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STATUS OF DEPARTMENT OF STATE ECONOMIC 

SUPPORT FUND INTERAGENCY AGREEMENTS WITH 

THE U.S. ARMY CORPS OF ENGINEERS IN IRAQ

October 28, 2008

What SIGIR Found 

SIGIR identified three significant and interrelated issues that affect the rate of 

obligation and expenditure for the ESF appropriations funding these 

agreements. First, although the ESF appropriation is a two year appropriation, 

under the authority of the Foreign Assistance Act of 1961 the funds remain 

available for deobligation and subsequent reobligation for a period of four 

years after the appropriation expires. Second, although the funds identified in 

the agreements are obligated at the time the agreements are signed, projects 

are not always associated with the agreements at that time. SIGIR’s review 

shows that USACE has not awarded contracts for $126 million from the Fiscal 

Year 2006 ESF appropriation (15%), and $224 million from the Fiscal Year 

2007 appropriation (58%). Third, the nature and purpose of the 

agreements─to develop the Iraqis’ capabilities─also contributes to a slower 

expenditure rate than would typically occur. 

The three agreements SIGIR reviewed were intended to fund projects 

supporting (1) Provincial Reconstruction Teams, and Provincial 

Reconstruction Development Committees; (2) infrastructure security 

protection for oil, water, and electricity sectors, and (3) sustainment and 

technical capacity development in the electricity, water, health, transportation, 

and communication sectors. Projects under these agreements are executed by 

USACE once they have been identified and approved by the Iraq Transition 

Assistance Office (ITAO), the successor to the Iraq Reconstruction 

Management Office, which selects projects after reviewing requests from other 

program elements in Iraq. Once ITAO approves a project and USACE awards 

a contract it is recorded as a subobligation of funds against those already 

obligated to pay for the projects. In written comments on a draft of this 

report, USACE stated that the purpose and nature of the ESF 

agreements─developing the Iraqi’s capabilities─is also a key 

contributor to the ESF execution rate.

SIGIR’s review of funds obligated under these agreements, as of September 

22, 2008, shows that the current total value of the agreements is approximately 

$1.25 billion. Of this amount, USACE has disbursed approximately $587 

million, or about 47% of the total value of the agreements. The low 

expenditure rate is due in part to the fact that only about 72% of the $1.25 

billion has been subobligated (that is USACE has awarded a contract for a 

specific project). USACE has not awarded contracts for $350 million (28%) 

in ESF funds. These funds remain available to DoS. The table below shows 

the status of funds under these interagency agreements. 

Status of Funding for DoS Interagency Agreements with USACE 

Agreement 

Amounts & 

Obligations

USACE Subobligations USACE Disbursements

 Amount

% of DoS 

Obligation Amount

% of DoS 

Obligation

All 

Agreements $1,253,972,675 $903,983,676 72.09% $586,795,954 46.79% 

Remaining $349,988,999 

Source: SIGIR Extract of CEFMS data in USACE Fiscal Status Report for Appropriations as of September 22, 2008 

Special Inspector General for Iraq Reconstruction 

For more information, contact SIGIR Public Affairs 

at (703) 428-1100 or PublicAffairs@sigir.mil

Summary of Report: SIGIR-09-006 

Why SIGIR Did This Study 

SIGIR has frequently been asked why 

expenditure rates for the Economic Support 

Funds (ESF) are relatively low as compared to 

other appropriations being used in Iraq. 

SIGIR analyzed ESF obligations and 

expenditures for three interagency agreements 

to better understand why this occurs. 

The ESF is an appropriation account 

authorized by the Foreign Assistance Act of 

1961. Specific ESF dollar amounts are 

requested within the President’s Budget to 

Congress and approved by Congress under the 

Department of State’s International Affairs - 

Foreign Operations, Export Financing and 

Related Program (Foreign Operations), Other 

Bilateral Economic Assistance, budgetary 

account. The ESF is also recognized as a 

bilateral economic assistance account for use 

by U.S. allies and countries in democratic 

transition to promote U.S. foreign policy 

objectives. Since mid-2006, DoS, through the 

Director of Foreign Assistance, has been 

responsible for ESF programming decisions. 

The U.S. Agency for International 

Development and DoS bureaus have been 

given responsibility for implementing ESF 

funds for Iraq. In 2006, DoS entered into 

three interagency agreements with the U.S. 

Army Corps of Engineers (USACE) to 

execute programs in Iraq. 

The objective of this report is to determine the 

status of the obligations and expenditure rates 

for the three interagency agreements and the 

practices used to obligate and expend the 

funds. 

What SIGIR Recommends 

This report is presented for information 

purposes only and does not contain any 

recommendations. 

SIGIR 

Special Inspector General for IRAQ Reconstruction 
SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

Baghdad, Iraq 

October 28, 2008 

MEMORANDUM FOR SECRETARY OF STATE 

U.S. AMBASSADOR TO IRAQ 

COMMANDING GENERAL, U.S. ARMY CORPS OF ENGINEERS 

COMMANDING GENERAL, GULF REGION DIVISION, U.S. 

ARMY CORP OF ENGINEERS 

DIRECTOR, IRAQ TRANSITION ASSISTANCE OFFICE 

SUBJECT: Status of Department of State Economic Support Fund Interagency Agreements with 

the U.S. Army Corps of Engineers in Iraq (SIGIR 09-006) 

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

authority of Public Law 108-106, as amended, which also incorporates the duties and 

responsibilities of inspectors general under the Inspectors General Act of 1978, as amended. 

This report provides information on obligation and expenditure rates for three interagency 

agreements funded by Economic Support Funds appropriated to the Department of State in 

Fiscal Years 2006 and 2007. This report was conducted as SIGIR Project 8021. 

We considered written comments on a draft of this report from the Department of State, the U.S. 

Army Corps of Engineers Gulf Region Division, and the Iraq Transition Assistance Office. The 

comments are addressed in the report, where applicable, and are included in Appendices D-F. 

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

please contact Glenn Furbish, Deputy Assistant Inspector General for Audits (703) 428-1058 / 

glenn.furbish@sigir.mil. 

 

Stuart W. Bowen, Jr. 

Inspector General 
Table of Contents 

Introduction 1 

Three Interagency Agreements 3 

Financial Status of Agreements 5 

Conclusion 9 

Management Comments and Audit Response 9 

Appendices 

A. Scope and Methodology 11 

B. Acronyms 13 

C. Audit Team Members 14 

D. USACE Management Comments 15 

E. DoS Management Comments 19 

F. ITAO Management Comments 25 
Introduction 

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

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

special political and security interests to the U.S. Specific ESF dollar amounts are requested 

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

State’s International Affairs - Foreign Operations, Export Financing and Related Program 

(Foreign Operations), Other Bilateral Economic Assistance, budgetary account. Since 2003, the 

Congress has appropriated $3.2 billion to the ESF for Iraq reconstruction. ESF advances U.S. 

foreign policy interests by: 

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

over markets, enhancing job creation, and improving economic growth; 

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

law; 

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

empowerment of citizens; 

• developing and strengthening institutions necessary for sustainable democracy; and 

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

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

the transition.1

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

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

bureaus have been given responsibility for implementing ESF funds for Iraq.2 In 2006, DoS 

entered into three interagency agreements with USACE to execute programs in Iraq. In these 

agreements, ITAO and USACE were assigned roles in carrying out ESF activities, in 

coordination with DoS. ITAO’s role is to coordinate and oversee the process for selecting and 

approving projects, particularly for the PRDC interagency agreement. 

The Foreign Assistance Act of 1961 requires that agencies spend ESF funds for the activities, 

programs and projects justified to the Congress. However, changes to activities, programs, and 

projects are permitted as long as the appropriate congressional committees are notified. 

In 2006, DoS and USACE executed three interagency agreements under funding provided by 

Public Law 109-234,3

 The appropriation had a two-year life with the funds expiring on 

September 30, 2007. 

 

1

 Department of State Congressional Budget Justification, Fiscal Year 2007. 2

 The DoS Bureaus include the Bureau of Democracy, Human Rights, and Labor, and the Bureau of International 

Narcotics and Law Enforcement Affairs. 

3

 Public Law 109-234 “The Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, 

and Hurricane Recovery”. 

1 
Objectives 

SIGIR has frequently been asked why the expenditure rate for ESF funds is relatively low as 

compared to other appropriations being used in Iraq. In some years, ESF funds are reported as 

fully obligated shortly after the funds are appropriated, yet the funds are not disbursed until much 

later. SIGIR analyzed the status of obligations and expenditures for three ESF-funded 

interagency agreements valued at $1.25 billion and the practices used to obligate and expend 

funds to determine why this occurs. 

For a discussion of the audit scope and methodology, see Appendix A. For a listing of 

acronyms, see Appendix B. For a listing of the audit team members, see Appendix C. For 

management comments see Appendix D (USACE comments), Appendix E (DoS comments) and 

Appendix F (ITAO comments). 

2 
Interagency Agreements 

In 2006, DoS and USACE entered into three interagency agreements for USACE to execute 

programs in Iraq on behalf of DoS. The three agreements were intended to fund projects 

supporting (1) provincial reconstruction teams, and provincial reconstruction development 

committee projects; (2) infrastructure security protection for oil, water, and electricity sectors, 

and (3) sustainment and capacity development in the electricity, water, health, transportation, 

and communication sectors. According to ITAO, the use of interagency agreements in 

accordance with article 632(b) of the Foreign Assistance Act is common among all assistance 

providing agencies. The agreements are summarized below. 

Interagency Agreement for Provincial Reconstruction Teams (PRT) 

and Provincial Reconstruction Development Committee Projects 

(PRDC) 

In November 2006, the Department of State’s Bureau of Near Eastern Affairs, Office of Iraq 

Assistance (OIA), requested that USACE provide support for the preparation of bids and the 

award of projects identified by PRDCs (in coordination with Provincial Councils, and PRTs). 

The initial agreement was to remain in effect until September 30, 2010, but could be extended at 

the discretion of both parties. In August 2007, this agreement was extended to September 30, 

2011. 

The initial value of this agreement was $315 million, funded by the FY 2006 Foreign Operations 

Supplemental Appropriation. The agreement was later amended twice to increase funding. In 

August 2007 an additional $100 million was added to the contract to continue the USACE 

support of PRTs and PRDCs in the provinces; in January 2008, $285 million more was added for 

the same purpose. These two amendments brought the total value of the interagency agreement 

for PRDC support to $700 million. 

The interagency agreement statement of work required USACE to: 

• Assist in implementing projects recommended by the PRT/PRDCs and approved by the 

Embassy by providing program and project oversight to include awarding of contracts, 

Quality Assurance/Quality Control, and project milestones. 

• Assist the PRT/PRDCs by teaching, mentoring, guiding and supporting them in preparing 

project scopes of work, bills of quantities, estimates and project nomination forms. 

• Develop, solicit, contract, implement, oversee and deliver approved projects and provide 

technical assistance to the PRDCs. 

Specific projects that USACE was to support were not identified in the agreement. Instead, 

consistent with the PRDC agreement’s capacity building purpose, a detailed process for working 

with provincial councils and the PRTs to develop projects is included as an attachment, along 

with specific allocations to the provinces. 

3 
Interagency Agreement for Infrastructure Security Protection (ISP) 

for Oil, Water, and Electricity 

In November 2006, OIA entered into a second agreement with USACE to provide technical 

support for infrastructure security projects to be identified by the Iraq Reconstruction 

Management Office (IRMO)─now the Iraq Transition Assistance office (ITAO). The agreement 

was to remain in effect until September 30, 2010, but could be terminated or extended. 

The agreement was amended three times to reduce the funding, but the statement of work was 

not changed, nor was the length of the agreement. The initial value was $277 million, but the 

amendments reduced the available funding by $30 million in August 2007, $20 million in 

January 2008, and $10 million in March 2008. The total current value of the agreement is $217 

million. 

This agreement was undertaken to obtain USACE support in strengthening the security of Iraq’s 

oil, electricity and water infrastructure. IRMO and the Multi-National Force-Iraq identified 

urgent needs to harden key infrastructure elements and improve security. These projects 

included about 26 projects in the oil sector, about 6 projects in the water sector, and about 35 

projects in the electricity sector. In general, the projects in all sectors included the construction 

of security barriers, observation facilities, and exclusion zones; hardening selected structures, 

and implementing controlled access to critical facilities. 

The statement of work stated that IRMO would set program priorities and approve all projects 

and activities. USACE would provide the personnel and services to accomplish the activities 

outlined in the agreement, to include; 

• implementing and delivering infrastructure security improvements; and 

• developing, awarding, managing, implementing, overseeing, and delivering projects and 

technical training in coordination with IRMO. 

Interagency Agreement for Operations and Maintenance (O&M) 

Sustainment and Technical Capacity Development (CD) for 

Electricity, Water, Health, Transportation, and Communication 

In November 2006, OIA entered into a third agreement with USACE to provide support in 

awarding projects to increase the Iraqi ministries’ capacity to operate key infrastructure and to 

plan for infrastructure sustainment. The agreement was to remain in effect until September 30, 

2010, but could be terminated or extended. 

The initial value of this agreement was $345 million, but a March 2008 amendment reduced the 

agreement by approximately $8 million to a current total of $336.97 million. This agreement 

was undertaken to obtain USACE support in developing the capacity of the Iraqi ministries to 

sustain and operate key infrastructure. The intent of the project was to allow IRMO to respond 

to immediate and changing needs of the Iraqi essential service ministries; the project would also 

USACE to undertake a wide array of beneficial projects and training activities. The statement of 

work requires USACE to: 

4 
• Implement and deliver an Essential Service Sustainment and Technical Capacity 

Development Program in support of Iraq’s essential service sectors including electricity, 

water and waste water, health, transportation and communication. The program budget 

provides $285 million for operations and maintenance in support of essential services and 

$60 million for plant-level technical capacity development training. 

• Develop, award, manage, implement, oversee and deliver projects and technical training 

in coordination with the IRMO Senior Consultants for electricity, water and waste water, 

health, transportation and communication. 

Financial Status of Agreements 

SIGIR identified three significant and interrelated issues that affect the rate of obligation and 

expenditure for the ESF funds in these agreements. First, although the ESF appropriation is a 

two year appropriation, obligations recorded based on interagency agreements under the 

authority of the Foreign Assistance Act of 1961 do not automatically deobligate after the period 

of availability. Instead, once obligated, the funds remain available for deobligation and 

subsequent reobligation for a period of four years after the appropriation that authorized the 

initial funds expires. Second, although the funds identified in the agreements are obligated at the 

time the agreements are signed, specific projects are not always identified in the agreements or 

actually contracted for under the agreements at that time. For example, SIGIR’s review shows 

that contracts have not been awarded for all of the funds associated with the FY 2006 and 2007 

appropriations. USACE has not awarded contracts for $126 million from the FY 2006 

Supplemental ESF appropriation (15%), and $224 million from the FY 2007 appropriation 

(58%). Third, the purpose and nature of the ESF agreements─developing the Iraqi’s 

capabilities─is also a key contributor to the execution rate. 

Expenditure Rates 

In written comments on a draft of this report, DoS, USACE, and ITAO questioned SIGIR’s 

statement that ESF expenditures occur at a slower rate than other Iraq appropriations. For 

example, DoS stated in its written comments that the expenditure rates are consistent with the 

period of performance of the agreements. SIGIR has added this table to the final report to 

address this question. Table 1 shows the FY 2006 and 2007 appropriations and expenditures for 

ESF and two other Iraq appropriation accounts; the Iraq Security Forces Fund (ISFF), and the 

Commander’s Emergency Response Program (CERP). As shown in the table, ESF expenditure 

rates for both FY 2006 and FY 2007 are lower than the expenditure rates for the other two 

appropriations. For FY 2006, the ESF expenditure rates are 16 to 21 percent lower than the other 

two funds (after two years), and for FY 2007 the ESF expenditure rates are 12 to 56 percent 

lower than the other two funds (after one year). Additionally, SIGIR’s October 2008 Quarterly 

Report to the Congress shows that $440 million in ESF funding was appropriated in FY 2008. 

Although fully obligated, none of these funds had been expended by the end of the fiscal year. 

5 
Table 1—U.S. Support for Iraq Reconstruction as of July 2008 ($ Billions) 

U.S. Fund Appropriated Expended Percent expended

ESF FY 2006 1.55 1.01 65

ESF FY 2007 1.60 .47 29

ISFF FY 2006 3.01 2.43 81

ISFF FY 2007 5.54 2.28 41

CERP FY 2006 .71 .61 86

CERP FY 2007 .75 .64 85

Source: SIGIR Quarterly Report and Annual Report to the Congress, July 2008. 

The above comparison is not intended to be used as a performance measure. Expenditure rates 

are affected by many factors such as the date funds are appropriated by Congress, the nature of 

the funds and projects they support, and type of appropriation (one year or multi-year). For 

example, USACE reported that it not receive the FY 2006 funds until November 2006, and did 

not receive the first portion of the FY 2007 Supplemental funds ($100 million) until August 

2007, and the second portion of the FY 2007 Supplemental funds ($285 million) until February 

2008. SIGIR’s purpose for including this information in our report is only to answer the 

concerns expressed in the agencies’ responses to our draft report. 

Foreign Assistance Act of 1961 

The interagency agreements that DoS has negotiated with USACE are issued under the authority 

of section 632(b) of the Foreign Assistance Act of 1961 (Public Law 87-195) as amended. The 

act gives specific authority for agencies operating under the act to “utilize the services (including 

defense services) and facilities of, or procure commodities, defense articles, or military education 

and training, from any agency of the United States Government....” Unlike interagency 

agreements such as those entered into under the authority of the Economy Act (31 U.S.C. 

1535(d)), which permits agencies to record contingent liabilities that are subject to deobligation 

if the funds are not obligated to award contracts within the period of availability; obligations 

recorded based on interagency agreements issued under the authority of the Foreign Assistance 

Act are full obligations which do not automatically deobligate after the period of availability if 

not subobligated. 

DoS Obligations 

Because these obligations were incurred under the Foreign Assistance Act, the funds identified in 

the agreements are obligated at the time the agreements are signed.4

 However, SIGIR’s review 

shows that the appropriation obligations are not always supported by signed contracts at the time 

DoS records the obligation. Instead, after the agreements are signed, ITAO, in its programming 

 

4

 The agreements identify amounts to be obligated upon signing of the agreements and amounts to be obligated 

latter. However, in its response to our draft report DoS asserted that all of the funds are obligated at the time the 

agreements are signed. 

6 
role, solicits project requests from other program elements in Iraq, and then reviews and 

approves projects from among those submitted. Once ITAO approves a project, it is then 

forwarded to USACE who prepares the statement of work and, in coordination with the Joint 

Contracting Command-Iraq/Afghanistan solicits and awards a contract to implement it. After a 

contract is awarded, USACE enters the contract award amount in its official financial 

management system (Corps of Engineers Financial Management System or CEFMS). However, 

because DoS has already obligated most of the funds associated with the agreements upon the 

signing of the agreements, USACE and DoS refer to these as sub-obligations. 

SIGIR’s review of funds obligated under these agreements, as of September 22, 2008, shows that 

the current total value of the agreements is approximately $1.25 billion. Of this amount, USACE 

has disbursed approximately $587 million, or about 47% of the total value of the agreements. 

The low expenditure rate is due in part to the fact that only about 72% of the $1.25 billion has 

been subobligated (that is USACE has awarded a contract for a specific project). USACE has 

not awarded contracts for $350 million (28%) in ESF funds. These funds remain available to 

DoS. Table 2 below shows the status of funds under these interagency agreements. 

Table 2—Status of Funds Under DoS Interagency Agreements with USACE

Agreement 

Amounts & 

Obligations 

USACE Subobligations USACE Disbursements 

Amount

% of DoS 

Obligation Amount 

% of DoS 

Obligation 

All Agreements $1,253,972,675 $903,983,676 72.09% $586,795,954 46.79% 

Remaining $349,988,999 

Source: SIGIR Extract of CEFMS data in USACE Fiscal Status Report for Appropriations as of September 22, 2008 

In written comments on the report draft, ITAO questioned SIGIR’s statement that the funds that 

are not subobligated by USACE remain available to DoS. According to ITAO, only if USACE 

consents to deobligating the funding would it become available to DoS. SIGIR does not agree. 

According to each of the interagency agreements, “either party may terminate the agreement 

before completion of the project by providing 30 days written notice to the other party. Upon 

termination or expiration of this interagency agreement, any funds not expended or subobligated 

for allowable expenses shall be returned to the Department of State.” 

Fund Use Contributes to Rate of Expenditure 

In written comments on a draft of this report, USACE stated that the purpose and nature of the 

ESF agreements is a key contributor to the ESF execution rate. For example, a purpose of the 

PRT program is to develop the capacity of the PRDCs by teaching, mentoring, guiding, and 

supporting them in preparing project scopes of work, bills of quantities, estimates, and project 

nomination forms. Specific projects are not identified in the agreement because the purpose of 

the program is to empower the Iraqi PRDCs to identify projects, prioritize them, identify funding 

streams, and work with the assistance of the PRT and USACE to get the project ready for award. 

This goal makes the development of projects and their execution lengthier than might otherwise 

7 
be the case. SIGIR added this point to this report as a contributing reason for the pace of 

expenditures. 

In the case of the Infrastructure Security Program, USACE responded in its written comments 

that a key component of this program is the coordination with the Government of Iraq. The 

program, and project requirements stem from the Government of Iraq’s plans and schedules for 

infrastructure system repairs and guard force hiring, training and equipping. In some instances, 

USACE must wait for the Government of Iraq to execute their portion of the project, whether it 

is infrastructure repairs or improvements or placing Iraqi Security Forces to guard ISP projects, 

before USACE can begin awarding and executing infrastructure security protection work. 

In its written comments, ITAO said that the fact that precise projects to be implemented are not 

known at the time of execution of the interagency agreement is routine. At the time funds are 

obligated, the general nature and purpose of the individual projects that will eventually be 

selected are known, but the discrete projects are not. According to ITAO, this model is common 

among grant making agencies. 

Status of Funds 

FY2006─Table 3 shows the value of the three interagency agreements funded by the FY 2006 

appropriation. As of September 22, 2008, the three agreements had a total value of about $869 

million, and disbursements of about $554 million, or about 64% of the obligation. The table also 

shows that USACE has awarded contracts (subobligations) for about $743 million, and that 

specific contracts have not been awarded for approximately $126 million, or about 15% of the 

funds obligated by the agreements. USACE reported that it is holding $30.6 million for 

contingencies. 

Table 3—Status of Fiscal Year 2006 ESF Funds Used for DoS/USACE Interagency 

Agreements 

USACE Sub-Obligation USACE Disbursements 

Agreement 

Description 

Agreement

Amount/

Obligation Amount

% of DoS 

Obligation Amount 

% of DoS 

Obligation 

PRT/PRDC $315,000,000 $245,324,517 77.88% $151,274,814 48.02% 

ISP $217,000,0005 $174,701,783 80.51% $122,917,154 56.64% 

O&M Sustainment & CD $336,972,675 $322,859,948 95.81% $279,430,452 82.92% 

Total $868,972,675 $742,886,248 85.49% $553,622,420 63.71% 

Source: SIGIR extract of CEFMS data in Gulf Region Division Fiscal Status Report for Appropriations as of September 22, 2008 

FY 2007─Table 4 shows the status of the FY 2007 ESF appropriation. These funds were used to 

amend the agreement that funds PRDC/PRT activities. As of September 22, 2008, $385 million 

 

5

 CEFMS actually shows $227 million available because a March 2008 amendment to the agreement, which reduced 

funding by $10 million, was not posted. The Table shows the corrected amount. 

8 
had been obligated, but disbursements were only $33 million, or about 9% of the obligations. 

The table also shows that USACE has awarded contracts (subobligations) for about $161 million. 

Specific contracts have not been awarded for approximately $224 million, or about 58% of the 

FY 2007 funds obligated by the agreements. USACE reported that it is holding $16.5 million for 

contingencies. 

Table 4—Status of Fiscal Year 2007 ESF Funds Used for DoS/USACE Interagency 

Agreements 

USACE Sub-Obligation USACE Disbursements 

Agreement 

Description 

Agreement 

Amount/Obligation Amount

% of DoS 

Obligation Amount 

% of DoS 

Obligation 

PRT/PRDC $385,000,000 $161,097,428 41.84% $33,173,534 8.62% 

Source: SIGIR extract of CEFMS data in Gulf Region Division Fiscal Status Report for Appropriations as of September 22, 2008 

Obligating funds when an interagency agreement is signed provides DoS with significant 

flexibility that it would otherwise not have under the ESF appropriation. For example, on March 

31, 2008, six months after the appropriation expired, DoS modified one of the interagency 

agreements and deobligated approximately $8 million in Fiscal Year 2006 ESF so that it could 

use the funds for a new interagency agreement with the Centers for Disease Control and 

Prevention to conduct a health training project in Iraq. As of September 2008, DoS is still 

negotiating the agreement with the Centers. 

Conclusion 

DoS’s ESF funds are obligated at the time it enters into an interagency agreement─without 

identifying specific projects. This gives DoS greater flexibility and time for using such funds 

than it would have without an interagency agreement. The window for obligating, deobligating, 

and reobligating the funds under the Foreign Assistance Act, and the purpose and nature of the 

ESF agreements─developing the Iraqi’s capacity─are also factors in the execution rate. The 

current status is that only 64 percent of the FY 2006 funds and 9 percent of the FY 2007 funds 

have been disbursed as of September 22, 2008. 

Management Comments and Audit Response 

In written comments on a draft of this report, USACE, DoS, and ITAO questioned SIGIR’s 

statement that funds under these agreements are being expended at a slower rate than would 

typically occur. SIGIR has added a section to the draft that discusses expenditure rates. USACE 

also provided additional detail on the projects funded by these agreements to show how the funds 

are being used. SIGIR agrees with the information provided and believes it adds to the 

explanation for the pace of expenditure. 

DoS expressed concern that the draft report contained inaccurate information and misleading 

conclusions about the Department’s legal authorities and the nature of the agreement. SIGIR is 

not questioning the Department’s authority to enter into these agreements, nor do we believe that 

9 
10 

DoS’ management of these agreements is improper. DoS offered suggested wording changes, 

and where applicable we have included these suggestions in this report. However, the audit’s 

objective was to determine the status of and reasons for the pace of ESF expenditures. SIGIR 

identified two reasons for the low expenditure rate in our original draft and, based on the written 

comments we received, added a third reason─the nature of the agreements. We believe that 

these reasons explain the expenditure rates for these three agreements. 

A copy of USACE’s comments is in Appendix D. A copy of DoS’s comments is in Appendix E. 

ITAO’s comments are in Appendix F. 
Appendix A—Scope and Methodology

This audit was performed under the authority of Public Law 108-106, as amended, which 

incorporates the duties and responsibilities of inspectors general under the Inspector General Act 

of 1978, as amended. The purpose of the review was to determine why the expenditure rate for 

ESF funds is relatively low as compared to other appropriations being used in Iraq. 

We conducted this review during May through September 2008 in accordance with generally 

accepted government auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit objectives. 

In conducting this audit we interviewed management officials at the U.S. Embassy in Iraq, to 

include financial and budget officials of the Iraq Transition Assistance Office, officials of the 

United States Agency for International Development and officials of the Gulf Region Division of 

the United States Army Corps of Engineers. 

We looked at allotment information, obligation data, commitment data, and expenditure data 

contained in various databases and financial systems used in Iraq, to include direct queries from 

the Iraq Reconstruction Management System (IRMS) and the U.S. Army Corps of Engineers 

Financial Management System (CEFMS). We obtained financial reports directly from U.S. 

Agency for International Development personnel and Department of State personnel in Iraq and 

Washington, DC, but we did not directly work with either the Department of State’s or the U.S. 

Agency for International Development’s financial databases and systems for this report. 

Use of Computer-processed Data 

While we relied upon computer generated data for information contained in this report, we 

performed limited verification of the data. We did verify information contained in CEFMS back 

to hard copies of the Interagency Agreements discussed in the report and found that customer 

authorization dollar amounts were not in agreement with information contained in CEFMS (a 

$10 million error was identified). We compared financial system information obtained from the 

Gulf Regional Division, ITAO, and the U.S. Agency for International Development to other 

reports produced, such as the Section 2207 Report to Congress, but could not match up much of 

the detailed data we received to other reports. We were advised that differences in the timing of 

reporting of information from each of the systems and reports probably accounted for differences 

we noted in the data. Overall we do not have a reasonable assurance that the financial data we 

received from the various systems and reports is totally accurate; nevertheless we feel that for the 

purposes of this report the data we obtained was sufficiently accurate to support our conclusions. 

Internal Controls 

SIGIR reviewed the management controls related to the practices and procedures for obligating 

and expending funds under the interagency agreement process. 

11 
Prior Coverage 

SIGIR issued a Fact Sheet on Sources and Uses of U.S. Funding Provided in Fiscal Year 2006 

for Iraq Relief and Reconstruction (SIGIR-07-005; July 27, 2007). This fact sheet summarized 

the legislative authority for ESF, discussed the ESF reports produced, and provided a flow chart 

and time-line for the ESF funding process. 

12 
Appendix B—Acronyms 

Acronym Description 

CD Capacity Development 

DoS Department of State 

ESF Economic Support Fund 

IRMO Iraq Reconstruction Management Office 

ISP Infrastructure Security Protection 

ITAO Iraq Transition Assistance Office 

OIA Office of Iraq Affairs 

O&M Operations and Maintenance 

PRDC Provincial Reconstruction Development Committee 

PRT Provincial Reconstruction Team 

USACE U.S. Army Corps of Engineers 

13 
Appendix C—Review Team Members 

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

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

Reconstruction. 

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

Robert Gabriel 

Dorian L. Herring 

Frank W. Slayton 

14 
Appendix D—USACE Management Comments 

15 
16 
17 
18 
Appendix E—DoS Management Comments 

19 
20 
21 
22 
23 
24 
Appendix F—ITAO Management Comments 

25 
26 
27 

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

operations in Iraq, the Special Inspector General for Iraq 

Reconstruction provides independent and objective: 

• oversight and review through comprehensive audits, 

inspections, and investigations 

• advice and recommendations on policies to promote 

economy, efficiency, and effectiveness 

• deterrence of malfeasance through the prevention and 

detection of fraud, waste, and abuse 

• information and analysis to the Secretary of State, the 

Secretary of Defense, the Congress, and the 

American people through Quarterly Reports 

Obtaining Copies of SIGIR 

Reports and Testimonies 

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

SIGIR’s Web site (www.sigir.mil) 

To Report Fraud, Waste, and 

Abuse in Iraq Relief and 

Reconstruction Programs 

Help prevent fraud, waste, and abuse by reporting 

suspicious or illegal activities to the SIGIR Hotline: 

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

• Phone: 703-602-4063 

• Toll Free: 866-301-2003 

Congressional Affairs Hillel Weinberg 

Assistant Inspector General for Congressional 

Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-428-1059 

Email: hillel.weinberg@sigir.mil 

Public Affairs Kristine R. Belisle 

Director for Public Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-428-1217 

Fax: 703-428-0818 

Email: PublicAffairs@sigir.mil