Stabilizing Iraq: Preliminary Observations on Budget and Management Challenges of Iraq's Security Ministries
Published: 2007-03-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In November 2005, the President issued the National Strategy for Victory in Iraq. According to the strategy, victory will be achieved when Iraq is peaceful, united, stable, secure, well integrated into the international community, and a full partner in the global war on terror. To help Iraq achieve this, the U.S. is, among other efforts, helping strengthen the capabilities of the Iraq Ministries of Defense and Interior (police forces) so they can assume greater responsibility for the country's security. The United States has provided about $15.4 billion to develop Iraqi security forces and institutions. In this testimony, GAO discusses preliminary observations on (1) U.S. and Iraqi funding to develop and sustain the Iraqi security forces, and (2) key challenges the United States and Iraq face in improving the security ministries' operations and management. This statement is based on prior GAO reports, recent fieldwork in Iraq and Department of Defense, U.S. Treasury and Embassy budget documents. GAO added information to this statement in response to comments from Multinational Security Transition Command-Iraq. We completed the work in accordance with generally accepted government auditing standards.
section_title: What GAO Found
paragraphs: In March 2007, DOD reported that Iraq will increase its 2007 security budget from $5.4 billion to $7.3 billion (a 37-percent increase). DOD states this increase provides evidence of the country's growing self-sufficiency and commitment to security. However, our analysis shows that some of this increase is due to the appreciation of the Iraqi dinar against the dollar. Using a constant exchange rate, Iraq's 2007 security budget grows by 15 percent. Also, Iraq faced problems spending its 2006 security budget. As of November 2006, the Iraq Ministry of Defense had spent only about 1 percent of its capital goods budget for weapons, ammunition, and vehicles. DOD has requested $5.8 billion in additional U.S. funds to help purchase these items for Iraq and provide assistance to its security ministries. The United States and Iraq face personnel and logistical challenges in developing ministries that can sustain Iraq's growing security forces. For example, the ministries have inadequate systems to account for personnel and inexperienced staff with limited budgeting and technology skills. Also, both security ministries have difficulties acquiring, distributing, and maintaining weapons, vehicles, and equipment. The U.S.-led coalition has provided significant resources to develop Iraq's security forces and has 215 military and civilian advisors at the ministries. The United States signed a foreign military sales agreement with Iraq that, according to U.S. officials, allows Iraq to bypass its ineffective procurement systems to purchase equipment directly from the United States. Iraq has deposited $1.9 billion into its account for foreign military sales. However, it is unclear whether this program will help improve the ministries' procurement and contracting capacity.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our preliminary observations on  U.S. and Iraqi funding commitments and related challenges in  strengthening the Iraqi Ministry of Defense (MOD) and Ministry of Interior  (MOI). We are presently completing reviews of U.S. efforts to help the  Iraqi government execute its budget and build capacity in its ministries.  The November 2005 National Strategy for Victory in Iraq articulated the  desired end-state for U.S. operations in Iraq: a peaceful, united, stable, and  secure Iraq, well integrated into the international community, and a full  partner in the global war on terrorism. To achieve this desired end state,  the United States is, among other things, helping MOD and MOI play a  greater role in managing and sustaining their security forces and assuming  greater responsibility for the country’s security. The President’s fiscal year  2008 funding request states that the Iraqi government will be largely  capable of sustaining its security forces by 2008. From 2003 through 2006,  the United States provided about $15.4 billion to develop Iraqi security  forces and institutions.
My testimony discusses our preliminary observations on (1) U.S. and Iraqi  funding to develop and sustain the Iraqi security forces, and (2) key  challenges the United States and Iraq face in improving the security  ministries’ operations and management.
In developing this statement, we relied on prior GAO reports and, where  appropriate, we updated data. To identify the U.S. and Iraqi government  financial commitments for developing and sustaining the Iraqi security  forces, we reviewed Department of Defense (DOD), Multinational Force- Iraq (MNF-I), and Multinational Security Transition Command-Iraq  (MNSTC-I), and Treasury budget documents and requests. We also  analyzed data on Iraq’s 2006 and 2007 budgets and 2006 budget execution  through November 2006, which were provided to us by the U.S. Treasury  from Iraq’s Ministry of Finance. To identify the challenges the government  of Iraq faces in developing the capacity of the Ministries of Defense and  Interior, we reviewed MNF-I assessments of the capabilities of these  ministries. We also conducted field work in Iraq and met with the MOD  and MOI transition teams to obtain further information on the ministries’  capabilities and to discuss U.S. and coalition efforts at the ministries. This  work was conducted in accordance with generally accepted government  auditing standards.
subsections: section_title: Background
paragraphs: In August 2003, the Coalition Provisional Authority (CPA) dissolved the  military organizations of the former regime, including the Ministry of  Defense. In March 2004, the CPA established a new Ministry of Defense.  The MOD was ultimately to be responsible for the overall management,  direction, and control of the Iraqi armed forces, which now include the  Iraqi Army, Air Force, and Navy. Responsible for an estimated 200,000 civil  servants and military personnel, the MOD is expected to conduct all  functions needed to sustain the armed forces, including developing plans,  programs, and budgets; and procuring needed goods.
The CPA did not dissolve the Ministry of Interior. MOI’s role is to manage  more than 300,000 staff in the Iraqi police services, the National Police, the  Border Enforcement, and other services. Managerial functions include  setting qualifications and training for the forces, vetting all police and  other employees, and conducting the budgeting and financing for MOI  forces. The MOI directly controls the national police forces. However, the  MOI exercises only limited administrative control over regular Iraqi police  forces in the provinces, controlling issues such as recruiting standards and  yearly budget allocations. Operational control of provincial police rests  with the governor and his Council.
MNF-I leads U.S. and coalition military efforts in Iraq. Under the command  of MNF-I, MNSTC-I is responsible for leading coalition efforts to train and  equip Iraqi security forces and to build MOI and MOD capabilities.  MNSTC-I helps develop MOI and MOD capabilities through Ministry  Transition Teams and the Joint Staff Transition Team, which have a total  of about 215 coalition advisors assigned to work with Iraqi officials at the  ministries.
The Iraqi government and the coalition transition teams confront a  challenging national environment to develop Iraq’s security ministries.  Corruption is reportedly widespread and poses a major challenge to  building an effective government. A March 2007 DOD report states that the  Prime Minister has committed to reforming the government beginning  with his cabinet and the ministries. This commitment recognizes the  government’s failure to counter corruption and reduce sectarianism,  which hampers the government’s ability to perform. In addition, capacity  building efforts are taking place amid ongoing violence and sectarian  tension, posing a threat to Iraqi government employees.
section_title: Although Iraq’s Security Budget Has Grown, the United States Continues to Fund a Significant Portion of Iraq’s Security Needs
paragraphs: The 2007 increase in Iraq’s security budget is attributable to increases in  planned expenditures and an appreciation of the Iraqi currency against the  U.S. dollar. MOD and MOI spent the largest percentage of budgeted  amounts on salaries but were less successful in spending funds on goods  and services (e.g., food, uniforms, and fuel) and capital goods (e.g.,  weapons, ammunition, and vehicles). Given Iraq’s continued difficulties in  spending funds for these items, DOD has requested $5.8 billion in  additional funds to help purchase these critical items and provide other  assistance to Iraq’s security ministries.
subsections: section_title: Reported Increase in Iraq’s 2007 Security Budget Is Partially Attributable to Exchange Rate Appreciation
paragraphs: DOD’s March 2007 report to Congress stated that the 37-percent increase  in Iraq’s 2007 security budget is evidence of Iraq’s growing self-sufficiency  and commitment to security. However, our analysis of Iraq’s 2007 budget  shows that this reported increase is attributable to both increases in  planned expenditures and an appreciation of the Iraqi currency against the  U.S. dollar (Iraq’s fiscal year begins on January 1 of each year). Iraq  implemented a 14-percent exchange rate appreciation between November  1, 2006, and February 1, 2007, to reduce the rate of core (non-fuel)  inflation. In 2006, inflation in Iraq averaged over 50 percent.
Iraq’s official budget is presented and executed in Iraqi dinars, not U.S.  dollars. The percentage changes we calculated using a constant 2006  exchange rate are the same as those in the official budget based on Iraqi  dinars. For example, MOD’s 2007 budget shows a decline in the number of  Iraqi dinars budgeted for goods and services compared with 2006.  However, when converted to U.S. dollars at the new appreciated exchange  rate, the budget shows an increase in planned expenditures. It is therefore  important to know the source of changes in the budget. For imported  products, the appreciated exchange rate (which means the Iraqi dinar  exchanges for relatively more U.S. dollars than before) allows Iraq to buy  relatively more imported products for the same number of dinars.  However, for expenditures made in Iraq, especially salaries, the  appreciated exchange rate may not best reflect changes in Iraq’s budget  expenditures. Thus, we present both calculations.
Table 1 shows how the projected growth rate of Iraq’s security budget  varies with the foreign exchange rate used to convert Iraqi dinars into U.S.  dollars. When using an appreciated exchange rate, Iraq’s security budget  grows by 37 percent in 2007. The budget of MOD, which plays a key role in  conducting counterinsurgency operations, grows by 20 percent. However,  when using a constant exchange rate to facilitate a more direct  comparison of the planned increases in budgeted dinars, Iraq’s security  budget grows by 15 percent in 2007 to $6.2 billion (constant exchange  rate), which represents 18 percent of Iraqis total 2007 budget of $34.5  billion. Thus, the increase in Iraq’s budget in U.S. dollars is due to the  actual increases in planned expenditures and an appreciation of the  currency.
Although MOD’s overall budget will grow in 2007, its budget for several  critical items needed to wage counterinsurgency operations will decline in  2007. For example, the Ministry of Defense’s 2007 budget for capital  goods—including weapons, ammunition, and vehicles—will decrease  whether using a constant exchange rate (17 percent) or appreciated  exchange rate (2 percent).
In contrast to MOD, MOI’s 2007 budget shows positive growth rates in all  major categories. For example, the Ministry of Interior’s 2007 budget for  capital goods—including weapons, ammunition, and vehicles—will  increase regardless of which exchange rate is used, by 16 percent using a  constant exchange rate or by 38 percent using the appreciated exchange  rate. The MOI is receiving increased budget support for its law  enforcement responsibilities. However, the additional budget support will  be provided to a ministry prone to militia infiltration. For example, in  November 2006, the Director of the Defense Intelligence Agency stated  that the Ministry of Interior and the police were heavily infiltrated by  militia members of the Badr Organization and the Mahdi Army. In addition,  the MOI’s national police—a paramilitary force of about 24,000  personnel—had conducted counterinsurgency operations in the past, but  the Iraqi government decided in late 2006 to transform it into a civil  society force due to frequent allegations of abuse and other illegal  activities.
The total number of staff reportedly employed by the Ministries of Defense  and Interior will grow from about 538,000 in 2006 to 608,000 employees in  2007 (see table 2). However, these numbers should be interpreted with  some caution. As we reported in January 2007, ghost employees comprise  about 20 to 30 percent of Ministry of Interior staff, according to U.S.  officials. Also, as of February 2007, the Iraqi government has yet to  complete a census of all government employees, as required by the  International Monetary Fund.
section_title: In 2006, Ministries of Defense and Interior Spent Budgets on Salaries but Not Capital Items
paragraphs: To help assess whether Iraq’s security ministries will be able to spend the  2007 budgets, we analyzed the security ministries’ 2006 budgets and  spending. Figure 1 shows the total amounts budgeted and expended by  funding category. In terms of their budgets, the MOD had both a larger  budget ($3.4 billion compared with $1.9 billion) and a larger portion of its  budget targeted at goods and services and capital goods, compared with  the MOI. For the MOI, salaries dominated the budget in 2006.
Figure 1 also shows that the ministries have had difficulty expending some  categories of their budgets. For example, MOD and MOI spent about 76  and 82 percent, respectively, of the $912 million and $1,471 million  budgeted for salaries as of November 2006. In contrast, MOD and MOI  spent 1 and 15 percent, respectively, of the $864 million and $233 million  budgeted for capital goods (e.g., weapons, ammunition, and vehicles). The  inability or unwillingness of Iraq’s security ministries to spend budgeted  funds on critical items raises questions about the priorities and capabilities  of Iraq’s government to fund its security requirements. As the U.S.  government transfers more of its security responsibilities to the Iraqi  government, it is important that the Iraqi government demonstrate that it  can execute its approved budgets more effectively.
While Iraq’s security ministries have encountered difficulties in spending  budgets for weapons, equipment, vehicles, food, fuel, and other items  needed to mount counterinsurgency campaigns, the U.S. government  anticipates providing additional support to these two ministries at least  through the end of fiscal year 2008. DOD has asked for an additional $5.8  billion to develop the Iraqi security forces in its fiscal year 2007  supplemental request and the fiscal year 2008 Global War on Terror budget  request (see table 3).
Of this amount, about $3.25 billion (about 56 percent) would purchase  equipment and transportation for the Iraqi security forces. DOD is also  requesting about $682 million for training and operations, including efforts  to develop senior management capabilities within the Ministries of  Defense and Interior, and to provide increased training for MOD  intelligence operations, communications operations, and resource  management.
section_title: Iraq Faces Personnel and Logistical Challenges in Developing its Security Ministries’ Management Capabilities
paragraphs: Iraq’s security ministries face numerous challenges if they are to more  effectively direct and sustain Iraq’s security forces. DOD reports and our  February 2007 fieldwork in Iraq found that the security ministries face two  key challenges: (1) managing a growing workforce while developing  effective personnel systems, and (2) improving the limited ability of MOD  and MOI to manage their logistics operations. Coalition advisors are  working with the security ministries to improve their planning, budgeting,  personnel, and logistical systems. In addition, a 2006 Foreign Military Sales  (FMS) agreement with Iraq will enable the security ministries to bypass  their ineffective procurement systems and purchase needed equipment  and supplies directly from the United States, according to U.S. officials.
subsections: section_title: MOD and MOI Have a Growing Workforce and Weak Personnel Management Systems
paragraphs: Planned changes in the size and composition of the security forces will  complicate MOD and MOI efforts to effectively manage their personnel.  The security ministries plan to add 60,000 to 70,000 staff to their rolls in  2007. In addition, in December 2006, the Iraqi Prime Minister directed the  MOI to assume responsibility for paying most of the Facilities Protection  Service (FPS), a 150,000-strong ministry guard force currently working for  27 ministries and 8 independent directorates. According to DOD  reporting, the FPS lacks a coherent force structure and standardized  equipment, and its personnel are often untrained, unreliable, and  sometimes responsible for violent crimes. According to a senior coalition  advisor, FPS personnel will be paid by the MOI but remain under the day- to-day supervision of the ministries, agencies, or provincial governments  to which they are assigned.
Although the ministries are significantly expanding their workforces, DOD  reports that MOD and MOI cannot accurately account for the personnel  they currently have on their payrolls. DOD notes that about 65 percent of  authorized personnel in fielded units are present for duty at any time, but  this figure is based on unreliable data. Similarly, MOI also has no reliable  data to indicate how many personnel are still serving with the ministry, so  it is unknown how many of the more than 300,000 employees on the MOI  payroll are present for duty. MNSTC-I estimates that the number of  employees present for duty is less than 70 percent. DOD reports that  payments for pensions, medical care, and death benefits are currently  included in security ministry payrolls. Thus, the security ministries’  personnel figures may include retired, wounded, or deceased personnel.  DOD also found that corruption inflates both security ministries’  personnel figures, as corrupt leaders often collect pay and other  compensation designated for non-existent soldiers and policemen on the  unit rolls.
In addition, a February 2007 MNF-I assessment stated that development of  MOD’s personnel management system was hindered in 2006 by poor  leadership, low morale, and reliance on coalition counterparts. MNSTC-I  commented that higher level leadership within MOD did not allow  knowledgeable managers to implement personnel reforms and overruled  their decisions. U.S. government documents and coalition officials also  cited problems at MOI with militia infiltration that complicated reform  efforts. Our recent work in Iraq also found that the ministries’ lack of  skilled or experienced staff presents a challenge. Some coalition officials  noted that the lack of trained staff hindered efforts to improve MOD  budget formulation, noting that only two or three members of the 30- person budget office were capable of producing budget spreadsheets on a  computer. Furthermore, these advisors stated that most ministry staff lack  basic computer and information technology skills, are unwilling to make  decisions, and often refer problems to higher levels.
section_title: Ministries Face Significant Challenges in Logistics Management
paragraphs: DOD’s March report stated that the most significant shortcoming in MOD  and MOI forces capabilities is in planning and executing logistics and  sustainment requirements. The report noted that the factors underlying  this deficiency include inadequate levels of sustainment stocks, such as  vehicle fuel pumps and filters. Also identified as a challenge was the  limited capacity of MOD and MOI to plan for, acquire, distribute, and  maintain needed items. In addition, the security ministries have difficulties  in accounting for their equipment. For example, MOI’s immature  equipment accountability system cannot track what police weapons and  vehicles remain in service or how much equipment authorized by the  provincial governors MOI has purchased for their staff, which had been.  Our fieldwork found that MOD and MOI units maintain equipment  accountability through the use of hand receipts and manual ledgers. As  GAO previously testified, both MOD and MOI have significant logistics  management issues to overcome before they are capable of independently  sustaining their security forces.
Our recent fieldwork also found that developing the security ministries’  logistics capacity remains a major challenge, particularly at MOI. U.S.  officials noted that MOI cannot sustain the wide variety of equipment  donated by the coalition. For example, GAO previously testified that the  MOD had difficulty maintaining 21 different types of light trucks. Similarly,  MOI has been unable to maintain the 17 makes of vehicles it has received  for use by its personnel. According to coalition officials, the cost and  difficulty of obtaining spare parts for these diverse vehicle fleets results in  using some vehicles for spare parts and not repairing others. Moreover,  the MOI has not approved the draft logistics concept proposed by the  coalition, in part because it has yet to gain the agreement of the provinces  and is still negotiating with them on the national warehouse system.
section_title: Coalition Efforts to Address Problems at the Iraqi Security Ministries
paragraphs: The coalition devotes significant resources to develop capacity at Iraq’s  security ministries. As of March 2007, the U.S.-led coalition had assigned  215 military, civilian, and contracting personnel to advise Iraqi staff at the  MOD and MOI on establishing plans and policies, budgeting, and managing  personnel and logistics. In comparison, the Ministries of Oil and Electricity  had 10 and 18 advisors, respectively.
The 111 coalition advisors at the MOD are embedded with staff from a  number of offices, including Plans and Policies and the Iraqi Joint Staff.  According to the advisors, they work with their Iraqi counterparts to  improve their planning processes and capabilities. For example, a senior  advisor to the joint staff helped MOD develop its counter insurgency  strategy. He provided them with a planning template, reviewed their work,  and suggested they add details such as the source of the threat, the risk  level, and the forces required to counter the threats. He was uncertain as  to whether his Iraqi counterparts had taken ownership of the process.
Our recent field work at the MOI found that 104 coalition advisors are  working with Iraqi officials.  Among other efforts, they are helping MOI  develop processes for vetting Iraqi security forces, including collecting  and storing biometric data; establishing an identification card system; and  establishing a personnel management database that will house inventory,  payroll, human resource, financial, and budget data. However, U.S.  advisors stated that MOI staff has resisted efforts to computerize their  manual processes because of the increased transparency it would provide.
Finally, MNSTC-I personnel are also assisting the MOD and the MOI in  purchasing needed equipment from the United States through the Foreign  Military Sales (FMS) program. Under FMS, the U.S. government agrees to  sell defense articles or services (including training) to eligible  foreign countries or international organizations. The articles or services  usually come from DOD stocks or through purchase under DOD-managed  contracts. In December 2006, the government of Iraq transferred $1.9  billion into an Iraqi account for FMS purchases. According to a November  2006 DOD report, Iraq’s use of the FMS program is intended to provide a  way for both MOD and MOI to spend their money on complete  procurement packages without risking the loss of funds to the corruption  and mismanagement that hampers Iraqi government contracting. In the  latter part of 2006, DOD notified Congress of a number of possible foreign  military sales to Iraq, including:    Up to $900 million on intelligence, surveillance, and reconnaissance  aircraft, as well as related support equipment, training, spare and repair  parts, publications and technical data, and other elements of logistics  support;    Up to $750 million for troop transport helicopters, small arms,  ammunition, vehicles, and associated logistics support; and    Up to about $460 million for trucks, vehicles, including light armored  vehicles, and trailers, as well as associated equipment and services.
According to a March 2007 DOD report, MOD also plans to fund a $160  million maintenance contract through the FMS program from April 2007  through March 2008.
U.S. and coalition officials stated that the FMS agreement would allow  both MOD and MOI to bypass their ineffective procurement systems and  procure equipment and supplies more quickly and efficiently. However, in  the long term, it is unclear whether Iraq’s use of the FMS program will  contribute to the ministries’ capacity to improve their inefficient  procurement and contracting systems.
section_title: Conclusion
paragraphs: DOD expects that the Iraqi government will be capable of sustaining its  security forces by 2008. This expectation may not be met given the  security ministries’ past problems in spending their capital budgets and  current personnel and logistical weaknesses.
In addition, as we previously reported, the United States and the Iraqi  security ministries are supporting Iraqi forces that have divided loyalties,  varying capabilities, high absenteeism, and questionable dependability.
Mr. Chairman, this concludes my statement. I would be pleased to answer  any questions that you or other members may have at this time.
section_title: Agency Comments
paragraphs: The Multinational Security Transition Command-Iraq provided comments  on a draft of this statement. The head of the Command stated, “The GAO  testimony fails to give the government of Iraq and the two security  ministries any credit for recognizing their financial vulnerabilities and for  progressing far beyond the opaque and irresponsible business practices of  previous interim governments. The 2007 GOI budget was negotiated  responsibly and openly. Though the security budget may represent ‘only’ a  15-percent increase from the previous year in purchasing power, it is  nearly a 20-percent share of the national budget. The government of Iraq  has clearly recognized its inability to responsibly make procurements on  behalf of its military and police forces and so has entered into a $1.7  billion Foreign Military Sales Agreement with 2006 funding. We anticipate  that another $1.55 billion investment into United States FMS this calendar  year.”
We added information in this statement to reflect MNSTC-I’s comments.  However, both DOD and GAO agree that it will take considerable time and  resources to address the challenges the U.S. and Iraqi governments face in  developing fully functioning security ministries and capable Iraqi forces.
section_title: GAO Contact and Acknowledgments
paragraphs: For questions regarding this testimony, please call Joseph A. Christoff at  (202) 512-8979 or christoffj@gao.gov. Other key contributors to this  statement were Nanette Barton, Daniel C. Cain, Lynn Cothern, Mattias  Fenton, Elisabeth Helmer, B. Patrick Hickey, Bruce Kutnick, Stephen M.  Lord, Judy McCloskey, Tetsuo Miyabara, Mary Moutsos, and Timothy  Wedding.
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