that is with regard to your inquiry with the Department of Defense relative to the level of readiness of Iraqi forces. I guess my

question is—you have some good reasons for asking that question.

What do you anticipate you would see in answer to that question?

Mr. WALKER. Thank you for the question, Mr. Saxton. I believe

this is critically important for the Congress of the United States,

this information. I have an agreement in principle with Defense

Deputy Secretary Gordon England that we would be provided this

data. But it has been a number of months and we still don’t have

it. I am expecting to hear back from the deputy secretary, hopefully

by the end of this week. That is tentatively what we agreed. If we

gain access, then great. If we don’t, I will be sure to let this committee and other committees of jurisdiction know.

This is critically important because basically what it does is it

moves beyond the numbers that have been trained and it provides

a more thorough assessment of their leadership capabilities, whether they are adequately equipped, and a variety of other critical factors which, quite frankly, we do on our own troops, and we have

reported to the Congress periodically, in fact, we will soon report

again on the state of readiness of our own troops, which has frankly deteriorated in part because of the long duration of this conflict.

Mr. SAXTON. Thank you for that.

And, Mr. Chairman, I would just add, I would want to say this

for the benefit of it being part of the process. We know certain

things about Iraqi troops. We know that in the beginning, they

were totally untrained. We know that at a later stage, they were

able to fight and carry out operations as kind of followers to U.S.

troops. We know that at another stage they were able to carry out

operations alongside U.S. troops. We know that at a later stage

they have become able to lead some operations with U.S. troops as

their supporters. And so I have asked for this information as well,

and I haven’t gotten it either. And I kind of understand that it is

a difficult thing for the Department of Defense to provide because

they don’t know how it will be used. And I think that we need to

be very careful of being expressly critical of Iraqi troops because of

the difficulty of training them, the difficulty of getting the Iraqi

government to pay them in spite of the fact that we have given

them the money to do so. And so I think it is important that we

11

know, but I think it is also important that we be careful how we

use the information once we have it.

Mr. WALKER. I agree with that, Mr. Saxton. It is important to

note that this transitional readiness assessment at the unit level

will be classified. We will treat it accordingly. But it is critically

important that you have the benefit of our professional, independent, objective analysis, given the situation in Iraq right now.

Mr. SAXTON. Thank you. I agree with you.

The CHAIRMAN. Thank you very much. Let me follow through.

Are there some recommendations, Mr. Walker, that, bottom line,

probably should not be classified that are?

Mr. WALKER. Mr. Chairman, I think there is no question that we

have seen that there is a tendency to overclassify throughout government. In some departments and agencies, it is more of a challenge than others. As you know, the way that our system works,

the decision on whether or not to classify is made by the respective

department and agency that has the information. And human nature being what it is, if there is information that is somewhat sensitive or potentially embarrassing, sometimes there can be a tendency to try to classify things that otherwise shouldn’t be classified.

I don’t want to just point to any particular agency. I think that this

is a broader challenge, and it is one that, quite frankly, I think

that we may need to do some more work on on behalf of the Congress to give you a better sense as to the scope and magnitude of

this challenge.

The CHAIRMAN. Thank you. Mr. Ortiz.

Mr. ORTIZ. Thank you, Mr. Chairman. Let me say I appreciate

the fine work that you do. I see that you have many restraints, especially not being budgeted to do your work. I hope that they are

not intentional to keep you away from doing what you are supposed to do. You have a serious responsibility and I know it is hard

to do the work that you are doing under the circumstances in Iraq.

But Mr. Walker, you mentioned in your statement about the

readiness of our troops. ‘‘DOD faces significant changes in maintaining readiness for overseas and homeland missions and in sustaining rotational deployments of duty, especially if the duration

and intensity of current operations continue at the present pace.’’

I know you have been there. We are about to send 21,000 troops.

We hope that we send them—if that is what the President decides

to do—with the right equipment, what they need. And I don’t know

whether you have had a chance to talk to the troops. Do you think

that they are going to have the equipment that they need to do

their job? Do you think we are going to be able to begin to give

them the proper body armor? I mean to move 21,000 troops, I know

they are not going to be moving all at one time. I am concerned

about putting our young men and women in harm’s way especially

if they don’t have the equipment, if they don’t have the Humvees,

the armor, the tanks. And not only that, in fact I encourage my colleagues to go and look at their reserve units and go look at the national guard units. Some of them don’t even have equipment because most of the equipment is in Iraq. I wonder if maybe you can

touch a little bit on that, especially when we are about to send

21,000 soldiers to Iraq.

12

Mr. WALKER. Mr. Ortiz, let me note that we are at the present

point in time taking a look at the state of readiness of U.S. forces.

I just got briefed on our preliminary work within the last couple

of days. One of the things that I want us to try to do is to place

a special emphasis on those forces that are targeted to go to Iraq.

Basically what is going on is there is a decline in overall readiness

but there is an uneven distribution. What is happening is for those

forces that are going overseas or staying overseas, you are taking

equipment and other types of things for the forces that remain

here, and that is one of the reasons that there has been such a significant problem associated with guard and reserve equipment because it has been given to active units, if you will, in order to make

sure that they are adequately equipped.

Let me mention one other thing. We have a serious funding problem. We are not being picked on. We are covered by continuing resolution (CR) like everybody but the Department of Defense and the

Department of Homeland Security. I have been to Iraq twice. I

have met with my counterpart four times. And we send teams into

Iraq on a recurring basis. We want to establish a limited continuing presence in Iraq, but if we don’t get the funding for it, we are

not going to be able to do it. We save the American people $105

for every dollar invested in GAO. You would think that we would

get credit for that; but the appropriations process is badly broken,

and we don’t.

Mr. ORTIZ. Mr. Bowen, you know, when I look at your statement,

I see the amount of money that you have been able to save or recover, $50 million, have identified better use of $7.8 million. That

is a lot of money. Now this money that you have been able to—or

equipment—is that equipment, most of the stuff that you have

been able—when you talk about the $50 million that have been

identified?

Mr. BOWEN. It has to do with audits of programs and projects in

Iraq wherein, for instance, in the award fee process when we went

in to look at how the large contractors were receiving award fees,

we found that there were no—there was not adequate criteria in

place to govern the process, and thus the award fees, in our view,

were much higher than they should have been in some cases.

Through our efforts, proper criteria were implemented and a proper

governance system was put in place to ensure that the award fees

are merited.

But I think one of the lessons learned from Iraq reconstruction

is that those kinds of issues need to be understood and implemented at the beginning of the process because our audit found

that there was clearly some lost funds in that.

Mr. ORTIZ. My time is up now. Keep up doing all of the work

that you are doing because this is very sacred money that we are

spending. This is taxpayers’ money.

The CHAIRMAN. I thank the gentleman.

Mr. Bartlett.

Mr. BARTLETT. Mr. Chairman, I came to this committee 14 years

ago. I sat in the corner seat down there beside Congresswoman

Drake. Many times you never got to me. I never got to ask my

question. So as is my custom, I yield my time to a low-ranking

member.

13

Mrs. DRAKE. Thank you. I am not sure that I like that description, but I will take the time.

Mr. ABERCROMBIE. Mr. Bartlett continues to have a way with

words.

Mrs. DRAKE. Thank you for being here with us today. This is extremely important for us to get your information. On my last trip

to Iraq last April, one of the things that we did—and Mr. Saxton

was with us on that trip—was go and visit your reconstruction

team. And that was very enlightening to us to, number one, learn

that the infrastructure in Iraq was in much poorer condition than

we anticipated because of Saddam Hussein’s actions. It was also

impressive to me to hear of the countries that were partnering with

us and breaking the country into provinces, and countries like

Japan and South Korea and Canada and France, of the countries

that were willing to take a province, even tiny Moldova that helped

out with other nations, and to look at the current list of 42 countries who have given aid or money. So my question revolves around, first of all, Iraq and the $10 billion dollars that they are now saying that they will put into capital

projects in the next year, to make sure, Mr. Bowen, that you think

what you have put in place will have the proper oversight of that

$10 billion. We know the Iraqis haven’t done a very good job with

their oil and even tracking the amount of oil that is going out of

the country. So my question is, do we have that in place, particularly with the Iraqi money and certainly with the other 42 countries that are assisting us?

Mr. BOWEN. First of all, the biggest problem last year and with

respect to the Iraqi side of the ledger was the failure of the Iraqi

ministries to execute their capital budgets. Indeed, the 10 billion

number comes from the amount that was left in the treasury at the

end of 2006 because of lack of budget constitution. That is a capacity-building issue within the ministries, and we have an audit coming out in this next quarterly report that explores problems with

capacity-building in Iraqi ministries. But nevertheless, the relief

and reconstruction of Iraq ultimately is Iraq’s burden, and they

must sustain it over time; and as you pointed out, given the severity of the deterioration of that infrastructure, that is a long process

and it is one that they are going to have to shoulder much more

than they have to date.

Indeed, the relief and reconstruction of Iraq has three phases.

First was primarily U.S.-led, about 32 billion, including security expenditures put into it. The second will be an international compactdriven effort that will bring the efforts of these other countries into

more coordinated relief and reconstruction efforts. The third will be

the Iraqi Government itself, and that requires strategic planning

but also requires the controls that you alluded to that are controls

that are not in place yet.

The corruption, as Deputy Prime Minister Barham Salih said

just three days ago, it is a huge problem. And indeed he was referring to lost funds from the Bayji refinery in northern Iraq amounted last year to about a billion dollars and he believes that they

went to the insurgents.

Mrs. DRAKE. Could I also ask quickly about the banking system

in Iraq? I know that has been a huge problem because there is no

14

way to pay people. Are they making progress on that? Something

as simple—in our country, we do everything automatically, if we

want to, and they don’t even have a system in place.

Mr. BOWEN. They do not have electronic funds transfer in place,

and that is a huge hindrance, and you cannot have an electronic

audit trail to track how funds move. So it is still primarily a cash

economy and that includes payment of the armed forces.

We looked at logistic support, the capacity of Iraq logistics to

support their own forces, in our last quarterly and found that it is

weak at best; and one of the chief areas of weakness is proper payment of troops. And when troops don’t get paid, they disappear

from the field.

Mrs. DRAKE. I hope we are doing something to bring our bankers

in to help us set up a system that will work.

Mr. WALKER. Ms. Drake, one of the primary problems in Iraq is

the lack of adequate capacity to execute. They don’t have enough

people with the right kind of skills and knowledge to do it. There

is a real problem in execution with regard to their authorities and

resources. They have candidly—I don’t think that we can expect

that we are going to get a lot more international assistance with

regard to military activities. I do believe, however, that we should

try and take steps to try to engage the international community to

try to do more through capacity building. In many cases we have

military personnel engaging in capacity-building exercises. They

may be very capable and dedicated individuals, but they may not

be experts in what they are trying to advise on, and having somebody in a uniform serving as an adviser to civilian personnel is not

necessarily a good idea.

So more can, should in fact, must be done I think with regard

to this capacity building.

Mrs. DRAKE. Thank you.

The CHAIRMAN. Mr. Meehan from Massachusetts.

Mr. MEEHAN. Thank you for being here today. Mr. Bowen, let me

also thank you for your work. You are doing a great service to your

country, and I look forward to working with all four of you as I assume my new role as the chairman of Oversight and Investigation.

I wish that we were meeting in better circumstances. Unfortunately, the situation in Iraq leaves much to be desired. Gentlemen,

it has been nearly four years since we invaded Iraq, nearly four

years since we started rebuilding the country. Four years, $25 billion, over 3,000 American lives. And you look at what we have to

show for it, and as concerning oil production as this chart shows,

oil production is less than two million barrels per day. That is 20

percent lower than before. Three million fewer people have access

to potable water. Iraqis in Baghdad have access to electricity for

about 4 hours per day on average so far this month now, if you

compare that it was 16 hours per day before the war.

In 2003, the President promised a Marshall Plan, but the only

thing that seems to me that that would seem as a failed plan. We

don’t seem to be getting very far.

Now, Mr. Bowen, I am aware that your office is responsible for

saving tens of millions in taxpayers’ dollars. I have seen the reports. I have no doubt that you are uncovering evidence of waste,

15

fraud, and abuse. I remember that you discovered thousands of

weapons that were provided to Iraqis that were missing.

Given the mistakes that you have been able to expose and the

amount of money that your office has recovered with a staff of less

than 100 people, how much do you think that you are overlooking?

In other words, do you feel that you have enough resources, and

how much do you think we don’t know because of the lack of resources?

Mr. BOWEN. Well, there is a lot more that I would like to do, and

I would if I had more resources. You are right. The expenditure of

$32 billion in the environment that is Iraq today is an extremely

challenging oversight mission. And I have got 55 people assigned

to Iraq, about 30 auditors, 10 investigators, 10 inspectors. But just

traveling outside the Green Zone is such a difficult task that it requires significant advance planning, and frequently inspectors have

their trips canceled. So simply executing the oversight mission because of the security issue is a significant problem.

Nevertheless, I think we have had a good deterrent effect by

being present on the ground there for almost three years. And I

think that that has saved us a significant amount of taxpayer dollars. However, your core point is well taken. I would like to do

more.

Mr. MEEHAN. You mentioned you are going in two weeks. How

long will you be there?

Mr. BOWEN. I usually spend every third month in Iraq now. That

is my cycle, two months here to produce my quarterly reports and

one month there to push it forward.

Mr. MEEHAN. So far we have allotted $6 billion to the top 10 U.S.

contractors in Iraq alone. It has been reported that many of the

projects that these companies were responsible for were found to

have been seriously wanting. In the case of one company, I think

13 of the 14 projects that they worked on were found to be deficient. Yet it seems that time and time again we continue to pay,

regardless of the quality of the product. How many of these costplus contracts have been awarded over the past four years?

General BROGAN. Well, the cost-plus contract system was the one

adopted in 2003–2004 when the Iraq relief and reconstruction program was developed. And that meant that very large cost-plus contracts were awarded to 12 major contractors, many $500 million

each. And what that means is that in exchange for those companies

assuming the risk of working in Iraq, the government assumes

pretty much to pay their costs. And——

Mr. MEEHAN. Excuse me just one second, but I don’t see how we

can hold contractors accountable if they are assured a profit regardless of the quality of their product.

Mr. BOWEN. Well, we had an audit that came out last summer

in our July report wherein SIGIR identified a core failing in the

cost-plus system, and that is the failure to incentivize cost within

those countries. There is a requirement to go in, you go in, you

don’t know what your costs are going to be, but within a certain

amount of time a company needs to identify what those costs are.

And that requirement was not enforced in Iraq.

And indeed in my testimony before the Senate Homeland Security and Government Affairs Committee last August when we reVerDate 22-MAR-2001 13:32 Oct 20, 2008 Jkt 038832 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 C:\DOCS\110-5\018000.000 HAS2 PsN: HAS2
16

leased our contracts and lessons learned report, I emphasized that

the cost-plus mechanism needs careful review by Congress.

The CHAIRMAN. Thank you, Mr. Meehan.

Let me say I am going to continue the hearing as best I can. It

is a motion to adjourn. I will continue and those of you who need

to vote, go vote and please hurry back. And, Dr. Snyder.

Dr. SNYDER. Thank you, Mr. Chairman.

Mr. Walker, on page 12 of your written statement you say many

reconstruction projects are falling short of your expectations and

DOD has yet to resolve longstanding challenges and mismanagement in oversight of contractors in deployed locations. These challenges often reflect shortcomings in DOD’s capacity to manage contractor efforts, including having sufficiently focused leadership,

guidance, between requirements and resources, sound acquisition

approaches, and an adequate number of trained contracting and

oversight personnel.

I just want to ask about one specific phrase in there. I mean, we

are well over 200 years as a country. We are several years into this

war. Why do we not have, quote, sound acquisition approaches?

Mr. WALKER. Candidly, as you probably know, the issue of inadequate contracting and acquisition approaches is one of the items

that has been on GAO’s high-risk list for many years, and it will

remain on GAO’s high-risk list when the new list comes out on

January 31st. There are longstanding fundamental acquisition and

contracting problems within the defense department and many

other departments and agencies. They are exacerbated when you

deal with a conflict zone that is half a world away. One of the most

fundamental problems is there is not an adequate definition of the

requirements, and not having an adequate definition of the requirements and not stabilizing those requirements causes a tremendous

opportunity for waste and abuse, especially in cost-plus contract arrangements.

Furthermore, not having adequate personnel who can manage

cost, quality, and performance, including determining when and

whether under what circumstances incentive and award fees ought

to be paid, results in tremendous amounts of waste and potential

abuse as well.

Dr. SNYDER. In our congressional system here, which committee

here is responsible to provide the oversight and make the legislative changes necessary?

Mr. WALKER. I think it would probably be a shared responsibility.

Dr. SNYDER. Shared between whom and whom?

Mr. WALKER. The Armed Services Committee, obviously, is the

authorized committee, and you have House Government Reform

which oversees government operations. Off the top of my head,

those would be the two that I think would have the most interest

in this.

Dr. SNYDER. Mr. Walker, quick question. Not talking about your

colleagues sitting next to you, but as a whole in government, are

the inspector generals independent enough? I saw a smile.

Mr. WALKER. They are clearly intended to be independent and

there are a number of features associated with their appointment

that can lead them to be independent. They do, however, have a

17

divided client base. They work for the head of the agency and they

periodically report to the Congress of the United States. And so

they are independent of the line operations within individual departments and agencies. They are not independent of the executive

branch. So it depends upon how you want to define ‘‘independence.’’

Dr. SNYDER. The topic came up from Ms. Drake a moment ago about the $10 billion in Iraqi money. I would assume that you all—

and you talked about five convictions—that we have no jurisdiction

over Iraqi money. Is that a fair statement?

Mr. WALKER. This is a very important point and something that

I included in this document. The United States had a fiduciary responsibility to properly use and account for the DFI funds, the Development Fund for Iraq. Stuart Bowen and I have worked together along with my colleague, Dr. Abdul-Basit, who is head of the

Board of Supreme Audit in Iraq, to gain access to those documents

for the Board of Supreme Audit so they can do the audit work. It

took a number of months to make it happen. They now have it.

I think it is important that we recognize that while we don’t

have audit authority over it, the appropriate entity to do it is the

Board of Supreme Audit in Iraq, and we need to make sure that

we are giving them the records that they need to do their work,

and the U.S. should not wash its hands of this. We had a fiduciary

responsibility with regard to those funds.

Dr. SNYDER. Are we giving them the records that they need?

Mr. WALKER. My understanding is that most of the information

has been provided, but now the U.S. government is trying to get

the Board of Supreme Audit to sign an agreement that basically

says the U.S. government is not responsible for anything once the

records are turned over. Furthermore, it also came to my attention

that the U.S. Army entered the home of the Auditor General of

Iraq, unexplained, took the weapons of his security forces, his predecessor was assassinated. He still has not been given an explanation nor an apology.

Dr. SNYDER. Mr. Bowen, you mentioned the number of people

who were convicted: five. Seems pretty small. That averages about

one and a quarter people a year for the four years we have been

in the war. How many people that are U.S. personnel or contractors or military personnel have been fired, reprimanded, had something happen to their careers?

Mr. BOWEN. I don’t have those figures, but I can tell you that we

have 23 cases at the Department of Justice now that are in various

stages of completion, and I expect over the next quarter that we

will see that number——

Dr. SNYDER. I am correct, you said at this point you have had

five convictions?

General BROGAN. That is right. Fraud investigations are time

consuming, and they usually take two years; and thus, given that

time line, a number of them are ripening right now.

The CHAIRMAN. Thank you.

Ms. Bordallo.

Ms. BORDALLO. Thank you very much, Mr. Chairman.

Gentlemen, the numbers and amounts of funds that we are talking about today are perhaps too large to get our hands around. The

task of providing effective oversight of figures in the hundreds of

18

billions is admittedly enormous, and I commend you for your efforts even in an environment where it seems we had many who

didn’t welcome your oversight. Let me tell you this: this Congress

supports your efforts, but America and we want to hear the truth.

I have a question for you, Mr. Krongard. You mentioned in your

testimony about limited resources and security was—one of you

mentioned that security was one of the top priorities. You also

mentioned the embassy, the U.S. Embassy compound. I am curious,

what is the cost of that compound?

Mr. KRONGARD. The Congress, I believe, appropriated $592 million for the building of that new embassy.

Ms. BORDALLO. Five hundred ninety-two million dollars. And it

is ongoing; is that correct?

Mr. KRONGARD. That is correct.

Ms. BORDALLO. Now I don’t really understand that when they

are bombing Baghdad, throwing missiles around, even if it is in the

green zone, why would we put that as a priority? Wouldn’t you

want to wait until things calm down a bit before going into building an American Embassy at that cost? Isn’t that a risk?

Mr. KRONGARD. That is a policy judgment that was made by the

Congress and by the Secretary of State, so I really couldn’t comment on it.

Ms. BORDALLO. Congress set a time?

Mr. KRONGARD. Excuse me?

Ms. BORDALLO. Congress set a time when we should——

Mr. KRONGARD. A proposal, I believe, was submitted to the Congress for construction of the new embassy, and it is due to be completed in this coming July with a move into the embassy beginning

in September and to be completed by year end.

Ms. BORDALLO. Well, I understand. I have been in Iraq many

times, and I have stayed even overnight at the palace, what they

call it now, where the embassy is housed, and I just wonder why.

You know, it could very well be that that could be destroyed during

all of these attacks going on, and I just wonder why we made that

a priority. And certainly it could have been put on hold. That was

my question. How do you feel about that, Mr. Walker?

Mr. WALKER. Well, first the security situation is a lot more stable

inside the green zone than it is outside the green zone. It is not

that there is zero risk in the green zone; there is some. When I was

there last, I was going to meet with my counterpart, and we had

to relocate because a bomb-sniffing dog sniffed a bomb where we

were supposed to meet. I think from a practical standpoint, there

is some risk, but the risk is relatively low in the green zone, I

would say.

Ms. BORDALLO. Okay. And my second question is to you, Mr.

Walker. As you may know, I represent a small territory, the U.S.

territory of Guam. We don’t have enormous companies like Bechtel

and Parsons doing business in Guam, although the potential of $15

billion in military construction (MILCON) in the next decade or so

has attracted these folks to Guam. But we do have many, many

small businesses who do fantastic work and who become real parts

of our community. And I am interested——

The CHAIRMAN. Would the gentlelady suspend? Would you take

the chair since it is necessary that I go vote?

19

Ms. BORDALLO. I will just take it from here, Mr. Chairman.

The CHAIRMAN. No. You need to come up here, please.

Ms. BORDALLO [presiding]. When I was speaking on how small

I am, now I have become quite a bit larger. I am very honored to

represent the Chairman, and I will kind of take time here so that

we can keep the hearing going.

But I represent Guam. We are U.S. citizens. We are part of the

U.S. family; however, we do not vote on the floor. So that is one

reason that I am here, and hopefully that will change in the near

future.

But getting back to the small business, and this question is addressed to you, Mr. Walker. And I mentioned that possibly because

of the increase of military personnel to Guam from Okinawa, we

are going to do a lot of military construction, and we probably will

be attracting some of these larger companies. But I am interested

in your thoughts on how effectively our policies have engaged small

businesses, whether U.S. or Iraq. Has the large size of the contracts we have utilized made oversight more difficult and abuse

more likely as compared to if we had smaller contracts and were

engaging smaller businesses? I would like to hear from you, Mr.

Walker.

Mr. WALKER. We have done work with regard to the small business set-aside and with regard to some of these issues. I would like

to be able to provide some more specific information for the record,

but I will tell you that with regard to Iraq, the biggest problem is

providing contracts to Iraqis to make sure that Iraqis have an opportunity to benefit from the reconstruction of their own country

and in order to be able to try and help deal with their, you know,

very high unemployment level, which then could potentially provide some more stability.

I will be happy to provide you some information for the record,

though, with regard to what else we have done on the small business set-aside.

[The information referred to can be found in the Appendix beginning on page 98.]

Ms. BORDALLO. Thank you very much. I am a member of the

Small Business Committee, so I am very interested.

At this time I would like to recognize Mr. Forbes from the State

of Virginia.

Mr. FORBES. Thank you, Madam Chairman.

And, gentlemen, thank you all for being here. We appreciate your

testimony and your expertise. And I want to thank you, Mr. Walker. We appreciate your enthusiasm to offer your suggestions and

for all of you for being here today.

Before I came to Congress, I had the opportunity in practicing

law to represent a lot of corporations. At any given time I would

represent approximately 300 corporations, and they would range

from large ones to small, medium-sized companies. And one of the

most frustrating times of the year is when we would sit down with

our audit teams, because I would always be frustrated because the

audit teams would always come in and tell us all the things that

happened wrong with the corporation, and I would always think,

why in the world didn’t two guys come in in the beginning and get

20

involved in the planning that would do it? You guys are here today

to get involved in the planning.

The other two observations that I have is that when we look at

agencies throughout government, we know that it is great to say

because I am in charge of an agency today that I have responsibility for that agency, and that is fair to say, but we know those agencies have been built up not just over years, but over decades, and

the inertia to change agencies is incredibly difficult. My constituents and people who talk to me across the country, when we look

at them, they are always saying, look at Federal Express, look at

UPS how they can manage these budgets, they can get stuff, they

can deliver products; but look at our agencies, and we have a hard

time doing it, whether it is in Katrina, whether it is in Iraq.

And the two questions I would ask for you guys to respond to for

us today is, one, have you seen that there is any threshold beyond

which in terms of dollar amount of budgets that we just don’t have

the governmental capability as agencies to manage without significant waste, or does the dollars not really matter? Because I hear

over and over again, we just can’t manage X number of dollars and

do it effectively. And then the second thing is what kind of builtin institutional problems do we have governmentally that keep our

agencies from really cutting down on some of the waste that we

see, be it in Iraq, Katrina or wherever? So if you would take a bite

at those two, I would appreciate it, and thank you.

Mr. WALKER. Well, first I agree with you, Mr. Forbes, and it is

frustrating when somebody comes in after the fact and said, you

know, the horse is out of the barn, and it shouldn’t have gotten out

of the barn, and it doesn’t do a lot of good, quite frankly. That is

why one of the things we try to do, and I would imagine my colleagues also try to do, is to focus on planning, systems, controls,

people, process, the key elements that can help assure that you

don’t have a problem to begin with.

Now, unfortunately the larger the department or agency, the

more complexity, the more diversity, the more ingrained nature,

you know, that there is. I mean, Defense Department, 60 years, it

will have its 60th anniversary this year. So my view is that we

need to focus on what types of systems, controls, processes and people, practices need to be in place in order to minimize the possibility of having problems down the road, and that is how we are trying to focus our efforts.

Last thing, the federal government, quite frankly, its organizational model, its classification/compensation systems, many of its financial management systems are based on the 1940s through the

1970s, and at least it is the 1940s rather than the 1840s, but this

is a key part of our effort to try to help transform government, and

it is also addressed in detail in our 21st Century Challenges document, reexamined the base federal government which was issued

in February of 2005.

Mr. BOWEN. Congressman, I think you are exactly right with respect to how others can best help an organization be more efficient,

and particularly in Iraq, given the short timeline between appropriation and execution. Real-time advice is essential, and others

will tell you that has been my watchword from the start, real-time

auditing, which means a much more consultative approach than a

21

long-term review approach. I tell my auditors, we don’t play gotcha.

We work with management to identify what the problems are as

we find them, and essentially what I like when I see my audits

done is that the findings that we had are already resolved by the

time the reports come out.

Mr. KRONGARD. Sir, if I could add to what Mr. Bowen has said.

And I, like yourself, have been a product of the private sector, having spent 40 years there before coming to government less than 2

years ago. I do believe that if people such as ourselves were able

to be a little bit earlier in the process, it might be helpful. However, if you noticed from the questioning today, there have been

several questions raised using the term ‘‘independence’’ and questioning just how independent people such as ourselves are, and

every time we get involved in the front end of things rather than

the back end, people challenge the independence and whether we

are getting involved in policymaking and planning and operations

and so on.

So I think it is a little bit of a Catch–22. I do come in from—

I was a lawyer for 40 years, and I understand client services, and

I think you can be a consultant and you can bring to bear good

ideas. And the comptroller general is very correct that, without

generalizing, it is true that the government agencies and policies

and structures are rooted in past decades, and there isn’t enough

turnover to bring in new expertise as new forms of technology and

management rear their heads. So I think on both counts it would

be helpful to have more turnover, more new people coming in. It

would also be helpful to get people such as ourselves involved a little bit earlier in the process without the risk that we all run of

being challenged as being non-independent.

Ms. BORDALLO. Thank you. Thank you, Mr. Forbes.

The Chair now recognizes the gentleman from New Jersey, Mr.

Andrews.

Mr. ANDREWS. Thank you, Madam Chairwoman.

I very much appreciate the testimony of the panel. I apologize for

not being personally present during the testimony.

Mr. Walker in particular, I wanted to thank you for the great

work of your staff and colleagues. I have had the opportunity now

on, I believe, three occasions to receive a classified briefing on the

status of affairs in Iraq. The work of your colleagues has been exemplary, thorough, and I commend your colleagues for the great

work that they have done. And it leads to two questions I have as

follow-up to that work.

The first is that this was a classified briefing, and, obviously

without getting into the substance of the briefing, it was my conclusion that much of the material that was shared with me should

not be classified. Much of the material really goes to subjective interpretations of the dynamic on the ground in Iraq as opposed to

specific facts that might put our individual people in jeopardy.

Could you give us your assessment as to whether generically

there is overclassification throughout the executive branch, and

specifically whether you think that there has been overclassification of the information that I have made reference to?

Mr. WALKER. As I touched on earlier, I believe that there is a

problem with potential overclassification within the executive

22

branch. I think part of it is inherent in the system. The way the

system works is the department or agency who has the information

is the one that makes the classification determination, and, in fact,

this is an area where I believe we may have some work going on

right now. If not, it is something we may want to take a look at

to try to get a sense as to whether and to what extent this is an

area of concern, and what, if anything, ought to be done about it.

Let’s face it, departments and agencies are comprised of human

beings, and human beings have to make judgments, and it is not

just an issue with regard to whether or not it might compromise

our security, but sometimes there is information that could be embarrassing, and human nature being what it is, people would might

prefer not to release that. But I think people need to understand

it is eventually going to get out.

Mr. ANDREWS. I think you draw the line at exactly the right

place. I think we should always err on the side of protecting

sources and assets so as not to jeopardize any American serving

this country or any other innocent person serving his or her country. But our job in oversight is to find embarrassing realities and

let the constituents of the countries know they exist. And the realities of the reports I have heard from your agency or—there is a lot

of information that I think needs to be in the public domain. I

would encourage you to take whatever steps that you feel are appropriate to do that.

Second, and it is a related question, I note that in the summary

of your testimony, you talk about some difficulty of getting complete assessments of Iraqi security forces at the unit level, and it

seems to me that one of the central questions in light of the BakerHamilton report is the level of readiness of Iraqi forces. Overall generic characterizations are not very useful; unit-by-unit assessments are quite useful.

I wonder if you could elaborate on the difficulties you have encountered and make any suggestions you could to the committee as

to how we could help you get access to that very, very important

information.

Mr. WALKER. Well, I am working with Deputy Secretary Gordon

England, and we have agreement in principle that we are going to

receive this information, but unfortunately we haven’t received it

yet. As you know, the department is a very large bureaucracy, and

there are differences of opinions within the department about what

should or shouldn’t be released. I am expecting to hear back from

the deputy secretary by the end of this week. I am hopeful that we

will get it favorably resolved, but if not, believe me, I will let this

committee and other relevant committees know because I believe

that this is absolutely critical information that the Congress needs

to know, although I will say that this is classified information. I

mean, you know, at the level of detail we are talking about, it is

classified information.

Mr. ANDREWS. I think it should be, and we would welcome your

cooperation on it.

Mr. Bowen, let me thank you in particular for your courageous

and exemplary service. Do you have the tools and resources you

need to do the work you are doing, or is there more that we need

to give you to make your efforts even more effective?

23

Mr. BOWEN. Well, Congress recently extended the term of our office and in doing so requested that SIGIR perform a forensic audit,

which is, as I have learned, a very significant undertaking and will

require substantial additional resources to execute. And a forensic

audit means really a thorough review of how the Iraq Relief and

Reconstruction Fund was committed, obligated and expended, and

that is over $21 billion spent in a war zone. That is a significant

task, and thus very directly we will need more resources to execute

that significant endeavor.

Beyond that, I think that there is more to be done to answer the

core question that Congress has asked, and often that is what have

we got for an investment in Iraq’s infrastructure?

Mr. ANDREWS. I will tell you the last couple of days’ testimony

fueled my skepticism that we heard that we need 15,000 new

Americans to go secure Baghdad. At the same time we have also

been told we have 325,000 trained Iraqis. If the training has been

as effective as has been represented, it seems to me that there

would be sufficient numbers of Iraqi soldiers to carry out that effort. I know that you are more focused on reconstruction, but I am

particularly interested in training or the lack thereof.

Mr. BOWEN. Well, we do look at that as well, because a significant portion of the Iraq Relief and Reconstruction Fund was used

to fund the training of Iraq forces, and issued an audit report last

quarter looking at just the logistical supports to those forces and

found that it was weak. And indeed 325,000 have been trained, but

how many are operational is a different question.

Mr. ANDREWS. Thank you very much.

The CHAIRMAN [presiding]. Dr. Gingrey.

Dr. GINGREY. Mr. Chairman, thank you very much.

I would like to thank the comptroller and the inspector generals

for being here this morning. I wanted to pertain my question I

guess to the inspector general of State and to Mr. Bowen as well.

It is my understanding from what the President said when he addressed the Nation last week that he was going to ask for in the

supplement of an additional $1.46 billion from the State Department for a number of things, the CERP program, the Commander’s

Emergency Response Program. I would like for you to tell us a little bit about that in regard to how far down that goes in regard

to allocating some of that money to your field offices down to what

level. And what is the average amount of money that is given, and

do we have audit oversight or responsibilities for that particular

line item?

And then the other thing, maybe even more importantly, and,

again, this would be, Mr. Krongard, under your jurisdiction, the

$486 million that would be going to Iraqi political parties and

human rights groups, I am real concerned about the possibility of

waste, fraud and abuse in an area like that, and I would like for

you to discuss that.

And maybe finally, a couple of years ago we were talking about

building the embassy. I don’t think I was the only one that was

concerned about the $750 million price tag for embassy Baghdad.

I think that that got reduced to maybe the low $600 million, but

even that seemed like an awfully high number, and if you can address those issues, I would appreciate it.

24

Mr. KRONGARD. First, let me say that the Commander’s Emergency Response Program is already under the Department of Defense, so for that portion I would turn to Mr. Gimble, who I know

can answer those questions.

With respect to the new embassy, the number, I believe, came out to $592 million. We have been providing oversight with respect

to various aspects of that construction. It is presently on target. It

is on schedule and on budget, which is kind of unique.

There have been a great deal of unforeseen challenges in building that embassy. I have been there a couple of times. I have

toured it. I participate in a program that reviews it every month

under the leadership of the Assistant Secretary of State for Overseas Building Operations, General Williams. And so I believe that

when you try and consider how much interference you can have

and how much oversight you can have as something is being built,

I am comfortable with what we are providing. There were policy

judgments made as to how big it would be and when it would be

constructed and where it would be constructed. Those decisions

were made in consultation, I believe, with the Members of Congress who provided the funding. So I have some feeling that the

oversight has been provided with respect to the new embassy.

Dr. GINGREY. And, Mr. Gimble, yes.

Mr. GIMBLE. With regard to the CERP funds, Army Audit Agency

completed an audit on the Iraqi CERP fund, I believe, last year,

and we are in the process of completing. We will issue probably

within the next three weeks a review of the CERP funds in Afghanistan. I know this has been primarily aimed at Iraq, but we

do a lot of work in Afghanistan also, and it is probably time to do

a follow-up on the CERP funds in Iraq, and we will certainly take

it under advisement. I will be working with our partners from

Army audit, and then also if we need to do the work, we can do

the work also.

Mr. BOWEN. Mr. Gingrey, we are conducting an audit of CERP

now as well as we have done two previous audits. In both audits,

although there were problems with how some of the money was executed in documentation, overall the program has been one of the

more successful in Iraq, and in our lessons learned report on contracting in Iraq, we recommended that the CERP program be expanded and thus believe that this additional money put into CERP

is a wise and proper move.

Dr. GINGREY. In my remaining time, if you could address the

$486 million that was called for for the political parties and the

human rights groups, is it just sort of a payoff; is it a payoff money

to buy loyalty? Sometimes going to the highest bidder? I can imagine that the audit will be very difficult on this fund, and if you can

respond to that.

Mr. KRONGARD. Sir, I will have to get back to you on that because I am not sure what makes up that $482 million request. I

am simply not familiar with that. So if you would like, I will look

into that and get back to you.

[The information referred to can be found in the Appendix beginning on page 98.]

Dr. GINGREY. Thank you very much.

Thank you, Mr. Chairman. I yield back.

25

The CHAIRMAN. Let me mention to you gentlemen as we mentioned to the previous panel, be as timely as possible in making

your for-record responses. We would appreciate that rather than

weeks away. If you can do it just as quickly as possible, we would

appreciate that.

Mr. Larsen.

Mr. LARSEN. Mr. Krongard, I have a question regarding your

statement on page two of your testimony. You said, a significant

audit work has included a survey of the bureau of international

narcotics and law enforcement funding for Iraq and currently in

progress review of large contracts for Iraq, police training and support. I have visited twice, most recently in July, the Jordanian

International Police Training Center, which I think was funded for

operations through the INL, if I am not mistaken. But I was wondering, while we were there, they said that JIPTC was going to

close on December 16 despite the capital investment that we made

there to build the facility and use the facility. I was wondering, did

the facility close? And what is its disposition?

Mr. KRONGARD. Sir, I have been to JIPTC as recently as late

September. I share your—if you are saying it was a very good facility, and there was a lot of good training there——

Mr. LARSEN. It is a facility that is in great shape, and millions

of taxpayer dollars built it, and we are going to close it.

Mr. KRONGARD. Well, as I understand it, it is being closed for the

training of Iraq police, but it is going to be continued for other

uses, which include training of security forces from other entities

in the region and doing other things.

I share with you and I have voiced my concern that I have a very

high regard for that facility, and it should be used to the highest

degree possible. I also expressed concern that the staff, which was

a multinational training staff which had been put together, was

highly efficient, worked very well together, has put together some

wonderful computerized reference materials for the training of police, and I was concerned that this organization was going to be

disbanded and that the next time we had a need somewhere in the

world for that kind of a resource, we would not have that.

This being early January, I don’t know exactly whether the multinational training force has stood down or is being continued in a

skeleton way. But I do know that the facility itself is being continued to be used, and there are a lot of economic considerations because of the cost of operating that. But I do share your concerns,

and I have voiced some of those.

Mr. LARSEN. Well, what was driving the closure of that facility

as a training facility? I am not going to sit here and argue that I

have any confidence in the Iraqi police force because I do not, but

the capital facilities there and, as you said, the multinational nature of the staff there certainly had a lot of value, and yet there

was still this direction headed toward closing it as a training facility for the Iraqi police.

Mr. KRONGARD. Let me answer in a couple ways. First, let me

point out that in July of 2005, nearly a year and a half ago, we

and my colleagues at the Department of Defense issued an interagency assessment of Iraq police training, and you can find in

26

there a great deal of discussion about what was going to happen

to the JIPTC facility.

Second, with regard to the reasons for closing, the Iraqis themselves have expressed concern about sending their trainees out of

country and into Jordan for the training. And so they have been

perhaps the leading reason why it is being closed as a facility for

training Iraq.

Mr. LARSEN. What is underlying that concern? We heard that as

well when we were there. What is underlying that concern?

Mr. KRONGARD. It is security. It is people being taken out of the

country. It is concern that other trainees who are being trained, as

Mr. Bowen referred to, Baghdad police, colleagues in other places

would look down upon it or would maybe look up upon it as a way

of getting out of the country. I mean, it creates a rivalry, a competition.

The language problem is severe in terms of training these people

with international trainers from many different dialects and speakers.

So for a number of reasons, the Iraqis have not been desirous of

continuing the training at Jordan. I am also told that there are

continuing DOD classes that are going to be using that facility as

well. I don’t know if you have anything that you can add to that.

Mr. LARSEN. Perhaps we can get the—the yellow light is on. I

have a question for Mr. Bowen. If I can ask Mr. Johnson to move

to your right just a little bit. Mr. Johnson, can I ask you to move

over a little bit? Thanks a lot.

Given that there has been extensive support to Iraqi security

forces funded to IRRF, is it appropriate that a similar review be

given to funds provided to support the Iraqi security forces through

the Iraq Security Forces Fund?

Mr. BOWEN. Yes. And those reviews are ongoing. I know DOD IG

Mr. Gimble is conducting a review now, and the GAO is also reviewing those forces.

So you are exactly right. We looked at the IRRF portion of the

funding, but that money was commingled with Iraq Security Forces

Fund allocations as well, and thus to get the full picture, the balance of that expenditure needs to be addressed.

Mr. LARSEN. Do you feel like you need to be doing that, or are

you comfortable with DOD and the comptroller general doing it?

Mr. BOWEN. I think just the execution of oversight is important

of how that money is used.

The CHAIRMAN. Thank the gentleman.

Mr. Hayes. May I just interrupt a moment, Mr. Hayes?

Mr. Bowen, could you help me? A few moments ago we discussed,

and we also discussed in my office, the figure of 20 percent waste.

In a few moments I would like for you to in—as much as possible

to detail that, and if there are some unaudited areas, please tell

us that, too. But think about that for a few moments.

Mr. Hayes.

Mr. HAYES. Thank you, Mr. Chairman.

Thank you, gentlemen, for coming. Certainly you face a daunting

challenge, and we appreciate your efforts. They are absolutely crucial.

27

Could you comment in general, there is a—and at the risk of

mischaracterization, there is a history and culture, a different way

of doing business, in Iraq as it relates to items that you all are

monitoring. Is there any way in your monitoring process that you

are evaluating their practices based on our principles, if that

makes any sense? How do you—given the differences, and unfortunately, yes, their similarities, how do you filter that as you evaluate? I know the facts are the facts, but just the culture differences,

does that impact your ability to get information that you need to

present to us? And have I made myself at all clear?

Mr. Walker.

Mr. WALKER. Well, obviously we are all auditing U.S. funds, and

to a great extent, to the extent you are talking about, these cultural differences, a lot of that would have to do with Iraqi funds

rather than U.S. funds.

I can tell you as an example that we at the GAO have agreed

to provide a number of capacity-building assistance items to our

counterparts in Iraq, and that is not only with regard to sharing

professional standards and methodologies, but also training some

of their leadership and some of their emerging leaders, and also

providing a periodic senior advisor, although the State Department

needs to, you know, deal with its paperwork problems in approving

this. But we are trying to focus on enhancing the capabilities, their

capacity to deal with some of the systemic problems that exist,

many of which fuel corruption.

Mr. GIMBLE. I would also like to add that we have actively—the

three inspector generals down here have had an ongoing process to

try to establish and foster an inspector general community in the

Iraqi system, and what that entails is, as Mr. Walker just said, laying our standards out and business approaches to try to give them

a tool to track corruption, and which is basically an underlying

problem in that society.

So we believe we have made good progress on that. There is a

lot left to be done. Mr. Krongard just alluded that he and the State

Department has just hired a senior person to kind of lead that

group. I have two people, permanent detail now to Iraq, that are

working through the Multi-National Security Transition CommandIraq (MNSTC–I) group to establish an inspector general in the

Ministry of Defense (MOD) and the Ministry of Interior (MOI),

making some progress, but it all needs to come under the auspices

of the 31 Iraqi inspectors general and then also with the Board of

Supreme Audit (BSA).

Mr. HAYES. Mr. Walker, thank you. Your answer crafted my

question much better than I did. For the benefit of the committee

and the American public, I think you are providing us with a great

service. Going forward, my training the folks who are managing—

and in most cases it is U.S. funds going through Iraqi hands, if you

can keep us updated as to how you feel in terms of their adopting

traditional international accounting anticorruption standards, I

think that is a measure, as well as the charts and other things we

talk about daily, that will give us and the people back home a feeling about whether substantial progress is being made. So that was

very helpful.

28

Mr. WALKER. Of course you know, Mr. Hayes, we are focussing

on our counterparts, which would be the accountability community

rather than management, but then they have a government wide

perspective, and part of their job is to try to make sure these types

of systems and controls and other items, you know, are input in

order to fight corruption and in order to improve performance and

assure accountability. We will continue to do our part.

Mr. HAYES. So you have seen some progress in that regard? I am

not trying to lead the witness.

Mr. WALKER. We are in the early stages, but there is clearly committed professionals who want to do the right thing. I might also

add that the auditor general community has an international organization which I am on the board and head of strategic planning,

and I have also worked with my counterparts in that part of the

world, the Middle East, as well as headquarters to try to help them

help the Iraqis as well, not just relying upon us, including Arabicspeaking countries.

Mr. HAYES. Thank you very much.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Before I go to Mr. Johnson, Mr. Bowen, in your professional judgment, would you tell us how you reach the 20 percent figure that

in your opinion is wasted?

Mr. BOWEN. Well, in our discussion in your office, as I said, we

are working on getting supportable hard data on the amount of

money that was potentially wasted, and that requires defining

waste. What you asked me is what my—what the potential estimate of that amount was, and I said it could be up to $3 billion,

which is a little under 20 percent.

The CHAIRMAN. Could you get details on that?

Mr. BOWEN. Specifically what we are doing is we are looking at

each of the large contractors and going to do an audit of them. The

first one is almost done, and that is Bechtel. They were the largest

recipient of Iraq relief and reconstruction funds, and what I have

tasked my auditors to do is to identify, what did Bechtel construct

and complete with the money that they were allocated, and what

did they initially contract to complete; how much money was spent

in executing that versus how much was initially contracted for

those projects; and what is the delta. I think as we analyze that

delta, the difference between how much—what they built and actually completed cost and how much they set out to build, then we

can begin to parse what the actual waste number is.

The CHAIRMAN. Do you know what the figure is as of this date?

Mr. BOWEN. I don’t have a figure yet.

The CHAIRMAN. Your judgment as to this date.

Mr. BOWEN. As I said, the potential loss, you know, could be 10

to 15 percent, but we are waiting until we finish the actual hard

analysis of how those large contractors did before I can——

The CHAIRMAN. When will that be?

Mr. BOWEN. That will be executed in the course of this year.

The CHAIRMAN. I will can ask the other gentlemen the same

question.

Mr. Walker.

29

Mr. WALKER. Well, first we have done work on reconstruction

contracts, noting that about 30 percent of the cost on average of reconstruction contracts deals with overhead, which is very high.

That 30 percent includes approximately 10 percent associated with

security cost. Obviously that is due to the unstable security environment.

My personal opinion is it depends upon how you define waste. I

think there is a lot of waste that doesn’t have anything to do with

security issues. For example, when the government says, I want

you to do X by Y time, but you don’t give enough guidance on the

details, or you ask the contractor to do something that is totally

unrealistic, that can result in tremendous waste. And so I think

the numbers, frankly, will be higher than you might expect.

The CHAIRMAN. Well, then, what is your best professional judgment as we speak?

Mr. WALKER. Given GAO’s professional standards to be able to

have an evidential manner, I can’t give you an estimate right now.

I can tell you it is billions. How many billions, I can’t tell you right

now.

The CHAIRMAN. Mr. Gimble.

Mr. GIMBLE. We haven’t done the work to have an estimate, but

one thing I would like to point out as I mentioned to you earlier

in our off-line conversation, the reconstruction fund is somewhere

in the $22 billion to $32 billion arena. There is a number of other

contracts out there that increase that number significantly. If you

take the total supplementals, it is an additional $400 billion that

this Congress has appropriated for the war on terrorism since we

started, most of which has been—is being spent in Iraq.

We are concentrating in our efforts in that area more so than in

the reconstruction. For example, we are doing some work on the acquisition of armored vehicles which is being bought within the supplemental funds. So there is a bigger picture to that than just the

reconstruction fund. There is a lot of work that is being engaged

in the oversight community in that.

The CHAIRMAN. Mr. Krongard.

Mr. KRONGARD. Sir, I cannot give you a specific figure, but I

want to tie into what Mr. Bowen said about a lot depends on how

you define waste. And we have all talked about the highly increased costs because of the logistics and security requirements,

and in some ways you could say that is waste because it didn’t go

to the actual construction project, it went to protecting and moving

people and supplies; but on the other hand, it had to be paid, and

people received it, so it went somewhere for a service. So there is

a question really is as to what you include under the heading of

waste.

Mr. BOWEN. Mr. Chairman, if I may follow up, too, we did an

audit last quarter on the administrative overhead issue that Mr.

Walker referred to, and precisely to address the waste issue. And

it arose as a result of the fact that once those costs-plus contracts

were awarded in the spring of 2004, contractors were ordered to deploy to Iraq ready to do $500 million worth of work. However, the

actual issuance of task orders was very slow, and as a result there

was administrative overhead funding those large contingent conVerDate 22-MAR-2001 13:32 Oct 20, 2008 Jkt 038832 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 C:\DOCS\110-5\018000.000 HAS2 PsN: HAS2
30

tractors who didn’t have much work to do in 2004, early 2005. That

is—we termed as waste and that audit substantiates lost funds.

The CHAIRMAN. Let me ask, would you, each of you, within 60

days of today, A, agree on what waste is, and, B, tell us your best

professional opinion individually based upon that standard that

you agree upon, how much waste is involved, both percentagewise

and dollarwise. That is a request 60 days from now.

[The information referred to can be found in the Appendix beginning on page 97.]

The CHAIRMAN. Mr. Johnson.

Mr. JOHNSON. Thank you, Mr. Chairman. And I would like to

thank all of you gentlemen for appearing in front of this panel

today, and just to follow up on the chairman’s request to you, I

might ask with respect to the definition of waste, does that include

fraud?

Mr. WALKER. Well, I think clearly, fraud would be a subset. To

me, waste is much broader than fraud. It is mismanagement, it is

commissions, omissions, it is where we are not getting appropriate

value for money because people either did or didn’t do certain

things that they should have done. Fraud is a narrow subset, I believe.

Mr. JOHNSON. Anyone else have any——

Mr. GIMBLE. I agree with that, and I think to me the bright line

on that is fraud is somebody that is doing a willful crime to benefit

themselves versus the just—you know, bad management or whatever.

Mr. JOHNSON. Correct.

Mr. BOWEN. And fraud has been a relatively small component of

the loss in Iraq. Waste is clearly the overwhelming issue.

Mr. KRONGARD. I agree. Fraud is clearly part of waste.

Mr. JOHNSON. Well, certainly fraud would be prosecutable,

whereas waste would simply be a matter of efficiency in doing one’s

job, but now have there ever been any investigations of fraudulent

activity with respect to taxpayer funds?

Mr. BOWEN. Yes, there have. We have 87 cases going on right

now arising from allegations of fraud, waste and abuse, and indeed

have had five convictions to date of U.S. officials who have fraudulently disposed of U.S. funds.

Mr. JOHNSON. How much money did those five prosecutions allege was fraudulently dispersed and the 87 investigations that are

ongoing, or the 83 investigations that are ongoing, how much fraud

is alleged to have occurred as a result of those prosecutions and ongoing investigations? Dollar amount.

Mr. BOWEN. With respect to the 87, those are ongoing investigations, so we can’t talk about the specifics of them, but with respect

to the convictions, they centered around a conspiracy to defraud

the government that occurred during the coalition provisional authority days in Hillah involving a significant contractor and the

comptroller, the south central comptroller for the coalition of provisional authority and over $10 million was in issue there.

Mr. JOHNSON. Ten million dollars. And as I understand it, there

have been over $495 billion allocated or appropriated by the Congress agencies, military and diplomatic for efforts in this global war

on terror, most of it having been spent in Iraq, and about I think

31

on September 30, according to Mr. Walker’s paper, $257.5 billion

for military operations in Iraq. Additionally, as of October of 2006,

about $29 billion had been obligated for Iraqi reconstruction and

stabilization efforts. However, problems with the processes for recording and reporting global war on terror costs raised concerns

that these data may not accurately reflect the true dollar value of

war-related costs, and that being the case, I believe it would probably be difficult to speculate as to how much waste was involved,

and certainly how much fraud was involved, but we also understand that about $14 billion in oil revenues from the country of

Iraq have been spent or allocated for reconstruction, about $14 billion. Mr. Bowen, is that a true figure?

Mr. BOWEN. That is development fund for Iraq money and that

is derived from oil revenues, but as I said earlier, the actual execution, the capacity of the Iraqi government to execute its own capital

budget is weak.

Mr. JOHNSON. Certainly, and I understand from listening to Secretary Gates’s testimony last week that that $14 billion is on deposit in U.S. banks?

Mr. BOWEN. That is right.

Mr. JOHNSON. And who has the authority to allocate that money

or administer that money? Is it the banks themselves, government

officials here in the U.S.? Or Iraqi officials?

Mr. BOWEN. It is the Iraqi officials.

Mr. JOHNSON. And how much money have they spent of the $14

billion for reconstruction?

Mr. BOWEN. Well, given the fact that there has been three governments over the last three years in Iraq and the lack of accountability on the Iraqi side of how they have disposed of their funds,

we don’t have a firm figure of how much has been spent since 2004.

Mr. JOHNSON. So they have deposited $14 billion into American

banks but have they withdrawn that same amount?

Mr. BOWEN. Yes. That money was formerly the oil for food

money, and it was redesignated development fund for Iraq.

The CHAIRMAN. Mr. Wilson.

Mr. JOHNSON. Thank you.

The CHAIRMAN. Mr. Wilson.

Mr. WILSON. Thank you, Mr. Chairman, and thank you for your

service, and I have always been impressed by inspectors general,

your independence and how you look out for the taxpayers, so

thank you for your service.

I am very familiar, I have been to Iraq now six times, been to

Afghanistan twice. The challenge that we have of reconstruction, it

was really shocking to me to find out that the funds that would

normally be and the infrastructure of the country, such as the electrical generation grids, that the money had been diverted by Saddam Hussein to his palaces, but in fact, there were two grids in

Baghdad, one for the elite, which was a modern electrical system,

and then for the general public, there was actually a grid that

dated back to the 1930’s, and then if you really wanted service, you

had to bribe the electrical provider, so the challenge is just incredible that has to be faced. Part of facing that, and Mr. Gimble, you

referenced it with your work in Afghanistan, the provincial reconstruction teams, could you tell how these work? And part of the

32

President’s program, the new way forward, is to enhance the provincial reconstruction teams in Iraq.

Mr. GIMBLE. The reconstruction teams basically are U.S. military

that have expertise to rebuild, and if they go out and build a school

or a hospital or whatever, and those funds are generally spent for

the core engineers. Challenges they have obviously in Iraq or Afghanistan—number one they don’t have the security, have the safety to go out and do the work they need to do. We have done limited

work on that in Afghanistan. We plan to do more work, and it goes

back to determining how the requirements are determined and how

that money is executed, and we will be doing that in the future as

part of our plan in increased presence in Afghanistan.

To whether they do a good job or not, I think they are very critical, rebuilding the infrastructure of the country, and in my view,

that is the way forward.

Mr. WILSON. And I was very impressed, the persons I met with

indeed were with the U.S. Corp of Engineers working with forces

of allies such as South Korea, the Netherlands. It was just really

impressive what was being done, and I am very hopeful that can

be continued, but obviously being monitored. Additionally, Commander’s Emergency Response Program that you referenced, several of you referenced, the CERP program, I was very happy in my

introduction of that to see that the first level of accountability are

judge advocate generals. I happen to have been one for 25 years,

which I think is a really excellent use of military attorneys. Can

you tell us what the levels of accountability are or whoever would

be responsible for the CERP?

Mr. GIMBLE. As I understand it, the CERP is really a commander’s fund and I think the staff and judge advocates you are talking

about are probably his own judge advocates. What I review of the

CERP program in Afghanistan, frankly we went down and went to

the accountability of funds and how the funds were—primarily

cash operation, and so we looked at the accountability and control

and documentation of the expenditures. Overall, we found a few

minor issues that we thought could be corrected and move forward,

but the overall purpose of the program we thought was very good

and being executed very well.

Mr. WILSON. And when you say the program, can you tell us

what these funds were being spent for?

Mr. GIMBLE. Such things as school building and, you know, village reconstruction and so forth.

Mr. WILSON. Wells, bridges, sewage?

Mr. GIMBLE. In Afghanistan, I don’t think there is sewage. Having been there, you know, it is very primitive as you get into the

outlying villages, in my view, is it is much more primitive than

even Iraq is kind of my——

Mr. WILSON. And these are direct efforts to win the hearts and

the minds of the people we are working with, is that correct?

Mr. GIMBLE. Correct, yes.

Mr. WILSON. And any suggestions you have on how this can be

improved or enhanced or expanded, I look forward to hearing.

Mr. GIMBLE. Okay.

The CHAIRMAN. Thank you very much, Mr. Wilson. Ms.

Gillibrand.

33

Ms. GILLIBRAND. Thank you, Mr. Chairman. And thank you for

each of you for coming to testify before our committee. We are very

appreciative of your work. I would like you to address the current

status of the oil revenues in Iraq. Who owns them, how are they

distributed, what is the current oversight, do we have a role, and

what do you foresee as the next six to nine months of how we address them?

Mr. BOWEN. Well, the current status of the oil revenues is going

to be determined by the passage of a hydrocarbon law, which has

been pending now for a couple of months, and reports indicate that

resolution of that is imminent. Agreements on distribution will be

provided for through the hydrocarbon law, but currently, the revenues are deposited in the Federal Reserve Bank in New York, and

then disposed of or expended by the government of Iraq, but managed primarily by the ministry of oil, and that is why a hydrocarbon law is necessary, because for instance, there is no effective

agreement in place between the ministry of oil and ministry of electricity for providing fuel to power plants in Iraq, and thus, some

of the power plants we have built are running on the wrong fuel.

There is no arrangement between the ministry of oil and the ministry of defense for fueling Iraqi units in the field, and thus, the

United States government is paying for virtually all the fuel that

keeps the Iraqi security forces going. All of that is a waiting resolution by the Iraqi counsel of representatives through the hydrocarbon law.

Ms. GILLIBRAND. So currently we have no role in the oversight?

Because I have received reports from men in the field that there

is extraordinary amount of oil on the black market, and that there

is extraordinary amounts of profiteering with regard to at that. So

do you have any information about the status of it?

Mr. BOWEN. Well, that is right; corruption within the oil sector

is significant. Three days ago, deputy prime minister Barham Salih

said just from the Bayji refinery last year, about $1.5 billion was

lost to corruption. It is a huge problem, and it needs legislative resolution, but it also needs bolstering of the oversight entities, that

is the ministry of oil inspector general’s office, the CPI, Commission on Public Integrity, which has many, many cases ongoing involving corruption in the oil sector.

Ms. GILLIBRAND. Did you have anything to add?

Mr. WALKER. Yes, if I could give you some benchmark data, from

2006 to the present time, oil production in Iraq is about 2.1 million

barrels per day, and that compares to 2.6 million barrel as day

prior to the war and compares to a goal of 3 million barrels per

day. There is tremendous theft and corruption associated with the

energy field. There is no question with it. When I was over and

participated in our top leadership meeting in Iraq involving both

military and civilian leaders, they showed some data, this was last

January, with regard to all production pricing and it didn’t take me

more than about 10 seconds to say there is tremendous theft going

on, the numbers just don’t come close to working out.

Mr. KRONGARD. I would just add to that, that in addition to what

you would think of as pure corruption, there is also some waste

that arises and encouragement toward corruption that arises out of

economic theory. The fuel in Iraq is subsidized to keep prices low.

34

That is an encouragement for people who can get their hands on

fuel to take it outside the country, or sell it on the black market

within the country to go outside at higher prices. So you have economic theory in government policy which get into this as well.

Ms. GILLIBRAND. My second question is about the reconstruction,

America has 56 engineering construction projects in the oil and gas

sector right now, 25 are completed, 31 are ongoing. Going forward,

the U.S. contractors are doing its reconstruction. Is there any potential or ability to begin to transfer reconstruction contracts both

in this sector and in basic infrastructure, roads, schools, hospitals

to Iraqis? Do they have the capability to begin to be doing that reconstruction work?

Mr. BOWEN. The oil sector was probably the most sophisticated

of the infrastructure sectors in Iraq prior to 2003. 95 percent of

their income comes from the sale of oil and gas products, and there

are 26 separate entities operating within that universe that produces oil and gas.

The CHAIRMAN. Mr. Hunter.

Ms. GILLIBRAND. Thank you.

Mr. HUNTER. Thank you, Mr. Chairman. If you want to finish

your thought there with the gentlelady, that would be fine too. I

will yield for that.

Mr. BOWEN. Thank you. Just 9 percent of the Iraq relief and reconstruction fund was spent on the oil sector, even though the oil

sector produces 94 percent of Iraq’s income. Thus, given the dilapidated state of that infrastructure, significant more investment

must come in both from the Iraqi government and from the outside.

STATEMENT OF HON. DUNCAN HUNTER, A REPRESENTATIVE

FROM CALIFORNIA, RANKING MEMBER, COMMITTEE ON

ARMED SERVICES

Mr. HUNTER. Thank you, Mr. Chairman. Gentlemen, this has

been an excellent hearing, and Mr. Chairman, I want to congratulate you on this hearing. I think it is very timely. Let me go into

a couple of things. First, you may have seen a little turbulence in

the newspapers over the months following the defense bill in which

it was—some quarters allege that somehow we had cut off Mr.

Bowen as a special inspector, you had been cut off too quickly, and

that the provision that we had in the defense authorization bill was

somehow a trick to try to get you and your shop off the job, and

that what we did in October or in September we put this bill together.

Actually, August, we looked at the rules that said that when the

reconstruction money was 80 percent spent, I believe it was 10

months after that your shop was supposed to hand off their jobs

since the money would be gone at that point, back to Mr. Gimble

at the Inspector General for DOD and Mr. Krongard for State. And

you would hand that off.

So our staff folk putting the bill together in August said, looks

like we are about 25 percent spent. So it looks like we are close

to 80. So let us add about 10 months from November or October,

and we will complete the bill. Looks like that is about October of

2007. So the hand-off shall take place, and I think it was October

10th of 2007. So we don’t do things in the dark of night. We have

35

signature sheets for Democrats and Republicans when we all agree

on something that is non-controversial. So we had the little sheet

that said the hand-off will take place October of 2007 and everybody signed it over, signed it, Democrat and Republican and Senate

and House. And it wasn’t even on my radar screen. I didn’t think

it was a big deal. The New York Times said, ‘‘Ah-ha, it is a trick.

The Armed Services Committee is trying to cut off this special inspector general before he can do his job.’’ And subsequent editorials

were somewhat derogatory with respect to Mr. Gimble’s shop and

said this is giving the fox control of the hen house; DOD, OIG is

not competent to do this.

Was it a trick, Mr. Bowen? Was that about the right formula to

make this hand-off?

Mr. BOWEN. No, it wasn’t a trick, and the only additional fact in

that mix is that I think also the Defense Authorization Act expanded the funds that SIGIR should have oversight of. But as of

September when this agreement was made, your estimates I think

were spot on that, under our previous jurisdiction, SIGIR’s oversight would expire in October of this year.

Mr. HUNTER. So it makes sense to have a date certain when you

handed off to Mr. Gimble?

Mr. BOWEN. That is right.

Mr. HUNTER. And he appears to be quite competent?

Mr. BOWEN. Yes.

Mr. HUNTER. There is your seal of approval.

Let me go to the heart of this issue which has been discussed

which I think is waste. I think we have got a responsibility here.

We have got submarines that are based in my district and other

districts around the country which we are producing right now and

all of the king’s horses and all of the king’s men in a construction

environment with nobody shooting at them with all of the Congress

pressing them to cut down costs will, instead of being the one and

a half billion dollars they were supposed to cost, be well over $2

billion. And there are a lot of reasons for that. We have got two

yards building them instead of one. That is estimated by most

sources to be an additional cost for $200 million per submarine.

You have got the problem that if we build a small number so the

economies of scale do not apply. We are going to overrun the cost

of those submarines by probably $500 million per submarine. That

means if I had 10 of them, which I would love to have in San Diego

at any given time, that is roughly twice the overrun that you have

said may attend your audit with respect to funds spent in Iraq.

My point is that those—that extra money we spent on those submarines is not waste. It is an overrun. There are lots of reasons

for it. We try to beat them down. We try to achieve the economy

of scales and other things, level funding and all of the things that

Mr. Walker regularly recommends to us to pull down the cost of

weapons systems. And in my good colleague the distinguished

chairman’s district, we have got the B–2 bomber. Those B–2 bombers all cost more than $300 million a piece more than they were

supposed to cost. And all of the king’s horses and all of the king’s

men building them in quiet factories in places with nobody shooting at them somehow couldn’t pull the cost of those bombers down

to what we initially said we were going to be able to build them

36

for. Nonetheless, the chairman and I know, knowing how effective

those B–2 bombers are in serving Americans and how they throw

down those joint direct attack munition (JDAMs) to precise points

of the face on the earth where we want to project American power,

we don’t think it is a waste.

So I think you have got to be careful when you describe money

if it is wasted. If somebody is making a hole and filling it back up

and they are calling and they are giving you a bill, that is a waste.

But if you look at what is happening in Iraq with what you have

described, that is lack of competent local subcontractors, massive

security problems, lack of enablers like electricity, water, food, tools

competent companies. Add a corruption problem in the culture, I

think that, you know, in that environment, of all of those attendant

factors which are going to drive costs sky high, I think you need

to be careful before you say that the things that we needed to start

reconstructing, to start bringing electricity to hospitals and to start

bringing fuel to the places where the Iraqi government could start

to stand up, those things have to happen. They are happening in

a very inefficient way. But don’t ascribe inefficiency or describe

that as cost because that thing called a television over there will

immediately translate that into some idea in a pejorative way that

there are dishonest people in the American government who are

undertaking massive, massive wasteful programs with the implication of self-dealing. If there is self-dealing in a given case, it should

be prosecuted.

But please differentiate between what is always, standing up, in

an occupied country with no infrastructure and massive security

problems, standing up public works projects and comparing them

to the cost in a benign environment is one that will always give you

a massive overrun, and if you describe that overrun as waste, then

I think to some degree you are disserving the conversation.

So, Mr. Chairman, just a couple little things, and the last thing

I wanted to ask to get your take on is this: I think these big

projects lend themselves to sabotage. For example, if you have got

a big electrical plant and the bad guys can blow up one line and

put a city out of juice, that is an enormous leverage that you give

them. If you take the same amount of money and you put a generator on a truck and you run it into a neighborhood and the neighborhood takes their electricity out of their generator and it could be

moved, it is modular, it is mobile, and it can be repaired by guys

with wrenches and a modicum of understanding with respect to

electricity and generators and engines; then you have given the

community something that they can use that will endure.

So my question to you is a little bit off your subject, but do you

think we would be more efficient if we moved these infrastructureenabling projects in small pieces, smaller generators rather than

the big power plants, smaller potable water producers, smaller

modular hospitals and clinics that can be moved around that don’t

require big standups? Small things that average people can handle

and that the people of Iraq can maintain?

Thank you, gentlemen.

Mr. BOWEN. Congressman Hunter, I think that is what—you are

exactly right, and that is what the CERP emphasis aimed at, and

that is executing local high-impact, easy-to-execute projects, specifiVerDate 22-MAR-2001 13:32 Oct 20, 2008 Jkt 038832 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 C:\DOCS\110-5\018000.000 HAS2 PsN: HAS2
37

cally small water projects. Indeed, as the water program evolved

from its initial strategic plan to what it currently is, it moved down

that path from very large treatment facilities to water sustainment

plants which built hundreds of small projects serving local villages

that has, in the end, even though the water program was cut by

half, effected great improvement to millions of Iraqis. They now

have pure potable water that they didn’t have before.

So I think the emphasis on the CERP project seeks to achieve

exactly that, and that is the emphasis of the joint contract and

command of Iraq now, and that is to execute small projects through

Iraqi contractors.

The CHAIRMAN. I thank the gentleman from California. Thank

you very much.

In response to my request, the 60 days from now request, a note

of suggestion early on, please agree on the definition of waste. I

don’t want you to come up after 59 days and say, ‘‘Hey, we can’t

agree on what waste is.’’ So I am sure, Mr. Walker——

Mr. WALKER. Let my say for the record now, if the government

doesn’t do a good job in defining requirements, and if the government ends up constantly changing those requirements, that is

waste, at least that is going to be my definition. And we have billions of waste every year outside of Iraq, and so it is exacerbated

when you get into a conflict zone, obviously.

The CHAIRMAN. Okay. Just so you all are singing from the same

sheet of music when you send your answers 60 days from now.

Mr. Marshall.

Mr. MARSHALL. Thank you, Mr. Chairman.

I guess I have a joint question for the inspectors general, and I

would ask that you respond to this in writing if you have a response, if you have something to add.

I take it that, for the most part, you feel that you have access

to what you need to have access to, that you have the funding that

you need to have, that you have the authority that you need to

have in order to ferret out what each of you individually think

should be ferreted out in order to assist us in our oversight, in

order to assure that taxpayer dollars aren’t being wasted, and we

are heading in the right direction. If I am wrong about that, and

if in fact you think there are gaps in any of those categories, it

would be very helpful to the committee if you would share those

gaps with us. And I would rather not do it right now because I

have a series of questions for Mr. Walker, and I only have five minutes. But if each of you can do that, I will take the failure to respond that I—that that is an indication that you think everything

is fine as far as those categories are concerned.

Mr. Walker, I appreciate very much what you do, and I appreciate this report that you are working on. And I have just a couple

of questions about it. Very briefly, if you know, and if you don’t,

there is somebody on your staff that does, when DOD was not receptive to all of your suggestions concerning securing ammo dumps

throughout Iraq, and basically, I think the language that you used

was that they partially concurred with the recommendation that be

done, and it was made in December of 2006, it was the same recommendations that repeated delegations of Members of Congress

have made for three years now. Could you list real quickly why it

38

was only a partial concurrence and what reluctance DOD had? If

you can’t do it right now, what I would like to do is get whoever

on your staff who has the expertise to come to my office and give

us the quick summary of that.

[The information referred to can be found in the Appendix beginning on page 98.]

Mr. WALKER. We will do that. Davi D’Agastino is responsible for

that work and will get that done.

I will tell you, part of this was because it was inadequate planning, and there was an inadequate number of boots on the ground

in order to be able to adequately secure these facilities.

Mr. MARSHALL. This is regarding the current status. We have

had three years to deal with this. Either dispose of what is there—

we have the capacity and we use the capacity to remove damaged

tanks. We haul those things out of Iraq. Seems to me a higher priority needs to be put on the access that insurgents might have that

can harm us rather than a tank, but that is—it is important to remove technology that might be inspected and consequently used to

our disadvantage later.

But still, you mentioned that you know GAO gives us $105 return for every dollar that is invested. You know, if we doubled the

dollars and the return dropped to $52.50, then we really haven’t

improved. In fact, the situation has gotten worse because we are

spending twice as much for the same thing. It is statistics like that

that tend to suggest what the answers should be but don’t conclusively prove what the answers should be. I would like to focus a

little bit on your emphasis that in order for us to assess where we

are, we need to have very current accurate detailed information

about unit-by-unit readiness measured by us for the Iraqi military.

Do you—does your group—are you of the opinion that we ought

to have level one units in the Iraqi security forces? Do you have

an opinion about what level they should be?

Mr. WALKER. Well, if our objective is to make sure that the

Iraqis are in a position to take the lead and to function independently, then obviously one needs to understand to what extent do we

have Iraqi units that, based upon their readiness, on a full scope

of readiness, are in that category.

Mr. MARSHALL. Have you made the conclusion that we as a country should want the Iraqi security forces to be in a position to act

independently?

Mr. WALKER. That is a policy decision. I think what is important

for us to do is to provide the facts such that Congress can properly

discharge its constitutional responsibilities. That is a policy assertion that is being made, but you don’t have enough facts in order

to determine whether or not the assertions that are being made as

to the numbers and the readiness and the adequacy are accurate.

The CHAIRMAN. The time has expired.

I have in this order, Mr. Taylor, Mrs. Boyda, Mr. Ellsworth, Ms.

Davis, Mr. Courtney and Mr. McIntyre. We have two votes right

now. We can probably get through Mr. Taylor and Mrs. Boyda. And

is the desire of the remaining colleagues to come back? I will be

glad to do so for those who wish to come back.

Mr. TAYLOR. I yield to the gentleman from Georgia.

The CHAIRMAN. The gentlemen yields.

39

Mr. MARSHALL. Briefly following up on the question, so GAO as

an auditor does not plan to give us advice concerning whether or

not, for example, there is an appropriately mature political system

in Iraq so that level one military units would be subjected to civilian control and are not apt to go off on a frolic of their own. That

sort of thing. You are not going to be focusing on that, and you are

not going to be making some recommendation of what level of competence we should be seeking for Iraqi units at this point?

Mr. WALKER. We don’t contemplate that at the present time. We

are concentrating on political, economics, on all of those dimensions; we are going on that. But I will make sure that we can come

up and have you briefed on the other issues. I also want to provide

for the record an answer for the record because the answer is, we

are not adequately funded.

Mr. MARSHALL. I would like to ask all of you that. I want all four

of them to answer. I would like to talk to the staff that is doing

that.

The CHAIRMAN. The gentleman from Mississippi.

Mr. TAYLOR. Mr. Walker, a year ago right now, we were still

dealing with the aftermath of Hurricane Katrina. One of the no-bid

cost-plus contracts was delivery of travel trailers. By the time my

staff put a pencil to it, it turned out we were paying $16,000 per

trailer just to pick them up and move them about 60 miles, hook

them up to plug them in, hook them up to a garden hose, hook

them up to a sewer tap. And the company that did it, being on costplus contract, had no incentive to get better. In fact, they probably

delivered fewer trailers toward the end on a daily basis than they

did in the beginning. The long and short of it is, I promised that

vendor that based on his shoddy performance in south Mississippi,

that I wanted to look into every one of his contracts in Iraq. That

vendor happened to be Bechtel. I made that promise to rally Bechtel. So what I am asking from you is I would like a copy of every

report you have on Bechtel Incorporated because my hunch is as

horrible as their work was in Mississippi, it is probably ten times

worse in Iraq.

Second, I would like to know one of the frustrations I saw in that

people from GAO would come back to us and say, ‘‘Well, it was a

cost-plus contract. We are not here to determine whether or not it

was a good idea to give it to them. We are just here to see if the

money is being spent properly.’’ My question is, in Iraq, how often

do you look at something and say, ‘‘Gee, that was a stupid way to

spend money. Why did we spend $15 million to repair the water

palace so the generals would have a really nice office when large

segments of the economy don’t have water?’’ How often do you go

out seeking out waste and fraud, do you say, why on earth are we

doing this?

Mr. WALKER. First, Mr. Taylor, with regard to Bechtel, I will be

happy to provide that, but I would respectfully suggest that most

of that work is probably going to be in SIGIR’s hands because they

are on the front lines. They are probably going to have it, but if

we have it, I will be happy to give it to you.

Second, I think we need to understand that Katrina and Iraq

both represented catastrophic events of different natures but that

many of the contracting problems that we are experiencing are

40

similar because they were catastrophic events. One of the things

that government needs to do, it needs to recognize the reality that

hurricanes are going to happen, that other natural disasters are

going to happen, that man-made catastrophic events could occur

and other things are going to happen. We need to to move beyond

cost-plus contracts as much as absolutely possible, and when we do

our audit work——

Mr. TAYLOR. What recommendations are you going to give to our

committee toward that end, because I would welcome them.

Mr. WALKER. Don’t worry. You will get plenty. We have had

some in the past. We rely too much on cost-plus contracts.

Mr. HUNTER. Would the gentlemen yield on that point?

Mr. TAYLOR. Certainly.

Mr. HUNTER. When you said that, how do you get people who are

going into something like Katrina or a situation like Iraq with massive uncertainties, if you don’t have a cost-plus contract and we

have tortured ourselves over this in other ways, how do you get

somebody to ever give you a firm bid on accomplishing something

when you have uncertainties that could run them bankrupt? Will

you be able to get any companies to bid?

Mr. WALKER. It depends upon what it is. Trailers, we make trailers all the time. There is nothing new about making trailers. With

regard to providing food and lodging and things of that nature, you

do that. There are certain things you are not going to get an advanced bid on. There are other things you could. You can draw on

a task order, so that the taxpayers get a reasonable deal for their

money. Right now we don’t do it until after the event occurs. There

is no way you have any leverage on that. And as a result, you are

trying to deal with the people who need to be dealt with and costs

go through the roof.

The CHAIRMAN. Mr. Taylor, you have another minute and a half.

Mr. TAYLOR. Do you have the legal authority, number one? And

are you legally charged to make recommendations as to how to

avoid waste, and give me an example of when you have recently

done that if it is so.

Mr. WALKER. We do it all the time. We can give you the legal

authority. Our job is to maximize government performance and assure accountability. It is economy, efficiency, effectiveness and equity. It is much more than legal. As you know, the law represents

the floor of acceptable behavior. You can do something that is not

illegal, but it represents waste and abuse and so, you know, we

make——

Mr. TAYLOR. The example, sir.

Mr. WALKER. With regard to this particular area? What I will do

is I will send up to you the 15 generic problems that we have identified and made recommendations on with regard to acquisitions

and contracting and DOD. There are 15 specific problems and

many of which we have talked about today.

Mr. TAYLOR. Thank you, Mr. Chairman.

The CHAIRMAN. I would like to ask Mrs. Boyda and Mrs. Davis

to come back. And, gentlemen, we will finish before 1 o’clock.

Okay. Thank you.

[Recess.]

The CHAIRMAN. Mrs. Davis.

41

I understand that Mr. Walker’s deputy is here. Who is that?

Your name, please.

Mr. CHRISTOFF. Joseph Christoff. I am GAO’s director.

The CHAIRMAN. Mrs. Davis.

Ms. DAVIS OF CALIFORNIA. I know my colleagues have asked a

number of questions, and I hope I am not going to repeat any of

those, but I also wanted to just say, reading the report, especially

the GAO report I found that such a damning document; I don’t

know whether you would like to respond to that in terms of the difficulty with looking at some of these issues and being able to fix

them and if you wanted to just, you know, let me know what were

the thoughts of the folks who were encountering all who were

there, if you could respond to that very quickly, and I want to go

on with my questions.

Mr. CHRISTOFF. I think we tried to cover at GAO all of the efforts

in Iraq, political efforts. Also the security forces, and I think in

each of those areas you find just enormous challenges to help this

country help itself, and we have made a series of recommendations

starting with strategy when the President does give you the details

of his revised strategy that you need to focus on whether they are

clear roles and responsibilities, what are the costs? What are the

outcomes and measurements of the strategy? All of the way down

to whether these natural gas turbine engines that we bought so

proudly three years ago don’t work today.

Ms. DAVIS OF CALIFORNIA. Thank you. I appreciate that. I think

trying to fix that and put into place the kind of procedures and the

implementation of some of these ideas is going to be tough.

I wanted to turn, Mr. Krongard, to you and just talking about

the recruiting and the retaining of audit personnel, particularly

you mention in your testimony, in your written testimony that that

is a major concern. Could you address how we get there given the

security situation in Iraq, the fact that people are not going to

want to go in to Iraq. You mentioned Qatar. But I am also concerned about what kinds of training over and above other requirements of folks who are decent auditors, having been in the green

zone on a number of occasions, I know that we called on people

who did not have the professional capabilities to do their job and

in this instance, it would be very important to do that. How do we

get there?

Mr. KRONGARD. If you are talking about, in our current capacity,

it is a significant problem. We were focusing at the time on the

transition, if there were to be one, from SIGIR to the rest of us.

And at that point in time, I went over to Iraq and with Mr.

Bowen’s assistance and cooperation, we talked to all of the existing

people who were there, and we were very pleased to find that more

than enough people were willing to stay on and interested in staying on under our leadership, were there to have been a transition.

So that we would have been able to get the people because the people are already there. In other words, if Mr. Bowen’s organization

were to have gone out of existence, those people would have become

available. It isn’t like they were off to do another thing.

So the problem is different whether you look at it in terms of our

ongoing situation or whether we would have been transitioned. In

the ongoing situation, we need either 3161 authority or the ability

42

to hire personnel service contractors because those are the ways

you get people. I don’t have the ability to direct my people to go

there, and we don’t have direct assignments. So that is a significant problem.

Ms. DAVIS OF CALIFORNIA. Is that something that you asked for,

that authority?

Mr. KRONGARD. We have. We have asked each legislative session,

and there have—I believe each time there has been a bill under

consideration, but I don’t think it has gotten anywhere.

Ms. DAVIS OF CALIFORNIA. Why do you think that is true?

Mr. KRONGARD. I couldn’t answer that.

Ms. DAVIS OF CALIFORNIA. I think General Walker mentioned as

well that we are just beginning to call on the international community to help in this regard. Is it that we never asked, that there

was little interest, the security problems obviously were overwhelming? Why has it taken so long to get more of that involvement on the part of the international community in this regard in

the audit area?

Mr. CHRISTOFF. In the audit area, I think what we have been

trying to do is the inspector general in the different ministries and

our equivalent are in the process of trying to establish their own

audit procedures standing up their own services, just getting the

staff that is needed. And it is difficult for them, as it is with GAO,

to try to do good auditing in a poor environment, a security environment. Just the international community in general has made a

commitment to try to help Iraq with its reconstruction efforts. It

pledged $13.8 billion at the Madrid conference years ago. Most of

that was in loans, and they have been slow to try to provide their

reconstruction assistance because they understand it is not a good

environment, and they want to make sure that their money is

being spent in the right places and they can audit the results.

Ms. DAVIS OF CALIFORNIA. One of the others that has been raised

is the ability of the Iraqi government to actually spend the dollars

that have already been committed. We then look at the dollars that

are being proposed. What ability does the government have to actually spend those dollars to get those out on the street and to be

able to make good on the kinds of development that we are all looking for? How would you grade that?

Mr. CHRISTOFF. That is infant stage in trying to be able to establish good budgeting procurement, contracting personnel rules. The

United States Agency for International Developmnet (USAID), the

State Department do have programs, what is called ministerial capacity building, but as we pointed out in this report, the minister

of oil, for example, was supposed to have spent $3.6 billion to repair the dilapidated infrastructure. He spent $4 million because it

did not have all of the contracting procurement procedures in place

to do its job.

Ms. DAVIS OF CALIFORNIA. You talked about fraud, abuse, incompetency, all of those being a large factor in the situation that we

face today. If there is any one message that you would like to leave

the committee with, that we can address. The investigations and

oversight committee is obviously going to be taking the reports and

testimony that you presented and having the—and having some opportunity to take a look at those issues, what would you like, all

43

of you, just to share, if you might, I know there has been some time

lapse between the beginning of your testimony and now. Could you

deliver that one message that we need to have?

Mr. CHRISTOFF. Well, I think the one critical message is, we

began our reconstruction efforts in 2003 with the presumption that

we would have a secure environment, a permissive environment.

All of the cost estimates, all of the hopes, all of the expectations,

all of the projects, that long list of projects was based upon having

a secure environment. Didn’t happen. So a lot of the money had to

go into security. A lot of the challenges in trying to engage not only

in oversight but building what we promised to build has been complicated by that overwhelming problem with security.

Mr. GIMBLE. I would agree with that. The other point I would

make, and I probably haven’t made this very well, but the reconstruction fund is very critical. There is a lot of money. It is around

$30 billion. And the Department of Defense, we have—Congress

has put another $4 billion out there, and it is in direct support, and

it is imperative that we have the oversight in both Iraq also as well

as back in the continental United States. So our challenge is going

to be to ensure that we have a good comprehensive plan that covers

all of those issues that come up both in Iraq and back in the

States.

Mr. KRONGARD. I would agree with security and I would also emphasize the need to get our hands around corruption in not just

Iraq but every place because in order to get an international compact, in order to get foreign investment, you need an investable environment.

Mr. BOWEN. Three things. First, the Iraqi government has to be

held accountable for executing its own burden in the reconstruction

program, and as we have learned, as you have heard at this hearing, the Iraqi government didn’t do that last year, and that is unacceptable. Thus the U.S. taxpayer bore the great preponderance of

funding the reconstruction program. And that must change. And

indeed one of the things that has worked in Iraq is the International Monetary Fund (IMF) Standby Agreement entered into a

little over a year ago which required the Iraqi government to take

specific steps, economic adjustments, for instance, subsidy reform,

in order to receive debt relief. And it worked, and thus providing

incentives like that may help push them to respond.

Second, simply engaging the international community to come

through on their pledges. The international contract for Iraq is the

next step, so the United States doesn’t have to bear the burden of

reconstruction.

And third is simply to have an effective program, be it funded

by Iraqi dollars, international, U.S. dollars. There has to be some

semblance of security, and that is not there.

Ms. DAVIS OF CALIFORNIA. Thank you all very much. Thank you,

Mr. Chairman.

The CHAIRMAN. Thank you, Mrs. Davis.

The World Bank, the U.N. Development Group, and the Coalition

Provisional Authority back in 2003 estimated that there would be

or there was a requirement for $55 billion reconstruction in Iraq.

Have you identified the needs as we speak toward that $55 billion

that they identified?

44

Let us go down the line.

Mr. CHRISTOFF. The $55 billion was developed by the World

Bank, and the U.S. helped with that development. And it was premised on the assumption that all of the reconstruction efforts again

would be done in a benign environment, and the additional costs

associated with security were not even part of that $53 billion. In

other words, it was going to be more than $53 billion. Subsequently, the minister of oil and the minister of electricity have stated that they collectively need $50 billion just to rehabilitate their

two sectors. The U.N. estimate was on most of the sectors across

Iraq. So, clearly, more money is going to be needed beyond the $29

billion that we provided in reconstruction, the roughly $4 billion

the international community has provided and, quite frankly, the

minimal amount that the Iraqis have provided.

The CHAIRMAN. How much have the Iraqis provided?

Mr. CHRISTOFF. As we stated in this report, in—for capital dollars, they have proposed to spend about $6.5 billion dollars in 2006.

And at most, they have spent in the hundreds of millions.

The CHAIRMAN. Not even close.

Mr. CHRISTOFF. No.

The CHAIRMAN. I thank you very, very much for sticking it out

with us today, and the testimony has been excellent. This is a landmark hearing, and we are most appreciative. If there is no further

business, we are adjourned.

[Whereupon, at 1 p.m., the committee was adjourned.]

A P P E N D I X

JANUARY 18, 2007

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QUESTIONS AND ANSWERS SUBMITTED FOR THE

RECORD

JANUARY 18, 2007

(97)

QUESTIONS SUBMITTED BY MR. SKELTON

The CHAIRMAN. Let me ask, would you, each of you, within 60 days of today, A,

agree on what waste is, and, B, tell us your best professional opinion individually

based upon that standard that you agree upon, how much waste is involved, both

percentagewise and dollarwise. That is a request 60 days from now.

Mr. GIMBLE. The Department of Defense Office of the Inspector General (DoD

OIG) has not performed the body of work required to provide a dollar amount or

a percentage amount of funds ‘‘wasted’’ in contracts for reconstruction and support

activities in Iraq. The DoD OIG issued several reports which identified mismanagement of funds for the global war on terror (GWOT) and lack of appropriate oversight

related to contracting for goods and services.

In DoD OIG Report No. D–2006–007, ‘‘Contracts Awarded to Assist the Global

War on Terrorism by the U.S. Army Corps of Engineers,’’ October 14, 2005, we

found that design and construction requirements were unclear and kept changing,

which increased the cost of the work, and standards for Afghan construction were

not formalized. In addition, we found that the Army Corps of Engineers:

Æ inappropriately used Army operations and maintenance funds for a construction project for U.S. troops valued at $35.2 million, a potential violation of the Antideficiency Act;

Æ had two contracting offices awarding contracts pertaining to the same

projects;

Æ although several options were available, the U.S. Army Corps of Engineers

still placed requirements (valued at $19.7 million) with a single contractor when

more competitive contracts were available;

Æ contracting officials permitted out-of-scope items on one contract; and

Æ improperly awarded task orders without clearly describing the work to be

performed and without negotiating a fair and reasonable price prior to a contractor

beginning work.

In DoD OIG Report No. D–2004–057, ‘‘Contracts Awarded for the Coalition Provisional Authority by the Defense Contracting Command-Washington,’’ March 18,

2004, we found that:

Æ personnel who generated contract requirements did not establish firm contract requirements;

Æ contracts were awarded using General Service Administration Federal Supply

Schedules and contracting officers misused General Service Administration Federal

Supply Schedules;

Æ contracting officers inappropriately awarded personal services contracts;

Æ contracting officers permitted out-of-scope activity;

Æ contacting officers did not support price reasonableness determinations; and

Æ officials performed little or not Government surveillance on awarded contracts.

Additionally, we have identified DoD organizations that did not track or review

GWOT related funds resulting in $7.9 million of unused funds that were returned

to the DoD Comptroller, where it was put to better use. We also have identified potential GWOT funds of $4.6 million that were used for activities that did not support areas of Afghanistan and southwest Asia.

The CHAIRMAN. Let me ask, would you, each of you, within 60 days of today, A,

agree on what waste is, and, B, tell us your best professional opinion individually

based upon that standard that you agree upon, how much waste is involved, both

percentagewise and dollarwise. That is a request 60 days from now.

Mr. KRONGARD. With regard to the definition of ‘‘waste’’, Comptroller General

Walker transmitted to you on February 7, 2007, on behalf of all four witnesses, such

a definition. With regard to a professional opinion as to the amount of waste, please

be advised that my Office of Inspector General has not done sufficient work to permit such an overall estimate to be made.

98

QUESTIONS SUBMITTED BY MR. MARSHALL

Mr. MARSHALL. I take it that, for the most part, you feel that you have access

to what you need to have access to, that you have the funding that you need to

have, that you have the authority that you need to have in order to ferret out what

each of you individually think should be ferreted out in order to assist us in our

oversight, in order to assure that taxpayer dollars aren’t being wasted, and we are

heading in the right direction. If I am wrong about that, and if in fact you think

there are gaps in any of those categories, it would be very helpful to the committee

if you would share those gaps with us.

Mr. GIMBLE. The authorities given Inspectors General under the Inspector General Act of 1978, as amended, are sufficient to allow this office to obtain the information required to conduct audits, investigations, and inspections of Department of

Defense programs and operations. Additional resources would enable us to undertake more projects. Within our current fiscal year budget we have expanded our

presence regarding Iraq to include offices in Camp Victory, Qatar, and Kuwait.

QUESTIONS SUBMITTED BY MS. BORDALLO

Ms. BORDALLO. I am interested in your thoughts on how effectively our policies

have engaged small businesses, whether U.S. or Iraq. Has the large size of the contracts we have utilized made oversight more difficult and abuse more likely as compared to if we had smaller contracts and were engaging smaller businesses? I would

like to hear from you, Mr. Walker.

Mr. WALKER. [The information referred to was not available at the time of printing.]

QUESTIONS SUBMITTED BY DR. GINGREY

Dr. GINGREY. If you could address the $486 million that was called for for the political parties and the human rights groups, is it just sort of a payoff; is it a payoff

money to buy loyalty? Sometimes going to the highest bidder? I can imagine that

the audit will be very difficult on this fund, and if you can respond to that.

Mr. KRONGARD. [The information referred to was not available at the time of

printing.]

Æ